-----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, HA4PQs+bmG+4jRi8rTPkuCiyODXlnSLyR/y/6LSYAYfwLaRr9fVCWrNIr5kfL0xb hCToC8lBRHJiNvV1BfT1xA== 0001116679-05-002151.txt : 20050817 0001116679-05-002151.hdr.sgml : 20050817 20050817173024 ACCESSION NUMBER: 0001116679-05-002151 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050817 DATE AS OF CHANGE: 20050817 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: 1934 Act SEC FILE NUMBER: 000-19724 FILM NUMBER: 051034192 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 form10q-qsb.txt JUNE 30, 2005 ================================================================================ 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, 2005 [ ] 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 August 10, 2005, 67,262,070 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 Balance Sheets - June 30, 2005 and December 31, 2004 ......................................................3 Statements of Operations - For the three months and six months ended June 30, 2005 and 2004 and the period July 6, 1988 (inception) to June 30, 2005...................................4 Statements of Cash Flows - For the six months ended June 30, 2005 and 2004 and the period July 6, 1988 (inception) to June 30, 2005...................................5 Notes to Financial Statements.......................................................................7 Item 2. Management's Discussion and Analysis or Plan of Operation .........................................10 Item 3. Controls and Procedures............................................................................14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...............................................15 Item 6. Exhibits and Reports on Form 8-K..................................................................15 Signatures........................................................................................17
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Balance Sheets (unaudited)
June 30, December 31, 2005 2004 -------------------------------------- Assets Current assets: Cash and cash equivalents $ 4,667,005 $ 82,222 Contract receivable 100,225 - Rent receivable, current portion 88,477 60,000 Prepaid expenses 51,237 12,770 -------------------------------------- Total current assets 4,906,944 154,992 Deposits 30,479 29,679 Rent receivable, net of current portion and reserve 56,050 104,527 Equipment and leasehold improvements, net 189,649 84,580 -------------------------------------- $ 5,183,122 $ 373,778 ====================================== Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable $ 342,242 $ 315,357 Deposits payable - 33,000 Notes payable, related party - 1,032,842 Accrued expenses 172,407 201,910 Deferred revenue - 102,784 -------------------------------------- Total current liabilities 514,649 1,685,893 Stockholders' equity (deficit): Convertible Preferred Stock, $.01 par value, 5,000,000 shares authorized, 66,245 and 82,945 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively - liquidation preference of $6,624,500 and $8,294,500 at June 30, 2005 and December 31, 2004, respectively 6,079,917 7,749,917 Common stock, $.01 par value, 120,000,000 shares authorized, 67,262,070 and 39,651,123 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively 672,632 396,523 Additional paid-in capital 54,074,117 43,278,106 Deficit accumulated during development stage (56,158,193) (52,736,661) -------------------------------------- Total stockholders' equity (deficit) 4,668,473 (1,312,115) -------------------------------------- $ 5,183,122 $ 373,778 ====================================== See accompanying notes.
3 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Statements of Operations (unaudited)
For the period July 6, 1988 (inception) to Three months ended Six months ended June 30, June 30, June 30, 2005 2004 2005 2004 2005 ------------------------------------------------------------------------------------------------ Revenues: Contract revenue $ 145,225 $ 199,366 $ 657,996 $ 388,416 $ 11,967,035 Product and other income 430 - 1,101 6 695,885 --------------------------------------- -------------------------------------------------------- Total revenues 145,655 199,366 659,097 388,422 12,662,920 Expenses: Research and development 692,408 587,806 1,248,376 1,226,553 38,277,944 Selling, general and administrative 1,886,704 400,094 2,279,997 802,849 23,975,157 --------------------------------------- -------------------------------------------------------- Total expenses 2,579,112 987,900 3,528,373 2,029,402 62,253,101 --------------------------------------- -------------------------------------------------------- Net loss from operations (2,433,457) (788,534) (2,869,276) (1,640,980) (49,590,181) Other income (expense): Interest income 16,122 866 16,201 2,824 1,287,024 Interest expense (249) (899) (86,874) (1,798) (353,410) --------------------------------------- -------------------------------------------------------- Total other income (expense) 15,873 (33) (70,673) 1,026 933,614 Net loss (2,417,584) (788,567) (2,939,949) (1,639,954) (48,656,567) Undeclared, imputed and/or paid dividends on preferred stock 69,220 69,220 619,261 137,678 10,318,769 --------------------------------------- -------------------------------------------------------- Net loss applicable to common shareholders $ (2,486,804) $ (857,787) $ (3,559,210) $ (1,777,632) $(58,975,336) ================================================================================================ Basic and diluted net loss per common share $ (0.04) $ (0.02) $ (0.07) $ (0.05) ============================================================================== Shares used in computing basic and diluted net loss per common share 59,687,009 38,091,587 50,044,186 37,702,398 ==============================================================================
See accompanying notes. 4 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Statements of Cash Flows (unaudited)
For the period July 6, 1988 (inception) Six months ended to June 30, June 30, 2005 2004 2005 -------------------------------------------------------------- Operating activities Net loss $ (2,939,949) $ (1,639,954) $(48,656,567) Adjustments to reconcile net loss to net cash used for operating activities: Stock issued for compensation and interest - - 472,676 Warrants issued for services 1,245,295 - 1,245,295 Depreciation and amortization 16,173 16,039 2,462,483 Amortization of discounts on notes payable 56,493 - 171,835 Write-off of purchased technology - - 503,500 Changes in operating assets and liabilities: Deposits (800) (800) (30,479) Prepaid expenses (38,467) (4,575) (51,237) Rent receivable 20,000 - (144,527) Contracts receivable (100,225) 252,026 (100,225) Accounts payable 26,885 67,274 342,242 Deposits payable (33,000) - - Accrued expenses 24,351 14,292 226,261 Deferred revenue (102,784) 92,406 - Deferred rent - (12,056) - -------------------------------------------------------------- Net cash used for operating activities (1,826,028) (1,215,348) (43,558,743) Investing activities Purchase of technology - - (570,000) Purchase of equipment and improvements (121,242) (1,518) (2,210,104) Purchases of short-term investments - - (16,161,667) Sales of short-term investments - - 16,161,667 ------------------------------------------------------------ Net cash used for investing activities $ (121,242) $ (1,518) $ (2,780,104)
See accompanying notes. 5 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Statements of Cash Flows (unaudited)
For the period July 6, 1988 (inception) Six months ended to June 30, June 30, 2005 2004 2005 ------------------------------------------------------------- Financing activities Net proceeds from exercise of options and warrants, and sale of common stock $ 6,422,053 $ 200,162 $ 30,426,524 Net proceeds from issuance and conversion of preferred stock - - 18,398,068 Net proceeds from convertible notes and detachable warrants - - 1,068,457 Payment on capital lease obligations - - (288,770) Proceeds from note payable - - 484,323 Payment on note payable - - (242,750) Proceeds from issuance of debt - related party 260,000 - 1,310,000 Payments on notes payable - related party (150,000) - (150,000) ------------------------------------------------------------- Net cash provided by financing activities 6,532,053 200,162 51,005,852 ------------------------------------------------------------- Net increase in cash and cash equivalents 4,584,783 (1,016,704) 4,667,005 Cash and cash equivalents at beginning of period 82,222 1,085,314 - ------------------------------------------------------------- Cash and cash equivalents at end of period $ 4,667,005 $ 68,610 $ 4,667,005 ============================================================= Supplemental disclosures of cash flow information Interest paid $ 86,874 $ 899 $ 238,068 Non Cash Investing and Financing Activity Equipment purchased by capital leases - - 288,772 Imputed dividend on Series E stock - - 3,266,250 Imputed dividend on Series I stock - - 1,928,237 Imputed dividend on warrant repricing 481,522 - 1,624,943 Conversion of Series D preferred stock to common stock - - 2,142,332 Conversion of Series E preferred stock to common stock - - 5,277,813 Conversion of Series G preferred stock to common stock 20,000 - 870,000 Conversion of Series I preferred stock to common stock 1,650,000 - 1,855,000 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 Conversion of notes payable and accrued interest to common stock and warrants 1,213,855 - 1,213,855 Warrants issued for financing fees 608,371 - 608,371 See accompanying notes.
PROTEIN POLYMER TECHNOLOGIES, INC. 6 (A Development Stage Company) Notes to Condensed Financial Statements (unaudited) Note 1. Basis of Presentation The condensed financial statements of Protein Polymer Technologies, Inc. (the "Company") for the three months and the six months ended June 30, 2005 and 2004 and for the period July 6, 1988 (inception) to June 30, 2005 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, results of operations and cash flows for the interim periods presented. The balance sheet as of December 31, 2004 was derived from the Company's audited financial statements. The results of operations for the three months and the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005. These financial statements and the notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-KSB and 10KSB/A for the year ended December 31, 2004, filed with the Securities and Exchange Commission. Note 2. Accounting for Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Had compensation cost for the Company's stock option awards been determined based upon the fair value at the grant date and recognized on a straight-line basis over the related vesting period, in accordance with the provisions of SFAS No. 123, the Company's net loss and earnings per share would have been reduced to the proforma amounts indicated below:
For the three months For the six months Ended June 30, Ended June 30, 2005 2004 2005 2004 ---- ---- ---- ---- Net loss applicable to common shareholders, as reported $(2,486,804) $ (857,787) $(3,559,210) $(1,777,632) Deduct: total stock-based employee compensation expense determined under fair value based methods for all options, net of related tax effects (149,112) (450,483) (272,764) (1,746,592) ------------------------------------------------------------------------ Pro forma net loss $(2,635,916) $(1,308,270) $(3,831,974) $(3,524,224) ======================================================================== Earnings per share: Basic - as reported (0.04) (0.02) (0.07) (0.05) Basic - pro forma (0.04) (0.03) (0.08) (0.09)
Note 3. Revenue and Expense Recognition Research and development contract revenues are recorded as earned in accordance with the terms and performance requirements of the contracts. If the research and development activities are not successful, we are not obligated to refund payments previously received. Fees from the sale or license of technology are recognized on a straight-line basis over the term required to complete the transfer of technology or the substantial satisfaction of any performance related responsibilities. License fee payments received in advance of amounts earned are recorded as deferred revenue. Milestone payments are recorded as revenue based upon the completion of certain contract specified events that measure progress toward completion under certain long-term contracts. Royalty revenue related to licensed technology is recorded when earned and in accordance with the terms of the license agreement. Research and development costs are expensed as incurred. 7 Note 4. Rent Receivable The Company subleases 6,183 square feet of its office and research facilities to a third party under a month to month arrangement for $13,000 per month plus utilities. From December 2002 through July 2004, the sublessee did not make monthly rental payments. In August 2004 the sublessee resumed making rental payments and beginning in September 2004, paid an additional $5,000 per month for credit against past due rental obligations. The sublessee did not make any payments between May 1, 2005 and July 31, 2005. Obligations under the sublease are secured by certain listed property and equipment of the sublessee. As of June 30, 2005 the current portion of rent receivable was $88,477 and the long-term portion was $56,050, net of reserve of $128,273. Note 5. Equipment and Leasehold Improvements Equipment and leasehold improvements at June 30, 2005 and December 31, 2004 are comprised of the following:
June 30, December 31, 2005 2004 ------------------------------------- Laboratory equipment $ 1,276,000 $ 1,184,000 Office equipment 206,000 200,000 Leasehold improvements 329,000 306,000 ------------------------------------- 1,811,000 1,690,000 Less accumulated depreciation and amortization (1,621,000) (1,605,000) ------------------------------------- $ 190,000 $ 85,000 =====================================
Depreciation expense was $16,000 for the quarter ended June 30, 2005 and $31,000 for the year ended December 31, 2004. Note 6. Exercise and Exchange of Warrants In January 2005, certain holders of warrants issued in conjunction with the sale of the Company's Series G convertible preferred stock exercised their warrants to purchase 855,303 shares of the Company's Common Stock. These warrants were due to expire on January 31, 2005. The exercise prices of such warrants was $0.55 per share. In order to induce the warrantholders to exercise their warrants prior to the expiration date, the Company offered to reduce the exercise price of the warrants from $0.55 to $0.33 per share and offered each warrantholder a new warrant, for the same number of shares of the Company's Common Stock, at an exercise price of $0.50 per share. As a result, the Company raised $282,000. The newly issued warrants will expire January 31, 2006. In connection with the repricing and issuance of additional warrants to the investors, the Company recorded an imputed dividend of $482,000 to reflect the additional benefit created for such investors. Note 7. Notes Payable, Related Party On March 31, 2005, notes payable from certain shareholders of $150,000, plus accrued interest of $11,000, were paid in full. In April 2005, notes payable from certain shareholders entered into during 2004 and 2005, with an aggregate principal balance of $1,160,000, plus accrued interest of $54,000, were converted into common stock and warrants in the equity transaction completed on April 1, 2005. Note 8. Common Stock and Warrants On April 1, 2005, the Company completed the initial closing for the private placement of shares of the Company's Common Stock at a price of $0.33 per share pursuant to a Securities Purchase Agreement with a group of individual and institutional investors. At the initial closing, the Company sold an aggregate of 12,728,269 shares of its Common Stock to the initial investors for an aggregate purchase price of $4,200,331, including approximately $1,200,000 of short-term promissory bridge notes and accumulated interest thereon previously issued by the Company to certain of the initial investors which was converted into the Company's Common Stock. As part of the transaction, the Company also issued warrants to the initial investors which entitle the warrantholders to purchase an aggregate of 6,364,132 shares of the Company's Common Stock at an exercise price of $0.50 per share. The warrants expire on April 1, 2009. On or about April 15, 2005, the Company, in a subsequent closing pursuant to the Securities Purchase Agreement, sold an aggregate of 10,827,955 shares of the Company's Common Stock to additional investors for an aggregate purchase price of $3,573,225. As part of the transaction, the Company also issued warrants to the investors, which entitle the warrantholders 8 to purchase an aggregate of 5,413,976 shares of the Company's Common Stock at an exercise price of $0.50 per share. The warrants expire on April 15, 2009. In connection with this private placement, the Company issued a total of 23,556,224 shares of common stock at price of $0.33 per share, for aggregate total proceeds of $7,773,556 (including approximately $1,200,000 of converted short-term promissory bridge notes, and the accrued interest thereon, previously issued by the Company to certain of the Initial Investors), together with warrants exercisable for the purchase of an aggregate of approximately 11,778,108 shares of the Company's Common Stock at an exercise price of $0.50 per share. In connection with the Securities Purchase Agreement, the Company agreed to file a registration statement registering these securities with the Securities and Exchange Commission, and on June 6, 2005 registration of the securities became effective. The Company incurred aggregate selling fees of approximately $1,108,000, of which $500,000 was paid in cash and $608,000 was paid by issuing warrants to purchase 751,088 shares of the Company's Common Stock at an exercise price of $0.55 per share exercisable at any time and expiring approximately 5 years from the date of issuance. The fair value of the warrants was estimated by management using the Black-Scholes option-pricing model. On April 22, 2005 the Company agreed to issue a warrant to purchase an aggregate of 2,000,000 shares of the Company's Common Stock to William N. Plamondon, III, a director of the Company who earlier in that month was appointed to serve as the Company's Chief Executive Officer. The Warrant is immediately exercisable at an exercise price of $0.67 per share (closing market price of date of grant), and expires three years from the date of grant. In connection with the issuance of the warrant, the Company recorded a non-cash expense of $1,245,295 during the quarter ended June 30, 2005 based on a Black-Scholes model valuation, and a corresponding increase to additional paid in capital. Note 9. Subsequent Events On July 12, 2005, the Company entered into a non-binding letter of intent to acquire Surgica Corporation, a medical device company that develops, manufacturers and markets embolization products. Embolization is a minimally invasive procedure performed by interventional radiologists, used to treat uterine fibroids, liver cancer and neurovascular conditions. Under the terms of the arrangement, the Company would acquire Surgica's assets with a combination of the Company's Common Stock and cash. Assets which the Company would acquire under the proposed transaction include one issued patent, product lines and an FDA-approved manufacturing facility. Surgica currently has three FDA-approved Polyvinyl Alcohol (PVA) product lines - PVA Plus(TM), MicroStat(TM) and MaxiStat(TM), with one additional product under development. Surgica's PVA foam embolization products are manufactured with a uniform and controlled-size pore structure, in both spherical and standard particle forms, allowing for even hydration and fluid suspension properties. These properties are expected to provide for more consistent performance, more precise delivery and less potential for catheter occlusion, improving procedure efficiency and safety. Embolization products are used to treat a variety of medical conditions by blocking blood flow to tissues, damaged blood vessels, vascular malformations and tumors including fibroids. Upon completion of the acquisition, Surgica would become a division of the Company. Louis R. Matson, Founder and Chief Executive Officer of Surgica, would assume the role of division President, reporting to William N. Plamondon, III, the Company's Chief Executive Officer. Closing of the asset purchase agreement is subject to the negotiation and preparation, definitive documentation, receipt of Board and stockholder approvals and other customary conditions. Although there can be no assurance that the transaction will be completed, the Company anticipates closing the transaction late in the third quarter or early in the fourth quarter of 2005. 9 Item 2. Management's Discussion and Analysis or Plan of Operation 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. We undertake 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 Protein Polymer Technologies, Inc., is a development-stage biotechnology company engaged in the research, development, production and clinical testing of medical products based on materials created from our patented technology to produce proteins of unique design. Since 1992, we have focused primarily on developing technology and products to be used for soft tissue augmentation, tissue adhesives and sealants, wound healing support, and drug delivery devices. We have been unprofitable to date, and as of June 30, 2005 had an accumulated deficit of $55,000,000. Protein polymers are synthetic proteins created "from scratch" through chemical DNA (gene) synthesis, and are produced in quantity by traditional large-scale microbial fermentation methods. As a result, protein polymers contain no human or animal components that could potentially transmit or cause disease. Due to their synthetic design, protein polymers are capable of combining the biological functionality of natural proteins with the chemical functionality and exceptional physical properties of synthetic polymers. Our primary goal is to develop medical products for use inside the body with significantly improved outcomes as compared to current products and practices. Our product candidates for surgical repair, augmentation and regeneration of human tissues are in various stages of research and development. The more advanced programs are (i) 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, (ii) tissue adhesive formulations for the repair of spinal discs damaged due to injury or aging, and (iii) preclinical development of a new surgical sealant designed to prevent air and fluid leaks following lung, gastrointestinal, and cardiovascular surgery. We are currently devoting the majority of our resources to the development and FDA approval of these products. Because of the breadth of commercial applications of our technology and the risks associated in any one program, we are pursuing multiple routes for commercial development. Currently, we are independently developing the incontinence and the dermal augmentation products, which share similar technology and product characteristics. We have entered into a comprehensive license and development agreement with Genencor International for their use of our materials and technology to develop, manufacture and commercialize products for industrial markets. Genencor International is one of the world's largest manufacturers of industrial enzymes and other biologically derived products. Through this arrangement, we will receive payments, upon the accomplishment of specified milestones and royalties on the sale of products, if any. To accelerate the development and commercialization of our spinal disc repair product, we entered into agreements with Spine Wave, Inc., which we expect will provide us with both near term research and development support and royalties on the sale of licensed products, if any. Significant Collaborative Agreements Our collaborative development agreements generally provide for specific payments for defined activities, services, royalties on the sales of developed products, and/or payments upon the accomplishment of specified performance benchmarks. Certain of these agreements also provide for equity investments or other financial incentives. We usually enter into 10 technology license agreements in connection with collaborative development agreements, but occasionally we will agree to license certain of our technologies without an accompanying development agreement. Spine Wave - ---------- In April 2001, we entered into agreements with Spine Wave, Inc., to develop and commercialize an injectable protein-based formulation for the repair of spinal discs damaged either by injury or aging. As consideration for entering into an exclusive, worldwide license agreement with Spine Wave, we received one million shares of the founding common stock in Spine Wave, initially valued at $10,000. These shares were subject to a vesting schedule; however, Spine Wave's right to repurchase unvested shares terminated in 2002 upon their merger with VERTx, Inc. Royalties from the sale or sublicensing of licensed products will be calculated as a percentage of the gross margin (sales revenue less the cost of goods) realized by Spine Wave from the sale of products. In connection with the license agreement, we entered into a separate supply and services agreement to provide Spine Wave with a variety of research and development services, and to supply materials to Spine Wave for pre-clinical and clinical testing. Spine Wave, in return, agreed to reimburse us for both our direct costs and the associated overhead costs for the services provided. During 2001, we recognized contract revenues of $450,000 related to activities performed under the collaborative agreement. In March 2002, we executed additional agreements with Spine Wave that expanding our contractual research and development relationship, and providing us with additional equity incentives in the form of Spine Wave common stock and warrants to purchase Spine Wave common stock. Under the amended supply and services agreement, the Company, on behalf of Spine Wave, is proceeding with pre-clinical safety and performance studies of a product for spinal disc repair to support Spine Wave's filing of an investigational device exemption with the FDA to obtain approval to initiate human clinical testing. During the subsequent period leading to regulatory marketing approval, our contractual responsibilities include the supply of product to be used in clinical testing. Research and development services performed for Spine Wave ,including both direct costs and associated overhead costs, are reimbursed. Spine Wave is responsible for clinical testing, regulatory approvals and commercialization. For the quarter ended June 30, 2005 and for the period from project inception to date we received $263,000 and $5,177,000, respectively, in contract revenue from Spine Wave, which represents the reimbursement of direct costs plus overhead costs allocated to the research and development resources used in performing the collaborative activities. Additional equity incentives offered in conjunction with the expanded supply and services agreement of March 2002 consist of a four year warrant to purchase (a) 1,000,000 shares of Spine Wave common stock at an exercise price of $0.50 per share (recently issued Spine Wave preferred stock was priced at $0.55 per share), and (b) 400,000 shares of common stock valued at $0.05 per share subject to repurchase at cost until each of three performance goals is achieved. The performance goals consist of: (i) completion of certain studies for filing an investigational device exemption application (100,000 shares); (ii) completion of additional studies for filing of the investigational device exemption and provision of inventory for the pilot clinical study (150,000 shares); and (iii) completion of certain manufacturing arrangements, and production of certain quantities of product (150,000 shares). As of June 30, 2005, two of the three performance goals had been met. In October 2003, we executed a second amendment to the supply and services agreement with Spine Wave that further defined the cost basis for reimbursement of services provided by us to Spine Wave. Significant License Agreements Our license agreements usually include provision for up-front compensation and eventual royalties on the sale of licensed products. Terms of license agreements typically commence as of the date executed and continue for a period of the greater of twenty (20) years from execution date or the date upon which the last of the patented technology under license expires. Femcare, Ltd. - ------------- In January 2000, we entered into an agreement with Femcare, Ltd. ("Femcare"), for the commercialization in Europe and Australia of our product for treatment of stress urinary incontinence. Under the terms of the license agreement, Femcare paid the Company a $1 million non-refundable license fee in exchange for the patented technology and a three year commitment from the Company to provide support to Femcare in its efforts to clinically test our products in Great Britain and to achieve European regulatory approval. We have not incurred any research and development costs associated with our support efforts to date. As a result of the arrangement, we recognized approximately $333,000 in deferred license fee revenue for each of 2000, 2001, and 2002. In 2004, Femcare notified us that it was going to close its urology business, and in July, 2005, we mutually agreed to terminate the license agreement and discharged each other from any claims, obligations, liabilities, or other causes of action. 11 Genencor International, Inc. - ---------------------------- In December 2000, we signed a broad-based, worldwide exclusive license agreement with Genencor International, Inc. ("Genencor") enabling Genencor to potentially develop a wide variety of new products for industrial markets. In October 2002, we amended the license agreement to provide Genencor with an additional one-year option to initiate development of products in the field of non-medical personal care. In March 2005, we amended the licence to fully incorporate the field of personal care products into the license. As a result of the amendments, Genencor may use our patented protein polymer design and production technology, in combination with Genencor's extensive gene expression, protein design, and large-scale manufacturing technology, to design and develop new products with improved performance properties for defined industrial fields and the field of non-medical personal care products. In exchange for the licensed rights, Genencor paid us an up-front license fee of $750,000, and will pay royalties on the sale of any products commercialized by Genencor under the agreement. The licensed technology was transferred to Genencor upon execution of the license agreement without any further product development obligation on our part. Future royalties on the net sales of products developed by Genencor incorporating the technology under license will be calculated based on a royalty rate to be determined at a later date. In addition, the Company is entitled to receive up to $5 million in milestone payments upon Genencor's achievement of various specified industrial product development milestones incorporating the licensed technology. There is no limitation on the amount of milestone payments we can receive from Genencor for Genencor's product development in the field of non-medical personal care products. In March 2005 we received a second license milestone payment of $250,000 from Genencor for Genencor's initiation of a product development project based on technology licensed from us. In connection with the license agreement, the Company issued Genencor two warrants, each convertible by formula into $500,000 worth of our Common Stock. The first warrant has subsequently expired. The second warrant could be converted into 1,250,000 shares of our Common Stock at an exercise price of $0.40 per share. As a result of the collaboration, in 2000, we recognized $750,000 in license fee revenue (less the issuance of warrants to purchase $1 million of our common stock valued at $319,000). The license agreement terminates on the date of expiration of the last remaining patent. Research and Development We currently maintain detailed project costs (direct costs plus allocated overhead) for contractual research and development services. However, we do not maintain cost breakdowns for our independent internal research and development projects due to the extensive degree of overlap between our tissue augmentation and sealant projects, such as common manufacturing, quality control and developmental product testing. Our product for the treatment of female stress urinary incontinence is in pilot human clinical testing. Due to the rate of patient enrollment, we now project beginning pivotal clinical testing in 2006. We expect that these trials, including patient follow-up, will take approximately 24 months and that the subsequent Food and Drug Administration review of our pre-market approval submission may take an additional 12 months. Presuming that this schedule is met and the product is approved, U.S. sales of the product are projected to begin by the end of 2008. Commercial manufacturing, process development and completion of the clinical trials are estimated to cost approximately $10 million. Our tissue augmentation product for use in cosmetic and reconstructive surgery applications is in pilot human clinical testing. We recently obtained FDA approval to expand the pilot clinical study to obtain additional data in support of our application to begin a pivotal clinical study. We now project beginning pivotal clinical testing in early 2006. We expect that these trials, including patient follow-up, will take approximately 15 months, and that the subsequent Food and Drug Administration review of our pre-market approval submission may take up to an additional 12 months. Presuming that this schedule is met and the product is approved, U.S. sales are projected to begin in late 2007. Our estimate for the pivotal clinical trial has been updated and is now projected to cost approximately $3.2 million. Our tissue augmentation product is based on the same manufacturing technology as our product for the treatment of female stress urinary incontinence, and thus, the incremental cost of manufacturing development is estimated to be approximately $0.1 million. Our product for sealing tissue following pulmonary, abdominal and cardiovascular surgery is in preclinical development. We project that we will file an Investigational Device Exemption with the FDA requesting permission to begin human clinical trials in the second quarter of 2006. We currently do not have sufficient cash to complete the development of all these products. We expect to obtain the necessary cash either by additional equity financings, by sharing the cost of development with potential marketing partners or by a combination of both methods. If we are unable to obtain the necessary cash, it will have a material adverse effect on us. 12 Our spinal disc repair product being developed for our licensee, Spine Wave, Inc., is in pre-clinical testing. Spine Wave controls the timing of this project. Under our contract with Spine Wave, we are responsible for development of the formulated product, its pilot manufacturing process and product production for both clinical trials. Spine Wave is responsible for funding all expenses associated with these activities. Contract revenue received from Spine Wave is approximately equal to our cost (direct project costs plus allocated laboratory and corporate overhead expenses) of the work performed. Total research and development costs for the quarter ended June 30, 2005 and for the period from project inception to such date are approximately $145,000 and $5,000,000 respectively. To the extent sufficient capital resources are available, we continue to research the use of our patented technology to produce proteins of unique design for other tissue repair and medical device applications, principally for use in supporting the wound healing process, including devices based on tissue engineering, and in drug delivery devices. Our strategy for most of our programs is to enter into collaborative development agreements with 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 payments and milestone payments, we expect to continue to incur operating losses for the next several years. Results of Operations We recognized $145,000 in contract and licensing revenue for the three months ended June 30, 2005 as compared to $199,000 for the three months ended June 30, 2004. For the six-month period ended June 30, 2005, we recognized $658,000 in contract and licensing income compared to $388,000 for the same period in 2004. The contract revenue for the three and six months ended June 30, 2005 was for research and development services for Spine Wave associated with the development of an injectable spinal disc nucleus product for the treatment of lower back pain. The increase in contract and licensing revenue in 2005 is due primarily to a $250,000 benchmark payment from Genencor International. During the six month period ended June 30, 2005, our work for Spine Wave has focused on production of the injectable spinal disc nucleus product Spine Wave's clinical trials in Europe and in anticipation of approval of an Investigational Device exemption from the Food and Drug Administration requesting permission to initiate human clinical trials in the United States. Interest income was $16,000 and $16,000 respectively for the three months and six months ended June 30, 2005 versus $1,000 and $3,000 respectively for the same periods in 2004. Research and development expenses for the three and six-month periods ended June 30, 2005 were $692,000 and $1,248,000 respectively, compared to $588,000 and $1,227,000 for the same periods in 2004. We expect, in general, that our research and development, human clinical testing and manufacturing expenses will increase over time if our incontinence and dermal products, and our other products in development, successfully progress and additional capital is obtained. Selling, general and administrative expenses for the three and six month periods ended June 30, 2005 were $1,887,000 and $2,280,000 respectively as compared to $400,000 and $803,000, respectively, for the same periods in 2004. This increase is due primarily to the inclusion of a non-cash expense in the second quarter of 2005 in the amount of $1,245,000 related to the issuance of warrants for services to William N. Plamondon III, the Company's recently appointed Chief Executive Officer (See Note 8 to the Condensed Financial Statements), and to increased personnel costs in 2005 and legal, accounting, and investor relation costs incurred in connection with the private placements closed in 2005. We expect that our selling, general and administrative expenses will remain largely unchanged in the near term, but may increase in the future as support for our research and development and manufacturing efforts require additional resources. For the quarter ended June 30, 2005, we recorded a net loss applicable to common shareholders of $2,487,000 or $0.04 per share, as compared to a net loss of $858,000, or $0.02 per share for the same period in 2004. For the six months ended June 30, 2005, we recorded a net loss applicable to common shareholders of $3,559,000 or $0.07 per share, as compared to a net loss of $1,778,000, or $0.05 per share for the same period in 2004. In addition to the $1,245,000 charge to earnings associated with the issuance of the warrants for services to William N. Plamondon III, the net loss and the net loss per share also included in each of the three-month and the six-month periods of 2005 and 2004 $69,000 and $619,000, respectively, for undeclared dividends and/or imputed related to our preferred stock. In general, there can be significant fluctuation in revenue from quarter to quarter due to variability in outside contract and licensing payments. In general, we expect to incur increasing operating losses in the future (to the extent additional capital is obtained), due primarily to increases in our soft tissue augmentation program's development, manufacturing and business development activities, and the continuation of our tissue adhesive and sealant product development activities. Our financial results depend on our ability to establish strategic alliances and generate contract revenues, increased research, development and manufacturing efforts, pre-clinical and clinical product testing and commercialization expenditures, expenses incurred for regulatory compliance and patent prosecution, and other factors. To date we believe that inflation and changing prices have had only a modest effect on our continuing operations. However, increases in utility costs, insurance and employee benefits may have a greater impact on our profitability in the future. 13 Liquidity and Capital Resources As of June 30, 2005, we had cash, cash equivalents and short-term investments totaling $4,667,000 as compared to $82,000 at December 31, 2004. As of June 30, 2005, we had a working capital of $4,392,000, compared to a negative working capital of $1,531,000 at December 31, 2004. As of June 30, 2005, we did not have any off balance sheet financing activities and did not have any special purpose entities. We had no long-term capital lease obligations as of June 30, 2005 or December 31, 2004. For the six month period ended June 30, 2005, our cash expenditures for capital equipment and leasehold improvements totaled $121,000, compared with $1,518 for the same period in the prior year. To the extent capital is available, we anticipate that these expenditures will be increased in 2005 for laboratory renovations and additional equipment required to meet the FDA's applicable Quality System regulation as we scale up our manufacturing operations to meet product requirements for expanded clinical testing. We may enter into capital equipment lease arrangements in the future if available at desirable rates and terms. We believe our existing available cash, cash commitments, cash equivalents and short-term investments as of August 1, 2005, in combination with continuing contractual commitments will be sufficient to meet our anticipated capital requirements through the first quarter of 2006. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. We are pursuing a number of alternatives available to meet the continuing capital requirements of our operations, such as collaborative agreements and public and private financings. Further, we are continuing our reimbursed services to Spine Wave. We are currently engaged in discussions with potential financing sources and collaborative partners regarding funding in the form of license fees, milestone payments and research and development payments. There can be no assurance that any of these fundings will be consummated in the timeframes necessary to allow us to continue operations or favorable terms. If adequate funds are not available, we will be required to significantly curtail our operating plans and would likely have to sell or license out significant portions of our technology, and possibly cease operations. Item 3. Controls and Procedures (a) Disclosure Controls and Procedures. Based on their evaluation, as of the end of the period covered by this quarterly report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) are effective based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act. (b) Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders was held on May 19, 2005. Proposals I and II were approved. The results are as follows: Proposal I The following directors were elected at the meeting to serve a one-year term as directors:
Broker For Against Abstained Non-Vote ------------ ------------- ------------ ------------ J. Thomas Parmeter, Ph.D. 31,300,300 47,350 0 0 William N. Plamondon, III 31,325,050 22,600 0 0 Donald S. Kaplan, Ph.D. 31,323,050 24,600 0 0 Edward G. Cape, Ph.D. 31,324,650 23,000 0 0 Kerry L. Kuhn, M.D. 31,325,050 22,600 0 0 Steven M. Lamon 31,324,050 23,600 0 0 James B. McCarthy 31,325,050 22,600 0 0 Steve Peltzman 31,325,050 22,600 0 0 Proposal II Ratification of appointment of Peterson & Co. as the Company's independent auditors for fiscal year 2005: Broker For Against Abstained Non-Vote --------------------------------------------------------------------------------------------------- 31,343,800 3,000 850 0
Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10.1 Form of Warrant to Purchase Shares of Common Stock of Protein Polymer Technologies, Inc., issued to William N. Plamondon, III. 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a- 14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Director of Finance (Principal Financial Officer) pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Director of Finance (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b. Reports on Form 8-K On April 1, 2005, the Company filed a Current Report on Form 8-K announcing the initial closing of a sale of common stock and warrants to a combination of accredited and institutional investors. On April 7, 2005, the Company filed a Current Report on Form 8-K disclosing the purchase and warrant agreements associated with the previously announced sale of common stock and warrants. On April 13, 2005, the Company filed a Current Report on Form 8-K announcing the election of William N. Plamondon, III as the Company's Chief Executive Officer. 15 On April 21, 2005, the Company filed a Current Report on Form 8-K announcing a second closing of the sale of common stock and warrants, and the combined results of the transactions. On April 28, 2005, the Company filed a Current Report on Form 8-K announcing the election of James B. McCarthy to the Company's Board of Directors, and Board approval of the issuance to William N. Plamondon, III of a warrant to purchase 2 million shares of the Company's common stock. On July 20, 2005, the Company filed a Current Report on Form 8-K announcing that on July 12, 2005, Protein Polymer Technologies, Inc. entered into a non-binding, letter of intent with Surgica Corporation to acquire Surgica's assets through a combination of the Company's common stock and cash. 16 SIGNATURES 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 15, 2005 By /s/ William N. Plamondon, III ------------------------------ William N. Plamondon, III Chief Executive Officer Date: August 15, 2005 By /s/ Janis Y. Neves ------------------- Janis Y. Neves Director of Finance, Controller and Corporate Secretary 17 EXHIBIT INDEX Exhibit Number Description 10.1 Form of Warrant to Purchase Shares of Common Stock of Protein Polymer Technologies, Inc., issued to William N. Plamondon, III. 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a- 14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Director of Finance (Principal Financial Officer) pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Director of Finance (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-10 2 ex10-1.txt EX. 10.1 Exhibit 10.1 FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK OF PROTEIN POLYMER TECHNOLOGIES, INC. THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THESE WARRANTS NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THAT ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. No. [______] Warrant to Purchase 2,000,000 Shares [_______] of Common Stock, $.01 Par Value WARRANT TO PURCHASE COMMON STOCK of PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation Expires: [________] This certifies that, for value received, William N. Plamondon III or registered assigns ("Holder") is entitled, subject to the terms set forth below, to purchase from Protein Polymer Technologies, Inc., a Delaware corporation (the "Company"), 2,000,000 shares of Common Stock, $.01 par value, of the Company (such class of stock being referred to herein as "Common Stock"), as constituted on [________] (the "Issue Date"), upon surrender of this Warrant, at the principal office of the Company referred to below, with the subscription form attached hereto duly executed, and simultaneous payment therefor in the consideration specified in Section 1 hereof, at the price of $0.67 per share (the "Purchase Price"). This Warrant must be exercised, if at all, on or prior to [___________]. The shares of Common Stock issued or issuable upon exercise of this Warrant are sometimes referred to as the "Warrant Shares." The term "Warrants" as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. 1. Exercise. This Warrant may be exercised at any time or from time to time, on any business day, for all or part of the full number of shares of Common Stock during the period of time called for hereby, by surrendering it at the principal office of the Company, 10655 Sorrento Valley Road, First Floor, San Diego, California 92121, with the subscription form duly executed, together with payment for the Warrant Shares payable in cash and/or by check for same day funds. No other form of consideration shall be acceptable for the exercise of this Warrant. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As soon as practicable on or after such date, and in any event within 10 days thereof, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares of Common Stock issuable upon such exercise. Upon any partial exercise, the Company will issue and deliver to Holder a new Warrant or Warrants with respect to the shares of Common Stock not so transferred. No fractional shares of Common Stock shall be issued upon exercise of a Warrant. In lieu of any fractional share to which Holder would be entitled upon exercise, the Company shall pay cash equal to the product of such fraction multiplied by the Common Stock Value. For purposes of this Warrant, "Common Stock Value" shall mean, as of any given date, (i) if the Common Stock is traded on a national securities exchange, or is designated as a National Market System security on NASDAQ, the average of the closing prices thereof as reported on such exchange or NASDAQ-NMS, as the case may be, during the 20 consecutive trading days preceding the trading day immediately prior to such date, or, if no sale occurred on any such trading day, then the mean between the closing bid and asked prices on such exchange or NASDAQ-NMS on such trading day, (ii) if the Common Stock is actively traded over-the-counter (other than NASDAQ-NMS), the arithmetic average (for 20 consecutive trading days) of the mean between the low bid and high asked prices as of the close of business during the 20 consecutive trading days preceding the trading day immediately prior to such date, as reported by the National Association of Securities Dealers Automated Quotation system or other source, (iii) if the Common Stock is not traded on an exchange, NASDAQ-NMS, or traded over-the-counter, the fair market value thereof, as determined in good faith by the Board of Directors of the Company. 2. Payment of Taxes. All shares of Common Stock issued upon the exercise of a Warrant shall be duly authorized, validly issued and outstanding, fully paid and non-assessable. Holder shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof and any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock in any name other than that of the registered Holder of the Warrant surrendered in connection with the purchase of such shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due. 3. Transfer and Exchange. Subject to the provisions of Section 8, this Warrant and all rights hereunder are transferable, in whole but not in part, only with the prior approval of the Company, which consent shall not be unreasonably withheld. If such a proposed transfer is so approved, this Warrant is transferable on the books of the Company maintained for such purpose at its principal office referred to above by Holder in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Notwithstanding the foregoing, the restrictions imposed upon the transferability of the Warrant do not apply to transfers made by the Holder, in whole or in part, to any subsidiary, parent, affiliate, general partner or limited partner of the Holder. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable and that when this Warrant shall have been so endorsed, the Holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes. 4. Certain Adjustments. 4.1 Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization of the Company (or any other corporation, the stock or other securities of which are at the time receivable on the exercise of this Warrant) after the Issue Date, or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation (other than the merger of a wholly owned subsidiary into the Company) or convey all or substantially all its assets to another corporation, then and in each such case Holder, upon the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto. 4.2 Adjustments for Dividends in Common Stock. If the Company at any time or from time to time after the Issue Date declares, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend payable in additional shares of Common Stock, then and in each such event the Purchase Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Purchase Price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend; provided, however, that if such record date is fixed and such dividend is not fully paid on the date fixed therefor, the Purchase Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Purchase Price shall be adjusted pursuant to this Section 4.2 as of the time of actual payment of such dividends. 4.3 Stock Split and Reverse Stock Split. If the Company at any time or from time to time after the Issue Date effects a subdivision of the outstanding Common Stock, the Purchase Price then in effect immediately before that subdivision shall be proportionately decreased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately increased. If the Company at any time or from time to time after the Issue Date combines the outstanding shares of Common Stock into a smaller number of shares, the Purchase Price then in effect immediately before that combination shall be proportionately increased and the number of shares of Common Stock theretofore receivable upon the exercise of this Warrant shall be proportionately decreased. Each adjustment under this Section 4.3 shall become effective at the close of business on the date the subdivision or combination becomes effective. 4.4 Accountants' Certificate as to Adjustment. In each case of an adjustment in the shares of Common Stock receivable on the exercise of the Warrants, the Company at its expense shall cause its chief financial officer to compute such adjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment and showing the facts upon which such adjustment is based. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant at the time outstanding at the holder's address as shown in the Company's books. 5. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of loss, theft or destruction) of indemnity satisfactory to it (in the exercise of reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 6. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrant, such number of its shares of Common Stock as shall from time to time be sufficient to effect exercise of the Warrant; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect such exercise, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, and may obtain agreements from a certain number of its holders of securities convertible into or exchangeable for shares of Common Stock not to convert or exchange their securities until the Company has taken such corporate action. 7. Notices of Record Date. In the event of (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation (other than a merger of a wholly owned subsidiary into the Company), or any transfer of all or substantially all of the assets of the Company to any other person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least thirty (30) days prior to the record date specified therein, a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (3) the date, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. 8. Investment Representation and Restriction on Transfer. 8.1 Securities Law Requirements. (a) By its acceptance of this Warrant, Holder hereby represents and warrants to the Company that this Warrant and the Warrant Shares will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that it has no present intention of selling, granting participations in or otherwise distributing the same. By acceptance of this Warrant, Holder further represents and warrants that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to any person, with respect to this Warrant or the Warrant Shares. (b) By its acceptance of this Warrant, Holder understands that this Warrant is not, and the Warrant Shares will not be, registered under the Securities Act of 1933, as amended (the "Act"), on the basis that the issuance of this Warrant and the Warrant Shares are exempt from registration under the Act pursuant to Section 4(2) thereof, and that the Company's reliance on such exemption is predicated on Holder's representations and warranties set forth herein. (c) By its acceptance of this Warrant, Holder understands that the Warrant and the Warrant Shares may not be sold, transferred, or otherwise disposed of without registration under the Act, or an exemption therefrom, and that in the absence of an effective registration statement covering the Warrant and the Warrant Shares or an available exemption from registration under the Act, the Warrant and the Warrant Shares must be held indefinitely. In particular, Holder is aware that the Warrant and the Warrant Shares may not be sold pursuant to Rule 144 promulgated under the Act unless all of the conditions of Rule 144 are satisfied. Among the conditions for use of Rule 144 are the availability of current information about the Company to the public, prescribed holding periods which will commence only upon Holder's payment for the securities being sold, manner of sale restrictions, volume limitations and certain other restrictions. By its acceptance of this Warrant, Holder represents and warrants that, in the absence of an effective registration statement covering the Warrant or the Warrant Shares, it will sell, transfer or otherwise dispose of the Warrant and the Warrant Shares only in a manner consistent with its representations and warranties set forth herein and then only in accordance with the provisions of Section 8.1(d). (d) By its acceptance of this Warrant, Holder agrees that in no event will it transfer or dispose of any of the Warrants or the Warrant Shares other than pursuant to an effective registration statement under the Act, unless and until (i) Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the disposition, and (ii) if reasonably requested by the Company, at the expense of the Holder or transferee, it shall have furnished to the Company an opinion of counsel, reasonably satisfactory to the Company, to the effect that (A) such transfer may be made without registration under the Act and (B) such transfer or disposition will not cause the termination or the non-applicability of any exemption to the registration and prospectus delivery requirements of the Act or to the qualification or registration requirements of the securities laws of any other jurisdiction on which the Company relied in issuing the Warrant or the Warrant Shares; provided, however, that such opinion need not be furnished for the transfer of the Warrant or Warrant Shares, in whole or in part, to any subsidiary, parent, affiliate, general partner or limited partner of the Holder. 8.2 Legends; Stop Transfer. (a) All certificates evidencing the Warrant Shares shall bear a legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933. These securities have been acquired for investment and not with a view to distribution and may not be offered for sale, sold, pledged or otherwise transferred in the absence of an effective registration statement for such securities under the Securities Act of 1933 or an opinion of counsel reasonably satisfactory in form and content to the issuer that such registration is not required under such Act. (b) The certificates evidencing the Warrant Shares shall also bear any legend required by any applicable state securities law. (c) In addition, the Company shall make, or cause its transfer agent to make, a notation regarding the transfer restrictions of the Warrant and the Warrant Shares in its stock books, and the Warrant and the Warrant Shares shall be transferred on the books of the Company only if transferred or sold pursuant to an effective registration statement under the Act covering the same or pursuant to and in compliance with the provisions of Section 8.1(d). 9. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage prepaid, to the address shown in the Company's books. 10. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 11. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 12. Governing Law. This Warrant is delivered in California and shall be construed and enforced in accordance with and governed by the internal laws, and not the law of conflicts, of such State; provided however, that to the extent that an issue of determination is one of corporate law, then the Delaware General Corporation Law shall govern. PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation By: ----------------------------------------- J. Thomas Parmeter, Chairman of the Board * the warrants to Mr. Plamondon are for 2,000,000 shares. The warrants are evidenced by six certificatesd issued in this form SUBSCRIPTION FORM ----------------- (To be executed only upon exercise of Warrant) The undersigned, registered owner of this Warrant, irrevocably exercises this Warrant and purchases ____________ of the number of shares of Common Stock, $.01 par value, of PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation, purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant. DATED: ------------------ -------------------------------------- (Signature of Registered Owner) -------------------------------------- (Street Address) -------------------------------------- (City) (State) (Zip) FORM OF ASSIGNMENT ------------------ FOR VALUE RECEIVED the undersigned, registered owner of this Warrant, hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock, $.01 par value, set forth below: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and does hereby irrevocably constitute and appoint __________________________ _________________________________________________ Attorney to make such transfer on the books of PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware corporation, maintained for the purpose, with full power of substitution in the premises. DATED: ------------------ --------------------------------------------- (Signature) - ------------------------------------ (Witness) EX-31 3 ex31-1.txt EX. 31.1-CERTIFICATION OF CEO Exhibit 31.1 SECTION 302 CERTIFICATION of the Chief Executive Officer I, William N. Plamondon, III, the Chief Executive Officer of Protein Polymer Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Protein Polymer Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 17, 2005 /s/William N. Plamondon, III - ---------------------------- William N. Plamondon, III Chief Executive Officer EX-31 4 ex31-2.txt EX. 31.2-CERTIFICATION OF CFO Exhibit 31.2 SECTION 302 CERTIFICATION of the Director of Finance (Principal Financial Officer) I, Janis Y. Neves, the Director of Finance of Protein Polymer Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Protein Polymer Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 17, 2005 /s/Janis Y. Neves - ----------------- Janis Y. Neves Director of Finance EX-32 5 ex32-1.txt EX. 32.1-CERTIFICATION OF CEO & CFO Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Protein Polymer Technologies, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William N. Plamondon, III - ----------------------------- William N. Plamondon, III Chief Executive Officer August 17, 2005 In connection with the Quarterly Report of Protein Polymer Technologies, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Janis Y. Neves - ------------------ Janis Y. Neves Director of Finance and Corporate Secretary August 157 2005 -----END PRIVACY-ENHANCED MESSAGE-----