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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, 1997
[ ] 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
incorporation or organization) Identification No.)
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 13, 1997, 9,170,140
shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
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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 -
June 30, 1997 and December 31, 1996............................ 3
Condensed Statements of Operations -
For the Three and Six Months Ended
June 30, 1997 and 1996........................................ 4
Condensed Statements of Cash Flows -
For the Six Months Ended
June 30, 1997 and 1996........................................ 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K.................... 10
Signature........................................... 11
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Balance Sheets
June 30, December 31,
1997 1996
____________ ____________
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 520,854 $ 267,357
Short-term investments 3,158,443 993,042
Interest receivable 79,235 20,448
Inventory, net 10,167 20,694
Other current assets 184,049 36,113
____________ ____________
Total current assets 3,952,748 1,337,654
Deposits 38,479 22,257
Deferred offering costs - 17,356
Equipment and leasehold improvements, net 530,081 369,314
____________ ____________
$ 4,521,308 $ 1,746,581
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 360,399 $ 251,321
Accrued employee benefits 139,980 117,612
Other accrued expenses 82,197 53,525
Deferred revenue 75,000 75,000
____________ ____________
Total current liabilities 657,576 497,458
Long-term portion capital leases 33,894 -
Stockholders' equity:
Series D convertible preferred stock,
$.01 par value, 71,600 shares
authorized,49,187 shares issued and
outstanding at June 30, 1997 and
December 31, 1996, respectively -
liquidation preference $4,918,700 4,764,745 4,764,745
Common stock, $.01 par value, 25,000,000
shares authorized, 9,153,048 and
7,233,228 shares issued and outstanding
at June 30, 1997 and December 31, 1996,
respectively 91,531 72,333
Additional paid-in capital 20,238,721 15,619,282
Accumulated deficit (21,265,159) (19,207,237)
____________ ____________
Total stockholders' equity 3,829,838 1,249,123
____________ ____________
$ 4,521,308 $ 1,746,581
============ ============
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Operations
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
__________ __________ __________ __________
Revenues:
Contract revenue $ 95,750 $ 100,000 $ 233,000 $ 100,000
Interest income 59,289 18,102 121,734 39,057
Product and other income 15,300 9,010 33,904 24,524
__________ __________ __________ __________
Total revenues 170,339 127,112 388,638 163,581
Expenses:
Cost of sales 6,033 5,670 17,921 11,885
Research and development 777,296 461,107 1,416,225 908,269
Selling, general and
administrative 561,326 356,806 989,914 667,155
Royalties 6,250 6,250 22,500 22,500
__________ __________ __________ __________
Total expenses 1,350,905 829,833 2,446,560 1,609,809
__________ __________ __________ __________
Net loss (1,180,566) (702,721) (2,057,922) (1,446,228)
Undeclared dividends on
preferred stock 122,630 122,295 243,912 244,590
__________ __________ __________ __________
Net loss applicable to
common shareholders $(1,303,196) $ (825,016) $(2,301,834) $(1,690,818)
=========== =========== =========== ===========
Net loss per common share $ (0.14) $ (0.13) $ (0.25) $ (0.27)
=========== =========== =========== ===========
Shares used in computing
loss per common share 9,148,593 6,454,777 9,092,163 6,160,837
=========== =========== =========== ===========
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
Six months ended June 30,
1997 1996
____________ ____________
(unaudited)
OPERATING ACTIVITIES
Net loss $ (2,057,922) $ (1,446,228)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 76,572 55,098
Changes in assets and liabilities:
Inventory 10,527 3,324
Deposits (16,222) (800)
Deferred offering costs 17,356 -
Other current assets (206,723) (331,798)
Accounts payable 109,078 (14,636)
Accrued employee benefits 22,368 12,039
Other accrued expenses 28,672 (16,325)
____________ ____________
Net cash used for operating activities (2,016,294) (1,739,326)
INVESTING ACTIVITIES
Purchase of equipment and improvements (198,744) (35,311)
Short-term investments (2,165,401) 1,340,000
____________ ____________
Net cash provided by (used for)
investing activities (2,364,145) 1,304,689
FINANCING ACTIVITIES
Net proceeds from exercise of options and
warrants, and sale of common stock 4,638,637 1,093,939
Payment on capital lease obligations (4,701) -
____________ ____________
Net cash provided by financing activities 4,633,936 1,093,939
____________ ____________
Net increase in cash and cash equivalents 253,497 659,302
Cash and cash equivalents at beginning
of the period 267,357 471,296
____________ ____________
Cash and cash equivalents at end
of the period $ 520,854 $ 1,130,598
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 1,824 $ -
Equipment financed by capital leases $ 38,595 $ -
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1997
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and six months ended June 30, 1997 and 1996 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, 1997 and the
results of operations for the three and six months ended June 30, 1997 and
1996. The results of operations for the three and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the year
ended December 31, 1997. 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, 1996, 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 of Directors in
cash or common stock.
3. Accounting Standards on Earnings per Share
In February 1997 the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact is not expected
to be material.
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, 1997 is sufficient to
meet its anticipated capital requirements until June 1998. 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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN, AS
WELL AS THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1996.
General Overview
Protein Polymer Technologies, Inc. is a development-stage biotechnology company
engaged in the research, development and production of proprietary
protein-based biomaterials. Since 1992 the Company has focused on medical uses
for its materials, primarily for the surgical repair markets: surgical
adhesives and sealants, soft tissue augmentation, wound healing and tissue
engineering, surgical adhesion barriers and drug delivery devices. The Company
has also developed coating technology that can efficiently modify and improve
the surface properties of more traditional implantable materials used in a
variety of applications, including cardiovascular products and contact lenses.
The Company has been unprofitable to date, and has an accumulated deficit of
$21,265,000.
In September 1995 the Company entered into collaborative agreements with
Ethicon, Inc., a subsidiary of the Johnson & Johnson Company, related to the
Company's surgical adhesives and sealants program. To date the Company has
received $1.7 million in contractual payments from Ethicon as reimbursements
for ongoing program research and development efforts. 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.
In early January 1997 the Company received $4.76 million, less expenses of
approximately $140,000, from a private placement of the Company's common stock
with a number of institutional and qualified individual investors, consisting
of 1,904,000 shares at $2.50 per share. The Company agreed to register the
shares with the Securities and Exchange Commission promptly after the closing;
the registration was declared effective on January 24, 1997.
Results of Operations
Contract research revenue for the three months ended June 30, 1997 totaled
$96,000, compared to $100,000 revenue for the same period in 1996. For the six
month period ended June 30, 1997 these revenues were $233,000, compared to
$100,000 for the same period in 1996. The revenue represents contractual
payments from Ethicon related to the Company's surgical adhesives and sealants
program.
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Interest income was $59,000 for the three months ended June 30, 1997, versus
$18,000 for the same period in 1996. For the six month period ended June 30,
1997 interest income was $122,000, compared to $39,000 for the same period in
1996. The increase in income resulted from additional cash made available for
investing from the sale of common stock in a private placement during January
1997.
For the three months ended June 30, 1997 and 1996, sales from the Company's
ProNectin(R) F product line were $15,000 and $9,000, respectively. For the six
month period ended June 30, 1997 these product sales were $34,000, compared to
$25,000 for the same period in 1996. The increases were due to reorders into
the distributor pipeline.
Cost of sales was $6,000 for the three months ended June 30, 1997, compared to
$6,000 for the same period in 1996. For the six month period ended June 30,
1997 these expenses were $18,000, compared to $12,000 for the same period in
1996. The increases related primarily to the mix of product sold. Royalty
expenses paid to Stanford University and Telios Pharmaceuticals, Inc. were
$6,000 for each of the three month periods ended June 30, 1997 and 1996. These
expenses were $23,000 for each of the six month periods ended June 30, 1997 and
1996.
Research and development expenses for the three months ended June 30, 1997 were
$777,000, compared to $461,000 for the same period in 1996, a 69% increase. For
the six month period ended June 30, 1997 these expenses were $1,416,000,
compared to $908,000 for the same period in 1996, a 56% increase. These
increases were primarily attributable to expanded efforts related to the
Company's surgical adhesives and sealants program and the soft tissue
augmentation program, including preparation for Good Laboratory Practices
("GLP") materials manufacturing and testing capabilities, as required by the
Food and Drug Administration before entering clinical trials. The Company
expects that its research and development expenses will continue to increase
over time to the extent its programs are successfully progressing and
additional capital is obtained.
Selling, general and administrative expenses for the three months ended June
30, 1997 were $561,000, as compared to $357,000 for the same period in 1996, a
57% increase. For the six month period ended June 30, 1997 these expenses were
$990,000, compared to $667,000 for the same period in 1996, a 48% increase.
These increases were primarily due to additional patent, legal and insurance
expenses and expanded investor relations efforts. The Company expects its
selling, general and administrative expenses to continue to increase as support
for its research and development efforts require and to the extent additional
capital is raised.
For the three months ended June 30, 1997, the Company recorded a net loss
applicable to common shareholders of $1,303,000, or $.14 per share, compared to
a loss of $825,000, or $.13 per share for the same period in 1996. For the six
month period ended June 30, 1997 the net loss applicable to common shareholders
was $2,302,000, or $.25 per share, compared to a loss of $1,691,000, or $.27
per share for the same period in 1996. Included in the net loss figures for
each of the three and six month periods of 1997 and 1996 were undeclared
dividends related to the Company's preferred stock.
8
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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, establish and maintain strategic alliances,
increased research, development and manufacturing efforts, preclinical and
clinical product testing and commercialization expenditures, expenses incurred
for regulatory compliance and seeking various regulatory approvals, 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, 1997, the Company had cash, cash equivalents and short-term
investments of $3,679,000 as compared to $1,260,000 at December 31, 1996. As
of June 30, 1997, the Company had working capital of $3,295,000, compared to
$840,000 at December 31, 1996. In early January 1997 the Company received
$4.76 million, less expenses of approximately $140,000, from a private
placement of the Company's common stock with a number of institutional and
qualified individual investors, consisting of 1,904,000 shares at $2.50 per
share.
The Company had long-term debt obligations as of June 30, 1997 of $34,000 in
the form of capital lease obligations, versus no such obligation as of December
31, 1996. For the six months ending June 30, 1997, the Company's expenditures
for capital equipment and leasehold improvements totaled $199,000, compared
with $35,000 for the same period last year. The Company is expecting to
continue increasing its capital expenditures in the next few quarters (to the
extent additional capital is obtained), as the Company improves existing space
to achieve GLP compliance for laboratory testing and materials manufacturing
requirements. The Company may enter into additional capital lease
arrangements, if available or under appropriate terms and timing.
The Company believes its existing available cash and short-term investments as
of June 30, 1997 will be sufficient to meet its anticipated capital
requirements until June 1998. Substantial additional capital resources will be
required to fund continuing expenditures related to the Company's research,
development and manufacturing 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.
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PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 25, 1997.
Proposals voted upon and the results of voting were as follows:
(1) Proposal to approve the Company's 1996 Employee Stock Purchase Plan.
Votes for: 4,678,394
Votes against: 87,843
Abstentions: 60,925
Broker non-votes: 2,040,050
(2) Proposal to approve ratification of Ernst & Young, LLP as independent
auditors for the fiscal year ending December 31, 1997.
Votes for: 6,827,392
Votes against: 19,345
Abstentions: 20,475
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.
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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: August 13, 1997 By: /s/ J. Thomas Parmeter
_________________ __________________________________
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date: August 13, 1997 By: /s/ Aron P. Stern
_________________ __________________________________
Aron P. Stern
Vice President, Finance and
Administration and Chief Financial
Officer
11
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EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
________ ___________________________________________ _____________
27 Financial Data Schedule 13
12
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