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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 March 31, 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 April 30, 1997, 9,141,228
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 -
March 31, 1997 and December 31, 1996........................... 3
Condensed Statements of Operations -
For the Three Months ended
March 31, 1997 and 1996....................................... 4
Condensed Statements of Cash Flows -
For the Three Months ended
March 31, 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 6. Exhibits and Reports on Form 8-K.................... 9
Signature........................................... 10
2
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Balance Sheets
March 31, December 31,
1997 1996
____________ ____________
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 661,939 $ 267,357
Short-term investments 4,329,113 993,042
Accounts receivable 56,922 20,448
Inventory 15,204 20,694
Other current assets 53,625 36,113
____________ ____________
Total current assets 5,116,803 1,337,654
Deposits 30,479 22,257
Deferred offering costs - 17,356
Equipment and leasehold improvements, net 386,827 369,314
____________ ____________
$ 5,534,109 $ 1,746,581
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 171,222 $ 251,321
Accrued employee benefits 134,078 117,612
Other accrued expenses 100,173 53,525
Deferred revenue 95,750 75,000
____________ ____________
Total current liabilities 501,223 497,458
Stockholders' equity:
Series D convertible preferred stock,
$.01 par value, 71,600 shares
authorized,49,187 shares issued and
outstanding at March 31, 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, 9,141,228 and
7,233,228 shares issued and outstanding
at March 31, 1997 and December 31, 1996,
respectively 91,412 72,333
Additional paid-in capital 20,224,905 15,619,282
Accumulated deficit (20,084,593) (19,207,237)
____________ ____________
Total stockholders' equity 4,996,469 1,249,123
____________ ____________
$ 5,534,109 $ 1,746,581
============ ============
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Operations
Three months ended March 31,
1997 1996
____________ ____________
(unaudited)
Revenues:
Contract revenue $ 137,250 $ -
Interest income 62,445 20,955
Product and other income 18,604 15,514
____________ ____________
Total revenues 218,299 36,469
Expenses:
Cost of sales 11,888 6,214
Research and development 638,929 447,162
Selling, general and administrative 428,588 310,349
Royalties 16,250 16,250
____________ ____________
Total expenses 1,095,655 779,975
____________ ____________
Net loss (877,356) (743,506)
Undeclared dividends on preferred stock 121,282 122,295
____________ ____________
Net loss applicable to common shareholders $ (998,638) $ (865,801)
============ ============
Net loss per common share $ (0.11) $ (0.15)
============ ============
Shares used in computing
net loss per common share 9,035,106 5,866,898
============ ============
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
Three months ended March 31,
1997 1996
____________ ____________
(unaudited)
OPERATING ACTIVITIES
Net loss $ (877,356) $ (743,506)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 36,289 28,101
Changes in assets and liabilities:
Inventory 5,490 1,935
Deposits (8,222) (1,150)
Deferred offering costs 17,356 -
Other current assets (53,986) (23,817)
Accounts payable (80,099) 46,837
Accrued employee benefits 16,466 7,067
Other accrued expenses 46,648 (19,778)
Deferred revenue 20,750 -
____________ ____________
Net cash used for operating activities (876,664) (704,311)
INVESTING ACTIVITIES
Purchase of equipment and improvements (15,207) (63,157)
Short-term investments (3,336,071) 650,000
____________ ____________
Net cash provided by (used for)
investing activities (3,351,278) 586,843
FINANCING ACTIVITIES
Net proceeds from exercise of options and
warrants, and sale of common stock 4,624,702 281,160
Payment on capital lease obligations (2,178) -
____________ ____________
Net cash provided by financing activities 4,622,524 281,160
____________ ____________
Net increase in cash and cash equivalents 394,582 163,692
Cash and cash equivalents at beginning
of the period 267,357 471,296
____________ ____________
Cash and cash equivalents at end
of the period $ 661,939 $ 634,988
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 472 $ -
Equipment financed by capital leases $ 38,595 $ -
See accompanying notes.
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PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
March 31, 1997
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three months ended March 31, 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 March 31, 1997 and the results of
operations for the three months ended March 31, 1997 and 1996. The results of
operations for the three months ended March 31, 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 March 31, 1997 is sufficient to
meet its anticipated capital requirements until July 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.
5. Subsequent Event
A loan for $140,000, secured by a pledge of stock, was made to an officer of the
Company on April 16, 1997, solely to meet tax obligations arising from the
exercise of a stock option. Interest will accrue at the annual rate of 8% on
the unpaid principal balance. All remaining principal and accrued interest
thereon is to be paid to the Company in full by April 16, 1998.
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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
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: tissue adhesives and
sealants; wound healing; tissue augmentation; surgical adhesion barriers; and
drug delivery devices. The Company has also developed technology that can
efficiently modify and improve the surface properties of more traditional
implantable materials used in a variety of applications, including
cardiovascular and stent products and contact lenses. The Company has been
unprofitable to date, and has an accumulated deficit of $20,085,000.
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 $1.6 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 March 31, 1997 totaled
$137,000, compared to no revenue for the same period in 1996. The revenue
represents contractual payments from Ethicon related to the Company's tissue
adhesives and sealants program.
Interest income was $62,000 for the three months ended March 31, 1997, versus
$21,000 for the same period in 1996. The increase resulted from additional cash
available for investing received from the sale of common stock in a private
placement.
For the three months ended March 31, 1997 and 1996, sales and license fees from
the Company's ProNectin(R) F product line were $19,000 and $16,000,
respectively. The increase was due to reorders into the distributor pipeline.
Cost of sales was $12,000 for the three months ended March 31, 1997, compared to
$6,000 for the same period in 1996. The increase related primarily to the mix of
product sold. Royalty expenses paid to Stanford University and Telios
Pharmaceuticals, Inc. were $16,000 for each of the three month periods ended
March 31, 1997 and 1996.
Research and development expenses for the three months ended March 31, 1997 were
$639,000, compared to $447,000 for the same period in 1996, a 43% increase. The
increase was primarily attributable to expanded efforts related to the tissue
adhesives program, including preparation for Good Laboratory Practices ("GLP")
laboratory testing and materials manufacturing capabilities, as required by the
Food and Drug Administration. The Company expects that its research and
development expenses will continue to increase over time to the extent its
projects are successfully progressing and additional capital is obtained.
7
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Selling, general and administrative expenses for the three months ended March
31, 1997 were $429,000, as compared to $310,000 for the same period in 1996, a
38% increase. This increase was 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 March 31, 1997, the Company recorded a net loss
applicable to common shareholders of $999,000, or $.11 per share compared to a
loss of $866,000, or $.15 per share for the same period in 1996. Also included
in each of the three month periods of 1997 and 1996 was $121,000 and $122,000,
respectively, for undeclared 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 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 March 31, 1997, the Company had cash, cash equivalents and short-term
investments of $4,991,000 as compared to $1,260,000 at December 31, 1996. As of
March 31, 1997, the Company had working capital of $4,612,000, 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 March 31, 1997 of $36,000 in
the form of capital lease obligations, versus no such obligation as of December
31, 1996. For the three months ending March 31, 1997, the Company's
expenditures for capital equipment and leasehold improvements totaled $54,000,
compared with $63,000 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 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 March 31, 1997 will be sufficient to meet its anticipated capital
requirements until July 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.
8
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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: May 9, 1997 By: /s/ J. Thomas Parmeter
_______________ __________________________________
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date: May 9, 1997 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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