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 June 30, 1996.
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: 0-27718
NEOSE TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3549286
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Witmer Road, Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 441-5890
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 8,185,751 shares of
common stock, $.01 par value, were outstanding as of July 31, 1996.
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
----------------------
Item 1. Financial Statements
Balance Sheets (unaudited) at December 31, 1995 and June 30, 1996... 3
Statements of Operations (unaudited) for the three and six months ended
June 30, 1995 and 1996, and from the period of inception through
June 30, 1996....................................................... 4
Statements of Cash Flows (unaudited) for the six months ended
June 30, 1995 and 1996, and from the period of inception through
June 30, 1996....................................................... 5
Notes to Unaudited Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 8
PART II. OTHER INFORMATION:
------------------
Item 1. Legal Proceedings...................................................24
Item 2. Changes in Securities...............................................24
Item 3. Defaults Upon Senior Securities.....................................24
Item 4. Submission of Matters to a Vote of Security Holders.................24
Item 5. Other Information...................................................25
Item 6. Exhibits and Reports on Form 8-K....................................25
SIGNATURES...................................................................26
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2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $11,189,001 $36,853,113
Restricted funds............................................ 148,300 147,567
Prepaid expenses and other.................................. 118,680 273,388
----------- -----------
Total current assets.................................... 11,455,981 37,274,068
PROPERTY AND EQUIPMENT, net...................................... 2,685,613 2,859,544
DEFERRED FINANCING COSTS......................................... 409,003 --
RESTRICTED FUNDS 73,066 --
OTHER ASSETS..................................................... 15,049 15,049
----------- -----------
$14,638,712 $40,148,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................... $ 764,552 $ 801,524
Accounts payable............................................ 301,023 318,732
Accrued compensation........................................ 191,318 148,000
Other accrued expenses...................................... 297,605 154,392
Deferred revenue............................................ 41,667 41,667
----------- -----------
Total current liabilities............................... 1,596,165 1,464,315
OTHER LIABILITIES................................................ 74,986 79,914
LONG-TERM DEBT................................................... 1,234,527 829,411
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
none issued............................................. -- --
Convertible preferred stock................................. 57,802 --
Common stock, $.01 par value; 30,000,000 shares authorized;
3,145,256 and 8,182,958 shares issued and outstanding... 31,453 81,830
Additional paid-in capital.................................. 31,385,927 60,620,650
Deferred compensation....................................... (359,900) (314,913)
Deficit accumulated during the development stage............ (19,382,248) (22,612,546)
----------- -----------
Total stockholders' equity.............................. $11,733,034 $37,775,021
----------- -----------
$14,638,712 $40,148,661
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Period from
June 30, June 30, Inception
--------------------------- --------------------------- (January 17, 1989)
1995 1996 1995 1996 to June 30, 1996
----------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES FROM
COLLABORATIVE AGREEMENTS ... $ 250,000 $ 356,100 $ 500,000 $ 693,600 $ 4,539,963
----------- ----------- ------------ ----------- ------------
OPERATING EXPENSES:
Research and development ... 1,165,033 1,739,908 2,211,360 3,389,543 19,866,100
General and administrative . 429,749 630,980 881,514 1,191,508 7,880,236
----------- ----------- ------------ ----------- ------------
Total operating expenses 1,594,782 2,370,888 3,092,874 4,581,051 27,746,336
----------- ----------- ------------ ----------- ------------
Operating Loss ......... (1,344,782) (2,014,788) (2,592,874) (3,887,451) (23,206,373)
----------- ----------- ------------ ----------- ------------
INTEREST INCOME .............. 54,887 496,507 122,812 794,983 1,610,968
INTEREST EXPENSE ............. (31,686) (65,472) (66,367) (137,830) (1,017,141)
----------- ----------- ------------ ----------- ------------
NET LOSS ..................... $(1,321,581) $(1,583,753) $(2,536,429) $(3,230,298) $(22,612,546)
=========== =========== ============ =========== ============
PRO FORMA NET LOSS PER
SHARE .................... $ (0.29) $ (0.19) $ (0.56) $ (0.43)
=========== ============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ...... 4,508,000 8,176,000 4,504,000 7,492,000
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Period from Inception
---------------------------- (January 17, 1989)
1995 1996 to June 30, 1996
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss....................................... $(2,536,429) $ (3,230,298) $(22,612,546)
Adjustments to reconcile net loss to cash
used in operating activities--
Depreciation and amortization............... 180,359 271,786 1,447,381
Common stock issued for consulting, licensing
and other non-cash charges............... -- -- 25,762
Compensation expense exchanged for
common stock............................. -- -- 12,107
Amortization of deferred compensation....... -- 44,987 44,987
Other, net.................................. -- -- (2,907)
Changes in operating assets and liabilities--
Restricted funds......................... 277,698 73,799 (147,567)
Prepaid expenses and other............... (25,383) (154,708) (273,388)
Other assets............................. (11,649) -- (15,049)
Accounts payable......................... (156,570) 17,709 318,732
Accrued compensation..................... (227,198) (43,318) (29,322)
Other accrued expenses................... (24,993) (143,213) 376,186
Deferred revenue......................... 500,000 -- 41,667
Other liabilities........................ 13,981 4,928 79,914
----------- ------------ ------------
Net cash used in operating activities.... (2,010,184) (3,158,328) (20,734,043)
---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (152,913) (445,717) (3,549,024)
Purchase of short-term investments............. -- -- (3,177,000)
Proceeds from sale of short-term investments... -- -- 3,177,000
Proceeds from sale-leaseback of equipment...... -- -- 1,382,027
----------- ------------ ------------
Net cash used in investing activities....... (152,913) (445,717) (2,166,997)
----------- ------------ ------------
</TABLE>
(Continued)
5
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended June 30, Period from Inception
---------------------------- (January 17, 1989)
1995 1996 to June 30, 1996
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes............. $ -- $ -- $ 1,225,000
Repayment of notes payable...................... -- -- (565,250)
Proceeds from issuance of short-term debt....... -- -- 290,000
Repayment of short-term debt.................... -- -- (290,000)
Proceeds from issuance of long-term debt........ -- -- 1,110,869
Repayment of long-term debt..................... (178,492) (368,144) (1,366,411)
Proceeds from issuance of preferred stock, net.. -- -- 29,497,297
Proceeds from issuance of common stock, net..... -- -- 320,835
Proceeds from initial public offering, net...... -- 29,536,164 29,127,161
Proceeds from exercise of warrants.............. -- -- 333,920
Proceeds from exercise of stock options......... 5,728 118,137 179,134
Dividends paid.................................. -- (18,000) (72,000)
Issuance costs resulting from conversion of
notes to common stock........................ -- -- (36,402)
----------- ------------ ------------
Net cash provided by (used in) financing
activities................................ (172,764) 29,268,157 59,754,153
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,335,861) 25,664,112 36,853,113
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD....................................... 5,362,830 11,189,001 --
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD....................................... $ 3,026,969 $ 36,853,113 $ 36,853,113
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 81,749 $ 142,391 $ 935,584
=========== ============ ============
Non-cash financing activities--
Issuance of common stock for dividends........$ 18,000 $ -- $ 18,000
=========== ============ ============
Issuance of common stock to employees
in lieu of cash compensation................$ 44,473 $ -- $ 44,473
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited financial statements at June 30, 1996, for the three and six
months ended June 30, 1995 and 1996, and for the period from inception (January
17, 1989) to June 30, 1996, contained herein have been prepared in accordance
with generally accepted accounting principles for interim financial information.
They do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
management's opinion, the unaudited information includes all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial position, results of operations and cash flows for the periods
presented. The results of operations for the interim periods shown in this
report are not necessarily indicative of results expected for the full year. The
financial statements should be read in conjunction with the financial statements
and notes for the year ended December 31, 1995, included in Neose Technologies,
Inc. (the "Company") Registration Statement on Form S-1 and the Company's 1995
Annual Report.
2. Sale of Common Stock
The Company's initial public offering of Common Stock (the "Offering")
closed on February 22, 1996. The company offered and sold 2,250,000 shares of
Common Stock at a public offering price of $12.50 per share. The net proceeds to
the Company from the Offering were approximately $25,204,000. Pursuant to the
underwriters' over-allotment option, an additional 337,500 shares of Common
Stock were offered and sold by the Company on March 4, 1996, resulting in
additional net proceeds to the Company of approximately $3,923,000.
3. Pro Forma Net Loss Per Share
For the three and six months ended June 30, 1995 and 1996, pro forma net
loss per share was computed using the weighted average number of common shares
outstanding during the period, and includes all Convertible Preferred Stock
which converted into shares of Common Stock immediately prior to the closing of
the Offering as if they were converted into Common Stock on their original dates
of issuance.
7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2.
NEOSE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below in "Certain Factors Affecting
Operations and Market Price of Securities."
The Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three and six months ended June 30, 1996, and as
of June 30, 1996 should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1995, included in the Company's Registration Statement on Form S-1
and the Company's 1995 Annual Report.
Overview
Neose Technologies, Inc. commenced operations in 1990, and has devoted
substantially all of its resources to the development of its enzymatic
carbohydrate synthesis technology and to the discovery and development of
complex carbohydrates for a variety of applications, including nutritional
additives and pharmaceuticals. The Company does not anticipate receiving
revenues from product sales for at least the next several years. The Company
anticipates that its sources of revenue for the next several years will be
payments under its strategic alliance with Abbott Laboratories ("Abbott") and
other collaborative arrangements, license fees, payments from future strategic
alliances and collaborative arrangements, if any, and interest income. Payments
under strategic alliances and collaborative arrangements will be subject to
significant fluctuation in both timing and amount. Therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company has incurred operating losses since its inception and, as
of June 30, 1996, the Company had an accumulated deficit of approximately $22.6
million. The Company anticipates incurring additional operating losses over at
least the next several years, and such losses are expected to increase as the
8
<PAGE>
Company expands its research and development programs, including preclinical
studies and clinical trials for its pharmaceutical product candidates under
development, and as the Company expands its manufacturing capabilities.
Results of Operations
Revenues
Revenues from collaborative agreements for the three and six months
ended June 30, 1996 were $356,100 and $693,600, respectively, compared to
$250,000 and $500,000, respectively, for the corresponding periods in 1995. The
increases were primarily attributable to increased revenues from the Company's
collaborative research agreements with Abbott and Bracco Research USA Inc.
Operating Expenses
Research and development expenses for the three and six months ended
June 30, 1996 were $1,739,908 and $3,389,543, respectively, compared to
$1,165,033 and $2,211,360, respectively, for the corresponding periods in 1995.
The increases were primarily attributable to the hiring of additional scientific
personnel, increased purchases of laboratory supplies and services, increased
clinical trial expenditures for NE-0080, and increased funding of external
research.
General and administrative expenses for the three and six months ended
June 30, 1996 were $630,980 and $1,191,508, respectively, compared to $429,749
and $881,514, respectively, for the corresponding periods in 1995. The increases
were primarily attributable to increased patent and business development
expenses.
Interest Income and Expense
Interest income for the three and six months ended June 30, 1996 was
$496,507 and $794,983, respectively, compared to $54,887 and $122,812,
respectively, for the corresponding periods in 1995. The increases were
primarily attributable to higher average cash balances resulting from the
closing of a private placement of equity securities in the third and fourth
quarters of 1995 and the consummation of the Company's initial public offering
during the three and six months ended June 30, 1996, as compared to the
corresponding periods in 1995.
9
<PAGE>
Interest expense for the three and six months ended June 30, 1996 was
$65,472 and $137,830, respectively, compared to $31,686 and $66,367,
respectively, for the corresponding periods in 1995. The increases were due to
higher average loan balances during the three and six months ended June 30,
1996, as compared to the corresponding periods in 1995.
Net Loss
The Company incurred net losses of $1,583,753 and $3,230,298, or $0.19
and $0.43 per share, for the three and six months ended June 30, 1996,
respectively, compared to net losses of $1,321,581 and $2,536,429, or $0.29 and
$0.56 per share, for the three and six months ended June 30, 1995, respectively.
The decreases in the net loss per share for the three and six months ended June
30, 1996 were primarily attributable to an increase in the shares used in
computing net loss per share subsequent to the issuance of common stock in the
Offering in February 1996 and the issuance from July through December 1995 of
Series F Preferred Stock which converted into common stock immediately prior to
the closing of the Company's Offering, which offsets the increased actual losses
for the respective periods.
Liquidity and Capital Resources
The Company had $36,853,113 in cash and cash equivalents at June 30,
1996, compared to $11,189,001 at December 31, 1995. This increase is primarily
attributable to the receipt of net proceeds from the Offering in February 1996.
In February and March 1996, the Company sold 2,587,500 shares of common
stock to the public at a price per share of $12.50. The Company received
proceeds of approximately $29,127,000 after deducting underwriting commissions
and offering expenses.
The Company and Abbott have entered into collaborative agreements to
develop breast milk oligosaccharides as additives to infant formula and other
nutritional products. Under this strategic alliance, the Company has received
approximately $4.2 million (excluding $500,000 received in July 1996) in
contract payments, license fees, and milestone payments. In addition, Abbott is
obligated to make an additional payment of $500,000 to Neose in January 1997,
and $5.0 million within 60 days of the first commercial sale, if any, of infant
formula containing the Company's nutritional additive. Abbott may (a) at any
time prior to the first commercial sale, if any, of infant formula containing
the Company's nutritional additive, elect to make its license agreement
non-exclusive, in which event the license fees payable by Abbott after
commercialization would be reduced by 50% and Abbott's obligations to make
contract and milestone payments, including the January 1997 payment and the $5.0
million milestone payment, would be terminated, or (b) elect to terminate the
license agreement and return the licensed technology to Neose upon 60 days'
10
<PAGE>
notice, in which event it would have no further funding obligation to the
Company, including no obligation to make the January 1997 payment and the $5.0
million milestone payment.
The Company has entered into a capital lease agreement with an
equipment finance company that provides for up to $1.5 million of financing, of
which approximately $1.4 million had been drawn on as of June 30, 1996.
During the six months ended June 30, 1996, the Company purchased
approximately $446,000 of capital equipment and leasehold improvements.
The Company leases its facility. The Company's minimum lease obligation
for the year ended December 31, 1996 is approximately $310,000.
The Company also has obligations to certain of its employees under
employment agreements.
The Company has incurred negative cash flows from operations since its
inception and has expended, and expects to continue to expend in the future,
substantial funds to continue its research and development programs. The Company
expects that its existing capital resources will be adequate to fund its capital
requirements through 1998. No assurance can be given that there will be no
change that would consume available resources significantly before such time.
The Company's future capital requirements and the adequacy of available funds
will depend on many factors, including progress in its research and development
activities, including its pharmaceutical discovery and development programs, the
magnitude and scope of these activities, progress with preclinical studies and
clinical trials, the costs involved in preparing, filing, prosecuting,
maintaining, and enforcing patient claims and other intellectual property
rights, competing technological and market developments, changes in existing
collaborative research relationships and strategic alliances, the ability of the
Company to establish additional collaborative arrangements for product
development, and the cost of manufacturing scale-up and developing effective
marketing activities and arrangements. To the extent that funds generated from
the Company's operations, together with its existing capital resources, and the
interest earned thereon, are insufficient to meet current or planned operating
requirements, it is likely that the Company will seek to obtain additional funds
through equity or debt financings, collaborative or other arrangements with
corporate partners and others, and from other sources. The terms and prices of
any such financings may be significantly more favorable to investors than those
of the Common Stock sold previously, which could have the effect of diluting or
adversely affecting the holdings or the rights of existing stockholders of the
Company. The Company does not currently have any committed sources of additional
financing. No assurance can be given that additional financing will be available
when needed or on terms acceptable to the Company. If adequate additional funds
are not available, the Company may be required to delay, scale back, or
eliminate certain of its research and product development activities or certain
other aspects of its business or attempt to obtain funds through collaborative
11
<PAGE>
arrangements that may require the Company to relinquish some or all of its
rights to certain of its intellectual property, product candidates, or products.
If adequate funds are not available, the Company's business, financial
condition, and results of operations will be materially and adversely affected.
Certain Factors Affecting Operations and Market Price of Securities
The Company's future business, financial condition, and results of
operations, and the market price for its securities are dependent on the
Company's ability to successfully manage the following business considerations.
No assurance can be given that the Company will be able to manage such
considerations successfully. The failure to manage such considerations could
have a material adverse effect on the Company's business, financial conditions,
and results of operations, and on the market price of its securities.
Early Stage of Development; Uncertainty of Product Development;
Technological Uncertainty
The Company was founded in 1989 and is at an early stage of
development. The Company has not yet completed the development of any of its
products and, accordingly, has not begun to market or generate revenues from the
commercialization of products. It will be a number of years, if ever, before the
Company will recognize significant revenues from product sales or royalties.
Substantially all of the Company's revenues received to date have resulted from
payments received under its strategic alliance with Abbott. The Company expects
that substantially all of its revenues for the foreseeable future will result
from payments under its strategic alliance with Abbott, license fees, payments
from future strategic alliances and collaborative arrangements, if any, and
interest income. There can be no assurance that the Company will receive royalty
revenues from Abbott or that the Company will be successful in entering into
other strategic alliances or collaborative arrangements that will result in
significant revenues. The Company's products under development will require
significant time-consuming and costly research, development, preclinical
studies, clinical testing, regulatory approval, and significant additional
investment prior to their commercialization, which may never occur. Moreover,
the development and commercialization of complex carbohydrates for
pharmaceutical applications have been pursued successfully by few companies.
There can be no assurance that the Company's research and development programs
will be successful, that its oligosaccharide products will exhibit the expected
biological activities in humans, that its nutritional additive will be
successfully commercialized, that its pharmaceutical products, if developed,
will prove to be safe and efficacious in clinical trials, that the Company or
its collaborators will obtain the necessary regulatory approvals for its
products, or that the Company or its collaborators will be successful in
obtaining market acceptance of any of its products. The Company or its
collaborators may encounter problems and delays relating to research and
development, regulatory approval, manufacturing, and marketing. The failure by
the Company to address such problems and delays successfully would have a
12
<PAGE>
material adverse effect on the Company's business, financial condition, and
results of operations.
Dependence on Abbott; Dependence on Other Collaborative Partners
The Company's strategic alliance with Abbott provides, in part, for the
receipt by the Company of certain license fees, milestone payments, and, if
commercialization occurs, royalty payments. The Company has derived
substantially all of its revenues to date from its strategic alliance with
Abbott and anticipates that payments from Abbott will constitute all or a
substantial portion of its revenues for the next several years. Abbott has the
option at any time prior to the first commercial sale, if any, of infant formula
containing the Company's nutritional additive, to elect to make the underlying
license agreement non-exclusive, in which event the license fees payable to the
Company after commercialization would be reduced by 50% and Abbott's obligations
to make contract and milestone payments would be terminated. Abbott also has the
right to terminate the underlying license agreement upon 60 days' notice, in
which event it would have no further funding obligations to the Company. The
success of the strategic alliance will depend on Abbott's own competitive,
marketing and strategic considerations, including the relative advantages of
alternative products being developed or marketed by competitors. The amount and
timing of resources Abbott commits to these activities are entirely within the
control of Abbott. There can be no assurance that Abbott will pursue the
development and commercialization of this product or that Abbott will perform
its obligations as expected. No assurance can be given that the strategic
alliance will result in the successful commercialization of the Company's
nutritional additive or that any future milestone payments or fees will be
received by the Company. The suspension or termination of the Company's
strategic alliance with Abbott, the failure of the strategic alliance to be
successful, or the delay in the development or commercialization of the
nutritional additive by Abbott would have a material adverse effect on the
Company's business, financial condition, and results of operations.
The Company's strategy for the development and commercialization of its
pharmaceutical product candidates involves entering into collaborative
agreements with pharmaceutical and other companies. The Company may in the
future grant to its collaborative partners rights to license and commercialize
any products developed under these collaborative agreements, and such rights
would limit the Company's flexibility in considering alternatives for the
commercialization of such products. Under such agreements, the Company may rely
on its collaborative partners to conduct research and development efforts and
clinical trials on, obtain regulatory approvals for, and manufacture, market,
and commercialize certain of the Company's products. The amount and timing of
resources devoted to these activities generally will be controlled by each such
individual partner. To date, the Company has only entered into a limited number
of these collaborative arrangements, and none with respect to pharmaceutical
product candidates. There can be no assurance that the Company will be
successful in establishing any additional collaborative arrangements, that
existing or future collaborative arrangements will be successful in
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<PAGE>
commercializing products, or that the Company will derive any revenues from such
arrangements. In addition, the Company's strategy involves entering into
multiple, concurrent strategic alliances to pursue pharmaceutical discovery in
different disease areas. There can be no assurance that the Company will be able
to manage simultaneous programs successfully. With respect to existing and
potential future strategic alliances and collaborative arrangements, the Company
will be dependent upon the expertise and dedication of sufficient resources by
these outside parties to develop, manufacture, or market products. Should a
strategic alliance or collaborative partner fail to develop or commercialize a
product to which it has rights, the Company's business, financial condition, and
results of operations could be materially and adversely affected.
History of Operating Losses; Uncertainty of Future Profits
The Company has incurred losses since its inception and, as of June 30,
1996, had an accumulated deficit of approximately $22.6 million. The Company
anticipates incurring additional losses over at least the next several years and
such losses are expected to increase as the Company expands its research and
development activities. To achieve profitability, the Company, alone or with
others, must successfully commercialize its nutritional additive, develop its
pharmaceutical products, conduct preclinical studies and clinical trials, obtain
required regulatory approvals and successfully manufacture, introduce, and
market such products. In addition, to the extent the Company relies upon others
for research, development, and commercialization activities, the Company's
ability to achieve profitability will be dependent upon the success of such
outside parties. The time required to reach profitability is highly uncertain,
and there can be no assurance that the Company will be able to achieve
profitability on a sustained basis, if at all. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations--Overview."
Additional Financing Requirements; Access to Capital
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to continue its research and development programs. The Company
expects that its existing capital resources will be adequate to fund its capital
requirements through 1998. No assurance can be given that there will be no
change that would consume available resources significantly before such time.
The Company's future capital requirements and the adequacy of available funds
will depend on many factors, including progress in its research and development
activities, including its pharmaceutical discovery and development programs, the
magnitude and scope of these activities, progress with preclinical studies and
clinical trials, the costs involved in preparing, filing, prosecuting,
maintaining, and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in existing
collaborative research relationships and strategic alliances, the ability of the
Company to establish additional collaborative arrangements for product
development, and the cost of manufacturing scale-up and developing effective
14
<PAGE>
marketing activities and arrangements. To the extent that funds generated from
the Company's operations, together with its existing capital resources and the
net proceeds of this offering and the interest earned thereon, are insufficient
to meet current or planned operating requirements, it is likely that the Company
will seek to obtain additional funds through equity or debt financings,
collaborative or other arrangements with corporate partners and others, and from
other sources. The terms and prices of any such financings may be significantly
more favorable to investors than those of the Common Stock sold in the Company's
initial underwritten public offering which could have the effect of diluting or
adversely affecting the holdings or the rights of existing stockholders of the
Company. The Company does not currently have any committed sources of additional
financing. No assurance can be given that additional financing will be available
when needed or on terms acceptable to the Company. If adequate additional funds
are not available, the Company may be required to delay, scale back, or
eliminate certain of its research and product development activities or certain
other aspects of its business or attempt to obtain funds through collaborative
arrangements that may require the Company to relinquish some or all of its
rights to certain of its intellectual property, product candidates, or products.
If adequate funds are not available, the Company's business, financial
condition, and results of operations will be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Uncertainty Regarding Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain
patent protection for its products, preserve its trade secrets, and operate
without infringing the proprietary rights of other parties. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products, and processes. The
Company has an exclusive license from the University of Pennsylvania ("Penn") to
two U.S. patents as well as certain related foreign patents and patent
applications, subject to Penn's reserved right of use, and right to permit use
by non-profit organizations, solely for educational and research purposes. Such
license terminates upon the expiration of the last to expire licensed patent in
each country. The licensor may, at its option, terminate the license upon 60
days' notice if the Company is not using its continuing best efforts to develop
or sell a product using the licensed technology.
The Company also owns one U.S. patent, a number of U.S. and foreign
patent applications, and has licensed additional third party patent
applications. Legal standards relating to the scope of claims and the validity
of patents in the biotechnology field are uncertain and still evolving. There
can be no assurance that patent applications to which the Company holds rights
will result in the issuance of patents, that any patents issued or licensed to
the Company will not be challenged and held to be invalid, or that any such
15
<PAGE>
patents will provide commercially significant protection to the Company's
technology, products, and processes. In addition, there can be no assurance that
others will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not be issued patents which
may prevent the sale of one or more of the Company's products, or require
licensing and the payment of significant fees or royalties by the Company to
third parties in order to enable the Company to conduct its business. Defense
and prosecution of patent claims can be expensive and time consuming, regardless
of whether the outcome is favorable to the Company, and can result in the
diversion of substantial financial, management, and other resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties, or require the Company to cease any related research and
development activities or product sales. In addition, the laws of certain
countries may not protect the Company's intellectual property. No assurance can
be given that any licenses required under any such third-party patents or
proprietary rights would be made available on acceptable terms, if at all.
The Company's success is also dependent upon the skills, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors, and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company, and
require disclosure and assignment to the Company of their ideas, developments,
discoveries, and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for the Company's trade secrets,
know-how, or other proprietary information in the event of any unauthorized use
or disclosure.
Substantial Competition; Risk of Technological Obsolescence
The Company is engaged in highly competitive industries. The Company
competes with many public and private companies, including well-known
nutritional products manufacturers, pharmaceutical companies, chemical
companies, specialized biotechnology companies, and academic institutions. Many
of the Company's competitors have substantially greater financial, scientific,
and technical resources, and manufacturing and marketing capabilities than the
Company. In addition, many of the Company's competitors have significantly
greater experience conducting preclinical studies and clinical trials of new
pharmaceutical products, and in obtaining regulatory approvals for
pharmaceutical products. The Company is relying on Abbott to develop and
commercialize its nutritional additive. As a result, the success of the
Company's nutritional additive will depend, in significant part, on Abbott's
ability to compete in the highly competitive infant formula market. Abbott's
principal competitors in this market include Bristol-Myers Squibb Company,
American Home Products Corp., Nestle S.A., and Gerber Products Co. Competitors
of the Company and its collaborators may develop products that compete
successfully with the Company's products and may develop and commercialize such
16
<PAGE>
products more rapidly than the Company and its collaborators. Competition may
increase further as a result of potential advances from the study of complex
carbohydrates and greater availability of capital for investment in this field.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any being
developed by the Company, or that would render the Company's technology and
products obsolete or noncompetitive.
Government Regulation; No Assurance of Product Approval
The Company's product candidates are subject to stringent regulation by
a number of government authorities in the United States and other countries,
including the United States Food and Drug Administration ("FDA"). NE-1340, the
Company's infant formula ingredient, may be subject to FDA review as a food
additive. Substances that are generally recognized as safe ("GRAS") are excluded
from the definition of food additives. Information supporting the safety of a
food additive is submitted to the FDA in the form of a food additive petition.
The food additive petition process is generally expensive and lengthy,
frequently requiring several years after the petition is submitted to the FDA.
No assurance can be given that, if submitted, the FDA will accept the petition
or that, if accepted, such petition will not result in the establishment of
regulations which necessitate costly and time-consuming compliance procedures.
This process could be time-consuming and expensive and would have a material
adverse effect on the Company's business, financial condition, and results of
operations. The FDA has by regulation affirmed a number of substances as GRAS,
although it is not required that a substance be affirmed as GRAS by regulation
in order to be GRAS. A manufacturer may make an independent determination that
there is general recognition of safety of a substance by qualified experts when
used for a particular use. There can be no assurance that Abbott will make such
a determination or that the FDA will agree with such a determination, if Abbott
were to elect to make such a determination. Accordingly, there is a risk that
the FDA will disagree with the determination. In such a circumstance the
manufacturer must submit a GRAS affirmation petition for the FDA to review and
affirm GRAS status by regulation in order to market and sell the additive or
formula containing the additive. This process could be time-consuming and
expensive and would have a material adverse effect on the Company's business,
financial condition, and results of operations.
Any infant formula containing the Company's nutritional additive will
be subject to the provisions of the United States Infant Formula Act, which
amended the Food, Drug and Cosmetic Act (the "FDC Act") and established detailed
requirements for infant formulas, including their manufacture, composition, and
labeling. Pursuant to the Company's agreement with Abbott, Abbott is responsible
for all regulatory activities relating to the infant formula additive. There can
be no assurance that Abbott will be able to satisfy all applicable regulatory
requirements. Abbott may also market infant formula containing the additive in
foreign countries. Infant formula regulatory requirements vary widely from
country to country, and may be more or less stringent than FDA requirements. The
17
<PAGE>
time required to obtain clearances, if required, in foreign countries may be
longer or shorter than that required in the United States.
Prior to marketing, any pharmaceutical product candidates developed by
the Company must undergo an extensive regulatory approval process required by
the FDA and by comparable agencies in other countries. This process, which
includes preclinical studies and clinical trials of each compound to establish
its safety and effectiveness and confirmation by the FDA that good laboratory,
clinical, and manufacturing practices were maintained during testing and
manufacturing, can take many years, requires the expenditure of substantial
resources, and gives larger companies with greater financial resources a
competitive advantage over the Company. Failure to comply with applicable
requirements can result in fines, recall, or seizure of products, total or
partial suspension of production, withdrawal of existing product approvals,
refusal to approve new drug applications, and criminal prosecution. To date, no
pharmaceutical product candidate being developed by the Company has been
submitted for approval or has been approved by the FDA or any other regulatory
authority for marketing, and there can be no assurance that any such product
will ever be approved for marketing, or that the Company will be able to obtain
the labeling claims desired for its products. The Company is and will continue
to be dependent upon the laboratories and medical institutions conducting its
preclinical studies and clinical trials to maintain both good laboratory and
good clinical practices and, except for the manufacture of small quantities of
its drug formulations, which the Company is currently undertaking, upon the
manufacturers of its compounds to maintain compliance with current Good
Manufacturing Practices ("GMP"). Data obtained from preclinical studies and
clinical trials are subject to varying interpretations that could delay, limit,
or prevent FDA regulatory approval. Delays or rejections may be encountered
based upon changes in FDA policy for drug approval during the period of
development and FDA regulatory review. Similar delays also may be encountered in
foreign countries. Any delay in obtaining, or failure to obtain, such approvals
would adversely affect the Company's ability to generate product revenues or
royalties. There can be no assurance that regulatory approval will be obtained
for any product developed by the Company. Moreover, even if approval is granted,
such approval may entail commercially unacceptable limitations on the labeling
claims for which a product may be marketed. Even if such regulatory approval is
obtained, a marketed drug or compound and its manufacturer are subject to
continual review and inspection, and later discovery of previously unknown
problems with the product or manufacturer may result in restrictions or
sanctions on such product or manufacturer, including withdrawal of the product
from the market, and other enforcement actions. Additional governmental
regulations may be promulgated that would delay regulatory approval of the
Company's potential products. The Company cannot predict the impact of adverse
governmental action that might arise from future legislative and administrative
action.
18
<PAGE>
No Commercial Manufacturing Capability or Experience
To be successful, the Company's products must be manufactured in
commercial quantities under GMP prescribed by the FDA and at acceptable costs.
The Company has not yet manufactured any products in commercial quantities and
currently does not have the facilities to manufacture any products in commercial
quantities under GMP. Existing facilities of the Company are not adequate for
commercial scale manufacturing. Therefore, the Company will need to develop its
own GMP manufacturing facility and/or depend on its collaborators, licensees, or
contract manufacturers for the commercial manufacture of its products. In the
event the Company determines to establish a manufacturing facility, it will
require substantial additional funds, the hiring and retention of significant
additional personnel and compliance with extensive regulations applicable to
such a facility. The Company has no experience in such commercial manufacturing,
and there can be no assurance that the Company will be able to establish such a
facility successfully and, if established, that it will be able to manufacture
products in commercial quantities for sale at competitive prices. If the Company
determines to rely on collaborators, licensees, or contract manufacturers for
the commercial manufacture of its products, the Company will be dependent on
such corporate partners or other entities for, and will have only limited
control over, the commercial manufacturing of its products. There can be no
assurance that the Company will be able to enter into any such manufacturing
arrangements on acceptable terms, if at all. If the Company is not able to enter
into commercial manufacturing agreements, it could encounter delays in
introducing its products into certain markets, or find that the manufacture of
its products in these markets is adversely affected. There can be no assurance
that the parties to the Company's future commercial manufacturing agreements
will perform their obligations as expected, or that any revenue will be derived
from these commercial manufacturing agreements.
Limited Clinical Trial Experience; No Marketing or Sales
Capability or Experience
Before obtaining required regulatory approvals for the commercial sale
of its pharmaceutical product candidates, the Company must demonstrate through
human clinical trials that such products are safe and efficacious for use. To
date, the Company has very limited experience in conducting clinical trials. The
Company will either need to rely on third parties to design and conduct any
required clinical trials or expend resources to hire additional personnel to
administer such clinical trials. There can be no assurance that the Company will
be able to find appropriate third parties to design and conduct clinical trials
or that it will have the resources to hire personnel to administer clinical
trials in-house.
The Company has no experience in marketing, distributing, or selling
nutritional additives or pharmaceutical products, and will have to develop a
sales force and/or rely on its collaborators, licensees, or arrangements with
others to provide for the marketing, distribution, and sales of its products.
There can be no assurance that the Company will be able to establish marketing,
19
<PAGE>
distribution, and sales capabilities or make arrangements with third parties to
perform such activities on acceptable terms, if at all.
Risks Associated with the Infant Formula Industry
To the extent NE-1340 is added to infant formula, the Company is
subject to the risks generally associated with the infant formula industry.
These risks include: (i) product tampering or production defects may occur
requiring a recall of infant formula containing NE-1340, or may reduce the
demand for such infant formula; (ii) an ingredient in such formula, including
NE-1340, may be banned or its use limited or declared unhealthful; and (iii)
sales of infant formula may decline or use of NE-1340 may be limited or
discontinued due to real or perceived health concerns, adverse publicity, or
other reasons beyond the control of the Company.
Dependence on Key Personnel
The Company is highly dependent upon the efforts of its senior
management and scientific team. The loss of the services of one or more members
of the senior management and scientific team could significantly impede the
achievement of the Company's business and product development objectives. Due to
the specialized scientific nature of the Company's business, the Company is also
highly dependent upon its ability to attract and retain qualified scientific,
technical, and key management personnel. The number of qualified scientific
personnel is limited, and there is intense competition for such persons and for
other qualified personnel in the areas of the Company's activities. There can be
no assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise, such as
production and marketing. The Company may need to hire additional personnel or
outside consultants skilled in clinical testing and regulatory compliance as it
develops its products. There can be no assurance that the Company will be able
to hire or retain such personnel. The loss of, or failure to recruit scientific,
technical and managerial personnel could have a material adverse effect on the
Company. In addition, the Company relies on members of its Scientific Advisory
Board and consultants to assist the Company in formulating its research and
development strategy. All of the members of the Scientific Advisory Board and
all of the Company's consultants are employed by other employers, and each such
member or consultant may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the Company.
20
<PAGE>
Third-Party Reimbursement; Uncertainty of Health Care Reform Measures
Successful commercialization of any pharmaceutical products the Company
may develop will depend in part upon the availability of reimbursement or
funding from third-party health care payors such as government and private
insurance plans. Third-party payors are continuing their efforts to contain or
reduce the costs of health care through various means. For example, third-party
payors are increasingly challenging the prices charged for medical products and
services. In addition, significant uncertainty exists as to the reimbursement
status of newly approved pharmaceutical products. There can be no assurance that
third-party reimbursement or funding will be available or will permit price
levels sufficient to realize an appropriate return on the Company's investment
in its pharmaceutical product development. The U.S. Congress is considering a
number of legislative and regulatory reforms that may affect companies engaged
in the health care industry in the United States. Although the Company cannot
predict whether these proposals will be adopted or the effects such proposals
may have on its business, the existence and pendency of such proposals could
have a material adverse effect on the Company in general. In addition, the
Company's ability to commercialize potential pharmaceutical products may be
adversely affected to the extent that such proposals have a material adverse
effect on other companies that are prospective collaborators with respect to any
of the Company's pharmaceutical product candidates.
Product Liability; Lack of Product Liability Insurance
The Company's business may be adversely affected by potential product
liability risks which are inherent in the testing, manufacturing, and marketing
of the Company's products which it has developed or which it may develop. There
can be no assurance that product liability claims will not be asserted against
the Company, its collaborators, or licensees. In addition, the use of
pharmaceutical products developed by the Company through collaborative or
licensing arrangements in clinical trials and the subsequent sale of such
products is likely to cause the Company to bear all or a portion of those
potential product liability risks. The Company does not currently have product
liability insurance. There can be no assurance that it will be able to obtain or
maintain adequate product liability insurance on acceptable terms or that such
insurance will provide adequate coverage against potential liabilities.
Furthermore, there can be no assurance that any collaborators or licensees of
the Company will agree to indemnify the Company, be sufficiently insured, or
have a net worth sufficient to satisfy the product liability claims. As a
result, a product liability claim or recall could have a material adverse effect
on the Company's business, financial condition, and results of operations.
21
<PAGE>
Hazardous Materials; Compliance with Environmental Regulations
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals, and radioactive compounds. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any resulting damages, and any such liability could exceed the
resources of the Company which would have a material adverse effect on the
Company's business, financial condition, and results of operations. The Company
may incur substantial additional costs to comply with environmental regulations
if the Company develops pharmaceutical manufacturing capacity.
Control by Existing Management and Stockholders
The Company's directors, executive officers, and certain principal
stockholders affiliated with members of the Board of Directors and their
affiliates beneficially own approximately 11.3% of the Common Stock.
Accordingly, such stockholders, if acting together, may have the ability to
exert significant influence over the election of the Company's Board of
Directors and other matters submitted to the Company's stockholders for
approval. The voting power of these holders may discourage or prevent tender
offers for the Common Stock unless the terms are approved by such holders.
Possible Volatility of Common Stock Price
The market price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements by the Company, its collaborative partners or the Company's
present or potential competitors, technological innovations or new commercial
products or services, regulatory developments, including the results in
preclinical testing and clinical trials, arrangements with collaborative
partners, the achievement of or failure to achieve certain milestones,
developments or disputes concerning patent or proprietary rights, or public
concern regarding the safety or efficacy of the products to be developed by the
Company or its collaborators, and other events or factors. In addition, the
stock market has experienced extreme price and volume fluctuations. This
volatility has significantly affected the market prices of securities of many
biotechnology and pharmaceutical companies for reasons frequently unrelated to
or disproportionate to the performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Common Stock.
Anti-Takeover Effect of Charter and By-Law Provisions and Delaware Law
The Company's Second Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") authorizes the Board of Directors to issue,
without stockholder approval, 5,000,000 shares of Preferred Stock with voting,
conversion, and other rights and preferences that could materially and adversely
affect the voting power or other rights of the holders of Common Stock. The
22
<PAGE>
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. The Company's By-Laws
contain procedural restrictions on director nominations by stockholders and the
submission of other proposals for consideration at stockholder meetings. The
possible issuance of Preferred Stock and the procedures required for director
nominations and stockholder proposals could discourage a proxy contest, make
more difficult the acquisition of a substantial block of the Common Stock, or
limit the price that investors might be willing to pay in the future for shares
of the Common Stock. In addition, certain provisions of Delaware law applicable
to the Company could also delay or make more difficult a merger, tender offer,
or proxy contest involving the Company.
23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
A. The Company's Annual Meeting of Stockholders was held
on June 14, 1996.
C. The motions before stockholders were:
1. To elect seven Directors.
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Name of Director For Against Withheld Abstentions Nonvotes
---------------- --- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Stephen A. Roth, Ph.D. 6,103,415 -- 8,134 -- --
P. Sherrill Neff 6,103,415 -- 8,134 -- --
William F. Hamilton, Ph.D. 6,103,415 -- 8,134 -- --
Douglas J. MacMaster, Jr. 6,103,415 -- 8,134 -- --
Lindsay A. Rosenwald, M.D. 6,103,415 -- 8,134 -- --
Lowell E. Sears 6,103,415 -- 8,134 -- --
Jerry A. Weisbach, Ph.D. 6,103,415 -- 8,134 -- --
</TABLE>
2. To ratify the selection of Arthur Andersen LLP,
independent public accountants, as auditors of the
Company for the fiscal year ending December 31, 1996.
Votes For 6,037,566
Votes Against 4,784
Votes Withheld --
Abstentions 68,299
Broker Nonvotes --
3. To approve an amendment to the 1995 Stock Option/Stock
Issuance Plan to add a Director Fee Option Grant
Program.
Votes For 5,771,809
Votes Against 243,747
Votes Withheld --
Abstentions 89,531
Broker Nonvotes --
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27 - Financial Data Schedules
B. Reports on Form 8-K None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOSE TECHNOLOGIES, INC.
Date: August 12, 1996 By: /s/ P. Sherrill Neff
-----------------------------------------
P. Sherrill Neff
President and Chief Financial Officer
25
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 36,853,113
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,274,068
<PP&E> 4,116,883
<DEPRECIATION> 1,257,339
<TOTAL-ASSETS> 40,148,661
<CURRENT-LIABILITIES> 1,464,315
<BONDS> 0
0
0
<COMMON> 81,830
<OTHER-SE> 37,693,191
<TOTAL-LIABILITY-AND-EQUITY> 40,148,661
<SALES> 0
<TOTAL-REVENUES> 693,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,581,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,830
<INCOME-PRETAX> (3,230,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,230,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,230,298)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
