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 March 31, 1996
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
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(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 past preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
As of March 31, 1996, there were 15,355,099 shares of Common
Stock, $.01 par value per share, of the Registrant outstanding.
<PAGE>
MACROCHEM CORPORATION
INDEX
Page Number
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements:
Balance Sheets (Unaudited)
March 31, 1996 and December 31, 1995 3 - 4
Statements of Operations (Unaudited)
Three Months Ended March 31, 1996 and 1995 5
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1996 and 1995 6 - 7
Notes to Financial Statements (Unaudited) 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
<PAGE>
MACROCHEM CORPORATION
BALANCE SHEETS (UNAUDITED)
ASSETS
------
MARCH 31, DECEMBER 31,
1996 1995
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CURRENT ASSETS
Cash and cash equivalents $ 6,571,425 $3,591,779
Accounts receivable --- ---
Marketable securities 1,776,875 971,492
Certificates of deposit 605,803 287,000
Chemical supplies 50,534 50,534
Prepaid expenses and other
current assets 94,690 61,757
----------- -----------
TOTAL CURRENT ASSETS 9,099,327 4,962,562
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation:
1996 - $396,689; 1995 - $374,300 333,865 307,390
----------- -----------
OTHER ASSETS
Patents, net of accumulated
amortization: 1996 - $30,522;
1995 - $28,320 186,011 188,213
Deposits 7,860 4,460
----------- -----------
TOTAL OTHER ASSETS 193,871 192,673
----------- -----------
TOTAL ASSETS $ 9,627,063 $ 5,462,625
=========== ===========
<PAGE>
MACROCHEM CORPORATION
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
MARCH 31, DECEMBER 31,
1996 1995
--------- -----------
CURRENT LIABILITIES
Current portion of capital
lease obligations $ 35,957 $ 36,616
Accounts payable and accrued expenses 362,643 290,345
Accrued compensation to stockholder 47,050 97,050
Deferred rent 5,460 5,928
Deferred income 22,453 ---
----------- ------------
TOTAL CURRENT LIABILITIES 473,563 429,939
----------- ------------
LONG-TERM LIABILITIES
Deferred rent, non-current portion --- 1,014
Capital lease - long-term 45,886 55,245
----------- ------------
TOTAL LONG-TERM LIABILITIES 45,886 56,259
----------- ------------
TOTAL LIABILITIES 519,449 486,198
----------- ------------
STOCKHOLDERS' EQUITY
Common stock, issued and outstanding,
15,355,099 shares and 13,129,321
shares at March 31, 1996 and
December 31, 1995, respectively 153,551 131,293
Additional paid-in capital 24,658,998 19,801,473
Accumulated deficit (15,704,935) (14,956,339)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 9,107,614 4,976,427
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,627,063 $ 5,462,625
=========== ============
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31,
------------------------------------
1996 1995
---- ----
REVENUES
Research contracts $ --- $ 15,150
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TOTAL REVENUES --- 15,150
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OPERATING EXPENSES
Marketing, general and administrative 439,977 371,583
Research and development 362,181 190,866
Consulting fees with related parties 10,000 9,000
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TOTAL OPERATING EXPENSES 812,158 571,449
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LOSS FROM OPERATIONS ( 812,158) ( 556,299)
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OTHER INCOME (EXPENSE)
Interest income 67,324 54,900
Interest expense ( 3,561) ( 1,019)
Other income (expense) ( 201) ---
------------- -----------
TOTAL OTHER INCOME (EXPENSE) 63,562 53,881
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NET LOSS $( 748,596) $( 502,418)
------------- -----------
NET LOSS PER SHARE $( .05) $( .04)
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,403,924 11,569,643
============== ===========
The accompanying notes are an integral part of these unaudited financial
statements.
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
------------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 748,596) $( 502,418)
--------- ---------
Adjustments to reconcile net loss to net
cash (used for) operating activities:
Depreciation and amortization 24,591 18,410
Amortization of discounts on
marketable securities ( 15,900) ( 38,326)
Increase (decrease) in cash from:
Accounts receivable --- ( 15,150)
Prepaid expenses and other current assets ( 32,933) ( 27,589)
Accounts payable and accrued expenses 72,298 71,750
Accrued compensation ( 50,000) ( 4,442)
Deferred rent ( 1,482) ( 1,482)
Deferred income 22,453 ---
Total adjustments 19,027 3,171
--------- ---------
NET CASH (USED FOR) OPERATING
ACTIVITIES ( 729,569) ( 499,247)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (2,119,505) ( 905,576)
Proceeds from maturities of marketable
securities 1,011,219 1,401,000
Expenditures for property and equipment ( 48,864) ( 15,763)
(Increase) decrease in deposits and
other assets ( 3,400) 14,100
--------- ---------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (1,160,550) 493,761
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease ( 10,018) ( 2,974)
Proceeds from exercise of common
stock options 128,469 ---
Proceeds from exercise of common
stock warrants 2,170,064 ---
Proceeds from exercise of unit
purchase options 2,581,250 ---
--------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 4,869,765 ( 2,974)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,979,646 ( 8,460)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,591,779 585,458
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,571,425 $ 576,998
========= =========
(Continued)
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the three months ended March 31, 1996 and 1995, cash paid for
interest was $2,721 and $1,019, respectively. The Company did not
pay any income taxes during these periods.
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
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 disclosures 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, 1995.
In the opinion of management of the Company, the accompanying 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 months ended March 31, 1996 and
1995.
The results disclosed in the Statements of Operations for the three
months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
(2) Research and development costs are charged to operations as incurred.
Such costs include proprietary research and development activities and
expenses associated with research and development contracts. In 1995,
the Company changed its definition of research and development to more
properly reflect personnel efforts and other resources previously
included in general and administrative expenses. This change had the
effect of increasing research and development expenses and decreasing
general and administrative expenses from amounts previously reported by
approximately $45,000 for the three months ended March 31, 1995.
(3) In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which was effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on fair
value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
(4) Effective January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long- Lived
Assets to be Disposed Of." This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles which
are to be disposed of. The adoption of this statement had no effect on
the financial position, or results of operations or cash flows of the
Company.
<PAGE>
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 tissues 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 conducting
limited clinical testing of certain SEPA-enhanced drugs.
The Company's results of operations vary significantly from year to
year and 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 and the
Company. 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
and/or fiscal year.
RESULTS OF OPERATIONS
Quarter ended March 31, 1996 compared to quarter ended March 31, 1995:
During the quarter ended March 31, 1996, the Company had no revenues as
compared to $15,000 revenues for the first quarter of 1995. The 1995 revenues
were from a completed feasibility study.
Marketing, general and administrative expenses in the quarter ended
March 31, 1996 increased approximately $68,000 (18%) over the comparable 1995
period due primarily to increased investment banking fees, increased public
relations fees, and increased costs of liability insurance.
Research and development costs in the 1996 period increased
approximately $171,000 (90%) over the comparable 1995 period due to increased
efforts to test and evaluate the Company's potential products. The Company hired
a Director of Research and Development, increased clinical investigation
efforts, and hired technical consultants to assist in evaluating and testing
these potential products.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for the Company's
operations has been the private and public sale of its securities, and to a
lesser extent, the licensing of its proprietary technology and products,
government grants and limited sales of products and test materials.
As of March 31, 1996, the Company had working capital of approximately
$8,626,000 compared to $4,533,000 at December 31, 1995. The increase in working
capital during the quarter ended March 31, 1996 results from the receipt of
$4,880,000 from the issuance of common stock.
The Company must rely on equity financing to fund operations,
development costs, and to obtain regulatory approvals and the manufacturing and
marketing of its products.
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 decline.
The Company's long term capital expenditure 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 clinical testing of SEPA-enhanced compounds, proprietary manufacturing
methods and advanced technologies, and 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 $71,000 during the remainder of the fiscal year ending December
31, 1996.
The Company believes that its existing cash and cash equivalents and
marketable securities will be sufficient to meet its current operating expenses
and capital expenditures requirements for a period of at least the next twelve
months.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MacroChem Corporation
---------------------
(Registrant)
May 10, 1996 /s/ Alvin J. Karloff
---------------------
Alvin J. Karloff
Chief Executive Officer &
Principal Financial Officer
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,177,228
<SECURITIES> 1,776,875
<RECEIVABLES> 0
<ALLOWANCES> 0
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<PP&E> 730,554
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<COMMON> 153,551
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