SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission file number 0-13634
MACROCHEM CORPORATION
(Exact name of registrant as
specified in its charter)
Delaware 04-2744744
(State of Organization) (I.R.S. Employer
Identification Number)
110 Hartwell Avenue, Lexington, Massachusetts 02173
(Address of principal executive offices, Zip Code)
(617)862-4003
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of November 6, 1995, there were 12,824,676 shares of Common Stock,
$.01 par value per share of the Registrant outstanding.
<PAGE>
<TABLE>
MacroChem Corporation Balance Sheets
Assets
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
________________________________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,441,718 $ 585,458
Marketable securities 1,644,764 3,279,375
Prepaid expenses and other current assets 100,266 90,524
TOTAL CURRENT ASSETS 5,186,748 3,955,357
PROPERTY AND EQUIPMENT, net of
accumulated depreciation:
1995 - $354,840; 1994 - $317,757 273,318 274,880
OTHER ASSETS
Patents, net of accumulated amortization:
1995 - $25,998; 1994 - $19,514 182,469 203,053
Deposits 4,460 4,310
TOTAL OTHER ASSETS 186,929 207,363
TOTAL ASSETS 5,646,995 4,437,600
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE1>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
______________________________
<S> <C> <C>
CURRENT LIABILITIES
Current portion of capitalized
lease obligations $ 21,641 $ 18,614
Accounts payable and accrued expenses 177,379 153,957
Deferred compensation due to officer 157,048 161,250
Deferred rent 5,928 5,298
TOTAL CURRENT LIABILITIES 361,996 339,749
LONG-TERM LIABILITIES
Deferred rent, non-current portion 2,496 6,942
Capitalized lease obligation-long-term 25,872 41,101
TOTAL LONG-TERM LIABILITIES 28,368 48,043
TOTAL LIABILITIES 390,364 387,792
STOCKHOLDERS' EQUITY
Common stock, authorized 30,000,000
shares, issued and outstanding, 12,824,676
shares and 11,569,643 shares at
September 30, 1995 and December 31, 1994,
respectively 128,247 115,696
Additional paid-in capital 19,262,333 16,424,614
Accumulated deficit (14,133,949) (12,490,502)
TOTAL STOCKHOLDERS' EQUITY 5,256,631 4,049,808
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 5,646,995 4,437,600
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE2>
<TABLE>
MACROCHEM CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Nine Months ended
September 30, September 30,
1995 1994 1995 1994
______________________________________________
<S> <C> <C> <C> <C>
REVENUES
Product sales and
royalty income $ 108 $ 200 $ 108 $ 6,710
Research contracts 0 37,500 15,150 37,500
TOTAL REVENUES 108 37,700 15,258 44,210
OPERATING EXPENSES
Marketing, general and
administrative 285,989 242,145 910,788 865,404
Research and development 362,726 287,474 900,353 759,578
Consulting fees with related
parties 9,000 9,000 27,000 27,000
TOTAL OPERATING EXPENSES 657,715 538,619 1,838,141 1,651,982
LOSS FROM OPERATIONS (657,607) (500,919) (1,822,883) (1,607,772)
INTEREST INCOME-NET 66,410 48,590 179,436 128,428
NET LOSS $ (591,197) $(452,329) $(1,643,447) $(1,479,344)
NET LOSS PER COMMON SHARE $ (.05) $ (.04) $ (.14) $ (.13)
Weighted Average Number of
Common Shares Outstanding 12,709,683 11,554,193 12,093,045 11,568,639
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE3>
<TABLE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION> (UNAUDITED)
Nine Months ended September 30,
1995 1994
_________________________________
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (1,643,447) $ (1,479,344)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 57,692 41,170
Abandoned patent costs 20,703 0
Amortization of discounts on
marketable securities ( 134,589) 0
Gain on sale of equipment ( 3,925) 0
Issuance of common stock in exchange for services 0 10,725
Increase (decrease) in cash from:
Accounts receivable 0 25,169
Prepaid expenses and other current assets ( 9,742) ( 32,343)
Accounts payable and accrued expenses 23,422 ( 64,337)
Deferred compensation ( 4,202) 24,500
Deferred rent ( 4,446) ( 4,446)
Total adjustments ( 55,087) 438
NET CASH FROM OPERATING ACTIVITIES (1,698,534) (1,478,906)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (3,489,800) (3,647,269)
Proceeds from maturities of marketable securities 5,259,000 400,000
Expenditures for property and equipment ( 50,521) ( 139,334)
Proceeds from sale of equipment 4,800 0
Increase in other assets ( 6,753) ( 22,416)
NET CASH FROM INVESTING ACTIVITIES 1,716,726 (3,409,019)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease ( 12,202) 0
Proceeds from issuance of common stock, net 2,227,000 0
Proceeds from exercise of common stock options 533,270 1,313
Proceeds from exercise of common stock warrants 90,000 374,550
NET CASH FROM FINANCING ACTIVITIES 2,838,068 375,863
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,856,260 (4,512,062)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 585,458 5,555,139
CASH AND CASH EQUIVALENTS, END OF PERIOD $ (3,441,718) $ (1,043,077)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE4>
MACROCHEM CORPORATION
STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the nine months ended September 30, 1995 and 1994, cash paid for
interest was $3,666 and $-0-, respectively. The Company did not pay any
income taxes during these periods.
The accompanying notes are an integral part of these financial statements.
<PAGE5>
MACROCHEM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all discosures required by generally accepted
accounting principles. Reference should be made to the financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
In the opinion of management of the Company, the accompanying unaudited
financial statements reflect all adjustments which were of a normal recurring
nature necessary for a fair presentation of the Company's results of
operations and cash flows for the three and nine months ended September 30,
1995 and 1994.
The results disclosed in the unaudited Statements of Operations for the three
and nine months ended September 30, 1995 are not necessarily indicative of
the results to be expected for the full year.
(2) Certain amounts in the 1994 financial statements have been reclassified to
conform to current presentation. Management has revised its methodology by
which certain expenses are allocated to research and development. As a result,
research and development expenses increased, and marketing, general and
administrative expenses decreased for the three months and nine month periods
ended September 30, 1994 by approximately $127,000 and $340,000, respectively.
<PAGE6>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
MacroChem's primary business is the development and commercialization of
transdermal drug delivery compounds and systems designed to promote the
delivery of drugs from the surface of the skin into the skin and bloodstream
The Company currently derives no significant revenue from product sales,
royalties or license fees. The Company plans to develop specific SEPA(R)
formulations for use with proprietary and non-proprietary drugs manufactured
by pharmaceutical companies, and to commercialize these products through the
formation of partnerships, strategic alliances and license agreements with
those companies. In order to attract strategic partners the Company is
conducted limited clinical testing of certain SEPA-enhanced pharmaceuticals.
The Company's results of operations vary significantly from quarter to
quarter and depend, among other factors, on the signing of new licenses and
product development agreements, the timing of revenues recognized pursuant to
license agreements, the achievement of milestones by licensees and the
progress of clinical trials conducted by licensees. The timing of the
Company's revenues may not match the timing of the Company's associated
product development expenses. To date, research and development expenses have
generally exceeded revenue in any particular period. Furthermore the amount
of revenue in any given period is not necessarily indicative of expected
revenue for the year.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994
During the three months ended September 30, 1995 the Company had virtually
no revenues as compared to approximately $37,500 of fees from feasibility
studies and other collaborative agreements during the same period in 1994.
Marketing, general and administrative expenses increased approximately
$44,000 (18%) as compared to the 1994 period. The Company has continued its
emphasis on marketing to potential licensees and to potential partners in
other strategic alliances. Research and development expenses were
approximately $363,000 and $287,000, an increase of 26%, during the three
month periods ended September 30, 1995 and 1994, respectively, as the Company
continues to emphasize internally conducted research.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
Total revenue for the nine months ended September 30, 1995 was
approximately $15,300 compared to $15,300 compared to $44,200 for the nine
months ended in 1994. Revenues earned in the 1995 period are from the
completion of a feasibility study during the first quarter of 1995.
Marketing, general and administrative expenses increased approximately
$45,000 from $865,000 during the 1994 period to approximately $911,000
during the 1995 period. Research and development expenses were approximately
$900,000 and $760,000, an increase of $140,000 (18%), for the nine months
ended September 30, 1995 and 1994, respectively. During 1994 the Company
increased its research and development staff from three employees to
its present level of seven and has continued expansion of its internal
research and development capabilities through the construction of a pilot
scale manufacturing facility conforming to the FDA's current Good
Manufacturing Practices (cGMP).
<PAGE7>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through the private and public sale of its securities, and to a lesser extent,
by licensing proprietary technology and products, governmental grants and
limited sales of products and test materials. As of Septemer 30, 1995, the
Company had working capital of approximately $4,825,000 compared to
$4,104,000 at September 30, 1994. During the nine month period ended September
30, 1995, the Company received proceeds of $2,850,000 from the issuance of
common stock.
Until such time as the Company obtains agreements with third party
licensees or partners to provide funding for the Company's anticipated business
activities, or the Company is able to obtain funds through the private or public
sale of its securities, the Company's working capital is expected to continue
to decline.
The Company, while relying primarily on third party licensees for revenue,
must rely on equity financing to fund a portion of operations, development
costs, and to obtain regulatory approvals and the manufacturing and marketing
of its products. During the nine months ended September 30, 1995 net funds
received from equity financing aggregated approximately $2,850,000 as compared
to approximately $376,000 for the comparable period in 1994.
The Company's long term capital requirements will depend upon numerous
factors including the progress of the Company's research and development
programs, the resources that the Company devotes to self-funded early stage
clinical testing of SEPA enhanced compounds, proprietary manufacturing methods
and advanced technologies, the ability of the Company to manufacture products
under those agreements, and the demand for its products or the products of its
licensees or strategic partners, if and when approved for sale by regulatory
authorities. In any event, substantial additional funds will be required
before the Company is able to generate revenues sufficient to support its
operations. There is no assurance that the Company will be able to obtain such
additional funds, or obtain them on terms favorable to the Company. The
Company's inability to raise sufficient funds could require it to delay, scale
back or eliminate certain research and development programs.
The Company anticipates additional capital expenditures of approximately
$85,000 during the remainder of the fiscal year ending December 31, 1995.
The Company believes that its existing cash, cash equivalents and
marketable securities will be sufficient to meet its operating expenses and
capital requirements for a period of at least the next twelve months.
<PAGE8>
PART II OTHER INFORMATION
Items 1 through 5: Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule
(b) No filings on Form 8-K occurred during the quarter ended
Septebmer 30, 1995.
<PAGE9>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MacroChem Corporation
Registrant
November 13, 1995 Alvin J. Karloff
President and C.E.O.
<PAGE10>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,441,718
<SECURITIES> 1,644,764
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 50,534
<CURRENT-ASSETS> 5,186,748
<PP&E> 628,158
<DEPRECIATION> 354,840
<TOTAL-ASSETS> 5,646,995
<CURRENT-LIABILITIES> 361,996
<BONDS> 25,872
<COMMON> 128,247
0
0
<OTHER-SE> 19,262,338
<TOTAL-LIABILITY-AND-EQUITY> 5,646,995
<SALES> 0
<TOTAL-REVENUES> 194,694
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,838,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,713
<INCOME-PRETAX> (1,643,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,643,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,643,447)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
