<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 September 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 Identification No.)
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 October 28, 1996, 7,208,228
shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes_____ No__X__
1
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PROTEIN POLYMER TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
Page No.
________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
September 30, 1996 and December 31, 1995............... 3
Condensed Statements of Operations -
For the Three and Nine Months ended
September 30, 1996 and 1995.......................... 4
Condensed Statements of Cash Flows -
For the Nine Months ended
September 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... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 9
Signature................................................ 10
2
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Balance Sheets
September 30, December 31,
1996 1995
____________ ____________
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 608,903 $ 471,296
Short-term investments 1,558,042 1,540,000
Accounts receivable 21,053 28,099
Inventory 45,151 54,534
Other current assets 52,531 20,178
____________ ____________
Total current assets 2,285,680 2,114,107
Deposits 23,057 22,257
Equipment and leasehold improvements, net 315,437 302,795
____________ ____________
$ 2,624,174 $ 2,439,159
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 225,100 $ 157,971
Accrued employee benefits 111,142 101,284
Deferred revenue 200,000 -
Other accrued expenses 41,130 51,598
____________ ____________
Total current liabilities 577,372 310,853
Stockholders' equity:
Series D convertible preferred stock,
$.01 par value, 71,600 shares authorized,
49,187 shares issued and outstanding at
September 30, 1996 4,764,746 4,764,745
Common stock, $.01 par value, 25,000,000
shares authorized, 7,208,228 and 5,832,925
shares issued and outstanding at
September 30, 1996 and December 31, 1995,
respectively 72,083 58,330
Additional paid-in capital 15,594,532 13,648,036
Accumulated deficit (18,384,559) (16,342,805)
____________ ____________
Total stockholders' equity 2,046,802 2,128,306
____________ ____________
$ 2,624,174 $ 2,439,159
============ ============
See accompanying notes.
3
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Operations
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
__________ __________ __________ __________
Revenues:
Product sales $ 21,140 $ 35,342 $ 45,664 $ 94,530
Contract revenue 310,000 800,000 410,000 810,000
Interest income 26,206 5,805 65,263 27,961
__________ __________ __________ __________
357,346 841,147 520,927 932,491
Expenses:
Cost of goods sold 7,994 24,158 19,878 53,762
Research and development 544,146 375,179 1,452,415 1,295,932
Selling, general and
administrative 394,482 326,373 1,061,637 1,013,545
Royalties 6,250 6,250 28,750 28,750
__________ __________ __________ __________
952,872 731,960 2,562,680 2,391,989
__________ __________ __________ __________
Net loss $ (595,526) $ 109,187 $(2,041,753) $(1,459,498)
Undeclared accumulated and/ or
paid dividends on
Preferred Stock 123,639 261,166 368,228 261,166
__________ __________ __________ __________
Net loss applicable to
common shareholders $ (719,165) $ (151,979) $(2,409,981) $(1,720,664)
=========== =========== =========== ===========
Net loss per common share $ (0.10) $ (0.03) $ (0.37) $ (0.30)
=========== =========== =========== ===========
Shares used in computing
loss per common share 7,008,171 5,830,990 6,445,343 5,830,947
=========== =========== =========== ===========
See accompanying notes.
4
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(unaudited)
Nine Months
Ended September 30,
1996 1995
____________ ____________
OPERATING ACTIVITIES:
Net loss $ (2,041,754) $ (1,713,372)
Adjustments to reconcile net loss to
net cash used for operating activities:
Dividends paid by issuance of
preferred stock - 253,874
Loan interest paid by issuance of
preferred stock - 4,795
Depreciation and amortization 84,265 107,878
Changes in assets and liabilities:
Accounts receivable (1,454) (87,440)
Inventory 9,383 (47,021)
Other current assets (23,853) (27,144)
Deposits (800) 1,300
Accounts payable 67,129 (9,159)
Accrued employee benefits 9,858 14,690
Other accrued expenses (10,468) (45,556)
Deferred revenue 200,000 (5,000)
____________ ____________
Net cash used for operating activities (1,707,694) (1,552,155)
INVESTING ACTIVITIES:
Purchase of equipment and improvements (96,907) (55,851)
Short-term investments 18,042 -
____________ ____________
Net cash provided by (used for)
investing activities (114,949) (55,851)
FINANCING ACTIVITIES:
Net proceeds from issuance of warrants and
sale of common stock 1,867,240 2,429,844
Exercise of common stock options 93,010 1,060
____________ ____________
Net cash provided by financing activities 1,960,250 2,430,904
____________ ____________
Net increase (decrease) in cash and
cash equivalents: 137,607 822,898
Cash and cash equivalents at
beginning of the period: 471,296 1,848,391
____________ ____________
Cash and cash equivalents at
end of the period: $ 608,903 $ 2,671,289
============ ============
Supplemental Schedule of non-cash financing activities
Dividends paid by issuance of
preferred stock $ - $ 253,874
Loan interest paid by issuance of
preferred stock - 4,795
See accompanying notes.
5
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PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 1996
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and nine months ended September 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 September 30, 1996 and the
results of operations for the three and nine months ended September 30, 1996 and
1995. The results of operations for the three and nine months ended September
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. 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 September 30, 1996 is sufficient
to meet its anticipated capital requirements until May 1997. Substantial
additional capital resources will be required to fund continuing expenditures
related to the Company's research, development and product marketing activities.
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 potential products.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Overview
Protein Polymer Technologies, Inc. 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 $18,385,000.
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. To date the Company has
received $1.4 million in contractual payments from Ethicon as reimbursements for
ongoing program research and development efforts.
The Company's other programs it is currently pursuing include tissue
augmentation, surgical adhesion barriers, drug delivery and medical device
coatings. The Company's intended strategy with most of its other programs is to
enter into product development agreements with additional medical product
marketing and distribution companies. Although these arrangements, to the
extent they become available to the Company, 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
For the three months ended September 30, 1996 and 1995, sales and license fees
from the Company's ProNectin(R) F product line were $21,000 and $35,000,
respectively. For the nine months ended September 30, 1996 and 1995 these
revenues were $46,000 and $95,000, respectively. The decreases 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 September 30, 1996 totaled $310,000,
versus $800,000 for the same period in 1995. The revenue represents contractual
payments from Ethicon related to the Company's tissue adhesives and sealants
program, including in the 1995 period an $800,000 payment upon the signing of
the agreements. For the nine months ended September 30, 1996 and 1995 these
revenues were $410,000 and $810,000, respectively.
Interest income was $26,000 for the three months ended September 30, 1996,
versus $6,000 for the same period in 1995. For the nine months ended September
30, 1996 and 1995 it was $65,000 and $28,000, respectively. The increases
resulted primarily from additional cash available for investing received from
the sale of common stock and the exercise of privately held warrants.
Cost of goods sold was $8,000 for the three months ended September 30, 1996,
compared to $24,000 for the same period in 1995. For the nine month periods
these expenses were $20,000 and $54,000, respectively. The decreases related
primarily to reduced sales of the SmartPlastic product line. Royalty expenses
paid to Stanford University and Telios Pharmaceuticals, Inc. were $6,000 for
each of the three month periods ended September 30, 1996 and 1995, and $29,000
for each of the nine month periods ended September 30, 1996 and 1995.
7
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Research and development expenses for the three months ended September 30, 1996
were $544,000, compared to $375,000 for the same period in 1995, a 45% increase.
The increase was attributable to expanded efforts related to the tissue
adhesives program, including preparation for Good Laboratory Practices ("GLP")
animal testing and materials manufacturing capabilities, as required by the Food
and Drug Administration. For the nine months ended September 30, 1996 and 1995
these expenses were $1,452,000 and $1,296,000, respectively, a 12% increase.
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
September 30, 1996 were $394,000, as compared to $326,000 for the same period in
1995, a 21% increase. This increase was primarily due to additional patent and
legal expenses and expanded investor relations efforts. For the nine months
ended September 30, 1996 and 1995 these expenses were $1,062,000 and $1,014,000,
respectively, a 5% increase. The Company expects its selling, general and
administrative expenses to increase as support for its research and development
efforts require and to the extent additional capital is raised.
For the three months ended September 30, 1996, the Company recorded a net loss
applicable to common shareholders of $719,000, or $.10 per share compared to a
loss of $152,000, or $.03 per share for the same period in 1995. The 1995
period included an $800,000 payment upon the signing of the Ethicon agreements.
Also included in the three month periods of 1996 and 1995 were $124,000 and
$261,000 for undeclared and/ or paid cumulative dividends related to the
Company's outstanding preferred stock. For the nine months ended September 30,
1996 and 1995, the Company recorded a net loss applicable to common shareholders
of $2,410,000, or $.37 per share compared to $1,721,000, or $.30 per share for
the same period in 1995. Included in the nine month periods of 1996 and 1995
were $368,000 and $261,000 for undeclared and/or paid 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 September 30, 1996, the Company had cash, cash equivalents and short-term
investments of $2,167,000 as compared to $2,011,000 at December 31, 1995. As of
September 30, 1996, the Company had working capital of $1,708,000, compared to
$1,803,000 at December 31, 1995. For the nine months ending September 30, 1996
the Company raised a net of $1,960,000 from the exercise of warrants and options
for common stock, which offset losses from operations and capital expenditures.
8
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The Company had no long-term debt obligations as of September 30, 1996 and
December 31, 1995. For the nine months ending September 30, 1996, the Company's
expenditures for capital equipment and leasehold improvements totaled $97,000,
compared with $56,000 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 GLP compliance for laboratory
testing and materials manufacturing requirements.
The Company believes its existing available cash and short-term investments as
of September 30, 1996 will be sufficient to meet its anticipated capital
requirements until May 1997. 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 the continuing capital requirements 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 potential products.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit
Number Description
27 Financial Data Schedule
b. Reports on Form 8-K
None.
9
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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.
Date November 7, 1996 By /s/ J. Thomas Parmeter
_______________ ___________________________________
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date November 7, 1996 By /s/ Aron P. Stern
_______________ ___________________________________
Aron P. Stern
Vice President, Finance and
Administration and Chief Financial
Officer
10
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EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
27 Financial Data Schedule 12
11
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<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
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<SECURITIES> 1558042 1558042
<RECEIVABLES> 21053 21053
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<INVENTORY> 45151 45151
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4764745 4764745
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<EXTRAORDINARY> 123639 368228
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