<PAGE>
================================================================================
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, 1996
[_] 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 IdentificationNo.)
incorporation or organization)
10655 Sorrento Valley Road, San Diego, CA 92121
(Address of principal executive offices)
(619) 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 12, 1996, 6,907,748
shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
1
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
June 30, 1996 and December 31, 1995.............................................. 3
Condensed Statements of Operations -
For the Three and Six Months ended
June 30, 1996 and 1995.......................................................... 4
Condensed Statements of Cash Flows -
For the Six Months ended
June 30, 1996 and 1995.......................................................... 5
Notes to Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................. 10
Signature........................................................................ 11
</TABLE>
2
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,130,598 $ 471,296
Short-term investments 200,000 1,540,000
Accounts receivable 17,741 28,099
Inventory 51,210 54,534
Other current assets 362,334 20,178
------------- -------------
Total current assets 1,761,883 2,114,107
Deposits 23,057 22,257
Equipment and leasehold improvements, net 283,008 302,795
------------- -------------
$ 2,067,948 $ 2,439,159
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 143,335 $ 157,971
Accrued employee benefits 113,323 101,284
Other accrued expenses 35,273 51,598
------------ ------------
Total current liabilities 291,931 310,853
Stockholders' equity:
Series D convertible preferred stock, $.01 par value,
71,600 shares authorized, 49,187 shares issued
and outstanding at June 30, 1996 4,764,746 4,764,745
Common stock, $.01 par value, 25,000,000 shares
authorized, 6,701,068 and 5,832,925 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 67,012 58,330
Additional paid-in capital 14,733,292 13,648,036
Accumulated deficit (17,789,033) (16,342,805)
------------ ------------
Total stockholders' equity 1,776,017 2,128,306
------------ ------------
$ 2,067,948 $ 2,439,159
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
----------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 9,010 $ 24,605 $ 24,524 $ 59,188
Contract revenue 100,000 - 100,000 10,000
Interest income 18,102 6,638 39,057 22,156
----------- ----------- ------------ -----------
127,112 31,243 163,581 91,344
EXPENSES:
Cost of goods sold 5,670 5,671 11,885 29,604
Research and development 461,107 449,828 908,269 920,753
Selling, general and
administrative 356,806 301,489 667,155 687,172
Royalties 6,250 6,250 22,500 22,500
----------- ----------- ------------ -----------
829,833 763,238 1,609,809 1,660,029
----------- ----------- ------------ -----------
Net loss (702,721) (731,995) (1,446,228) (1,568,685)
Undeclared accumulated dividends
on Preferred Stock 122,295 54,000 244,590 108,000
----------- ----------- ------------ -----------
Net loss applicable to common
shareholders $ (825,016) $ (785,995) $(1,690,818) $(1,676,685)
=========== =========== ============ ===========
Net loss per common share $ (0.13) $ (0.13) $ (0.27) $ (0.29)
=========== =========== ============ ===========
Shares used in computing loss
per common share 6,454,777 5,830,925 6,160,837 5,830,925
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1996 1995
------------ -------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,446,228) $ (1,568,685)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 55,098 75,459
Changes in assets and liabilities:
Accounts receivable 10,358 8,688
Inventory 3,324 (67,406)
Other current assets (342,156) (3,732)
Deposits (800) 1,300
Accounts payable (14,636) 24,220
Accrued employee benefits 12,039 5,072
Other accrued expenses (16,325) (48,181)
Deferred revenue - (5,000)
------------ -------------
Net cash used for operating activities (1,739,326) (1,578,265)
INVESTING ACTIVITIES
Purchase of equipment and improvements (35,311) (22,738)
Short-term investments 1,340,000 -
------------ -------------
Net cash provided by (used for) investing activities 1,304,689 (22,738)
FINANCING ACTIVITIES
Net proceeds from issuance of warrants and
sale of common stock 1,093,939 -
------------ -------------
Net cash provided by financing activities 1,093,939 -
Net increase (decrease) in cash and cash equivalents 659,302 (1,601,003)
Cash and cash equivalents at
beginning of the period 471,296 1,848,391
------------ -------------
Cash and cash equivalents at
end of the period $ 1,130,598 $ 247,388
============ =============
</TABLE>
See accompanying notes.
5
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1996
1. BASIS OF PRESENTATION
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and six months ended June 30, 1996 and 1995 are
unaudited. These financial statements reflect all adjustments, consisting of
only normal recurring adjustments which, in the opinion of management, are
necessary to state fairly the financial position at June 30, 1996 and the
results of operations for the three and six months ended June 30, 1996 and
1995. The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the year
ended December 31, 1996. For more complete financial information, these
financial statements and the notes thereto should be read in conjunction with
the audited financial statements included in the Company's Annual Report and
Form 10-KSB for the year ended December 31, 1995, filed with the Securities
and Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. The net loss figures used for this
calculation recognize accumulated dividends on the Company's Series D
Preferred Stock. Such dividends are payable when declared by the Board in
cash or common stock.
3. SUBSEQUENT EVENTS
During June and July 1996 the Company received $807,000 from the exercise of
privately held warrants to certain accredited investors for 322,663 shares of
the Company's common stock. These warrants, due to expire on July 31, 1996,
had an exercise price of $2.50. The Company filed an S-3 Registration
statement, which went effective July 19, 1996, to register the resale of such
shares. As of June 30, 1996, warrants for 116,983 had been exercised,
accounting for $292,000 in equity capital and other receivables.
In August 1996 the Company and Ethicon, Inc., a subsidiary of the Johnson &
Johnson Company, revised certain terms of their licensing and development
agreement. The revisions extend the research phase of the agreement for four
more months and provide for additional research payments to the Company.
These payments are to be credited against future manufacturing and royalty
payments to the Company. Additionally, the date the agreement would
automatically terminate if the next scientific milestone is not achieved and
approved by Ethicon was revised to December 14, 1996, unless otherwise
amended. No other terms of the agreement were altered.
Concurrent with the Ethicon agreement revisions, Johnson & Johnson Development
Corp. agreed to exercise its warrant for 300,480 shares of common stock at
$1.25 per share, raising $376,000 for the Company.
6
<PAGE>
4. LIQUIDITY
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes its existing
available cash and short-term investments as of June 30, 1996, along with
capital raised to this date and expected future payments from Ethicon through
1996, is sufficient to meet its anticipated capital requirements until June
1997. If the Company receives contractual payments from Ethicon based on the
Company achieving its next scientific milestone by the end of 1996, there
would be sufficient funds for continuing operations until the fourth quarter
of 1997. Nevertheless, substantial additional capital resources will be
required to fund continuing expenditures related to the Company's research,
development and product marketing activities.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
Protein Polymer Technologies, Inc. (the "Company") is a development stage
biotechnology company that has concentrated its research efforts on
establishing a scientific and technical leadership position in the design and
manufacture of unique protein-based materials. The Company has identified
biomedical market and product opportunities that it believes will exploit the
unique properties of the technology to competitive advantage. The Company has
been unprofitable to date, and has an accumulated deficit of $17,789,000.
In September 1995 the Company entered into collaborative agreements with
Ethicon, Inc., a subsidiary of the Johnson & Johnson Company, related to the
Company's tissue adhesives and sealants program. The Company's strategy with
most of its other programs is to enter into similar agreements with major
medical product marketing and distribution companies. Although these
relationships may provide significant near-term revenues in the form of up-
front license fees, research and development revenues and milestone payments,
the Company expects to incur continuing operating losses for the next several
years.
RESULTS OF OPERATIONS
Sales and license fees from the Company's ProNectin(R) F product line for the
three months ended June 30, 1996 and 1995 were $9,000 and $25,000,
respectively. For the six months ended June 30, 1996 and 1995 these revenues
were $25,000 and $59,000, respectively. The decreases versus last year were
due to the launch in 1995 of the Company's SmartPlastic(TM) Activated
Plasticware(TM) product line which included sales into the distributor
pipeline. Contract research revenue for the three months ended June 30, 1996
totaled $100,000, versus none for the same period in 1995. For the six months
ended June 30, 1996 and 1995 these revenues were $100,000 and $10,000,
respectively. The 1996 revenue represents an agreement extension payment from
Ethicon.
Interest income was $18,000 for the three months ended June 30, 1996, compared
to $7,000 for the same period in 1995. For the six months ended June 30, 1996
and 1995 it was $39,000 and $22,000, respectively. The increases resulted
primarily from additional cash available for investing received from the sale
of preferred stock and the exercise of certain warrants.
Cost of goods sold was $6,000 for each of the three months ended June 30, 1996
and 1995. For the six months ended June 30, 1996 and 1995 these expenses were
$12,000 and $30,000, respectively. The decrease in costs related primarily to
the 1995 launching and start-up costs of the Company's SmartPlastic product
line. Royalty expenses paid to Stanford University and Telios
Pharmaceuticals, Inc. were $6,000 for each of the three month periods ended
June 30, 1996 and 1995, and $23,000 for each of the six month periods ended
June 30, 1996 and 1995.
Research and development expenses for the three months ended June 30, 1996
were $461,000, compared to $450,000 for the same period in 1995, a 2.5%
increase. For the six months ended June 30, 1996 and 1995 these expenses were
$908,000 and $921,000, respectively, a 1% decrease. The Company expects that
its research and development expenses will increase over time to the extent
its projects are successfully developed and additional capital is obtained.
Selling, general and administrative expenses for the three months ended June
30, 1996 were $357,000, as compared to $301,000 for the same period in 1995,
an 18% increase. This increase was primarily due to additional patent and
legal expenses and higher investor relations costs. For the six months ended
June 30, 1996 and 1995 these expenses were $667,000 and $687,000,
respectively, a 3% decrease. The Company expects its selling, general and
administrative
8
<PAGE>
expenses to increase as support for its research, development and product
marketing efforts require and to the extent additional capital is raised.
For the three months ended June 30, 1996, the Company recorded a net loss
applicable to common shareholders of $825,000, or $.13 per share compared to
$786,000, or $.13 per share for the same period in 1995, a 5% increase.
Included in the three month periods of 1996 and 1995 were $122,000 and $54,000
for undeclared cumulative dividends related to the Company's outstanding
preferred stock. For the six months ended June 30, 1996 and 1995, the
Company recorded a net loss applicable to common shareholders of $1,691,000,
or $.27 per share compared to $1,677,000, or $.29 per share for the same
period in 1995, a 1% increase. Included in the six month periods of 1996 and
1995 were $245,000 and $108,000 for undeclared cumulative dividends related to
the Company's outstanding preferred stock.
The Company expects to incur similar or increasing operating losses for the
immediate future (to the extent additional capital is obtained), due primarily
to increases in the Company's product development, manufacturing and business
development activities. The Company's results depend on its ability to
generate product and contract revenues and establish strategic alliances,
increased research, development and manufacturing efforts, preclinical and
clinical product testing and commercialization expenditures, expenses incurred
for regulatory compliance and patent prosecution, and other factors. The
Company's results will also fluctuate from period to period due to timing
differences.
To date the Company believes that inflation and changing prices have not had a
material effect on its continuing operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash, cash equivalents and short-term
investments of $1,331,000 as compared to $2,011,000 at December 31, 1995. As
of June 30, 1996, the Company had working capital of $1,470,000, compared to
$1,803,000 at December 31, 1995. These decreases resulted from the funding of
losses from operations and additional capital expenditures, offset by net
proceeds from the exercise of warrants and sale of common stock.
The Company had no long-term debt obligations as of June 30, 1996 and December
31, 1995. For the six months ending June 30, 1996, the Company's expenditures
for capital equipment and leasehold improvements totaled $35,000, compared
with $23,000 for the same period last year. The Company is expecting to
increase its capital expenditures in the next few quarters (to the extent
additional capital is obtained), as the Company moves into its expanded
facilities and retrofits existing space to achieve "good laboratory practices"
compliance as certified by the Food and Drug Administration.
The Company believes its existing available cash and short-term investments as
of June 30, 1996, combined with capital raised during July and August 1996
from the exercise of outstanding warrants, (see Subsequent Events, above) will
be sufficient to meet its anticipated capital requirements until June 1997. If
the Company receives contractual payments from Ethicon based on the Company
achieving its next scientific milestone by the end of 1996, there would be
sufficient funds for continuing operations until the fourth quarter of 1997.
Nevertheless, substantial additional capital resources will be required to
fund continuing expenditures related to the Company's research, development
and product marketing activities. The Company believes there may be a number
of alternatives to meet its continuing capital needs of its operations, such
as additional collaborative agreements and public or private financings, and
is actively pursuing all of these approaches. However, there can be no
assurance that the requisite fundings will be consummated in the necessary
time frame or on terms favorable to the Company. If adequate funds are not
available, the Company may be required to significantly curtail its operating
plans and relinquish rights to significant portions of the Company's
technology or products.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
None.
10
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROTEIN POLYMER TECHNOLOGIES, INC.
<TABLE>
<C> <S>
Date August 12, 1996 By /s/ J. THOMAS PARMETER
--------------- -------------------------------
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date August 12, 1996 By /s/ ARON P. STERN
--------------- ------------------
Aron P. Stern
Vice President, Finance and Administration
and Chief Financial Officer
</TABLE>
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
------ ----------- -------------
<C> <S> <C>
27 Financial Data Schedule 12
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 1,130,598 1,130,598
<SECURITIES> 200,000 200,000
<RECEIVABLES> 17,741 17,741
<ALLOWANCES> 0 0
<INVENTORY> 51,210 51,210
<CURRENT-ASSETS> 1,761,883 1,761,883
<PP&E> 1,143,065 1,143,065
<DEPRECIATION> (860,057) (860,057)
<TOTAL-ASSETS> 2,067,948 2,067,948
<CURRENT-LIABILITIES> 291,931 291,931
<BONDS> 0 0
0 0
4,764,746 4,764,746
<COMMON> 14,800,304 14,800,304
<OTHER-SE> (17,789,033) (17,789,033)
<TOTAL-LIABILITY-AND-EQUITY> 2,067,948 2,067,948
<SALES> 9,010 24,524
<TOTAL-REVENUES> 127,112 163,581
<CGS> 5,670 11,885
<TOTAL-COSTS> 5,670 11,885
<OTHER-EXPENSES> 824,163 1,597,924
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (702,721) (1,446,228)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (702,721) (1,446,228)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 122,295 244,590
<CHANGES> 0 0
<NET-INCOME> (825,016) (1,690,818)
<EPS-PRIMARY> (0.13) (0.27)
<EPS-DILUTED> 0 0
</TABLE>
