MacroChem Corporation
40 Washington Street
Suite 220
Wellesley Hills, MA 02481
Glenn E. Deegan, Esq.
Vice President and General Counsel
January 19, 2007
Mr. Jim B. Rosenberg
Senior Assistant Chief Accountant
Division of Corporation Finance
Mail Stop 6010
United States Securities and Exchange Commission
Washington, DC 20549
RE: MACROCHEM CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005
FILE NO. 0-13634
Dear Mr. Rosenberg:
Set forth below is a response of MacroChem Corporation ("MacroChem" or the
"Company") to the Commission's comments contained in its letter dated December
21, 2006 that pertain to MacroChem's Annual Report on Form 10-K for the year
ended December 31, 2005 (File No. 0-13634) (the "Form 10-K") filed on March 28,
2006.
The responses below are keyed to the comment numbers set forth in the
Commission's letter.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS, PAGE 36
1. COMMENT: PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT A REVISED DISCUSSION
THAT CLEARLY RECONCILES THE CHARGES YOU INDICATE FOR THE TERMINATION OF
YOUR NON-MANAGEMENT PERSONNEL AND YOUR EXECUTIVE TRANSITION AGREEMENTS TO
THE $546,212 PRESENTED IN YOUR 2005 STATEMENT OF OPERATIONS. IN ADDITION,
PLEASE EXPLAIN TO US WHY THE CHARGE FOR THESE ITEMS IS REFLECTED AS
$751,277 IN YOUR SEPTEMBER 30, 2005 STATEMENT OF OPERATIONS PROVIDED IN
YOUR SEPTEMBER 30, 2006 FORM 10-Q.
RESPONSE: In the quarter ended September 30, 2005, the Company
terminated most of its non-management personnel and entered into
transition agreements with its executives resulting in an aggregate
estimated charge of $751,277 as reported in our September 30, 2005
Form 10-Q.
Mr. Jim B. Rosenberg -2- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
In February 2006, following the closing of a private placement
financing transaction that allowed the Company to continue its
business operations, certain executives who had previously entered
into transition agreements with the Company executed new employment
agreements. As a result, their employment with the Company was never
interrupted and it was therefore determined that the original
estimated charges should be properly classified as general and
administrative expenses and not be included in the charges associated
with the transition agreements originally accrued in September of
2005. Accordingly, in the year end 2005 statement of operations,
approximately $205,065 of executive transition agreement charges were
reclassified to Marketing, general and administrative expenses as a
result of these executives continuing their employment with the
Company, which left $546,212 as the charges associated with the
termination of non-management personnel and transition agreements.
The reclassification was improperly reflected in the September 30,
2006 Form 10-Q. The correct figure for the costs associated with staff
reductions and transition agreements for the three months ended
September 30, 2005 should have been the same figure, $546,212, as we
reported in our Form 10-K for December 31, 2005. The Company will
correct this presentation in its future filings.
FINANCIAL STATEMENTS
NOTE 4: STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL STOCK, PAGE 55
STOCK SALES, PAGE 55
2. COMMENT: YOU DISCLOSE THAT YOUR SERIES C PREFERRED STOCK IS REDEEMABLE AT
THE OPTION OF THE HOLDER IN THE EVENT YOU FAIL OR REFUSE TO CONVERT ANY OF
THESE SHARES INTO COMMON STOCK. IN ADDITION YOU DISCLOSE THAT THE
CONVERSION RATE OF THIS STOCK COULD BE ADJUSTED IF THE AVERAGE TRADING
PRICE FOR THE TWENTY TRADING DAYS IMMEDIATELY PROCEEDING MAY 8, 2006 WAS
LOWER THAN THE STATED CONVERSION PRICE. PLEASE ADDRESS THE FOLLOWING
COMMENTS FOR EACH OF YOUR DECEMBER 2005 AND FEBRUARY 2006 PREFERRED STOCK
ISSUANCES IN THE CONTEXT OF YOUR 2005 FORM 10-K DISCLOSURES AND 2006 FORMS
10-Q DISCLOSURES, RESPECTIVELY;
A. PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT REVISED DISCLOSURE THAT
CLARIFIES WHY YOU REFLECT YOUR SERIES C PREFERRED STOCK IN THE
MEZZANINE BETWEEN DEBT AND EQUITY. IT IS UNCLEAR FROM YOUR CURRENT
DISCLOSURE HOW THIS STOCK IS REDEEMABLE AT THE OPTION OF THE HOLDER IF
SUCH REDEMPTION IS SUBJECT TO YOUR ACTIONS OR INACTIONS. PLEASE SEE
EITF D-98.
Mr. Jim B. Rosenberg -3- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
RESPONSE:
The terms of the Series C Preferred Stock and Warrants issued in
December 2005 and February 2006 were identical.
If we fail or refuse to convert any shares of Series C Preferred Stock
in accordance with the terms of the Series C Preferred Stock, the
holders of our Series C Preferred Stock are entitled to elect to
require us to redeem their Series C Preferred Stock. In the event of a
redemption, the price that we are required to pay to redeem a share of
Series C Preferred Stock is an amount in cash equal to the greater of
(1) all accrued but unpaid dividends as of the date the holder makes
the demand for redemption with respect to each share to be redeemed
plus the $10,000 liquidation preference per share or (2) the total
number of shares of common stock into which such Series C Preferred
Stock is convertible multiplied by the then-current market price of
the common stock.
The Certificate of Designations contains a provision that restricts a
holder of Series C Preferred Stock from (i) converting Series C
Preferred Stock into common stock to the extent that such conversion
would result in the holder owning more than 4.95% of the issued and
outstanding common stock of the Company or (ii) voting together with
the common stock on an as-if-converted to common stock basis in
respect of more than 4.95% of the issued and outstanding common stock
of the Company. The Warrants issued pursuant to the purchase agreement
contain a similar restriction (collectively, the "Beneficial Ownership
Cap"). A holder of Series C Preferred Stock or a Warrant may elect,
subject to certain conditions, to be exempt from the Beneficial
Ownership Cap. Subject to the Beneficial Ownership Cap restrictions,
as of the date of the second closing of the private placement
financing in February 2006 (the "Second Closing"), the Series C
Preferred Stock acquired by the purchasers was convertible into
4,057,885 shares of common stock and the holders of the Series C
Preferred Stock vote on an as-converted basis with the holders of our
common stock, and therefore hold approximately 80.28% of the voting
power of our outstanding securities. Assuming both the conversion of
the Series C Preferred Stock and the exercise of all of the Warrants
acquired by the purchasers, in each case subject to the Beneficial
Ownership Cap restrictions, the purchasers would hold approximately
89.06% of the outstanding common stock of the Company as of the date
of the Second Closing.
Given that the redemption provision described above does not embody an
unconditional obligation requiring the Company to redeem the
instrument at a specified or determinable date or upon an event
certain to occur, the Series C Preferred Stock is not a mandatorily
Mr. Jim B. Rosenberg -4- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
redeemable financial instrument. Therefore, the Company determined the
guidance in FAS 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH
CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, which would require
classification as a liability, does not apply.
Rule 5-02.28 of Regulation S-X requires securities with redemption
features that are not solely within the control of the issuer to be
classified outside of permanent equity. The holders of the Series C
Preferred Stock control a majority of the voting power of the
Company's common stock and, as a result of this control, could
directly or indirectly influence the triggering of the redemption
provision by, for example, refusing to approve an increase in the
authorized but unissued shares of common stock of the Company if, in
the future, such increase were necessary to effect the conversion of
the Series C Preferred Stock. Accordingly, the redemption provision is
not solely within the Company's control. Therefore, the Company
recorded the portion of the proceeds attributable to the Series C
Preferred Stock as mezzanine equity pursuant to EITF Topic D-98,
CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES. The Company
will revise its disclosures to clarify the accounting treatment in
future filings.
B. PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT REVISED DISCLOSURE THAT
CLARIFIES WHY YOU DO NOT APPARENTLY ACCRETE YOUR CARRYING VALUE OF
PREFERRED STOCK TO ITS REDEMPTION VALUE.
RESPONSE: Please see the description of the redemption provision set
forth in our response to Comment 2.a above. In accordance with the
guidance in EITF Topic No. D-98, the carrying value of the Series C
Preferred Stock was not accreted to its redemption value as the
occurrence of the redemption event was not considered probable.
C. PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT REVISED BALANCE SHEETS
THAT REFLECT THE AGGREGATE LIQUIDATION VALUE OF YOUR PREFERRED STOCK
AS REQUIRED BY PARAGRAPH 6 OF SFAS 129.
RESPONSE: The liquidation value of the Series C Preferred Stock was
improperly excluded from the relevant caption on the balance sheets
due to an oversight. Please see the balance sheets attached hereto as
Appendix A in which we have revised the preferred stock captions to
include disclosure of the liquidation value. We will include corrected
balance sheet captions in future filings.
D. PLEASE EXPLAIN TO US HOW YOU CONSIDERED THE CONVERSION PRICE
ADJUSTMENT INDICATED ABOVE IN YOUR EITF 00-19 ANALYSIS OF THE EMBEDDED
CONVERSION FEATURE OF YOUR SERIES C PREFERRED STOCK. IN THIS REGARD,
Mr. Jim B. Rosenberg -5- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
PLEASE SPECIFICALLY INDICATE THE IMPACT OF THIS ADJUSTMENT FEATURE AS
IT PERTAINS TO PARAGRAPH 19 OF EITF 00-19.
RESPONSE: The conversion price for the Series C Preferred Stock was
subject to reset adjustment (the "Reset Adjustment") such that if the
average price of the common stock over the twenty trading days
immediately preceding May 8, 2006 (the "Average Price") was lower than
the conversion price, then such conversion price would have been
adjusted to equal the Average Price. The Average Price was higher than
the conversion price and therefore there was no reset adjustment.
The Company evaluated whether the embedded conversion feature in the
Series C Preferred Stock required bifurcation and determined, in
accordance with paragraph 12, that the economic characteristics and
risks of the embedded conversion feature in the stock were clearly and
closely related to the stock and, as a result, concluded that
bifurcation was not required under SFAS 133. As discussed previously,
the holders of the Series C Preferred Stock essentially control the
Company through the conversion rights and both the host contract and
the embedded derivative are clearly considered to possess equity
characteristics.
In accordance with paragraph 19 of EITF 00-19, the Company determined
that the number of authorized but unissued common shares, less the
maximum number of common shares that could be required to be delivered
under then-existing commitments, exceeded the maximum number of shares
that could be required to be delivered under share settlement of the
Series C Preferred Stock and the Warrants at the time of the potential
Reset Adjustment (as noted above, a Reset Adjustment did not occur).
Accordingly, the Company determined that, with respect to the
conversion option and the Reset Adjustment, bifurcation was not
required and temporary equity classification was appropriate. The
Company will revise its disclosures to clarify the accounting
treatment in future filings.
E. ALTHOUGH YOUR STATEMENTS OF OPERATIONS INDICATE THAT YOUR BENEFICIAL
CONVERSION FEATURE IS DISCUSSED IN NOTES 4 AND 8, WE ARE UNABLE TO
LOCATE THIS DISCLOSURE. PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT
REVISED DISCLOSURE THAT CLEARLY INDICATES HOW YOU DETERMINED THIS
BENEFICIAL CONVERSION FEATURE. IN ADDITION, PLEASE EXPLAIN TO US HOW
YOU CONSIDERED THE REQUIREMENTS OF PARAGRAPHS 5-7 OF EITF 00-27 TO
COMPUTE THE BENEFICIAL CONVERSION FEATURE BASED ON THE EFFECTIVE
CONVERSION PRICE AFTER ALLOCATION OF THE PROCEEDS TO YOUR PREFERRED
STOCK AND ASSOCIATED WARRANTS.
RESPONSE: Pursuant to the guidance in paragraph 5 of EITF 00-27,
Application of Issue No. 98-5 to Certain Convertible Instruments, we
allocated the proceeds from the Series C financing between the Series
Mr. Jim B. Rosenberg -6- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
C Preferred Stock and the warrants based upon their estimated fair
values as of the closing date, resulting in $330,243 being allocated
to the Series C Preferred Stock and $1,620,778 being allocated to the
warrants. We then calculated the intrinsic value of the beneficial
conversion feature embedded in the Series C Preferred Stock pursuant
to the guidance in EITF 00-27. As the amount of the beneficial
conversion feature exceeded the value allocated to the Series C
Preferred Stock, the amount of the beneficial conversion feature
recorded was limited to the proceeds allocated to the Series C
Preferred Stock. The beneficial conversion feature value of $330,243
was recognized as an additional discount on the Series C Preferred
Stock, which amount was immediately accreted and treated as a deemed
dividend to the holder of the shares of Series C Preferred Stock, as
all of the Series C Preferred Stock was eligible for conversion upon
issuance.
WARRANTS, PAGE 55
3. COMMENT: ALTHOUGH YOU INDICATE IN YOUR DISCLOSURE HERE AND IN YOUR 2006
FORMS 10-Q THAT YOU RECORD A WARRANT LIABILITY FOR THE WARRANTS ISSUED IN
CONJUNCTION WITH YOUR SERIES C PREFERRED STOCK, YOU DO NOT APPEAR TO
INDICATE WHY YOU BELIEVE EITF 00-19 REQUIRES LIABILITY TREATMENT. PLEASE
PROVIDE US IN A DISCLOSURE-TYPE FORMAT REVISED DISCLOSURE THAT CLEARLY
INDICATES WHY YOU TREAT THESE WARRANTS AS LIABILITIES AND SEPARATELY
PROVIDE US YOUR ANALYSIS UNDER EITF 00-19 SUPPORTING YOUR CONCLUSIONS. IN
YOUR SEPARATE RESPONSE, PLEASE ENSURE THAT YOU ADDRESS EACH OF THE CRITERIA
OF PARAGRAPHS 12-32 OF THAT CONSENSUS.
RESPONSE: The warrants contain a "cashless exercise" feature that
allows the holders, under certain circumstances, to exercise the
warrants without making a cash payment to the Company. In addition,
upon the occurrence of a change of control, a warrant holder, at its
option, can require the Company to repurchase the warrant for an
aggregate purchase price, payable in cash, calculated according to a
specified formula (the "Put Feature").
The Company allocated the proceeds between the stock and the warrants
based upon their estimated fair values as of the closing date,
resulting in $1,620,778 being allocated to the warrants. The Company
determined the fair value of the warrants using the Black-Scholes
option pricing model with the following assumptions: weighted average
risk free rate of 4.18%; volatility of 100% and a dividend yield of
0%. The Company determined that the warrants meet the definition of a
derivative instrument as defined in SFAS 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The fair value of the
warrants are recorded in liabilities pursuant to the guidance in
paragraphs 12 and 27 of EITF 00-19, ACCOUNTING FOR DERIVATIVE
FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A
COMPANY'S OWN STOCK, because the Put Feature is a form of net cash
Mr. Jim B. Rosenberg -7- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
settlement in that it allows a holder of the warrant to require the
Company to repurchase the warrant for cash in the event of a change in
control.
4. COMMENT: PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT REVISED DISCLOSURE
THAT CLEARLY INDICATES HOW YOU ACCOUNTED FOR THE WARRANTS ISSUED TO THE
PLACEMENT AGENT IN YOUR SERIES C PREFERRED STOCK ISSUANCES. PLEASE INDICATE
WHETHER THESE WARRANTS ARE INCLUDED IN YOUR WARRANTY LIABILITY AND YOUR
RATIONALE FOR EITHER INCLUDING OR EXCLUDING THEM.
RESPONSE: The Company determined the fair value of the placement agent
warrants using the Black-Scholes option pricing model with the
following assumptions: weighted average risk free rate of 4.18%;
volatility of 100% and a dividend yield of 0%. The fair value of the
warrants of $174,922 was treated as an offset to the proceeds of the
Series C financing and credited to additional paid in capital. The
placement agent warrants were considered an incremental direct cost to
issue shares of Series C Preferred Stock and therefore were excluded
from the warrant liability.
GENERAL
5. COMMENT: PLEASE PROVIDE US IN A DISCLOSURE-TYPE FORMAT THE SELECTED
QUARTERLY FINANCIAL DATA REQUIRED BY ITEM 302(A) OF REGULATION S-K OR TELL
US WHY THIS INFORMATION IS NOT REQUIRED.
RESPONSE: The following data required by Item 302(a) of Regulation S-K
was included in Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations:
Mr. Jim B. Rosenberg -8- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
2005 Quarters
Revenues $ --- $ --- $ --- $ ---
Net Loss Attributable to
Common Stockholders $ (1,841,540) $ (1,526,346) $ (1,820,992) $ (901,840)
Net Loss per Share $ (1.99) $ (1.56) $ (1.83) $ (0.87)
(basic and diluted)
2004 Quarters
Revenues $ --- $ --- $ --- $ ---
Net Loss $ (2,218,528) $ (2,453,570) $ (1,911,484) $ (1,690,939)
Net Loss per Share $ (2.52) $ (2.51) $ (2.10) $ (2.10)
(basic and diluted)
EXHIBITS 31: CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
6. COMMENT: PLEASE REPRESENT TO US THAT IN FUTURE PERIODIC REPORT FILINGS YOU
WILL PROVIDE THE WORDING OF THE CERTIFICATIONS EXACTLY AS PRESENTED IN ITEM
601(B)(31) OF REGULATION S-K. IN THIS REGARD, YOUR MOST RECENT
CERTIFICATIONS APPEAR TO INCLUDE THE ADJECTIVES "ANNUAL" AND "QUARTERLY"
WHEN IDENTIFYING THE REPORT COVERED BY THE CERTIFICATIONS.
RESPONSE: In future periodic report filings we will provide the
wording of the certifications exactly as presented in Item 601(b)(31)
of Regulation S-K.
In connection with these responses to your comments, the Company acknowledges
that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Mr. Jim B. Rosenberg -9- January 19, 2007
Senior Assistant Chief Accountant-Division of Corporation Finance
Please direct any comments or questions on MacroChem's responses to me at (781)
489-7310. Thank you.
Sincerely,
/s/ Glenn E. Deegan
Glenn E. Deegan
cc: Robert J. DeLuccia
Bernard R. Patriacca
Dwight W. Quayle
Justin A. McCormack
APPENDIX A
1
MACROCHEM CORPORATION
BALANCE SHEETS
Year Ended 2005
Fiscal Year ended December 31,
------------------------------
2005 2004
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,023,436 $ 4,888,868
Short-term investments --- 1,185,406
Prepaid expenses and other current assets 106,761 328,908
------------ ------------
Total current assets 3,130,197 6,403,182
Property and equipment, net 72,203 183,079
Other assets:
Patents, net 579,053 523,603
------------ ------------
Total other assets 579,053 523,603
------------ ------------
Total assets $ 3,781,453 $ 7,109,864
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 125,478 $ 244,148
Accrued expenses and other liabilities 249,552 523,703
------------ ------------
Total current liabilities 375,030 767,851
Deferred rent --- 5,509
Warrants liability 1,620,778 ---
------------ ------------
Total liabilities 1,995,808 773,360
Commitments and contingencies (Note 5)
Preferred stock, $.01 par value; liquidation
value of $2,500,000; 6,000,000 shares authorized,
250 shares Series C Convertible issued and
outstanding at December 31, 2005 (Notes 4 and 8) 330,243 ---
------------ ------------
330,243 ---
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized; 997,438 and 926,285 shares issued
at December 31, 2005 and December 31, 2004, respectively 9,974 9,263
Additional paid-in capital 84,089,530 83,320,908
Accumulated deficit (82,584,992) (76,824,517)
Less treasury stock, at cost, 529 and 1,482 shares
at December 31, 2005 and December 31, 2004, respectively (59,110) (169,150)
------------ ------------
Total stockholders' equity 1,455,402 6,336,504
------------ ------------
Total liabilities and stockholders' equity $ 3,781,453 $ 7,109,864
============ ============
See notes to financial statements.
2
MACROCHEM CORPORATION
CONDENSED BALANCE SHEETS
Quarter Ended March 31, 2006
March 31, December 31,
2006 2005
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 767,500 $ 3,023,436
Short-term investments 6,529,547 ---
Prepaid expenses and other current assets 393,481 106,761
------------ ------------
Total current assets 7,690,528 3,130,197
Property and equipment, net 60,729 72,203
Patents, net 580,936 579,053
------------ ------------
Total assets $ 8,332,193 $ 3,781,453
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 170,888 $ 125,478
Accrued expenses and other liabilities 271,387 249,552
------------ ------------
Total current liabilities 442,275 375,030
Warrants liability (Note 5) 7,044,873 1,620,778
------------ ------------
Total liabilities 7,487,148 1,995,808
Commitments and contingencies (Note 3)
Preferred stock, $.01 par value; liquidation value
of $8,255,000 and $2,500,000; 6,000,000 shares
authorized, 825.5 and 250 shares Series C Convertible
issued and outstanding at March 31, 2006 and
December 31, 2005, respectively (Note 5) 342,138 330,243
------------ ------------
342,138 330,243
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized; 1,080,023 and 997,438 shares issued
at March 31, 2006 and December 31, 2005, respectively 10,800 9,974
Additional paid-in capital 85,016,725 84,089,530
Accumulated deficit (84,465,508) (82,584,992)
Less treasury stock, at cost, 529 shares at March 31, 2006
and December 31, 2005 (59,110) (59,110)
------------ ------------
Total stockholders' equity 502,907 1,455,402
------------ ------------
Total liabilities and stockholders' equity $ 8,332,193 $ 3,781,453
============ ============
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
MACROCHEM CORPORATION
CONDENSED BALANCE SHEETS
Quarter Ended June 30, 2006
June 30, December 31,
2006 2005
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 692,274 $ 3,023,436
Short-term investments 5,835,353 ---
Prepaid expenses and other current assets 309,991 106,761
------------ ------------
Total current assets 6,837,618 3,130,197
Property and equipment, net 50,016 72,203
Patents, net 589,953 579,053
------------ ------------
Total assets $ 7,477,587 $ 3,781,453
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 56,296 $ 125,478
Accrued expenses and other liabilities 308,125 249,552
------------ ------------
Total current liabilities 364,421 375,030
Warrants liability (Note 5) 2,152,308 1,620,778
------------ ------------
Total liabilities 2,516,729 1,995,808
Commitments and contingencies (Note 3)
Preferred stock, $.01 par value; liquidation value
of $8,239,500 and $2,500,000; 6,000,000 shares
authorized, 823.95 and 250 shares Series C
Convertible issued and outstanding at June 30,
2006 and December 31, 2005, respectively (Note 5) 341,496 330,243
------------ ------------
341,496 330,243
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized; 1,358,242 and 997,438 shares
issued at June 30, 2006 and December 31, 2005,
respectively 13,583 9,974
Additional paid-in capital 85,436,650 84,089,530
Accumulated deficit (80,771,761) (82,584,992)
Less treasury stock, at cost, 529 shares at June 30,
2006 and December 31, 2005 (59,110) (59,110)
------------ ------------
Total stockholders' equity 4,619,362 1,455,402
------------ ------------
Total liabilities and stockholders' equity $ 7,477,587 $ 3,781,453
============ ============
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
MACROCHEM CORPORATION
CONDENSED BALANCE SHEETS
Quarter Ended September 30, 2006
September 30, December 31,
2006 2005
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 589,574 $ 3,023,436
Short-term investments 5,150,263 ---
Prepaid expenses and other current assets 256,041 106,761
------------ ------------
Total current assets 5,995,878 3,130,197
Property and equipment, net 42,074 72,203
Patents, net 579,920 579,053
------------ ------------
Total assets $ 6,617,872 $ 3,781,453
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 302,610 $ 125,478
Accrued expenses and other liabilities 163,040 249,552
------------ ------------
Total current liabilities 465,650 375,030
Warrants liability (Note 5) 554,397 1,620,778
------------ ------------
Total liabilities 1,020,047 1,995,808
Commitments and contingencies (Note 3)
Preferred stock, $.01 par value; liquidation value
of $8,090,000 and $2,500,000; 6,000,000 shares
authorized, 809 and 250 shares Series C Convertible
issued and outstanding at September 30, 2006 and
December 31, 2005, respectively (Note 5) 335,441 330,243
------------ ------------
335,441 330,243
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized; 2,116,456 and 997,438 shares
issued at September 30, 2006 and December 31,
2005, respectively 21,165 9,974
Additional paid-in capital 85,769,015 84,089,530
Accumulated deficit (80,468,686) (82,584,992)
Less treasury stock, at cost, 529 shares at
September 30, 2006 and December 31, 2005 (59,110) (59,110)
------------ ------------
Total stockholders' equity 5,262,384 1,455,402
------------ ------------
Total liabilities and stockholders' equity $ 6,617,872 $ 3,781,453
============ ============
The accompanying notes are an integral part of these unaudited condensed
financial statements.
5