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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission file number 0-13634
MACROCHEM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2744744
- ---------------------------------- --------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
110 Hartwell Avenue, Lexington, Massachusetts 02421-3134
--------------------------------------------------------
(Address of principal executive offices, Zip Code)
781-862-4003
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--------- ---------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 2003:
- ---------------------------- ---------------------------
Common Stock, $.01 par value 28,327,654
MACROCHEM CORPORATION
INDEX TO FORM 10-Q
------------------
Page Number
PART I FINANCIAL INFORMATION -----------
Item 1 Financial Statements
Condensed Balance Sheets (Unaudited)
March 31, 2003 and December 31, 2002 3
Condensed Statements of Operations for the
Three Months Ended March 31, 2003 4
and 2002 (Unaudited)
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2003
and 2002 (Unaudited) 5
Notes to Unaudited Condensed Financial
Statements 6-10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
Item 3 Quantitative and Qualitative Disclosures About Market Risk 14
Item 4 Control and Procedures 14-15
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002 18-21
EXHIBIT INDEX 22
2
ITEM 1. FINANCIAL STATEMENTS
MACROCHEM CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in thousands except share data)
March 31, December 31,
2003 2002
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 369 $ 771
Short-term investments 7,137 8,118
Accounts receivable 13 40
Receivable due from related party 25 25
Prepaid expenses and other current assets 572 166
--------------- ---------------
Total current assets 8,116 9,120
--------------- ---------------
Property and equipment, net 332 376
--------------- ---------------
Other assets:
Patents, net 599 607
Deposits 29 29
--------------- ---------------
Total other assets 628 636
--------------- ---------------
Total assets $ 9,076 $ 10,132
=============== ===============
LIABILITIES
Current liabilities:
Accounts payable $ 146 $ 19
Accrued expenses 249 395
--------------- ---------------
Total current liabilities 395 414
Deferred rent 46 48
--------------- ---------------
Total liabilities 441 462
--------------- ---------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, authorized and unissued, 6,000,000 shares --- ---
Common stock, $.01 par value, 60,000,000 shares authorized;
28,390,654 and 28,163,054
shares issued at March 31, 2003
and December 31, 2002, respectively 284 282
Additional paid-in capital 72,900 72,949
Accumulated deficit (64,057) (62,888)
Less treasury stock, at cost, 151,666 and 185,264
shares at March 31, 2003 and
December 31, 2002, respectively (492) (673)
--------------- ---------------
Total stockholders' equity 8,635 9,670
--------------- ---------------
Total liabilities and stockholders' equity $ 9,076 $ 10,132
=============== ===============
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
MACROCHEM CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2003 and 2002
(Unaudited)
(Amounts in thousands except share and per share data)
For the three months ended
---------------------------------------------------------
March 31,
2003 2002
---- ----
Research contract revenues $ --- $ 43
------------- --------------
Operating expenses:
Research and development 540 1,235
Marketing, general and administrative 644 1,064
Consulting fees with related parties 6 15
------------- --------------
Total operating expenses 1,190 2,314
------------- --------------
Loss from operations (1,190) (2,271)
------------- --------------
Other income (expense):
Interest income 21 67
------------- --------------
Total other income 21 67
------------- --------------
Net loss $ (1,169) $ (2,204)
============= ==============
Net loss per share -
basic and diluted $ (0.04) $ (0.08)
============= ==============
Weighted average shares
outstanding (basic and diluted) 28,003,000 27,908,000
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
MACROCHEM CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2003 and 2002
(Unaudited)
(Amounts in thousands)
For the three months ended March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net loss $ (1,169) $ (2,204)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 53 55
Stock-based compensation 19 150
401(k) contribution in Company common stock 15 33
Deferred rent (2) 1
Changes in assets and liabilities:
Accounts receivable 27 375
Prepaid expenses and other current assets (406) (278)
Accounts payable and accrued expenses (19) (263)
------------ -----------
Net cash used by operating activities (1,482) (2,131)
------------ ---- ------
Cash flows from investing activities:
Sales of short-term investments 981 1,835
Expenditures for property and equipment --- (20)
Additions to patents --- (38)
------------ -----------
Net cash provided by investing activities 981 1,777
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of common stock options 99 ---
------------ -----------
Net cash provided by financing activities 99 ---
------------ -----------
Net change in cash and cash equivalents (402) (354)
Cash and cash equivalents at beginning of period 771 697
------------ -----------
Cash and cash equivalents at end of period $ 369 $ 343
============ ===========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
5
MACROCHEM CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The financial statements included herein have been prepared by
MacroChem Corporation ("MacroChem" or the "Company") without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows of the Company at the dates and
for the periods indicated. The unaudited financial statements included
herein should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002.
The results disclosed in the Statement of Operations for the three
months ended March 31, 2003 are not necessarily indicative of the
results to be expected for the full year.
MacroChem is a biopharmaceutical company engaged in the development and
commercialization of a portfolio of products through the application of
SEPA(R) (Soft Enhancer of Percutaneous Absorption), its patented
topical drug delivery technology.
(2) STOCK BASED COMPENSATION
The Company applies the intrinsic value method of accounting for stock
options and awards granted to employees. The Company accounts for stock
options and awards to non-employees using the fair value method.
Under the intrinsic value method, compensation associated with stock
awards to employees is determined as the difference, if any, between
the current fair value of the underlying common stock on the date
compensation is measured and the price an employee must pay to exercise
the award. The measurement date for employee awards is generally the
date of grant. Under the fair value method, compensation associated
with stock awards to non-employees is determined based on the estimated
fair value of the award itself, measured using either current market
data or an established option pricing model. The measurement date for
non-employee awards is generally the date performance of services is
complete.
6
The Company intends to continue to use the intrinsic value method to
account for stock-based compensation to employees and directors. The
following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value method to stock-based
employee and director compensation:
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Net loss as reported $ (1,169,000) $ (2,204,000)
Additional stock compensation measured using the fair
value method (682,000) (958,000)
---------------- ---------------
Proforma net loss $ (1,851,000) $ (3,162,000)
================ ===============
Basic and diluted net loss per share - as reported $ (0.04) $ (0.08)
================ ===============
Basic and diluted net loss per share - proforma $ (0.07) $ (0.11)
================ ===============
The fair value of options on their grant date was measured using the
Black/Scholes option pricing model. Key assumptions used to apply this
pricing model are as follows:
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Risk-free interest rate 4.08%-4.53% 4.08%-4.53%
Expected life of option grants 6 years 6 years
Expected volatility of underlying stock 128% 128%
Expected dividend payment rate, as a percentage of
the stock price on the date of grant --- ---
The weighted average fair value of options granted during 2002 was
$1.20. There have been no options granted in 2003.
The option pricing model used was designed to value readily tradable
stock options with relatively short lives. The options granted to
employees are not tradable and have contractual lives of up to ten
years.
(3) REVENUE RECOGNITION
Research contract revenues consist of non-refundable research and
development funding under collaborative agreements with various
corporate or government organizations. Research and development funding
is generally recognized as revenue at the time the research and
development activities are performed under the terms of the related
agreements, when the corporate partner is obligated to pay and when no
future performance obligations exist. Payments received in advance of
services provided result in the deferral of revenue recognition to
future periods.
7
(4) BASIC AND DILUTED LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share:
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Numerator for basic and diluted loss per share:
Net loss $ (1,150,000) $ (2,204,000)
============= =============
Denominator for basic and diluted loss per share:
Weighted average shares
outstanding 28,003,000 27,908,000
============= =============
Net loss per share - basic and
diluted $ (0.04) $ (0.08)
============= =============
Potential common shares are not included in the per share calculations
for diluted EPS, because the effect of their inclusion would be
anti-dilutive. Anti-dilutive potential shares not included in per share
calculations for the three months ended March 31, 2003 and 2002 were
4,593,110 and 4,772,575, respectively.
(5) STOCKHOLDERS' EQUITY
During the three months ended March 31, 2003, no options were granted
or exercised under the 2001 Incentive Plan (the "Plan"). Also during
the same period, 4,034 options were canceled under the Plan.
Under the 1994 Equity Incentive Plan (the "1994 Plan"), no options were
granted or exercised during the three-month period ended March 31,
2003. During the same period, 42,333 options were canceled under the
1994 Plan.
During the three months ended March 31, 2003, 227,600 options were
exercised and 192,400 options were canceled under the 1984 Non
Qualified Plan.
Warrants to purchase common stock were issued in connection with an
October 2000 private placement to two institutional investors. The
warrants issued consist of warrants to purchase an aggregate of 363,322
shares of common stock at a purchase price of $5.90 per share for five
years. Through March 31, 2003, none of the $5.90 warrants had been
exercised. Additionally, each investor received a warrant to purchase
additional shares of common stock at a purchase price of $.01 per share
exercisable only upon certain conditions relating to the trading price
of common stock during the period following the effectiveness of the
related registration statement. A total of 880,314 of the $.01 warrants
8
were exercised through June 30, 2001, and there are no further
exercises available under these $.01 warrants. The placement agent
received a warrant to purchase 108,999 shares of common stock at a
purchase price of $7.43 for five years. Through March 31, 2003, 50,000
of the $7.43 warrants had been exercised. None were exercised in the
three months ended March 31, 2003.
In July 2001, the Company sold 1,566,047 shares of its common stock for
approximately $10,148,000 in gross proceeds ($9,406,000 net of issuance
costs) in a private placement to institutional investors.
The investors in the July 2001 common stock transaction received
warrants to purchase an aggregate of 313,209 shares of common stock at
a purchase price of $8.995 per share. These warrants expire five years
from the closing date and are callable by the Company if the closing
price of the stock is higher than $17.99 for 15 consecutive trading
days at any time before expiration. As of March 31, 2003, none of the
$8.995 warrants had been exercised.
(6) COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which requires businesses to disclose
comprehensive income and its components in their general-purpose
financial statements. Comprehensive loss is equal to the Company's net
loss for the three months ended March 31, 2003 and 2002.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"
("EITF 00-21"), which provides guidance on the timing and method of
revenue recognition for sales arrangements that include the delivery of
more than one product or service. EITF 00-21 is effective prospectively
for arrangements entered into in fiscal periods beginning after June
15, 2003. The Company will adopt the provisions of EITF 00-21 for new
contracts entered into beginning in the third quarter of 2003.
(8) SUBSEQUENT EVENTS
On April 10, 2003, MacroChem Corporation announced that the United
States Food and Drug Administration (FDA) had lifted the October 2002
clinical hold on human trials of MacroChem's drugs containing its
absorption enhancer SEPA(R). Previously, on October 11, 2002, MacroChem
Corporation had announced that the FDA had advised the Company that
further clinical trials of MacroChem's drugs containing SEPA(R) had
been placed on clinical hold until issues regarding a transgenic mouse
carcinogenicity study had been resolved. In removing the clinical hold,
the FDA requested additional information on that study, which was
conducted by MacroChem in 1999 and reported to the FDA in February
2000. MacroChem has agreed to provide that information and will
continue to work with the FDA to address its questions.
9
There can be no assurance that the FDA will ultimately approve any of
MacroChem's investigational drugs. Certain risks and uncertainties
associated with the filing and the FDA review of any future NDA and FDA
regulation of the Company's proposed products are described or
referenced elsewhere in this Quarterly Report on Form 10-Q and in the
section entitled "Risk Factors" contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
On November 11, 2002, the Company had received a notification from
NASDAQ indicating that, for the previous thirty consecutive trading
days, the Company's common stock had not satisfied the minimum bid
price requirement of $1.00 per share required for continued inclusion
on the NASDAQ National Market. On April 29, 2003, the Company received
a notification from NASDAQ indicating that the closing bid price of the
Company's common stock had been at $1.00 per share or greater for at
least ten consecutive trading days prior to May 12, 2003, and that, as
a result, the Company had regained compliance with the minimum bid
price requirement.
On March 31, 2003, the Company received a notification from NASDAQ
indicating that, as of December 31, 2002, the Company's stockholders'
equity did not comply with the minimum $10,000,000 stockholders' equity
requirement for continued inclusion on the NASDAQ National Market. The
NASDAQ notification further requested that the Company submit a
specific plan to achieve and sustain compliance with NASDAQ National
Market Listing Requirements. The Company has been in contact with
NASDAQ concerning this matter. If the Company is unable to regain
compliance, the Company will consider other potential actions,
including applying to transfer its common stock to The NASDAQ SmallCap
Market. A delisting of the Company's common stock from the NASDAQ
National Market could reduce the liquidity of an investment in the
Company's common stock and affect the Company's ability to raise
additional funds in the future.
On April 10, 2003, the Company announced that Robert J. Palmisano had
resigned as President, Chief Executive Officer and Director of the
Company and that Robert J. DeLuccia had been appointed Vice Chairman of
the Company's Board and interim President and Chief Executive Officer.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
MacroChem's primary business is the development of pharmaceutical products for
commercialization by employing SEPA(R) (Soft Enhancer of Percutaneous
Absorption), its patented drug delivery technology. SEPA compounds, when
properly combined with drugs, provide pharmaceutical formulations (creams, gels,
lacquers, solutions, etc.) that enhance the transdermal delivery of drugs into
the skin or into the bloodstream. The Company currently derives no significant
revenue from product sales, royalties or license fees. The Company is developing
specific SEPA formulations for use with proprietary and non-proprietary drugs
manufactured by other pharmaceutical companies, and seeks to commercialize these
products through the formation of partnerships, strategic alliances and
licensing arrangements with those companies.
10
The Company's results of operations can vary significantly from year to year and
quarter to quarter, and depend, among other factors, on the signing of new
licenses and product development agreements, the timing of revenues recognized
pursuant to license agreements, the achievement of milestones by licensees, the
progress of clinical trials conducted by licensees and the Company, and the
degree of research, marketing and administrative effort. The timing of the
Company's revenues may not match the timing of the Company's associated product
development expenses. To date, research and development expenses have generally
exceeded revenues in any particular period and/or fiscal year.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Note 1 of the consolidated financial statements included within the Company's
Form 10-K for the year ended December 31, 2002, includes a summary of the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. The following is a brief discussion of the
more significant accounting policies and methods used by the Company.
The Company's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements. As more fully described in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, we derive revenue from research and development
programs. Research and development funding is generally recognized as revenue at
the time the research and development activities are performed under the terms
of the related agreements, when the counter-party is obligated to pay, and when
no future performance obligation exists. Research and development revenue is
billed on a cost reimbursement basis, which includes direct costs incurred in
connection with research activities and an allocation of certain other costs
incurred by the Company.
Costs and expenses incurred in connection with pending patent applications are
deferred. Costs related to successful patent applications are amortized over the
estimated useful lives of the patents using the straight-line method.
Accumulated patent costs and deferred patent application costs related to
patents that are considered to have limited future value are charged to
operations.
RESULTS OF OPERATIONS
- ---------------------
There were no revenues for the three-month period ended March 31, 2003, compared
to research contract revenues of $43,000 for the three-month period ended March
31, 2002. The decrease is the result of the Company having obtained a small
business grant in September of 2001, funded by the Department of Health and
Human Services, which was completed in January 2002.
11
Research and development expenses decreased $695,000, or 56%, to $540,000 in the
three-month period ended March 31, 2003 from $1,235,000 in the three-month
period ended March 31, 2002. The decrease is primarily attributable to expenses
of approximately $300,000 in the 2002 period for Topiglan Phase III clinical
trial studies, and the reduction of research staff levels in November of 2002,
reducing expenses in the 2003 period by approximately $290,000. The level of
research and development expenses is highly dependent on the timing and extent
of new and ongoing research performed in our in-house laboratories as well as
outside contract laboratories. The spending is expected to increase slightly
over the remainder of the year as we launch new clinical trials.
Marketing, general and administrative expenses decreased $420,000, or 39%, to
$644,000 in the three months ended March 31, 2003 from $1,064,000 in the
three-month period ended March 31, 2002. The decrease is primarily attributable
to the reduction in staff implemented in November of 2002, resulting in a
savings of approximately $370,000 in the 2003 period. In addition, the Company
has reduced spending on consultants, investor relations and travel expenses. The
spending is expected to increase slightly over the remainder of the year due to
increased business development activities.
Other income decreased $46,000, or 69%, to $21,000 in the three-month period
ended March 31, 2003 from $67,000 in the three-month period ended March 31,
2002. The decrease is due to an average lower invested balance of cash, cash
equivalents and short-term investments resulting from funds used in Company
operations and a decrease in overall return rates.
For the reasons described above, net loss decreased $1,035,000, or 47%, to
$1,169,000 in the three-month period ended March 31, 2003 from $2,204,000 in the
three-month period ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since inception, the primary source of funding for the Company's operations has
been the private and public sale of its securities, and to a lesser extent, the
licensing of its proprietary technology and products, government grants and the
limited sales of products and test materials. During the first three months of
2003, the Company received net proceeds from the exercise of stock options of
approximately $99,600 compared to no proceeds from the exercise of stock options
for the three months ended March 31, 2002.
At March 31, 2003, working capital was approximately $7,721,000, compared to
$8,706,000 at December 31, 2002. The decrease in the Company's working capital
was due primarily to the use of funds for operations and resulted in a lower
balance of cash and equivalents and short-term investments. Until such time as
the Company obtains agreements with third-party licensees or partners to provide
funding for the Company's anticipated business activities or the Company is able
to obtain additional funds through the private or public sale of its securities,
the Company's working capital will be utilized primarily to fund its operating
activities.
12
There were no capital expenditures or additional patent development costs for
the three months ended March 31, 2003. The Company anticipates additional
capital and patent expenditures of approximately $200,000 for the remainder of
the current year.
On November 11, 2002, the Company had received a notification from NASDAQ
indicating that, for the previous thirty consecutive trading days, the Company's
common stock had not satisfied the minimum bid price requirement of $1.00 per
share required for continued inclusion on the NASDAQ National Market. On April
29, 2003, the Company received a notification from NASDAQ indicating that the
closing bid price of the Company's common stock had been at $1.00 per share or
greater for at least ten consecutive trading days prior to May 12, 2003, and
that, as a result, the Company had regained compliance with the minimum bid
price requirement.
On March 31, 2003, the Company received a notification from NASDAQ indicating
that, as of December 31, 2002, the Company's stockholders' equity did not comply
with the minimum $10,000,000 stockholders' equity requirement for continued
inclusion on the NASDAQ National Market. The NASDAQ notification further
requested that the Company submit a specific plan to achieve and sustain
compliance with NASDAQ National Market Listing Requirements. The Company has
been in contact with NASDAQ concerning this matter. If the Company is unable to
regain compliance, the Company will consider other potential actions, including
applying to transfer its common stock to The NASDAQ SmallCap Market. A delisting
of the Company's common stock from the NASDAQ National Market could reduce the
liquidity of an investment in the Company's common stock and affect the
Company's ability to raise additional funds in the future.
The Company's long term capital requirements will depend upon numerous factors,
including the progress of the Company's research and development programs; the
resources that the Company devotes to self-funded clinical testing, proprietary
manufacturing methods and advanced technologies; the ability of the Company to
enter into licensing arrangements or other strategic alliances; the ability of
the Company to manufacture products under those arrangements and the demand for
its products or the products of its licensees or strategic partners if and when
approved for sale by regulatory authorities. In any event, substantial
additional funds may be required before the Company is able to generate revenues
sufficient to support its operations. There is no assurance that the Company
will be able to obtain such additional funds on favorable terms, if at all. The
Company's inability to raise sufficient funds could require it to delay, scale
back or eliminate certain research and development programs.
The Company believes that its existing cash, cash equivalents and short term
investments will be sufficient to meet its operating expenses and capital
expenditure requirements for the next twelve months. The Company's cash
requirements may vary materially from those now planned because of changes in
focus and direction of the Company's research and development programs,
competitive and technical advances, patent developments or other developments.
It is not believed that inflation will have any significant effect on the
results of the Company's operations.
13
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In November 2002, the Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"), which
provides guidance on the timing and method of revenue recognition for sales
arrangements that include the delivery of more than one product or service. EITF
00-21 is effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company will adopt the provisions of EITF
00-21 for new contracts entered into beginning in the third quarter of 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
As of March 31, 2003, the Company is exposed to market risks which relate
primarily to changes in U.S. interest rates. The Company's cash equivalents and
short-term investments are subject to interest rate risk and will decline in
value if interest rates increase. Due to the short duration of these financial
instruments, generally one year or less, changes to interest rates would not
have a material effect upon the Company's financial position. A hypothetical 10%
change in interest rates would not have a material effect on our Statement of
Operations or Cash Flows for the three months ended March 31, 2003.
ITEM 4. CONTROL AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our chief financial officer, after evaluating the
effectiveness of our "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))
as of a date (the "Evaluation Date") within 90 days before the filing
date of this quarterly report, have concluded that as of the Evaluation
Date, our disclosure controls and procedures were adequate and designed
to ensure that material information relating to the Company would be
made known to them by others within the Company.
(b) Changes in internal controls. There were no significant changes in our
internal controls or to our knowledge, in other factors that could
significantly affect our internal controls and procedures subsequent to
the Evaluation Date.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN THIS REPORT AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING: THE COMPANY'S HISTORY
OF OPERATING LOSSES AND NEED FOR CONTINUED WORKING CAPITAL; TECHNOLOGICAL
UNCERTAINTY RELATING TO TRANSDERMAL DRUG DELIVERY SYSTEMS AND THE EARLY STAGE OF
DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS; THE COMPANY'S NEED FOR
SIGNIFICANT ADDITIONAL PRODUCT DEVELOPMENT EFFORTS AND ADDITIONAL FINANCING;
UNCERTAINTIES RELATED TO CLINICAL TRIALS OF THE COMPANY'S PROPOSED PRODUCTS; THE
COMPANY'S DEPENDENCE ON THIRD PARTIES FOR COMMERCIALIZATION; NO ASSURANCE OF
LICENSE ARRANGEMENTS; THE LACK OF SUCCESS OF THE COMPANY'S PRIOR DEVELOPMENT
EFFORTS; UNCERTAINTIES RELATING TO GOVERNMENT REGULATION AND REGULATORY
APPROVALS; THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR THE FDA APPLICATION
PROCESS; THE COMPANY'S LACK OF EXPERIENCED MARKETING PERSONNEL AND DEPENDENCE ON
THIRD PARTIES FOR MARKETING AND DISTRIBUTION; THE COMPANY'S DEPENDENCE ON THIRD
PARTIES FOR MANUFACTURING; THE COMPANY'S RELIANCE ON KEY EMPLOYEES, THE LIMITED
PERSONNEL OF THE COMPANY AND ITS DEPENDENCE ON ACCESS TO SCIENTIFIC TALENT;
14
UNCERTAINTIES RELATING TO COMPETITION, PATENTS AND PROPRIETARY TECHNOLOGY;
UNCERTAINTIES RELATING TO RISKS OF PRODUCT LIABILITY CLAIMS, LACK OF PRODUCT
LIABILITY INSURANCE, AND EXPENSE AND DIFFICULTY OF OBTAINING ADEQUATE INSURANCE
COVERAGE; UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; AND OTHER
FACTORS. ADDITIONAL INFORMATION ON THESE AND OTHER FACTORS WHICH COULD AFFECT
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE ARE INCLUDED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002 AND, IN PARTICULAR, THE
SECTION ENTITLED "RISK FACTORS".
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed herewith:
99.1 Certification Pursuant to Section 1350, Chapter 63 of
Title 18, United States Code, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MacroChem Corporation
(Registrant)
May 14, 2003 /s/ Robert J. DeLuccia
---------------------------------------------
Robert J. DeLuccia
Interim President and Chief Executive Officer
(Principal Executive Officer)
/s/ Bernard R. Patriacca
---------------------------------------------
Bernard R. Patriacca
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
17
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
- --------------
I, Robert J. DeLuccia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MacroChem
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
18
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
------------
/s/ Robert J. DeLuccia
---------------------------------------------
Robert J. DeLuccia
Interim President and Chief Executive Officer
19
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
- --------------
I, Bernard R. Patriacca, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MacroChem
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
20
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003
------------
/s/ Bernard R. Patriacca
---------------------------------------
Bernard R. Patriacca
Vice President, Chief Financial Officer
and Treasurer
21
EXHIBIT INDEX
The following designated exhibit is filed herewith:
99.1 Certification Pursuant to Section 1350, Chapter 63 of Title 18, United
States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
22