Form 10-QSB for PROTEIN POLYMER TECHNOLOGIES, INC., filed on November
13, 1998
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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, 1998
[_] 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 ___
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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, 1998, 10,575,811
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, 1998 and December 31, 1997............................... 3
Condensed Statements of Operations -
For the Three and Nine Months Ended September 30, 1998 and 1997
and the period July 6, 1988 (inception) to September 30, 1998......... 5
Condensed Statements of Cash Flows -
For the Nine Months Ended September 30, 1998 and 1997
and the period July 6, 1988 (inception) to September 30, 1998......... 6
Notes to Condensed Financial Statements............................ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 14
Signature............................................. 15
2
PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Balance Sheets
September 30, December 31,
1998 1997
-------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,667,280 $ 325,021
Short-term investments 893,180 974,817
Other current assets 65,848 88,868
---------- ----------
Total current assets 2,626,308 1,388,706
Deposits 37,477 36,617
Notes receivable from officers 144,000 153,000
Equipment and leasehold improvements, net 683,905 769,564
---------- ----------
$3,491,690 $2,347,887
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 400,312 $ 423,594
Accrued employee benefits 149,348 151,831
Other accrued expenses 20,721 41,151
Current portion capital lease obligations 82,060 75,110
---------- ----------
Total current liabilities 652,441 691,686
Long-term portion capital lease obligations 127,622 190,068
3
PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Balance Sheets, continued
September 30, December 31,
1998 1997
_________ ____________
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY, continued
Stockholders' equity:
Series D convertible preferred stock,
$.01 par value, 71,600 shares authorized,
1,344 and 28,214 shares issued and
outstanding at September 30, 1998 and
December 31, 1997, respectively -
liquidation preference of $134,400 124,622 2,667,403
Series E convertible preferred stock,
$.01 par value, 55,000 shares authorized,
54,437.5 shares issued and
outstanding at September 30, 1998 -
liquidation preference of $5,437,500 5,277,813 -
Series F convertible preferred stock,
$.01 par value, 27,317 shares authorized,
26,420 shares issued and outstanding
at September 30, 1998 - liquidation
preference of $2,642,000 2,497,795 -
Common stock, $.01 par value, 25,000,000
shares authorized, 10,575,811 and
10,420,722 shares issued and outstanding
at September 30, 1998 and December 31,
1997, respectively 105,759 104,208
Additional paid-in capital 26,242,529 22,778,033
Deficit accumulated during development
stage (31,536,891) (24,083,511)
------------ ------------
Total stockholders' equity 2,711,627 1,466,133
------------ ------------
$ 3,491,690 $ 2,347,887
============ ============
See accompanying notes.
4
PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Operations
(unaudited)
For the period
July 6, 1988
Three months ended Nine months ended (inception) to
September 30, September 30, Sept. 30,
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- ------------
Revenues:
Contract revenue $ - $ 91,510 $ 50,000 $ 324,510 $ 4,358,715
Interest income 41,772 41,151 90,337 162,885 1,036,288
Product and other income 6,725 27,840 41,019 61,744 596,438
----------- ----------- ----------- ----------- ------------
Total revenues 48,497 160,501 181,356 549,139 5,991,441
Expenses:
Cost of sales - 5,380 4,373 23,301 279,894
Research and development 1,123,299 835,844 3,040,682 2,252,069 20,287,950
Selling, general and administrative 378,624 463,817 1,304,681 1,453,731 12,734,101
Royalties 6,250 6,250 18,750 28,750 283,921
----------- ----------- ----------- ----------- ------------
Total expenses 1,508,172 1,311,291 4,368,486 3,757,851 33,585,866
----------- ----------- ----------- ----------- ------------
Net loss (1,459,676) (1,150,790) (4,187,130) (3,208,712) (27,594,425)
Undeclared, imputed and/or
paid dividends on
preferred stock 69,410 117,657 3,474,913 361,569 4,892,605
----------- ----------- ----------- ----------- ------------
Net loss applicable to
common shareholders $(1,529,086) $(1,268,447) $(7,662,043) $(3,570,281) $(32,487,030)
=========== =========== =========== =========== ============
Basic and diluted net
loss per common share $ (0.14) $ (0.14) $ (0.73) $ (0.39)
=========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per common share 10,575,811 9,332,156 10,492,508 9,173,040
=========== =========== =========== ===========
See accompanying notes.
5
PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(unaudited)
For the period
July 6, 1988
Nine months ended (inception) to
September 30, Sept. 30,
1998 1997 1998
--------------- --------------- ---------------
OPERATING ACTIVITIES
Net loss $ (4,187,130) $ (3,208,712) $(27,594,425)
Adjustments to reconcile net loss to
net cash used for operating activities:
Stock issued for compensation and interest 37,500 - 62,395
Depreciation and amortization 273,697 124,166 1,533,416
Write-off of purchased technology - - 503,500
Changes in assets and liabilities:
Deferred offering costs - 17,356 -
Deposits (860) (16,222) (37,477)
Notes receivable from officers 9,000 - (144,000)
Other current assets 23,020 (226,217) (65,848)
Accounts payable (23,282) 20,032 400,312
Accrued employee benefits (2,483) 31,146 149,348
Other accrued expenses (20,430) (521) 20,721
------------ ------------ ------------
Net cash used for operating activities (3,890,968) (3,258,972) (25,172,058)
INVESTING ACTIVITIES
Purchase of technology - - (570,000)
Purchase of equipment and improvements (188,038) (164,192) (1,775,292)
Purchases of short-term investments (893,180) (3,193,468) (17,054,847)
Sales of short-term investments 974,817 1,886,510 16,161,667
------------ ------------ ------------
Net cash used for investing activities (106,401) (1,471,150) (3,238,472)
6
PROTEIN POLYMER TECHNOLOGIES, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows, continued
(unaudited)
For the period
July 6, 1988
Nine months ended September 30, (inception) to
1998 1997 Sept. 30, 1998
--------------- --------------- --------------------
FINANCING ACTIVITIES
Net proceeds from exercise of options and
warrants, and sale of common stock $ 117,311 $ 4,658,836 $ 16,631,305
Net proceeds from issuance and conversion
of preferred stock 5,277,813 - 12,215,565
Net proceeds from convertible notes and
detachable warrants - - 1,068,457
Payment on capital lease obligations (55,496) (7,427) (79,090)
Payment on note payable - - (92,750)
Proceeds from note payable - - 334,323
----------- ----------- ------------
Net cash provided by financing activities 5,339,628 4,651,409 30,077,810
----------- ----------- ------------
Net increase in cash and cash equivalents 1,342,259 78,713 1,667,280
Cash and cash equivalents at beginning
of the period 325,021 267,357 -
----------- ----------- ------------
Cash and cash equivalents at end
of the period $ 1,667,280 $ 188,644 $ 1,667,280
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Equipment purchased by capital leases $ - $ 215,592 $ 288,772
Interest paid 20,848 3,074 92,084
Conversion of Series D Preferred Stock to
Series F Preferred Stock 2,497,795 - 2,497,795
Conversion of Series D Preferred Stock to
common stock 44,990 2,097,341 2,142,331
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
See accompanying notes.
7
PROTEIN POLYMER TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 1998
1. Basis of Presentation
The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and nine months ended September 30, 1998 and 1997 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, 1998 and the
results of operations for the three and nine months ended September 30, 1998
and 1997. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the year ended December 31, 1998. 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, 1997, filed with
the Securities and Exchange Commission.
2. Basic and Diluted Loss Per Share
As required, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share," ("FAS No. 128") for the year ended
December 31, 1997. FAS No. 128 changes the method used to calculate earnings
per share and requires the restatement of all prior periods reported. Under
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 includes 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 and nine months ended
September 30, 1998 and 1997 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.
The net loss figures used for this calculation recognize imputed and
accumulated dividends on the Company's Preferred Stock. The accumulated
dividends are payable when declared by the Board of Directors in cash or
common stock.
During April and May 1998, the Company issued Series E Convertible Preferred
Stock whereby each share is at any time convertible into 80 shares of common
stock at $1.25 per common share at the option of the holder. At each date of
issuance, the fair market value of the common stock was $2.00 per share.
Therefore, each investor received a beneficial conversion feature of $.75 per
common share. The Company recorded this difference as an "imputed" dividend
totaling $3,266,250 during the three months ended June 30, 1998. (See
Note 4. below regarding a second closing of Series E Convertible Preferred
Stock.)
8
3. Liquidity
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes its existing
available cash, cash equivalents and short-term investments as of September
30, 1998 is sufficient to meet its anticipated capital requirements until the
second quarter of 1999. Substantial additional capital resources will be
required to fund continuing expenditures related to the Company's research,
development, manufacturing and business development 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.
4. Series E Convertible Preferred Stock
On April 24, 1998, the Company closed a private placement with a small group
of institutional and accredited investors of 39,312.5 shares of the Company's
Series E Convertible Preferred Stock ("Series E Stock") priced at $100 per
share, with warrants to purchase an aggregate of 2,358,750 shares of common
stock. The Company received approximately $3.93 million, less expenses of
approximately $146,000.
On May 15, 1998, the Company closed a subsequent private placement with a
small group of institutional and accredited investors of 15,125 shares of
Series E Stock, with warrants to purchase an aggregate of 907,500 shares of
common stock, on the same terms as the initial closing. The Company received
approximately $1.51 million, less expenses of approximately $20,000.
Each share of Series E Stock is convertible at any time at the election of the
holder into 80 shares of common stock at a conversion price of $1.25 per
share, subject to certain antidilution adjustments. No underwriters were
engaged by the Company in connection with such issuance and, accordingly, no
underwriting discounts were paid. The offering is exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), and met the requirements of Rule 506 of Regulation D promulgated under
the Securities Act. The Company has agreed to register the shares of common
stock underlying the Series E Stock and the warrants with the Securities and
Exchange Commission within 90 to 120 days after the closing.
Each share of Series E Stock also received two common stock warrants. One
warrant is exercisable at any time for 40 shares of common stock at an
exercise price of $2.50 per share, and expires approximately 18 months after
the close of the offering; the other warrant is exercisable at any time for 20
shares of common stock at an exercise price of $5.00 per share, and expires
approximately 36 months after the close of the offering. In addition, an 18
month warrant to acquire 200,000 common shares exercisable at $2.50 per share
and a 36 month warrant to acquire 100,000 common shares exercisable at $5.00
per share has been issued as a finder and document review fee paid to a lead
investor.
In connection with the above private placement, the Company issued 26,420
shares of its Series F Convertible Preferred Stock in exchange for the same
number of shares of outstanding Series D Convertible Preferred Stock. The
Company's Series F Convertible Preferred Stock is equivalent to the Company's
Series E Stock with regard to liquidation preferences. All other terms of the
Company's Series F Convertible Preferred Stock remain the same as the
Company's Series D Convertible Preferred Stock.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, CERTAIN STATEMENTS OR
REFERENCES 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. WHILE THESE STATEMENTS REPRESENT
MANAGEMENT'S CURRENT JUDGEMENT AND EXPECTATIONS FOR THE COMPANY, SUCH RISKS
AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY
FUTURE RESULTS SUGGESTED HEREIN; FURTHER, THE COMPANY IS NOT OBLIGATED TO
PUBLICLY COMMENT SPECIFICALLY ON THOSE DIFFERENCES. RISKS ASSOCIATED WITH THE
COMPANY'S ACTIVITIES INCLUDE SCIENTIFIC AND PRODUCT DEVELOPMENT UNCERTAINTIES,
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS, COMPETITIVE PRODUCTS AND
APPROACHES, ATTAINING COLLABORATIVE PARTNERSHIP INTEREST AND FUNDING, PATENT
PROTECTION UNCERTAINTIES, REGULATORY TESTING AND APPROVALS, AND MANUFACTURING
SCALE-UP AND REQUIRED QUALIFICATIONS. THE READER IS ENCOURAGED TO REFER TO THE
COMPANY'S 1997 ANNUAL REPORT AND FORM 10-KSB, AS WELL AS OTHER RECENT FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ASCERTAIN THE RISKS ASSOCIATED
WITH THESE STATEMENTS.
General Overview
Protein Polymer Technologies, Inc. develops high performance biomaterials
designed to improve medical and surgical outcomes. Since its inception in
1988, the Company has been a pioneer in protein design and synthesis, and as a
result has achieved an exceptional proprietary position in protein-based
materials technology. The Company's biocompatible polymers have been
genetically engineered to enable cell growth, promote the regeneration of
tissue, bond to natural and synthetic surfaces, and resorb into tissue at
controlled rates. Targeted applications include soft tissue augmentation,
tissue adhesives and sealants, tissue engineering and wound healing, and
localized drug delivery. 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. The Company has been
unprofitable to date, and has an accumulated deficit of $31,536,891.
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. Ethicon terminated the
relationship in December 1997, which adversely affected the Company. The
Company does not currently have any agreements under which it would receive
continuing contract research and milestone payments. 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 in the form of up-front licensing fees,
research and development reimbursements and milestone payments, the Company
expects to continue incurring operating losses for several more years.
Beginning in 1997, the Company has concentrated the focus of its research and
development on the steps involved in the commercialization of its proprietary
silk/elastin-based polymer hydrogel products for the treatment of female
stress urinary incontinence, and for tissue augmentation applications in
plastic, dermatological and reconstructive surgery. These hydrogels can be
injected into the body as a liquid, and then quickly and spontaneously form
biocompatible, durable hydrogel structures resulting in a contour change in
the underlying tissue. Over the past year, the Company has completed a series
of animal safety studies required by the U.S. Food and Drug Administration
("USFDA") before the products can be approved for testing in humans, and has
10
upgraded its manufacturing facilities to meet USFDA standards to manufacture
product for use in human testing. Currently, the Company is preparing
Investigational Device Exemption ("IDE") applications for submissionto the
USFDA for each of these two product uses, and to the extent that sufficient
cash is available and approval by the USFDA is granted, intends tobegin human
testing in 1999.
In April and May 1998, the Company received approximately $5.3 million, net of
estimated expenses, from the sale of its Series E Convertible Preferred Stock
to a small group of accredited and institutional investors, consisting of
54,437.5 shares at $100 per share. Each share converts at any time at the
holder's option into 80 shares of common stock at $1.25 per common share.
Accompanying the sale of the Series E Convertible Preferred Stock was a
warrant to purchase 40 shares of common stock at $2.50 a share, expiring 18
months after the close of the private placement, and a second warrant to
purchase 20 shares of common stock at $5.00 per share. The Company agreed to
register the shares with the Securities and Exchange Commission within 120
days after the closing; the registration was declared effective on October 13,
1998.
In connection with the above private placement, the Company issued 26,420
shares of its Series F Convertible Preferred Stock in exchange for the same
number of shares of outstanding Series D Convertible Preferred Stock. The
Company's Series F Convertible Preferred Stock is equivalent to the Company's
Series E Stock with regard to liquidation preferences. All other terms of the
Company's Series F Convertible Preferred Stock remain the same as the
Company's Series D Convertible Preferred Stock.
In January 1997, the Company received $4.8 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, and the registration was
declared effective on January 24, 1997.
Results of Operations
The Company received no contract research revenue for the three months ended
September 30, 1998, compared to $92,000 of research revenue for the same
period in 1997. For the nine month period ended September 30, 1998, these
revenues were $50,000, compared to $325,000 for the same period in 1997. The
revenue received in 1997 primarily consisted of contractual payments from
Ethicon related to the Company's surgical adhesives and sealants program,
along with smaller payments from certain materials evaluation agreements.
Interest income was $42,000 for the three months ended September 30, 1998,
versus $41,000 for the same period in 1997. For the nine month period,
interest income was $90,000, compared to $163,000 for the same period in 1997.
The decrease in interest income resulted from the differences in timing
related to the receipt of additional cash from the sale of stock in private
placements during April and May 1998 versus January 1997.
For the three months ended September 30, 1998 and 1997, sales from the
Company's ProNectin(R) F product line were $6,700 and $28,000, respectively.
For the nine month periods ended September 30, 1998 and 1997, these product
sales were $37,000 and $62,000, respectively. The decreases were due to the
elimination of promotional expenditures and the cessation of direct marketing
for the product line. These resources were redirected into preclinical and
regulatory efforts.
There was no cost of sales for the three months ended September 30, 1998,
compared to $5,000 for the same period in 1997. For the nine month period
ended September 30, 1998, this expense was $4,000, compared to $23,000 for the
same period in 1997. The decreases related to changes in the mix of product
sold, and a reduction in total revenues. Royalty expenses paid to Integra
Life
11
Sciences, Inc. were $6,000 for the three months ended September 30, 1998
and 1997, and $19,000 for each of the nine month periods ended September 30,
1998 and 1997. A $10,000 annual royalty was paid to Stanford University
during the nine month period ended September 30, 1997, but no such payment was
made in the corresponding period of 1998 because the relevant patents had
expired.
Research and development expenses for the three months ended September 30,
1998 were $1,123,000, compared to $836,000 for the same period in 1997, a 34%
increase. For the nine month period ended September 30, 1998, these expenses
were $3,041,000, compared to $2,252,000 for the same period in 1997, a 35%
increase. These increases were primarily attributable to expanded efforts
related to the Company's soft tissue augmentation programs, as well as
preparation for manufacturing and testing product according to clinical Good
Manufacturing Practices ("GMP") as required by the Food and Drug
Administration for conducting clinical testing in humans. The Company expects
that its research and development expenses will continue at an increased level
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, 1998 were $379,000, as compared to $464,000 for the same period
in 1997, an 18% decrease. For the nine month period ended September 30, 1998,
these expenses were $1,305,000, compared to $1,454,000 for the same period in
1997, a 10% decrease. These decreases were primarily due to reduced legal and
investor relations expenses. The Company expects its selling, general and
administrative expenses will increase in support of its research and
development efforts, and to the extent additional capital is raised.
For the three months ended September 30, 1998, the Company recorded a net loss
applicable to common shareholders of $1,529,000, or $.14 per share, compared
to a loss of $1,268,000, or $.14 per share for the same period in 1997. For
the nine month period ended September 30, 1998, the net loss applicable to
shareholders was $7,662,000, or $.73 per share, compared to a loss of
$3,570,000, or $.39 per share for the same period in 1997. Included in the
net loss figures for the nine month periods of 1998 and 1997 were undeclared,
imputed and/or paid dividends related to the Company's preferred stock.
Imputed, non-cash dividends of $3,266,000 were included in the nine month
periods ended September 30, 1998, to record the difference between the
conversion price of preferred stock and the fair market value of the common
stock on the preferred stock issuance date. (See Note 2. of the financial
statements, above.)
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 collaborative
partnerships, manage research and development, manufacturing, preclinical and
clinical product testing and commercialization expenditures, achieve
regulatory compliance and seek various regulatory approvals, complete 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, 1998, the Company had cash, cash equivalents and short-
term investments of $2,560,000 as compared to $1,300,000 at December 31, 1997.
As of September 30, 1998, the Company had working capital of $1,974,000,
compared to $697,000 at December 31, 1997. In April and May 1998, the Company
received a total of approximately $5.3 million from the private placement of
its Series E Convertible Preferred Stock.
12
The Company had long-term debt obligations as of September 30, 1998 of
$128,000 in capital lease obligations, versus $190,000 as of December 31,
1997. For the nine months ending September 30, 1998, the Company's
expenditures for capital equipment and leasehold improvements totaled
$188,000, compared with $380,000 for the same period last year. The Company
expects to increase its capital expenditures in the next two quarters (to the
extent additional capital is obtained), as the Company continues to improve
existing manufacturing facilities to meet U.S. Food and Drug Administration
standards for production of products for human clinical testing, and in order
to meet scale-up requirements for increased manufacturing capacity. The
Company may enter into additional capital lease arrangements, if available or
under appropriate terms and timing.
The Company believes its existing available cash, cash equivalents and short-
term investments as of September 30, 1998 will be sufficient to meet its
anticipated capital requirements until the second quarter of 1999.
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 meet the continuing capital requirements of its operations.
These include collaborative agreements that could generate significant up-
front licensing fees, research and development reimbursements and milestone
payments, as well as public or private financings, such as the possible
exercise of existing public and private warrants for the Company's common
stock. However, there can be no assurance that the requisite 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
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
On October 13, 1998, Protein Polymer Technologies, Inc. filed a Current
Report on Form 8-K with the Commission. In Item 5. of the Report the
Company reported that the it had been notified by the National Association
of Securities Dealers ("NASD") that its public warrants (PPTIW), issued in
conjunction with PPTI's 1992 public offering, no longer met Nasdaq's
listing requirements due to a lack of market makers, and as a consequence,
would no longer be listed on the Nasdaq Small Cap stock quotation system.
14
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, 1998 By /s/ J. Thomas Parmeter
----------------- -------------------------------
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
Date November 13, 1998 By /s/ Janis Y. Neves
----------------- -------------------------------
Janis Y. Neves
Director of Finance
and Assistant Secretary
15
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
------ ----------- -------------
27 Financial Data Schedule 17
16
FINANCIAL DATA SCHEDULE
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,667,280 1,667,280
<SECURITIES> 893,180 893,180
<RECEIVABLES> 6,815 6,815
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,626,308 2,626,308
<PP&E> 2,064,064 2,064,064
<DEPRECIATION> 1,380,159 1,380,159
<TOTAL-ASSETS> 3,491,690 3,491,690
<CURRENT-LIABILITIES> 652,441 652,441
<BONDS> 0 0
<PREFERRED-MANDATORY> 0 0
<PREFERRED> 7,900,230 7,900,230
<COMMON> 26,348,288 26,348,288
<OTHER-SE> (31,536,891) (31,536,891)
<TOTAL-LIABILITY-AND-EQUITY> 3,491,690 3,491,690
<SALES> 6,725 41,019
<TOTAL-REVENUES> 48,497 181,356
<CGS> 0 4,373
<TOTAL-COSTS> 6,250 23,123
<OTHER-EXPENSES> 1,501,767 4,324,509
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,405 20,848
<INCOME-PRETAX> (1,529,086) (7,662,043)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,529,086) (7,662,043)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,529,086) (7,662,043)
<EPS-PRIMARY> (0.14) (0.73)
<EPS-DILUTED> (0.14) (0.73)
