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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, 2000
[_] 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)
(858) 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 November 13, 2000, 18,528,750
shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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1
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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 -
September 30, 2000 and December 31, 1999.............................................. 3
Condensed Statements of Operations -
For the Three Months and Nine Months ended September 30, 2000 and 1999
and the period July 6, 1988 (inception) to September 30, 2000....................... 4
Condensed Statements of Cash Flows - For the Nine Months ended
September 30, 2000 and 1999
and the period July 6, 1988 (inception) to September 30, 2000....................... 5
Notes to Condensed Financial Statements.................................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................. 14
Signature........................................................................ 15
</TABLE>
2
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PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------------------------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 958,676 $ 155,692
Other current assets 57,030 49,266
-------------------------------------------
Total current assets 1,015,706 204,958
Deposits 56,977 36,177
Notes receivable from officers 140,000 140,000
Equipment and leasehold improvements, net 276,449 360,005
-------------------------------------------
$ 1,489,132 $ 741,140
===========================================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 195,183 $ 385,932
Accrued employee benefits 60,656 84,335
Other accrued expenses 43,989 17,118
Current portion capital lease obligations 45,484 79,593
Deferred revenue 333,333 -
Deferred rent 111,002 95,973
-------------------------------------------
Total current liabilities 789,647 662,951
Long-term portion deferred revenue 416,667 -
Long-term portion capital lease obligations - 25,088
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, 5,000,000 shares authorized,
84,077 and 91,065 shares issued and outstanding at September 30, 2000
and December 31, 1999, respectively; liquidation preference -
$8,407,700 at September 30, 2000 8,062,272 8,761,072
Common stock, $.01 par value, 40,000,000 shares authorized, 18,528,750
and 13,443,510 shares issued and outstanding at September 30, 2000
and December 31, 1999, respectively 185,299 134,447
Additional paid-in capital 31,405,057 28,403,077
Deficit accumulated during development stage (39,369,810) (37,245,495)
-------------------------------------------
Total stockholders' equity 282,818 53,101
-------------------------------------------
$ 1,489,132 $ 741,140
===========================================
</TABLE>
See accompanying notes.
3
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PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the period
July 6, 1988
(inception) to
Three months ended Nine months ended Sept. 30,
September 30, September 30,
2000 1999 2000 1999 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenue $ 103,333 $ 2,320 $ 593,240 $ 2,320 $ 4,950,525
Interest income 22,543 10,017 68,194 29,575 1,188,466
Product and other income - 14,111 3,011 50,627 687,328
--------------------------------------- -------------------------------------- -------------------
Total revenues 125,876 26,448 664,445 82,522 6,826,319
Expenses:
Research and development 579,041 498,614 1,775,779 1,946,693 26,529,860
Selling, general and
administrative 273,537 285,309 1,012,981 1,170,726 15,717,884
--------------------------------------- -------------------------------------- -------------------
Total expenses 852,578 783,923 2,788,760 3,117,419 42,247,744
--------------------------------------- -------------------------------------- -------------------
Net loss (726,702) (757,475) (2,124,315) (3,034,897) (35,421,425)
Undeclared, imputed and/or paid
dividends on preferred stock 69,220 69,220 207,659 207,659 5,447,313
--------------------------------------- -------------------------------------- -------------------
Net loss applicable to common
shareholders $ (795,922) $ (826,695) $ (2,331,974) $ (3,242,556) $ (40,868,738)
======================================= ====================================== ===================
Basic and diluted net loss per
common share $ (0.04) $ (0.06) $ (0.13) $ (0.26)
======================================= ======================================
Shares used in computing basic
and diluted net loss per
common share 18,503,655 13,367,249 17,404,729 12,280,147
==============================================================================
</TABLE>
See accompanying notes.
4
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PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the period
July 6, 1988
Nine months ended (inception) to
September 30, Sept. 30,
2000 1999 2000
------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $ (2,124,315) $ (3,034,897) $ (35,427,344)
Adjustments to reconcile net loss to net cash used for
operating activities:
Stock issued for compensation and interest - 18,000 128,815
Interest expense associated with issuance of warrant - 2,700 2,700
Depreciation and amortization 119,709 214,736 2,012,547
Write-off of purchased technology - - 503,500
Deferred revenue 750,000 - 750,000
Deferred rent 15,029 - 111,002
Changes in assets and liabilities:
Deposits (20,800) (800) (56,977)
Notes receivable from officers - 1,000 (140,000)
Other current assets (7,763) 17,254 (57,029)
Accounts payable (190,749) (407,051) 195,183
Accrued employee benefits (23,679) (138,209) 60,656
Other accrued expenses 26,871 16,233 43,989
------------------------------------------------------------
Net cash used for operating activities (1,455,697) (3,311,034) (31,872,958)
Investing activities
Purchase of technology - - (570,000)
Purchase of equipment and improvements (36,154) (26,100) (1,846,968)
Purchases of short-term investments - - (16,161,667)
Sales of short-term investments - - 16,161,667
------------------------------------------------------------
Net cash provided by (used for) investing activities $ (36,154) $ (26,100) $ (2,416,968)
</TABLE>
See accompanying notes.
5
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PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
For the period
July 6, 1988
Nine months ended (inception) to
September 30, Sept. 30,
2000 1999 2000
------------------------------------------------------------
<S> <C> <C> <C>
Financing activities
Net proceeds from exercise of options and warrants,
and sale of common stock $ 2,354,032 $ 939,754 $ 19,891,698
Net proceeds from issuance and conversion of
preferred stock - 2,074,595 14,290,160
Net proceeds from convertible notes and detachable
warrants - - 1,068,457
Payment on capital lease obligations (59,197) (62,443) (243,286)
Payment on note payable - (150,000) (242,750)
Proceeds from note payable - 150,000 484,323
-------------------------------------------------------------
Net cash provided by financing activities 2,294,835 2,951,906 35,248,602
-------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 802,984 (385,228) 958,676
Cash and cash equivalents at beginning of period 155,692 1,383,148 -
-------------------------------------------------------------
Cash and cash equivalents at end of period $ 958,676 $ 997,920 $ 958,676
=============================================================
Supplemental disclosures of cash flow information
Equipment purchased by capital leases $ - $ - $ 288,772
Interest paid 6,124 16,592 111,787
Imputed dividend on Series E stock - - 3,266,250
Conversion of Series D preferred stock to common
stock - - 2,142,332
Conversion of Series E preferred stock to common
stock 698,800 913,750 514,950
Series D stock issued for Series C stock 2,073,925
Series C dividends paid with Series D stock - - 253,875
Series D dividends paid with common stock $ - $ - $ 422,341
</TABLE>
See accompanying notes.
6
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PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(unaudited)
September 30, 2000
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc.
(the "Company") for the three months and for the nine months ended
September 30, 2000 and 1999 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, 2000 and the results of operations for
the three months and the nine months ended September 30, 2000 and 1999. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the year ended
December 31, 2000. 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 on
Form 10-KSB for the year ended December 31, 1999, 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 loss figures used for this
calculation recognize accumulated dividends on the Company's Series D and
Series F Preferred Stock. Such dividends are payable when declared by the
Board of Directors in cash or common stock.
3. Basic and Diluted Loss Per Share
In accordance with FAS No. 128, the Company is required to present basic
and diluted earnings per share if applicable. Basic and diluted earnings
per share are determined based on the weighted average number of shares
outstanding during the period. Diluted earnings per share also include
potentially dilutive securities such as options and warrants outstanding
and securities convertible into common stock.
Both the basic and diluted loss per share for the three months and the nine
months ended September 30, 2000 and 1999 are based on the weighted average
number of shares of common stock outstanding during the periods. Since
potentially dilutive securities have not been included in the calculation
of the diluted loss per share for both periods as their affect is
antidilutive, there is no difference between the basic and diluted loss per
share calculations.
4. Revenue and Expense Recognition
License fees and research and development contract revenues are recorded as
earned based on the performance requirements of the contracts. If the
research and development activities are not successful, the Company is not
obligated to refund payments previously received. Milestone payments are
recorded as revenue when received as they have not been refundable and the
Company has no future performance obligations. Payments received in advance
of amounts earned are recorded as deferred revenue. Research and
development costs are expensed as incurred.
7
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5. Note Receivable with Officer
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 accrues at the annual rate of
8% on the unpaid principal balance. In July 1999, the loan term was
extended until April 2005.
6. Exercise and Exchange of Series G Warrants
During February 2000, holders of warrants issued in connection with the
sale of Series G Preferred Stock exercised their warrants to purchase
common stock which were due to expire in September, 2000. The exercise
price was $0.50 per share. As an inducement to exercise the warrant early,
the Company offered each holder a new one year warrant for a similar number
of shares at an exercise price of $1.50 per share. As a result the Company
raised $2.1 million (less expenses). The newly issued warrants will expire
on the last day of February 2001.
7. Femcare Agreements
On January 26, 2000, PPTI and Femcare Ltd. ("Femcare"), headquartered in
Nottingham, Great Britain, executed three related agreements involving the
grant of a license to Femcare to register and market PPTI's urethral
bulking agent for the treatment of female stress urinary incontinence in
Europe and Australia. In addition to the License and Development Agreement,
PPTI agreed in a separate Supply Agreement to provide final product to
Femcare, and if unable to do so, agreed to make the manufacturing methods
and materials available to Femcare as specified in a separate Escrow
agreement.
In addition to agreeing to purchase the final product from PPTI for a
defined percentage of the revenues received by Femcare from the sale of the
incontinence product, Femcare paid PPTI an up front license fee of $1
million in two installments and agreed to pay PPTI a royalty on revenues
received from the sale of the incontinence product. The agreements specify
the performance benchmarks and timelines for each party, the definition of
yearly minimum royalties and minimum product purchases, and the methods and
procedures for determining product manufacturing requirements. The license
grant from PPTI to Femcare is for the greater of 20 years or the date upon
which the last patent included within the license grant for the territories
covered expires, subject to meeting various sales requirements, and is
exclusive in the territories covered, subject to certain conditions being
maintained. The parties agreed to cooperate extensively in the clinical
testing and the registration of the product with the appropriate
governmental authorities. These activities are scheduled to take place over
a period of approximately three years. Accordingly, the Company has
recorded the $1 million up front payment as deferred revenue, and is
recognizing it as license revenue ratably over a period of three years. In
the nine months ended September 30, 2000, the Company recognized
approximately $250,000 of revenue related to this agreement.
--------
8. Sale of In Vitro Cell Culture Business to Sanyo Chemical Industries,
Ltd.
On February 18, 2000, PPTI and Sanyo Chemical Industries, Ltd. ("Sanyo") of
Kyoto, Japan, executed an agreement involving the grant of a royalty-free
license to Sanyo for exclusive worldwide rights to make and sell
ProNectin(R) F and ProNectin(R) L and derivative products for in vitro cell
culture and related applications. PPTI received net proceeds of $284,000
from Sanyo for the issuance of the license, including assignment of the
ProNectin(R) and SmartPlastic(R) trademarks and transfer of remaining
product inventory. The agreement remains in effect until the last patent
included within the license grant expires.
8
<PAGE>
9. Liquidity
The Company believes its existing available cash and cash equivalents as of
September 30, 2000, plus contractual amounts receivable, is sufficient to
meet its anticipated capital requirements until January 2001. Substantial
additional capital resources will be required to fund continuing
expenditures related to the Company's research, development, clinical
trials, and product marketing activities. If adequate funds are not
available, the Company will be required to significantly curtail its
operating plans and may have to sell or license out significant portions of
the Company's technology or potential products.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements contained or incorporated by reference in this Quarterly
Report on Form 10-QSB constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause actual results, performance or
achievements of the company, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by forward-looking statements. Such risks and uncertainties
include, among others, history of operating losses, raising adequate
capital for continuing operations, early stage of product development,
scientific and technical uncertainties, competitive products and
approaches, reliance upon collaborative partnership agreements and funding,
regulatory testing and approvals, patent protection uncertainties and
manufacturing scale-up and required qualifications. While these statements
represent management's current judgment and expectations for the company,
such risks and uncertainties could cause actual results to differ
materially from any future results suggested herein. The company undertakes
no obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after
the date hereof.
General Overview
Incorporated in 1988, Protein Polymer Technologies, Inc. has concentrated
its research and development efforts on establishing a scientific and
technical leadership position in the production and development of unique
protein-based materials. The Company has identified biomedical market and
product opportunities for further research and development that management
believes will exploit the unique properties of the Company's technology to
competitive advantage. The Company has been unprofitable to date, and as of
September 30, 2000 has an accumulated deficit of $39,370,000.
The Company's product candidates for surgical repair, augmentation and
regeneration of human tissues are in various stages of research and
development. Its more advanced programs are in the areas of bulking agents
for soft tissue augmentation, particularly for use in urethral tissue for
the treatment of female stress incontinence and in dermal tissue for
cosmetic and reconstructive procedures. The Company currently is devoting
the majority of its resources to the development and registration of these
products, with the greatest emphasis on the incontinence product.
In December 1999, the Company initiated human clinical testing of its
urethral bulking agent for the treatment of female stress urinary
incontinence. The August 1999 approval by the U.S. Food and Drug
Administration ("FDA") of the Company's Investigational Device Exemption
("IDE")
9
<PAGE>
allows PPTI to test the safety and effectiveness of the incontinence
product in women over the age of 40 who have become incontinent due to the
shifting of their bladder or the weakening of the muscle at its base that
controls the flow of urine, or both problems combined. The Company
estimates that more than 2.5 million women begin to experience stress
urinary incontinence in the United States each year. In most untreated
cases, the problem becomes progressively more pronounced. Due to limited
efficacy or invasiveness of current treatments, only a small proportion of
the women experiencing stress urinary incontinence are clinically treated,
relying instead on pads and plugs and the like that only address the
symptoms. In contrast, PPTI's product is injected, typically in an
outpatient procedure, into urethral tissue at the base of the bladder
forming a solid implant that provides support to the muscles controlling
the flow of urine. The Company believes that its product will prove to be
easy for the physician to use, offer enduring effectiveness, and avoid most
of the other limitations of urethral bulking products on the market or in
development.
In January 2000, PPTI established a strategic alliance with Femcare, Ltd.
for the commercialization of the incontinence product in Europe and
Australia. In the agreement, Femcare is responsible for clinical testing,
regulatory approval, and product sales and marketing within these
territories, and PPTI is responsible for product manufacturing. Contingent
on successful clinical trials commercialization of the product in Europe is
expected to begin more than a year before approval for marketing the
product in the United States can be obtained. See also "Femcare Agreements"
in the Notes to the Financial Statements. PPTI also is in discussions with
several companies regarding the establishment of strategic alliances for
commercializing the incontinence product in the United States and other
markets outside the Femcare territories.
In October, the Company submitted an IDE to the FDA to obtain approval to
begin human clinical testing of its dermal bulking agent for use in
cosmetic and reconstructive surgery applications for the correction of
dermal contour deficiencies (facial lines, wrinkles, scars, etc.). In 1998,
there were 2.8 million cosmetic facial procedures performed in the U.S.
according to the American Academy of Cosmetic Surgery. The apparent reason
most people, both male and female, have such procedures done is to improve
their self-image. A popular procedures in the last decade has been the
injection of bovine collagen, used to correct dermal "contour deficiencies"
(frown lines, worry lines, wrinkles, crow's feet, facial scars, marionette
lines, etc.). Today, several other materials are used in a similar manner.
The procedure appeals to people because it provides a noticeable benefit
with little recovery time and minimal risk of adverse effects. All that is
required is a relatively short visit to the physician's office, usually
with little delay in the resumption of normal activities. However, the
acceptance of these products has been less than expected, probably due
primarily to the reported short term durability of the cosmetic effect.
PPTI is developing an injectable dermal augmentation product for the
treatment of contour deficiencies due to aging and environmental exposure,
disease such as acne and cancer, and surgery. Similar to its urinary
incontinence product, the dermal product is based on one of the Company's
patented silk-elastin polymers. Once injected into the skin and following
physician manipulation for cosmetic effect, the solution irreversibly
transforms into a pliable hydrogel, which the Company believes will yield a
more pleasing and longer lasting cosmetic effect.
PPTI's dermal augmentation product has completed preclinical testing and an
Investigational Device Exemption (IDE) has been submitted to the FDA for
approval to begin human clinical testing. Prior feasibility studies in
animals have shown the product to be effective for contour correction, easy
to use, biocompatible, non-immunogenic, resistant to migration, and more
durable than products currently available.
In addition, the tissue augmentation materials and technology underlying
the incontinence and the dermal products have the potential to be effective
and desirable in a number of other clinical applications. PPTI began
studies to identify its most promising biomaterial formulations for use in
these soft tissue augmentation products in 1996, devoted increasing
resources through 1997, 1998
10
<PAGE>
and 1999, and at present is focused primarily on completing human clinical
testing of the incontinence product and initiating clinical testing of its
dermal product.
The Company's first commercial products, ProNectin F and SmartPlastic, are
used by biologists and cell culture laboratories, principally to grow
mammalian cells for biomedical research purposes. In February 2000, the
Company licensed the rights for the manufacture and sale of these products
for use in in vitro cell culture, including the transfer of all existing
inventory, to a third party. See also "Sale of In Vitro Cell Culture
Business to Sanyo Chemical Industries, Ltd." in the Notes to the Financial
Statements.
The Company's other advanced product technology is in the area of tissue
adhesives and sealants. Currently the Company's research and development in
this area is focused on the repair of spinal discs for the treatment of
lower back pain. The Company's strategy with most of its programs is to
enter into collaborative development agreements with major medical product
marketing and distribution companies. Although these relationships, to the
extent any are consummated, may provide significant near-term revenues
through up-front licensing fees, research and development reimbursements
and milestone payments, the Company expects to continue incurring operating
losses for the next several years.
As of September 30, 2000, the Company had cash and cash equivalents
totaling $959,000. The Company believes its available cash and cash
equivalents and future contractual R&D payments would be sufficient to meet
its anticipated capital requirements through January 2001. The Company will
continue to attempt to raise additional funds for continuing operations
through private or public offerings and collaborative agreements. See
"Liquidity and Capital Resources" below for additional information and a
description of the associated risks.
To the extent sufficient resources are available, the Company continues to
research the use of its protein polymers for other tissue repair and
medical device applications, principally for use in tissue engineering
matrices and drug delivery devices.
PPTI is aggressively pursuing domestic and international patent protection
for its technology, making claim to an extensive range of recombinantly
prepared structural and functional proteins, methods for preparing
synthetic repetitive DNA, methods for the production and purification of
protein polymers, end-use products incorporating such materials and methods
for their use. To date, the United States Patent and Trademark Office
("USPTO") has issued 19 patents to the Company, four of which have been
issued in 2000. In addition, PPTI has filed corresponding patent
applications in other relevant commercial jurisdictions.
Results of Operations
The Company received $103,000 in contract and licensing revenue for the
three months ended September 30, 2000 and $593,000 for the nine months
ended September 30, 2000 as compared to $2,000 contract and licensing
revenue for the three months and nine months ended September 30, 2000. The
increase in contract and licensing revenue primarily represents the
amortized portion of an up front license payment of $1 million (being
recognized ratably over a period of three years) from Femcare Ltd. for the
commercial rights to PPTI's incontinence product in Europe and Australia,
payments from Sanyo Chemical Industries Ltd. for the comprehensive license
to PPTI's in vitro cell culture business and existing product inventory,
and R&D payments from Perkin-Elmer for a development project. The lack of
revenue in 1999 reflects primarily the termination of research and
development reimbursements from various operating entities of the Johnson &
Johnson Company, including Ethicon, Inc.
Interest income was $23,000 for the three months and $68,000 for the nine
months ended September 30, 2000 versus $10,000 and $30,000 for the same
periods in 1999.
11
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The Company received no sales and licensing revenues from the Company's
ProNectin(R) and SmartPlastic(R) products for the three months and $3,000
for the nine months ended September 30, 2000 as compared to $14,000 and
$51,000 respectively for the same periods in 1999. The Company incurred no
cost of sales nor royalty payments for the three months or the nine months
ended September 30, 2000, compared to no royalty expenses for the three
month period and $12,000 for the nine month period ended September 30,
1999. The decline in all of these items was due to the sale of this
business to Sanyo Chemical Industries, Ltd. in February 2000.
Research and development expenses for the three months ended September 30,
2000 were $579,000 and $1,776,000 for the nine months ended September 30,
2000, compared to $499,000 and $1,947,000 respectively for the same periods
in 1999. The decrease for the nine month period was primarily attributable
to downsizing reductions in personnel and expenditures implemented in June
1999, and completion of external contracts and consulting services related
to the Company's soft tissue augmentation program, including preclinical
testing and preparation of the Investigational Device Exemption approved by
the Food and Drug Administration ("FDA") in 1999 granting permission to
begin human clinical testing. The increase in the three month period
reflects increased costs incurred in clinical testing. The Company expects,
in general, that its research and development, human clinical testing, and
manufacturing expenses will increase over time if its incontinence product
and other products in development successfully progress and additional
capital is obtained.
Selling, general and administrative expenses for the three months ended
September 30, 2000 were $274,000, as compared to $285,000 for the same
period in 1999, and were $1,013,000 for the nine months ended September 30,
2000 as compared to $1,171,000 for the same period in 1999. These decreases
were due primarily to the downsizing in 1999, and to a one year sublease of
a portion of the Company's laboratory to a third party. The Company expects
its selling, general and administrative expenses remain largely unchanged
in the near term, but will increase in the future as support for its
research and development and manufacturing efforts may require and to the
extent additional capital is obtained.
For the three months ended September 30, 2000, the Company recorded a net
loss applicable to common shareholders of $796,000 or $0.04 per share
compared to a loss of $827,000 or $0.06 per share for the same period in
1999. For the nine months ended September 30, 2000, the Company recorded a
net loss applicable to common shareholders of $2,332,000, or $0.13 per
share compared to a loss of $3,243,000, or $0.26 per share for the same
period in 1999. Also included in each of the three month periods of 2000
and 1999 was $69,000, respectively, for undeclared dividends related to the
Company's preferred stock, and for the nine month periods, the undeclared
dividends were $208,000 for each 1999 and 2000.
In general, there can be significant fluctuation in revenue from quarter to
quarter due to variability in outside contract and licensing payments. In
general, the Company expects to incur increasing operating losses in the
future (to the extent additional capital is obtained), due primarily to
increases in the Company's soft tissue augmentation program's development,
manufacturing and business development activities. The Company's results
depend on its ability to establish strategic alliances and generate
contract revenues, 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.
To date the Company believes that inflation and changing prices have not
had a material effect on its continuing operations, although increasing
utility costs may have some impact in future periods.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash and cash equivalents of
$959,000 as compared to $156,000 at December 31, 1999. As of September 30,
2000, the Company had working capital
12
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of $226,000 as compared to ($458,000) at December 31, 1999. The differences
are due primarily to the completion in January 2000 of the strategic
alliance with Femcare, Ltd., and in February 2000 from the sale of the in
vitro cell culture business to Sanyo Chemical Industries, Ltd., and the
receipt of $2,100,000 from the exercise of common stock warrants granted in
association with the Series G Convertible Preferred Stock. The substantial
difference between cash and working capital as of September 30, 2000 is
partially due to $333,000 of deferred revenue remaining to be recognized in
the remainder of 2000.
The Company had no long-term debt obligations as of September 30, 2000,
versus $25,000 of capital lease obligations as of December 31, 1999. For
the nine months ending September 30, 2000, the Company's expenditures for
capital equipment and leasehold improvements totaled $36,154 compared with
$26,100 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 expand
capacity to meet materials manufacturing requirements for clinical testing.
The Company may enter into additional capital lease arrangements if
available at appropriate rates and terms.
The Company believes its existing available cash and cash equivalents, in
combination with anticipated contract research payments and revenues
received from the transfer of clinical testing materials, will be
sufficient to meet its anticipated capital requirements until January 2001.
Substantial additional capital resources will be required to fund
continuing expenditures related to the Company's research, development,
manufacturing and business development activities. The Company believes
there may be a number of alternatives to meeting the continuing capital
requirements of its operations, including additional collaborative
agreements and public or private financings. The Company is currently in
discussions at various stages with several potential collaborative partners
that, based on the results of various in vitro and in vivo product
performance evaluations, could result in generating revenues in the form of
license fees, milestone payments or research and development
reimbursements. However, there can be no assurance that any of these
fundings will be consummated in the necessary time frames needed for
continuing operations or on terms favorable to the Company. If adequate
funds are not available, the Company will be required to significantly
curtail its operating plans and may have to sell or license out significant
portions of the Company's technology or potential products.
13
<PAGE>
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.
14
<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.
Date November 13, 2000 By /s/ J. Thomas Parmeter
----------------- -----------------------
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date November 13, 2000 By /s/ Janis Y. Neves
----------------- -------------------
Janis Y. Neves
Director of Finance, Controller
and Assistant Secretary
15
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
------ ----------- -------------
27 Financial Data Schedule.
16
