FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
[ ] 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 0-16109
ADVANCED POLYMER SYSTEMS, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2875566
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
123 Saginaw Drive, Redwood City, CA 94063
------------------------------------------
(Address of principal executive offices)
(650) 366-2626
----------------------------------------------------
(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 (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
--- ---
At October 30, 1998, the number of outstanding shares of the Company's
common stock, par value $.01, was 19,991,207.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30,
1998 and 1997
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. Financial Statements (unaudited):
--------------------------------
CONDENSED BALANCE SHEETS (UNAUDITED)
- ------------------------------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,437,784 $ 8,672,021
Trade accounts receivable, net 5,940,254 3,388,665
Inventory 2,831,239 2,639,129
Prepaid expenses and other 1,145,521 541,151
---------- ----------
Total current assets 13,354,798 15,240,966
Property and equipment, net 8,596,823 6,771,173
Deferred loan costs, net 156,245 353,693
Prepaid license fees, net 20,726 82,880
Goodwill and other intangible
assets 1,392,575 1,477,542
Other long-term assets 182,891 254,180
---------- ----------
$ 23,704,058 $ 24,180,434
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,167,231 $ 1,636,189
Accrued expenses 1,866,251 2,832,299
Accrued melanin purchase
commitments 1,800,000 1,800,000
Deferred revenues 450,000 348,000
Current portion - long-term debt 3,672,270 2,523,389
---------- ----------
Total current liabilities 8,955,752 9,139,877
Deferred revenues 1,493,094 1,743,869
Long-term debt 24,295 3,055,460
---------- ----------
Total liabilities 10,473,141 13,939,206
---------- ----------
Shareholders' equity:
Common stock and common stock
warrants 84,719,333 82,505,394
Accumulated deficit (71,488,416) (72,264,166)
---------- ----------
Total shareholders' equity 13,230,917 10,241,228
---------- ----------
$ 23,704,058 $ 24,180,434
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product and technology
revenues $ 5,152,862 $ 4,136,606 $14,822,482 $12,183,254
Milestone payment -- -- -- 1,500,000
---------- ---------- ---------- ----------
Total revenues 5,152,862 4,136,606 14,822,482 13,683,254
Cost of sales 1,950,668 1,757,132 5,653,621 5,200,826
Operating expenses:
Research & development 996,052 915,361 3,195,894 2,748,652
Selling & marketing 684,585 873,450 2,299,311 2,996,331
General & administration 859,585 818,826 2,451,686 2,731,825
---------- ---------- ---------- ----------
Total operating expenses 2,540,222 2,607,637 7,946,891 8,476,808
---------- ---------- ---------- ----------
Operating income (loss) 661,972 (228,163) 1,221,970 5,620
Interest income 51,001 100,579 205,360 260,106
Interest expense (193,127) (260,705) (633,326) (800,959)
Other income (expense), net 2,105 (6,978) (18,254) (72,845)
---------- ---------- ---------- ----------
Net income (loss) $ 521,951 $ (395,267) $ 775,750 $ (608,078)
========== ========== ========== ==========
Basic earnings (loss) per
common share $ 0.03 $ (0.02) $ 0.04 $ (0.03)
========== ========== ========== ==========
Diluted earnings (loss) per
common share $ 0.03 $ (0.02) $ 0.04 $ (0.03)
========== ========== ========== ==========
Weighted average common shares
outstanding-basic 19,969,391 18,895,691 19,807,934 18,626,475
========== ========== ========== ==========
Weighted average common shares
outstanding-diluted 20,248,716 19,927,911 20,349,075 19,732,955
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 775,750 $ (608,078)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 761,470 725,224
Amortization of deferred loan costs 197,448 197,448
Provision for deferred compensation 77,204 171,757
Changes in operating assets and
liabilities:
Trade accounts receivable (2,551,589) (1,499,214)
Inventory (192,110) (576,115)
Prepaid expenses and other (604,370) (115,398)
Other assets 71,289 (490,577)
Accounts payable and accrued expenses (1,462,282) (205,756)
Deferred revenues (148,775) 1,500,000
--------- ---------
Net cash used in operating activities (3,075,965) (900,709)
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets (2,439,999) (1,257,731)
Purchases of marketable securities - (1,596,617)
Maturities and sales of marketable
securities - 1,596,617
Proceeds from assets held for sale - 2,181,004
--------- ---------
Net cash (used in) provided by
investing activities (2,439,999) 923,273
--------- ---------
Cash flows from financing activities:
Proceeds from the exercise of common
stock options and warrants and
issuance of restricted stock 2,054,376 4,003,203
Proceeds from shares issued under
the Employee Stock Purchase Plan 109,635 -
Repayment of long-term debt (1,882,284) (876,408)
--------- ---------
Net cash provided by financing
activities 281,727 3,126,795
--------- ---------
Net (decrease) increase in cash and
cash equivalents (5,234,237) 3,149,359
Cash and cash equivalents, beginning
of the period 8,672,021 5,394,509
--------- ---------
Cash and cash equivalents, end
of the period $ 3,437,784 $ 8,543,868
========= =========
Supplemental disclosure of non-cash
financing transactions:
Cash paid for interest $ 448,026 $ 605,019
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- ---------------------------------------
(1) Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments,
consisting of normal recurring adjustments, necessary to present
fairly the financial position of Advanced Polymer Systems, Inc.
and subsidiaries ("the Company" or "APS") as of September 30, 1998
and the results of their operations for the three and nine months
ended September 30, 1998 and 1997, and their cash flows for the
nine months ended September 30, 1998 and 1997.
These condensed consolidated statements should be read in
conjunction with the Company's audited consolidated financial
statements for the years ended December 31, 1997, 1996 and 1995
included in the Company's Annual Report on Form 10-K.
The condensed consolidated financial statements include the
financial statements of the Company and its subsidiaries, Premier,
Inc. ("Premier") and APS Analytical Standards, Inc. All
significant intercompany balances and transactions have been
eliminated in consolidation.
The Company considers all short-term investments which have
original maturities of less than three months to be cash
equivalents.
Certain reclassifications have been made to the prior period
financial statements to conform with the presentation in 1998.
(2) Common Shares Outstanding and Earnings (Loss) Per Share
--------------------------------------------------------
Information
-----------
Common stock outstanding as of September 30, 1998 is as follows:
Number of Shares
----------------
Common stock outstanding as of
December 31, 1997 19,464,821
Warrants exercised 310,278
Options exercised 77,494
Restricted stock issued 100,000
Shares issued under the Employee Stock
Purchase Plan 17,465
----------
Total shares 19,970,058
==========
The following table sets forth the computation of the Company's
basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) (numerator) $ 521,951 $(395,267) $ 775,750 $ (608,078)
========== ========= ========== ==========
Shares calculation
(denominator):
Weighted average shares
outstanding - basic 19,969,391 18,895,691 19,807,934 18,626,475
Effect of dilutive
securities:
Stock options and employee
stock purchase plan 142,023 608,896 393,347 665,831
Warrants 137,302 423,324 147,794 440,649
---------- ---------- ---------- ----------
Weighted average shares
outstanding - diluted 20,248,716 19,927,911 20,349,075 19,732,955
========== ========== ========== ==========
Earnings (loss) per
share - basic $ 0.03 $ (0.02) $ 0.04 $ (0.03)
========== ========== ========== ==========
Earnings (loss) per
share - diluted $ 0.03 $ (0.02) $ 0.04 $ (0.03)
========== ========== ========== ==========
</TABLE>
The following options with expiration dates ranging from November
19, 2001 to June 23, 2008 were outstanding during the periods
presented, but were not included in the computation of diluted
earnings per share since the exercise prices of the options were
greater than the average market price of the common shares:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number outstanding 1,844,556 859,955 1,185,630 818,024
Range of exercise prices $5.63-$15.00 $7.75-$15.00 $6.82-$15.00 $8.125-$15.00
</TABLE>
(3) Comprehensive Income
--------------------
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" which establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. For the three and nine months ended
September 30, 1998 and 1997, comprehensive income (loss) was the
same as net income (loss).
(4) New Accounting Standards
------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of a Business Enterprise" which is effective for
financial statements beginning after December 15, 1997, and
establishes standards for disclosures about segments of an
enterprise. In its consolidated financial statements for the year
ending December 31, 1998, the Company will make the required
disclosures.
In April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the
Costs of Start-Up Activities" which is effective for financial
statements for fiscal years beginning after December 15, 1998.
The SOP requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred. Initial
application of SOP 98-5 should be as of the beginning of the
fiscal year in which the SOP is first adopted and should be
reported as the cumulative effect of a change in accounting
principle. Earlier application is encouraged. The Company will
adopt SOP 98-5 in its fiscal year beginning January 1, 1999. The
Company anticipates that adoption of this SOP will not have a
material effect on the consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) which
will be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
Statement generally provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of
(a) the changes in the fair value of the hedged asset or liability
that are attributed to the hedged risk or (b) the earnings effect
of hedged forecasted transactions. Earlier application of all
provisions of this Statement is encouraged but it is permitted
only as of the beginning of any fiscal quarter that begins after
issuance of this Statement. The Company anticipates that adoption
of this Statement will not have a material effect on the
consolidated financial statements.
(5) Inventory
---------
The major components of inventory are as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials and work-
in-process $ 796,190 $ 834,496
Finished goods 2,035,049 1,804,633
--------- ---------
Total inventory $2,831,239 $2,639,129
========= =========
</TABLE>
(6) Legal Proceedings
-----------------
In November, 1997 Biosource Technologies, Inc. ("Biosource")
filed a complaint against the Company in the San Mateo Superior
Court. Biosource claims damages from the Company of an amount
not less than $1,050,000, on the grounds that the Company has
failed to pay certain minimum amounts allegedly due under a
contract for the supply of melanin. Biosource also claims
interest on that sum and costs.
The Company has denied liability, basing its defense on the
assertion that obligations under the contract have been
suspended, because the expected FDA approval of the Company's
melanin-based product has not yet been forthcoming. The
Company is vigorously defending the action, and has cross
claimed for rescission of the contract and restitution of money
paid thereunder, and for a declaratory judgment that it is not
indebted to Biosource.
The Company expects that the outcome of this legal proceeding
will not have a material adverse effect on the consolidated
financial statements considering amounts accrued at September
30, 1998.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (all dollar amounts rounded to the
------------------------------------------------------------
nearest thousand)
-----------------
Overview
- --------
Except for statements of historical fact, the statements herein are
forward-looking and are subject to a number of risks and uncertainties
that could cause actual results to differ materially from the
statements made. These include, among others, uncertainty associated
with timely approval, launch and acceptance of new products,
establishment of new corporate alliances, progress in research and
development programs and other risks described below or identified from
time to time in the Company's Securities and Exchange Commission
filings.
The Company's revenues are derived principally from product sales,
license fees and royalties. The Company is currently manufacturing and
selling Microsponge(R) and Polytrap(R) delivery systems for use by
customers in approximately 100 different personal care and cosmetic
products. Under strategic alliance arrangements entered into with
certain corporations, APS can receive an initial license fee, future
milestone payments, royalties based on third party product sales or a
share of partners' revenues, and revenues from the supply of
Microsponge and Polytrap systems.
These strategic alliances are intended to provide the Company with the
marketing expertise and/or financial strength of other companies. In
this respect, the Company's periodic financial results are dependent
upon the degree of success of current collaborations and the Company's
ability to negotiate acceptable collaborative agreements in the future.
Results of Operations for the Three Months Ended September 30, 1998 and
- -----------------------------------------------------------------------
1997
- ----
Product and technology revenues for the three months ended September
30, 1998 totaled $5,153,000 compared to $4,137,000 in the corresponding
quarter of the prior year, representing an increase of $1,016,000 or
25%. This was due primarily to increased sales of proprietary
cosmeceutical products including two new product launches, increased
royalties from Johnson & Johnson on higher sales of Retin-A(R) Micro
(TM), and upfront technology revenues received from new corporate
partners for access to new products.
Gross profit for the third quarter of 1998 of $3,202,000 represented
62% of product and technology revenues, an increase of four percentage
points over the corresponding quarter of the prior year. This was
primarily attributable to increased royalties from Johnson & Johnson,
an increase in revenues from higher margin cosmeceutical products and
license fees received from new corporate partners in the quarter.
Total operating expenses for the three months ended September 30, 1998
decreased by $67,000 or 3% to $2,540,000 compared to the corresponding
period of the prior year.
Research and development expense increased by $81,000 or 9% to $996,000
due mainly to increased headcount, clinical studies and increased
expenditure in the companies new bioerodible technologies. This was
offset by a decrease in selling and marketing expense of $189,000 or
22% to $685,000 due to decreased headcount. General and administrative
expense increased by $41,000 or 5% to $860,000 due mainly to a modest
increase in the use of outside services.
Operating income for the three months ended September 30, 1998 totaled
$662,000 compared to an operating loss of $228,000 in the year-ago
period, an improvement of $890,000.
Interest income decreased by $50,000 or 49% to $51,000 compared with
the corresponding quarter of the prior year due to lower interest rates
on lower average cash balances. Interest expense decreased by $68,000
or 26% to $193,000 due mainly to scheduled debt principal repayments.
Net income for the quarter was $522,000 compared to a net loss in the
third quarter of the prior year of $395,000.
Results of Operations for the Nine Months Ended September 30, 1998 and
- ----------------------------------------------------------------------
1997
- ----
Product and technology revenues for the nine months ended September 30,
1998 totaled $14,822,000, an increase of $2,639,000 or 22% over the
corresponding period of the prior year. This increase was mainly due
to increased sales of cosmeceutical products, increased royalties from
Johnson & Johnson on sales of Retin-A Micro and upfront technology
revenues received from new corporate partners for access to new
products. Total revenues for the first nine months of 1997 also
included a milestone payment of $1,500,000 from Johnson & Johnson upon
receipt of marketing clearance from the FDA for Retin-A Micro in
February 1997.
Gross profit on product and technology revenues for the first nine
months of 1998 was $9,169,000, an increase of $2,186,000 or 31% over
the corresponding period of the prior year. As a percentage of sales,
gross profit increased by five percentage points to 62%. The increase
was due primarily to increased sales of higher margin cosmeceutical
products, increased royalties from Johnson & Johnson on sales of Retin-
A Micro and license fees paid by new corporate partners for access to
new products.
Total operating expenses for the nine months ended September 30, 1998
decreased by $530,000 or 6% to $7,947,000 compared to the corresponding
period of the prior year.
Research and development expense for the nine months period increased
by $447,000 or 16% due mainly to increased headcount, increased
expenditure in new technology and expenses resulting from the Company's
move to new facilities in the first quarter of 1998. This was offset
by a decrease in selling and marketing expense of $697,000 or 23% to
$2,299,000 due to decreased headcount and one-time expenses related to
the relocation of a senior executive in the year-ago period. General
and administrative expense decreased by $280,000 or 10% due mainly to a
continued decrease in the use of outside services.
Operating income for the nine month period ended September 30, 1998
totaled $1,222,000, an increase of $1,216,000 over the corresponding
period of the prior year.
Interest income decreased by $55,000 or 21% to $205,000 for the nine
month period due mainly to lower interest on lower cash balances.
Interest expense decreased by $168,000 or 21% to $633,000 due to
scheduled debt principal repayments.
Net income for the nine months ended September 30, 1998 amounted to
$776,000 compared to a loss of $608,000 in the corresponding period of
the prior year.
Capital Resources and Liquidity
- -------------------------------
Total assets as of September 30, 1998 were $23,704,000 compared with
$24,180,000 at December 31, 1997, and working capital decreased to
$4,399,000 from $6,101,000, mainly due to an increase in the current
portion of long-term debt. In the same period, cash and cash
equivalents decreased to $3,438,000 from $8,672,000. During the first
nine months of 1998, the Company's operating activities used $3,076,000
of cash. This principally related to an increase in receivables as a
result of increased shipments for the launches of new products by
corporate partners. The Company invested approximately $3,196,000 in
product research and development and $2,299,000 in selling and
marketing the Company's products and technologies.
Capital expenditures for the nine months ended September 30, 1998
totaled $2,440,000 compared to $1,258,000 in the same period of the
prior year. The increase in capital expenditures is mainly due to
capital projects that have increased capacity and improved automation
in the Company's manufacturing facility in Lafayette, Louisiana in
order to meet anticipated higher volume requirements. This plant
expansion and modernization project has now been completed. In
addition, the Company's lease on its facilities in Redwood City expired
and the increase in capital expenditures also included leasehold
improvements, primarily laboratories, in the Company's new facilities
in Redwood City.
The Company has financed its operations, including product research and
development, from amounts raised in debt and equity financings, the
sale of Microsponge and Polytrap delivery systems and analytical
standard products; payments received under licensing agreements; and
interest earned on short-term investments.
The Company's existing cash and cash equivalents, collections of trade
accounts receivable, together with interest income and other revenue
producing activities including royalties, licensing fees and milestone
payments, are expected to be sufficient to meet the Company's working
capital requirements for the foreseeable future, assuming no changes to
existing business plans.
Year 2000 Compliance
- --------------------
The Company is conducting a comprehensive review of its internal
computer systems to ensure these systems are adequate to address the
issues expected to arise in connection with the Year 2000. These
issues include the possibility that software which uses only the last
two digits to refer to the year will no longer function properly for
years that begin with 20 rather than 19 . In addition, the Company
plans to review the status of its customers and suppliers with regard
to this issue and assess the potential impact of non-compliance by such
parties on the Company's operations.
The Company has developed a phased program to address Year 2000 issues.
The first phase consists of identifying necessary changes to
application software used by the Company. The Company utilizes an
integrated ERP system for the majority of its manufacturing and
financial systems and has received the Year 2000 compliant version of
the software from the vendor. Implementation of the upgraded software
was completed on September 30, 1998.
The second phase consists of determining whether Company systems not
addressed in Phase One (including non-IT systems) are year 2000
compliant. The second phase is expected to be complete by the first
quarter of 1999 for critical systems and the second quarter of 1999 for
non-critical systems.
The third phase consists of determining the extent to which the Company
may be impacted by third parties' systems, which may not be Year 2000-
compliant. The Year 2000 computer issue creates risk for the Company
from third parties with whom the Company deals on financial
transactions worldwide. While the Company expects to complete efforts
to seek reassurance from its suppliers and service providers by the
second quarter of 1999, there can be no assurance that the systems of
other companies with which the Company deals or on which the Company's
systems rely will be converted on a timely basis, or that any such
failure to convert by another company could not have an adverse effect
on the Company.
Based on current estimates, management expects the total cost to
remediate non-compliant systems will be less than $650,000
(approximately $510,000 of which has been incurred to date). The
estimate may change materially as the Company continues to review and
audit the result of its work.
The Company has not yet developed any formal contingency plans for
addressing any problems which may result if the work performed in phase
two does not successfully resolve all issues by the Year 2000.
Failure to complete any necessary remediation by the Year 2000 may have
a material adverse impact on the operations of the Company. Failure of
third parties, such as customers and suppliers, to remediate year 2000
problems in their IT and non-IT systems would also have a material
adverse impact on the operations of the Company.
PART II. OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
-----------------
In November, 1997 Biosource Technologies, Inc. ("Biosource") filed a
complaint against the Company in the San Mateo Superior Court.
Biosource claims damages from the Company of an amount not less than
$1,050,000, on the grounds that the Company has failed to pay
certain minimum amounts allegedly due under a contract for the
supply of melanin. Biosource also claims interest on that sum and
costs.
The Company has denied liability, basing its defense on the
assertion that obligations under the contract have been suspended,
because the expected FDA approval of the Company's melanin-based
product has not yet been forthcoming. The Company is vigorously
defending the action, and has cross claimed for rescission of the
contract and restitution of money paid thereunder, and for a
declaratory judgment that it is not indebted to Biosource.
The Company expects that the outcome of this legal proceeding will
not have a material adverse effect on the consolidated financial
statements considering amounts accrued at September 30, 1998.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: 27 Financial Data Schedule as of and for the nine
months ended September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ADVANCED POLYMER SYSTEMS, INC.
Date: November 12, 1998 By: /s/ John J. Meakem, Jr.
----------------- --------------------------------
John J. Meakem, Jr.
Chairman, President and
Chief Executive Officer
Date: November 12, 1998 By: /s/ Michael O'Connell
----------------- --------------------------------
Michael O'Connell
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Form 10-Q
EXHIBIT DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER
30, 1998, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,437,784
<SECURITIES> 0
<RECEIVABLES> 5,940,254
<ALLOWANCES> 49,149
<INVENTORY> 2,831,239
<CURRENT-ASSETS> 13,354,798
<PP&E> 17,647,451
<DEPRECIATION> 9,050,628
<TOTAL-ASSETS> 23,704,058
<CURRENT-LIABILITIES> 8,955,752
<BONDS> 24,295
0
0
<COMMON> 199,701
<OTHER-SE> 13,031,216
<TOTAL-LIABILITY-AND-EQUITY> 23,704,058
<SALES> 12,448,196
<TOTAL-REVENUES> 14,822,482
<CGS> 5,653,621
<TOTAL-COSTS> 5,653,621
<OTHER-EXPENSES> 7,946,891
<LOSS-PROVISION> (6,321)
<INTEREST-EXPENSE> 633,326
<INCOME-PRETAX> 775,750
<INCOME-TAX> 0
<INCOME-CONTINUING> 775,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 775,750
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
