SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
- ------ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
- ------
For the quarterly period ended June 30, 1997.
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.
- --------------------------------------------------------------------------------
(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 Identification No.)
incorporation or organization)
102 Witmer Road, Horsham, Pennsylvania 19044
- --------------------------------------------------------------------------------
(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 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 9,495,623 shares of
common stock, $.01 par value, were outstanding as of July 31, 1997.
<PAGE>
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
INDEX
-----
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION:
- ------- ----------------------
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets (unaudited) at December 31, 1996 and June 30, 1997........................................3
Statements of Operations (unaudited) for the three and six months ended
June 30, 1996 and 1997, and from the period of inception through
June 30, 1997 ...........................................................................................4
Statements of Cash Flows (unaudited) for the six months ended
June 30, 1996 and 1997, and from the period of inception through
June 30, 1997............................................................................................5
Notes to Unaudited Financial Statements..................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................................10
PART II. OTHER INFORMATION:
- ------- ------------------
Item 1. Legal Proceedings.......................................................................................15
Item 2. Changes in Securities...................................................................................15
Item 3. Defaults Upon Senior Securities.........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.....................................................15
Item 5. Other Information.......................................................................................16
Item 6. Exhibits and Reports on Form 8-K........................................................................16
SIGNATURES.......................................................................................................17
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</TABLE>
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, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 32,845,025 $ 28,121,460
Marketable securities ............................................................. -- 19,013,761
Restricted funds .................................................................. 73,828 2,273,815
Prepaid expenses and other ........................................................ 210,122 387,893
------------ ------------
Total current assets .......................................................... 33,128,975 49,796,929
PROPERTY, PLANT AND EQUIPMENT, net ..................................................... 3,973,619 12,957,062
OTHER ASSETS ........................................................................... 15,049 3,400
------------ ------------
$ 37,117,643 $ 62,757,391
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ................................................. $ 678,122 $ 1,014,218
Accounts payable .................................................................. 217,283 262,955
Accrued compensation .............................................................. 264,440 178,000
Other accrued expenses ............................................................ 161,130 248,651
Deferred revenue .................................................................. 41,667 41,667
------------ ------------
Total current liabilities ..................................................... 1,362,642 1,745,491
OTHER LIABILITIES ...................................................................... 78,806 --
LONG-TERM DEBT ......................................................................... 556,405 9,215,193
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
8,214,624 and 9,495,290 shares issued and outstanding ............................. 82,146 94,953
Additional paid-in capital ........................................................ 60,830,513 81,503,473
Deferred compensation ............................................................. (269,925) (408,313)
Deficit accumulated during the development stage .................................. (25,522,944) (29,393,406)
------------ ------------
Total stockholders' equity .................................................... $ 35,119,790 $ 51,796,707
------------ ------------
$ 37,117,643 $ 62,757,391
============ ============
</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)
1996 1997 1996 1997 to June 30, 1997
----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
REVENUES FROM
COLLABORATIVE AGREEMENTS ... $ 356,100 $ 312,500 $ 693,600 $ 625,000 $ 5,854,713
----------- -------------- ------------ ------------ --------------
OPERATING EXPENSES:
Research and development ... 1,739,908 1,979,911 3,389,543 3,748,805 26,727,363
General and administrative . 630,980 775,650 1,191,508 1,689,062 10,882,748
----------- -------------- ------------ ------------ --------------
Total operating expenses 2,370,888 2,755,561 4,581,051 5,437,867 37,610,111
----------- -------------- ------------ ------------ --------------
Operating Loss ......... (2,014,788) (2,443,061) (3,887,451) (4,812,867) (31,755,398)
----------- -------------- ------------ ------------ --------------
INTEREST INCOME .............. 496,507 587,078 794,983 1,171,480 3,717,410
INTEREST EXPENSE ............. (65,472) (186,004) (137,830) (229,075) (1,355,418)
----------- -------------- ------------ ------------ --------------
NET LOSS ..................... $(1,583,753) $ (2,041,987) $ (3,230,298) $ (3,870,462) $ (29,393,406)
=========== ============== ============ ============ ==============
PRO FORMA NET LOSS PER
SHARE .................... $ (0.19) $ (0.22) $ (0.43) $ (0.42)
=========== ============== ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ...... 8,176,000 9,495,000 7,492,000 9,295,000
=========== ============== ============ ============
</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)
1996 1997 to June 30, 1997
---------- ---------- ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................... $ (3,230,298) $ (3,870,462) $(29,393,406)
Adjustments to reconcile net loss to cash
used in operating activities--
Depreciation and amortization ............. 316,773 376,766 2,315,564
Common stock issued for non-cash
charges.................................... -- -- 34,961
Changes in operating assets and liabilities
Restricted funds ...................... 73,799 (2,199,987) (2,273,815)
Prepaid expenses and other ............ (154,708) (177,771) (387,893)
Other assets .......................... -- 11,649 (3,400)
Accounts payable ...................... 17,709 45,672 262,955
Accrued compensation .................. (43,318) (86,440) 222,473
Other accrued expenses ................ (143,213) 87,521 248,651
Deferred revenue ...................... -- -- 41,667
Other liabilities ..................... 4,928 (78,806) --
---------- ---------- -----------
Net cash used in operating activities.. (3,158,328) (5,891,858) (28,932,243)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment .. (445,717) (9,309,075) (14,269,163)
Proceeds from sale-leaseback of equipment ... -- -- 1,382,027
---------- ---------- -----------
Net cash used in investing activities ..... (445,717) (9,309,075) (12,887,136)
---------- ---------- -----------
</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)
1996 1997 to June 30, 1997
------------ ------------ ----------------
<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 ...... -- 9,400,000 10,510,869
Repayment of long-term debt ................... (368,144) (405,116) (2,167,935)
Proceeds from issuance of preferred stock, net -- -- 29,497,297
Proceeds from issuance of common stock, net ... -- 87,041 467,706
Proceeds from public offering, net ............ 29,536,164 20,339,013 49,466,174
Proceeds from exercise of warrants ............ -- -- 333,920
Proceeds from exercise of stock options ....... 118,137 70,191 295,221
Dividends paid ................................ (18,000) -- (72,000)
Issuance costs resulting from conversion of
notes to common stock -- -- (36,402)
------------ ------------ ------------
Net cash provided by financing activities ... 29,268,157 29,491,129 88,954,600
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........ 25,664,112 14,290,196 47,135,221
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ..................................... 11,189,001 32,845,025 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END ..................
OF PERIOD $ 36,853,113 $ 47,135,221 $ 47,135,221
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................ $ 142,391 $ 193,573 $ 1,243,284
============ ============ ============
Non-cash financing activities--
Issuance of common stock for dividends ...... $ -- $ -- $ 90,000
============ ============ ============
Issuance of common stock to employees
in lieu of cash compensation .............. $ -- $ -- $ 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, 1997, for the three and six
months ended June 30, 1996 and 1997, and for the period from inception (January
17, 1989) to June 30, 1997, 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, 1996, included in Neose Technologies,
Inc. ("Neose" or the "Company") Form 10-K and the Company's 1996 Annual Report.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and marketable financial
instruments with original maturities of 90 days or less. The Company held the
following cash and cash equivalents on the dates indicated below.
December 31, 1996 June 30, 1997
----------------- -------------
Cash and money market accounts $ 1,254,681 $ 275,192
Repurchase agreements 31,590,344 --
U.S. Government Agency security -- 27,846,268
----------- -----------
$32,845,025 $28,121,460
=========== ===========
3. Marketable Securities
In accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities," the Company
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation at each balance sheet date.
At June 30, 1997, all marketable securities have been classified as
"Available-for-Sale" securities. Available-for-Sale securities are carried at
fair value, based on quoted market prices, with unrealized gains and losses
reported as a separate component of stockholders' equity. At June 30, 1997,
there were no material unrealized gains or losses.
7
<PAGE>
Marketable securities consist of U.S. Treasury Notes with original
maturities greater than 90 days. The Company has established guidelines relative
to concentration, maturities, and credit ratings that maintain safety and
liquidity.
4. Sale of Common Stock
On January 29, 1997, the Company offered and sold 1,250,000 shares of
Common Stock at a public offering price of $17.50 per share (the "Follow-on
Offering"). The net proceeds to the Company from the Follow-on Offering after
the payment of placement fees and offering expenses were approximately
$20,339,000.
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.
5. Acquisition of Facility and Issuance of Long-term Debt
On March 20, 1997, the Company purchased its previously leased facility for
a total of approximately $3.8 million.
In connection with the purchase of its facility and its planned GMP
manufacturing expansion, on March 20, 1997, the Company issued, through the
Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate
amount of $9.4 million of taxable and tax-exempt bonds (the "MCIDA Bond
Issuance"). The bonds are supported by a AA-rated letter of credit, and a
reimbursement agreement between the Company's bank and the letter of credit
issuer. The interest rate on the bonds will vary weekly, depending on market
rates for AA-rated taxable and tax-exempt obligations, respectively. To provide
credit support for this arrangement, the Company has given a first mortgage on
the land, building, improvements, and certain machinery and equipment to its
bank. In addition, the Company has agreed to certain covenants for the
maintenance of minimum cash and short-term investment balances, and for minimum
working capital requirements.
6. Net Loss Per Share
For the three and six months ended June 30, 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. For the three and six months ended June 30, 1997, net loss per
share was computed using the weighted-average number of
8
<PAGE>
common shares outstanding during the period. Common stock equivalents were
excluded for all periods presented because they are antidilutive.
7. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which supersedes APB Opinion No. 15, "Earnings per Share," was
issued in February 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for complex capital structures on the face of
the income statement. Basic EPS is computed by dividing income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock, such as stock options. SFAS 128 is required to be adopted for
year-end 1997; earlier application is not permitted. The Company does not expect
the basic or diluted EPS measured under SFAS 128 to be materially different than
its primary or fully-diluted EPS measured under APB No. 15.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129"), was issued in February 1997.
In addition, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued in June 1997. The Company does
not expect SFAS 129 or SFAS 130 to result in any substantive changes in its
disclosure.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the financial condition and results of
operations of the Company contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include statements regarding the Company's future
plans, events, or performance. Such statements are based on management's current
expectations and are subject to a number of uncertainties and risks that could
cause actual results to differ materially from those described in the
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, the early stage of development of the Company's
products, technological uncertainties, dependence on collaborative partners, the
need for regulatory approval and effects of government regulation, and
dependence on patents and trade secrets, as well as those described under
"Business--Factors Affecting the Company's Business, Operating Results and
Financial Condition" in Part I of the Company's 1996 Annual Report on Form 10-K.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations for the three and six months ended June 30, 1997, and as of June
30, 1997, 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, 1996, included in the Company's Form 10-K and the Company's 1996
Annual Report.
Overview
Neose, a development-stage company, 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 anticipates that its primary 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.
In December 1992, the Company entered into its strategic alliance with
Abbott for the development of breast milk oligosaccharides as nutritional
additives. The Company has received approximately $11.2 million in contract
payments, license fees, milestone payments, and equity investments in connection
with its strategic alliance with Abbott.
The Company has not generated any revenues from operations, except for
interest income and revenues from strategic alliances. The Company has incurred
losses since its inception and, as of June 30, 1997, had a deficit accumulated
during the development stage
10
<PAGE>
of approximately $29.4 million. The Company anticipates incurring additional
losses over at least the next several years. Such losses may fluctuate
significantly from quarter to quarter and are expected to increase as the
Company expands its research and development programs, including preclinical
studies and clinical studies 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, 1997, were $312,500 and $625,000, respectively, compared to $356,100
and $693,600, respectively, for the corresponding periods in 1996. The decreases
for the comparable three and six month periods were due to non-recurring
revenues received during the 1996 periods.
Operating Expenses
Research and development expenses for the three and six months ended June
30, 1997, were $1,979,911 and $3,748,805, respectively, compared to $1,739,908
and $3,389,543, respectively, for the corresponding periods in 1996. The
increase was primarily attributable to financing expenses associated with the
MCIDA Bond Issuance, 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, 1997, were $775,650 and $1,689,062, respectively, compared to $630,980 and
$1,191,508, respectively, for the corresponding periods in 1996. The increase
was primarily attributable to increased business development expenses and
expenses associated with being a public company.
Interest Income and Expense
Interest income for the three and six months ended June 30, 1997, was
$587,078 and $1,171,480, respectively, compared to $496,507 and $794,983,
respectively, for the corresponding periods in 1996. The increase was primarily
attributable to higher average cash and investment balances during the 1997
period resulting from the closing of the Company's Follow-on Offering in January
1997.
Interest expense for the three and six months ended June 30, 1997, was
$186,004 and $229,075, respectively, compared to $65,472 and $137,830,
respectively, for the corresponding periods in 1996. The increase was due to
higher average loan balances during the period resulting from the MCIDA Bond
Issuance in March 1997.
11
<PAGE>
Net Loss
The Company incurred net losses of $2,041,987 and $3,870,462, or $0.22 and
$0.42 per share, for the three and six months ended June 30, 1997, respectively,
compared to net losses of $1,583,753 and $3,230,298, or $0.19 and $0.43 per
share, for the corresponding periods in 1996. The decrease in the net loss per
share for the six months ended June 30, 1997 was primarily attributable to an
increase in the shares used in computing net loss per share subsequent to the
issuance of Common Stock in the Follow-on Offering in January 1997, which offset
the increased actual loss for the 1997 period.
Liquidity and Capital Resources
From inception through June 30, 1997, the Company has incurred a cumulative
net loss of approximately $29.4 million, and has financed its operations through
private and public offerings of its securities and revenues from its strategic
alliances. The Company had approximately $47.1 million in cash and investments
at June 30, 1997, compared to $32.8 million at December 31, 1996. This increase
is primarily attributable to the receipt of net proceeds from the Follow-on
Offering in January 1997. In January 1997, the Company sold 1,250,000 shares of
Common Stock to the public at a price per share of $17.50. The Company received
proceeds of approximately $20.3 million after deducting placement fees 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 $11.2 million in contract payments, license fees, milestone
payments, and equity investments. In addition, Abbott is required to make an
additional payment of $5 million to Neose within 60 days of the first commercial
sale, if any, of infant formula containing the Company's nutritional additive.
Abbott may (i) 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 $5 million milestone payment,
would be terminated, or (ii) elect to terminate the license agreement and return
the licensed technology to Neose upon 60 days' notice, in which event it would
have no further funding obligation to the Company, including no obligation to
make the $5 million milestone payment. In addition, under the terms of the
Abbott agreement, if Abbott fails to make appropriate regulatory filings with
the FDA for the addition of Neose's oligosaccharide to infant formula prior to
December 1, 1997, Neose, at its option, may elect to convert the license of
Neose technology to a non-exclusive license to Abbott, 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
$5 million milestone payment, would be terminated.
On March 20, 1997, the Company purchased its previously leased facility
for a total of approximately $3.8 million. In addition, beginning in the fourth
quarter of 1996, the Company commenced a construction project in its facility to
expand GMP manufacturing
12
<PAGE>
capabilities for NE-0080, and to establish GMP manufacturing capabilities for
NE-1530 and NE-0501 ("Planned GMP Manufacturing Expansion"). In each case, the
Company believes that the planned GMP capacity will be adequate to complete
clinical trials for the respective compounds. In addition, the Company believes
that the Planned GMP Manufacturing Expansion will give it capacity to
manufacture under GMP conditions certain amounts of these and other
carbohydrates for third parties. In connection with the Planned GMP
Manufacturing Expansion, the Company expects to expend approximately $7.5
million, of which $6.4 million and $1.2 million were expended as of June 30,
1997 and December 31, 1996, respectively.
In connection with the purchase of its facility and the Planned GMP
Manufacturing Expansion, on March 20, 1997, the Company issued, through the
Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate
amount of $9.4 million of taxable and tax-exempt bonds. The bonds are supported
by a AA-rated letter of credit, and a reimbursement agreement between the
Company's bank and the letter of credit issuer. The interest rate on the bonds
will vary weekly, depending on market rates for AA-rated taxable and tax-exempt
obligations, respectively. At June 30, 1997, the effective, blended interest
rate was 7% per annum, including letter-of-credit and other fees. To provide
credit support for this arrangement, the Company has given a first mortgage on
the land, building, improvements, and certain machinery and equipment to its
bank. In addition, the Company has agreed to certain covenants for the
maintenance of minimum cash and short-term investment balances, and for minimum
working capital requirements.
During the six months ended June 30, 1997, the Company purchased
approximately $9.3 million of property and equipment, of which $3.8 million was
expended to purchase its facility, and $5.2 million was expended in connection
with the Company's Planned GMP Manufacturing Expansion.
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 1999. 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, the cost of manufacturing scale-up, and developing effective
marketing activities and arrangements.
13
<PAGE>
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 than those obtained by present stockholders of
the Company, 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. There can be
no assurance that additional financing will be available when needed, if at all,
or on terms acceptable to the Company.
If adequate additional funds are not available, for these purposes or
otherwise, the Company's business, financial condition, and results of
operations will be materially and adversely affected. In such circumstances, 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.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
In connection with the MCIDA Bond Issuance, the Company gave a first
mortgage on its land, building, improvements, and certain machinery and
equipment to its bank. In addition, the Company agreed to maintain
minimum cash and short-term investment balances ("Unrestricted Cash")
of $20 million. If Unrestricted Cash should fall below $20 million (but
not less than $15 million), the Company shall be required to transfer
into a restricted cash account, an amount of Unrestricted Cash equal to
one-half of the remaining letter-of-credit amount of the taxable
portion of the MCIDA Bond Issuance ("MCIDA Restricted Cash"). If
Unrestricted Cash, together with MCIDA Restricted Cash, should fall
below $15 million, the Company shall be required to transfer into a
restricted cash account, an amount of Unrestricted Cash equal to the
remaining letter-of-credit amount of the taxable portion of the MCIDA
Bond Issuance, less the initial transfer of MCIDA Restricted Cash. In
addition, the Company is required to maintain a minimum working capital
position (including MCIDA Restricted Cash) of $20 million.
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 19,
1997.
B. The motions before stockholders were:
1. To elect seven Directors.
Votes Votes Votes Broker
Name of Director For Against Withheld Abstentions Nonvotes
---------------- --- ------- -------- ----------- --------
Stephen A. Roth, Ph.D. 7,765,165 -- 17,668 -- --
P. Sherrill Neff 7,769,333 -- 13,500 -- --
William F. Hamilton, Ph.D. 7,769,333 -- 13,500 -- --
Douglas J. MacMaster, Jr 7,769,333 -- 13,500 -- --
Lindsay A. Rosenwald, M.D 7,769,333 -- 13,500 -- --
Lowell E. Sears 7,769,333 -- 13,500 -- --
Jerry A. Weisbach, Ph.D 7,769,333 -- 13,500 -- --
15
<PAGE>
2. To approve and adopt the Company's Amended and Restated
1995 Stock Option/Stock Issuance Plan (the "Amended
Plan") to, among other things, comply with the
requirements of Section 162(m) of the Internal Revenue
Code of 1986, as amended, increase the number of shares
authorized for issuance under the Amended Plan, and
change the amount of shares issuable to any individual
under the Amended Plan.
Votes For 4,442,072
Votes Against 1,556,904
Votes Withheld --
Abstentions 49,308
Broker Nonvotes --
3. To ratify the selection of Arthur Andersen LLP,
independent public accountants, as auditors of the
Company for the fiscal year ending December 31, 1997.
Votes For 7,760,332
Votes Against 5,234
Votes Withheld --
Abstentions 17,267
Broker Nonvotes --
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. None.
16
<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 14, 1997 By: /s/ P. Sherrill Neff
---------------------
P. Sherrill Neff
President and Chief Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 28,121,460
<SECURITIES> 19,013,761
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 49,796,929
<PP&E> 14,837,021
<DEPRECIATION> 1,879,959
<TOTAL-ASSETS> 62,757,391
<CURRENT-LIABILITIES> 1,745,491
<BONDS> 0
0
0
<COMMON> 94,953
<OTHER-SE> 51,701,754
<TOTAL-LIABILITY-AND-EQUITY> 62,757,391
<SALES> 0
<TOTAL-REVENUES> 625,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,437,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,075
<INCOME-PRETAX> (3,870,462)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,870,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (3,870,462)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
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