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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 September 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 October 30, 1997, 10,413,598
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 -
September 30, 1997 and December 31, 1996....................... 3
Condensed Statements of Operations -
For the Three and Nine Months Ended
September 30, 1997 and 1996................................... 4
Condensed Statements of Cash Flows -
For the Nine Months Ended
September 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 1. Legal Proceedings................................... 10
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
September 30, December 31,
1997 1996
____________ ____________
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 188,644 $ 267,357
Short-term investments 2,300,000 993,042
Interest receivable 58,936 20,448
Inventory, net 5,552 20,694
Other current assets 238,984 36,113
____________ ____________
Total current assets 2,792,116 1,337,654
Deposits 38,479 22,257
Deferred offering costs - 17,356
Equipment and leasehold improvements, net 624,932 369,314
____________ ____________
$ 3,455,527 $ 1,746,581
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 271,353 $ 251,321
Accrued employee benefits 148,758 117,612
Other accrued expenses 53,004 53,525
Deferred revenue 75,000 75,000
Current portion capital lease obligations 56,926 -
____________ ____________
Total current liabilities 605,041 497,458
Long-term portion capital lease obligations 151,240 -
Stockholders' equity:
Series D convertible preferred stock,
$.01 par value, 71,600 shares authorized,
28,214 and 49,187 shares issued and
outstanding at September 30, 1997 and
December 31, 1996, respectively -
liquidation preference $2,821,400 2,667,404 4,764,745
Common stock, $.01 par value, 25,000,000
shares authorized, 10,413,598 and
7,233,228 shares issued and outstanding
at September 30, 1997 and December 31,
1996, respectively 104,136 72,333
Additional paid-in capital 22,765,996 15,619,282
Accumulated deficit (22,838,290) (19,207,237)
____________ ____________
Total stockholders' equity 2,699,246 1,249,123
____________ ____________
$ 3,455,527 $ 1,746,581
============ ============
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Operations
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
__________ __________ __________ __________
Revenues:
Contract revenue $ 91,510 $ 310,000 $ 324,510 $ 410,000
Interest income 41,151 26,206 162,885 65,263
Product and other income 27,840 21,140 61,744 45,664
__________ __________ __________ __________
Total revenues 160,501 357,346 549,139 520,927
Expenses:
Cost of sales 5,380 7,994 23,301 19,878
Research and development 835,844 544,146 2,252,069 1,452,415
Selling, general and
administrative 463,817 394,482 1,453,731 1,061,637
Royalties 6,250 6,250 28,750 28,750
__________ __________ __________ __________
Total expenses 1,311,291 952,872 3,757,851 2,562,680
__________ __________ __________ __________
Net loss (1,150,799) (595,526) (3,208,712) (2,041,753)
Undeclared accumulated
and/or paid dividends on
preferred stock 117,657 123,639 361,569 368,228
__________ __________ __________ __________
Net loss applicable to
common shareholders $(1,268,447) $ (719,165) $(3,570,281) $(2,409,981)
=========== =========== =========== ===========
Net loss per common share $ (0.14) $ (0.10) $ (0.39) $ (0.37)
=========== =========== =========== ===========
Shares used in computing
net loss per common share 9,332,156 7,008,171 9,173,040 6,445,343
=========== =========== =========== ===========
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
Nine Months ended September 30,
1997 1996
____________ ____________
(unaudited)
OPERATING ACTIVITIES
Net loss $ (3,208,712) $ (2,041,753)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 124,166 84,265
Changes in assets and liabilities:
Inventory 15,142 9,383
Deposits (16,222) (800)
Interest receivable (38,488) 3,639
Other current assets (202,871) (28,946)
Accounts payable 20,032 67,129
Accrued employee benefits 31,146 9,858
Deferred revenue - 200,000
Deferred offering costs 17,356 -
Other accrued expenses (521) (10,468)
____________ ____________
Net cash used for operating activities (3,258,972) (1,707,693)
INVESTING ACTIVITIES
Purchase of equipment and improvements (164,192) (96,907)
Short-term investments (1,306,958) (18,042)
____________ ____________
Net cash used for investing activities (1,471,150) (114,949)
FINANCING ACTIVITIES
Net proceeds from exercise of options and
warrants, and sale of common stock 4,658,836 1,960,249
Payment on capital lease obligations (7,427) -
____________ ____________
Net cash provided by financing activities 4,651,409 1,960,249
____________ ____________
Net increase (decrease) in cash and cash
equivalents (78,713) 137,607
Cash and cash equivalents at beginning
of the period 267,357 471,296
____________ ____________
Cash and cash equivalents at end
of the period $ 188,644 $ 608,903
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 3,074 $ -
Equipment financed by capital leases $ 215,592 $ -
Preferred stock converted to common stock $ 2,097,341 $ -
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 1997
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and nine months ended September 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 September 30, 1997 and the
results of operations for the three and nine months ended September 30, 1997 and
1996. The results of operations for the three and nine months ended September
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. Capital Lease Financing
In August 1997 the Company entered into a capital equipment lease line agreement
with Transamerica Business Credit initially for up to $400,000 of laboratory and
manufacturing equipment. During September the Company financed $177,000 of
laboratory equipment on a 42 month term.
5. Series D Preferred Stock Conversion
On September 14, 1997 the two year lock-up on conversion of the Company's Series
D Convertible Preferred Stock expired. Subsequently, on September 19, 1997 a
group of Series D Preferred investors elected to convert 20,973 shares, plus
accumulated dividends. The investors received a total of 1,240,458 shares of
unregistered common stock. Per the terms of the investors' Stock Purchase
Agreement, the Company will file for registration of these shares under Form S-3
of the Securities and Exchange Commission. There remain 28,214 shares of Series
D Preferred Stock outstanding at September 30, 1997.
6
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6. 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, 1997 is sufficient
to meet its anticipated capital requirements until April 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 major
portions of the Company's technology or potential products.
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 $22,838,000.
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.
7
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Results of Operations
Contract research revenue for the three months ended September 30, 1997 totaled
$92,000, compared to $310,000 in revenue for the same period in 1996. For the
nine month period ended September 30, 1997 these revenues were $325,000,
compared to $410,000 for the same period in 1996. The revenue represents
contractual payments primarily from Ethicon related to the Company's surgical
adhesives and sealants program.
Interest income was $41,000 for the three months ended September 30, 1997,
versus $26,000 for the same period in 1996. For the nine month period ended
September 30, 1997 interest income was $163,000, compared to $65,000 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 September 30, 1997 and 1996, sales from the Company's
ProNectin(R) product line were $28,000 and $21,000, respectively. For the nine
month period ended September 30, 1997 these product sales were $62,000, compared
to $46,000 for the same period in 1996. The increases were due to reorders from
the distributors.
Cost of sales was $5,000 for the three months ended September 30, 1997, compared
to $8,000 for the same period in 1996. For the nine month period ended
September 30, 1997 these expenses were $23,000, compared to $20,000 for the same
period in 1996. The variances 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 September 30, 1997 and
1996. These expenses were $29,000 for each of the nine month periods ended
September 30, 1997 and 1996.
Research and development expenses for the three months ended September 30, 1997
were $836,000, compared to $544,000 for the same period in 1996, a 54% increase.
For the nine month period ended September 30, 1997 these expenses were
$2,252,000, compared to $1,452,000 for the same period in 1996, a 55% increase.
These increases were primarily due to expanded efforts in 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
September 30, 1997 were $464,000, as compared to $394,000 for the same period in
1996, an 18% increase. For the nine month period ended September 30, 1997 these
expenses were $1,454,000, compared to $1,062,000 for the same period in 1996, a
37% 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.
8
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For the three months ended September 30, 1997, the Company recorded a net loss
applicable to common shareholders of $1,268,000, or $.14 per share, compared to
a loss of $719,000, or $.10 per share for the same period in 1996. For the nine
month period ended September 30, 1997 the net loss applicable to common
shareholders was $3,570,000, or $.39 per share, compared to a loss of
$2,410,000, or $.37 per share for the same period in 1996. Included in the net
loss figures for each of the three and nine month periods of 1997 and 1996 were
undeclared and/or paid dividends related to the Company's 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 and maintain strategic alliances.
Its results also depend on 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 September 30, 1997, the Company had cash, cash equivalents and short-term
investments of $2,489,000 as compared to $1,260,000 at December 31, 1996. As of
September 30, 1997, the Company had working capital of $2,244,000, 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 September 30, 1997 of $208,000
in the form of capital lease obligations, versus no such obligation as of
December 31, 1996. For the nine months ending September 30, 1997, the Company's
expenditures for capital equipment and leasehold improvements totaled $380,000
(including $216,000 financed by capital leases), compared with $97,000 for the
same period last year. The Company is expecting to continue 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. In August 1997
the Company entered into a capital equipment lease line agreement for initially
up to $400,000 with Transamerica Business Credit, and during September financed
$177,000 of laboratory equipment on a 42 month term.
The Company believes its existing available cash and short-term investments as
of September 30, 1997 will be sufficient to meet its anticipated capital
requirements until April 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 major portions of the Company's
technology or potential products.
9
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During September 1997 the Company reached an amicable settlement, without
monetary payments, with certain persons who held Underwriter Unit Warrant
Certificates.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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: November 11, 1997 By: /s/ J. Thomas Parmeter
___________________ __________________________________
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date: November 11, 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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