<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19918
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NEOZYME II CORPORATION
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(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Todman Building, Main Street, Road Town, Tortola, British Virgin Islands
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(Address of principal executive offices) (Zip Code)
(809) 494-2065
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of April 30, 1996:
Class Outstanding at April 30, 1996:
----- ------------------------------
Callable Common Stock, $.01 par value 2,415,000
Total number of pages in document - 15
Exhibit index located on page - 10
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NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q, MARCH 31, 1996
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Financial Statements
Statements of Operations for the Three Months Ended
March 31, 1996 and 1995 and Cumulative from Inception
(March 2, 1992) ....................................... 3
Balance Sheets as of March 31, 1996 and
December 31, 1995 ..................................... 4
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 and Cumulative from Inception
(March 2, 1992) ........................................ 5
Notes to Unaudited Condensed Financial Statements ...... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K ......................... 8
Signatures ............................................................... 9
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CUMULATIVE FROM
----------------------------- INCEPTION
1996 1995 (MARCH 2, 1992)
---- ---- ---------------
<S> <C> <C> <C>
Investment income ................ $ 244 $ 480 $ 12,406
Costs and expenses:
Technology license fee ........ -- -- 5,000
Research and development ...... 5,379 5,703 64,958
General and administrative .... 79 60 1,275
------- ------- --------
Total costs and expenses .... 5,458 5,763 71,233
------- ------- --------
Net loss ......................... $(5,214) $(5,283) $(58,827)
======= ======= ========
Net loss per callable common share $ (2.16) $ (2.19) $ (25.46)
======= ======= ========
Weighted average callable common
shares outstanding .............. 2,415 2,415 2,311
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed, unaudited
financial statements.
3
<PAGE> 4
<TABLE>
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................... $ 14,086 $ 5,546
Short-term investments ............................ 5,116 21,501
Prepaid research & development .................... 208 --
-------- --------
Total assets ......................................... $ 19,410 $ 27,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Genzyme Corporation .................... $ 30 $ 2,469
Accrued expenses .................................. 105 92
-------- --------
Total current liabilities ...................... 135 2,561
Note payable to Genzyme Corporation .................. 100 100
Stockholders' Equity:
Callable common Stock, $1.00 par value;
authorized 9,000,000 shares, 2,415,000 shares
issued and outstanding ............................ 2,415 2,415
Additional paid-in capital ........................ 75,620 75,620
Deficit accumulated during the development stage... (58,827) (53,613)
Unrealized loss on investments .................... (33) (36)
-------- --------
Total stockholders' equity ....................... 19,175 24,386
-------- --------
Total liabilities and stockholders' equity ........... $ 19,410 $ 27,047
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed, unaudited
financial statements.
4
<PAGE> 5
NEOZYME II CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CUMULATIVE
-------------------------- FROM INCEPTION
1996 1995 (MARCH 2, 1992)
---- ---- ---------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ................................................. $(5,214) $(5,283) $ (58,825)
Reconciliation of net loss to net cash
used by operating activities:
(Gain)/loss on sales of investments ................... (25) 35 (1,919)
Accrued interest/amortization on investments .......... 301 40 860
Prepaid research and development ...................... (208) (386) (208)
Payable to Genzyme Corporation ........................ (2,439) (729) 28
Accrued expenses ...................................... 13 8 105
------- ------- ---------
Net cash used by operating activities .................... (8,174) (6,315) (59,959)
Cash flow from investing activities:
Purchases of short-term investments ...................... -- -- (31,216)
Purchase of long-term investment ......................... -- -- (109,521)
Sales and maturities of short-term investments ........... 16,714 7,050 63,958
Sales and maturities of long-term investments ............ -- -- 72,689
------- ------- ---------
Net cash provided (used) by investing activities ......... 16,714 7,050 (4,090)
Cash flow from financing activities:
Issuance of note payable to
Genzyme Corporation ..................................... -- -- 100
Issuance of callable common stock ........................ -- -- 78,035
------- ------- ---------
Net cash provided by financing activities ................ -- -- 78,135
------- ------- ---------
Increase (decrease) in cash and cash equivalents ............. 8,540 735 14,086
Cash and cash equivalents at beginning of period ............. 5,546 135 --
------- ------- ---------
Cash and cash equivalents at end of period ................... $14,086 $ 870 $ 14,086
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
5
<PAGE> 6
NEOZYME II CORPORATION
(A Development Stage Enterprise)
March 31, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION:
Neozyme II Corporation ("Neozyme II" or the "Company") is a
development stage enterprise engaged in the research, development and
clinical testing of biotherapeutic products for the treatment of cystic
fibrosis.
These unaudited condensed financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and the financial statements and
footnotes included therein. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations.
The financial statements for the three months ended March 31,
1996 and 1995 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring accruals) necessary
for a fair presentation of the results for the periods presented.
2. ACCOUNTING POLICIES:
The accounting policies underlying the quarterly financial
statements are those set forth in Note A of the financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
As of March 31, 1996, investments totaling $5,116,000 were
classified as available for sale and, accordingly, unrealized holding
losses totaling $33,000 have been recognized in a separate component of
stockholders' equity.
3. PURCHASE OPTION AGREEMENT WITH GENZYME CORPORATION:
Under the Purchase Option Agreement, Genzyme has the option,
exercisable not later than December 31, 1996, to purchase all, but not
less than all, of the Callable Common Stock, at stated prices which
increase over time. The purchase price increases based on a formula
which prorates evenly by month the difference between a given and prior
year purchase price plus the prior year purchase price.
<TABLE>
<CAPTION>
IF THE STOCK PURCHASE OPTION EXERCISE TOTAL
OPTION IS EXERCISED: PRICE PER SHARE PAYMENT
------------------- --------------- ---------
<S> <C> <C>
On or before December 31, 1995... $ 83 $200,445,000
December 31, 1996................ 117 282,555,000
</TABLE>
The purchase price, if exercised at March 31, 1996, was $91.50 per
share for a total payment of $220,972,500.
The Purchase Option Agreement may be terminated by Neozyme II
following expenditure of the funds available for its development
program unless Genzyme funds or obtains funding to continue the
development program.
6
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NEOZYME II CORPORATION
(A Development Stage Enterprise)
For the Three Months Ended March 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Neozyme II incurred a net loss for the three months ended March 31,
1996 totaling $5,214,000 ($2.16 per share) as compared to $5,283,000 ($2.19 per
share) for the corresponding period in 1995. The net losses are primarily
attributable to contracted research and development expenses paid to Genzyme
Corporation ("Genzyme"). These expenses totaled $5,379,000 for the three months
ended March 31, 1996 as compared to $5,703,000 for the same period in 1995. The
6% decrease in research and development expenses resulted from a decrease in
expenses incurred by Genzyme related to external support contracted in support
of the Neozyme II development programs. General and administrative expenses,
which consist of administrative and management support together with legal,
auditing and other operating costs increased 32% to $79,000 for the three months
ended March 31, 1996 as compared to $60,000, for the corresponding period in
1995 due primarily to increased insurance, consulting, patent and annual meeting
expenses.
The Company's sole source of revenue has been the income earned from
the investment of funds received from the initial public offering. Investment
income for the three months ended March 31, 1996 was $244,000 as compared to
$480,000 for the same period in 1995, a decrease of 49%. The 49% decrease was
due primarily to lower average cash and investment balances. Investment income
for the three months ended March 31, 1996 included realized gains on the sales
of securities of $25,000, whereas investment income for the corresponding period
in 1995 included realized losses on sales of securities of $35,000.
FINANCIAL CONDITION
- -------------------
Neozyme II's only source of funding and capital resources has been the
proceeds from the initial public offering plus income earned thereon. It is
expected that Neozyme II will continue to experience significant losses as
substantially all of the offering proceeds are committed to funding the work
performed by Genzyme under the Development Agreement. As of March 31, 1996, the
Company had $19.2 million in cash, cash equivalents and short-term investments,
a decrease of $7.8 million from December 31, 1995 resulting primarily from
expenses of $5.2 million incurred for the funding of operations in the first
quarter of 1996, and a reduction in the amount payable to Genzyme for contracted
research and development efforts incurred in the fourth quarter of 1995 of $2.4
million. It is anticipated that this balance will be sufficient to fund the
Company's operations through December 31, 1996. Substantial additional funds are
expected to be required in order to complete the clinical testing and
commercialization of Neozyme II's products. If Genzyme does not exercise the
Purchase Option to acquire all of the Company's outstanding shares of callable
common stock, Neozyme II will need to find alternative ways to fund
commercialization of its products. There can be no assurance that the Products
will be developed to the point of commercialization or that Neozyme II will be
able to find such alternative ways to fund such commercialization. If Genzyme
does not exercise the Purchase Option and Neozyme II decides to complete
development, manufacture or marketing of the products itself, Neozyme II will
need substantial additional funds. Genzyme is not obligated to provide those
funds and there can be no assurance that such funds will be available from
others on attractive terms, if at all.
7
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NEOZYME II CORPORATION
FORM 10-Q, MARCH 31, 1996
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
24.1 Power of Attorney. Filed herewith.
24.2 Certified copy of Board of Directors
resolution authorizing power of
attorney. Filed herewith.
27 Financial Data Schedule for Neozyme II
Corporation (for EDGAR filing purposes only).
Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ending March 31, 1996.
8
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NEOZYME II CORPORATION
FORM 10-Q, MARCH 31, 1996
SIGNATURES
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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.
NEOZYME II CORPORATION
DATE: May 15, 1996 By: /s/ David J. McLachlan
-----------------------
David J. McLachlan
Attorney-in-fact for
Paul M. Edwards, Duly
Authorized Officer and
Principal Executive,
Financial and Accounting
Officer
9
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EXHIBIT 24.1
11
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NEOZYME II CORPORATION
Power of Attorney
-----------------
I the undersigned officer of Neozyme II Corporation (the "Company"),
hereby constitute and appoint Henri A. Termeer, David J. McLachlan, Mark A.
Hofer, Evan M. Lebson, and Peter Wirth, and each of them singly, my true and
lawful attorney, with full power to sign for me, in my name and in all of my
capacities, the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1996 required to be filed with the Securities and Exchange Commission,
and any amendments thereto, hereby ratifying and confirming all that each of
said attorneys-in-fact may do or cause to be done by virtue hereof.
DATED this 15th day of May, 1996. /s/ Paul M. Edwards
----- ------ -------------------
Paul M. Edwards, Duly
Authorized Officer and
Principal Executive,
Financial and Accounting
Officer
12
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EXHIBIT 24.2
13
<PAGE> 2
NEOZYME II CORPORATION
Certificate of Secretary
I Peter Wirth, being the duly elected and acting Secretary of Neozyme
II Corporation (the "Company"), a company incorporated in the Territory of the
British Virgin Islands, hereby certify that the following is a true, correct and
complete copy of a resolution duly adopted by the Board of Directors of the
Company at a meeting of the Board of Directors convened and held on January 19,
1996, at which meeting a quorum for the transaction of business was present and
acting throughout; and that said resolution has not been amended or rescinded
and is now in full force and effect.
VOTED: That Paul Edwards is hereby authorized to sign all periodic and other
reports or documents required to be filed by the Company with the Securities and
Exchange Commission or the NASDAQ Stock Market through or by Henri A. Termeer,
David J. McLachlan, Mark A. Hofer, Evan M. Lebson or Peter Wirth, as
attorney-in-fact, pursuant to a power of attorney reflecting such authorization.
WITNESS my signature and the seal of the Company affixed this 14th day
of May, 1996.
[CORPORATE SEAL] /s/ Peter Wirth
----------------------
Peter Wirth, Secretary
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF NEOZYME II CORPORATION FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 14,086
<SECURITIES> 5,116
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,410
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,410
<CURRENT-LIABILITIES> 135
<BONDS> 100
<COMMON> 2,415
0
0
<OTHER-SE> 16,760
<TOTAL-LIABILITY-AND-EQUITY> 19,410
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,214)
<EPS-PRIMARY> (2.16)
<EPS-DILUTED> 0
</TABLE>
