<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
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 0-21794
GENZYME TRANSGENICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-3186494
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Crossing Boulevard, Framingham, Massachusetts 01702
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(Address of principal executive offices) (Zip Code)
(508) 620-9700
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Registrant's telephone number, including area code
Indicate by check 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.
CLASS OUTSTANDING AT AUGUST 4, 2000
----- -------------------------------
Common Stock, $0.01 par value 29,056,992
<PAGE>
GENZYME TRANSGENICS CORPORATION
TABLE OF CONTENTS
PAGE #
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PART I. FINANCIAL INFORMATION
ITEM 1 - Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of July 2, 2000
and January 2, 2000.................................................3
Consolidated Statements of Operations for the
Three Months and Six Months Ended
July 2, 2000 and July 4, 1999 ......................................4
Consolidated Statements of Cash Flows for
the Six Months Ended July 2, 2000 and July 4, 1999..................5
Notes to Unaudited Consolidated Financial Statements................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................10
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk .................................................13
PART II. OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security Holders................14
ITEM 6
Exhibits and Reports on Form 8-K...................................14
SIGNATURES..................................................................15
EXHIBIT INDEX...............................................................16
2
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,573 $ 7,782
Marketable securities 31,875
42
Accounts receivable, net of allowance of $701 and $888 at
July 2, 2000 and January 2, 2000, respectively 10,710 11,335
Unbilled contract revenue, net of allowance of $75 for both periods 12,350 8,516
Other current assets 1,830 1,929
------------ ------------
Total current assets 93,338 29,604
Net property, plant and equipment 35,222 34,302
Costs in excess of net assets acquired, net 16,687 17,260
Other assets 2,754 3,146
------------ ------------
$ 148,001 $ 84,312
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,922 $ 2,977
Accounts payable - Genzyme Corporation
483 559
Payable to ATIII LLC 2,208 2,151
Revolving line of credit - 15,750
Accrued expenses 9,132 9,667
Deferred contract revenue 8,710 9,218
Current portion of long-term debt and capital leases 3,000 3,149
------------ ------------
Total current liabilities 26,455 43,471
Long-term debt and capital leases, net of current portion 12,651 13,897
Deferred lease obligation
787 779
------------ ------------
Total liabilities 39,893 58,147
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized of which 20,000 shares have
been designated Series A convertible and 12,500
shares have been designated as Series B convertible - -
Series B convertible preferred stock; $.01 par value; no shares
and 6,602 shares were issued and outstanding at July 2, 2000 and
January 2, 2000, respectively - -
Common stock, $.01 par value; 40,000,000 shares authorized; 28,971,212 and
22,601,296 shares issued and outstanding
at July 2, 2000 and January 2, 2000, respectively 290 226
Dividend on preferred stock (2,727) (2,653)
Capital in excess of par value - preferred stock - 6,647
Capital in excess of par value - common stock 183,168 87,895
Unearned compensation - (284)
Accumulated deficit (72,565) (65,625)
Accumulated other comprehensive loss (58) (41)
------------ ------------
Total stockholders' equity 108,108 26,165
------------ ------------
$ 148,001 $ 84,312
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -------------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Services $ 16,998 $ 14,314 $ 32,365 $ 27,390
Sponsored research and development 4,167 4,288 7,737 5,981
------------- ------------- ------------- -------------
21,165 18,602 40,102 33,371
Costs and operating expenses:
Services 14,314 12,101 27,621 23,584
Research and development
Sponsored 3,546 2,211 6,528 4,788
Internal 1,024 892 1,914 2,178
Selling, general and administrative 4,795 5,152 9,293 9,704
Equity in loss of joint venture 1,352 977 2,208 1,843
------------- ------------- ------------- -------------
25,031 21,333 47,564 42,097
------------- ------------- ------------- -------------
Loss from operations (3,866) (2,731) (7,462) (8,726)
Other income (expense):
Interest income 1,037 13 1,590 20
Interest expense (438) (504) (920) (1,014)
Other income - 484 - 484
------------- ------------- ------------- -------------
Loss from operations before income taxes (3,267) (2,738) (6,792) (9,236)
Provision for income taxes 92 108 148 159
------------- ------------- ------------- -------------
Net loss $ (3,359) $ (2,846) $ (6,940) $ (9,395)
Dividend to preferred shareholders - - 74 -
------------ ------------- ------------- -------------
Net loss available to common shareholders $ (3,359) $ (2,846) $ (7,014) $ (9,395)
============= ============= ============= =============
Net loss per common share (basic and diluted) $ (0.12) $ (0.15) $ (0.26) $ (0.50)
============= ============= ============= =============
Weighted average number of shares
outstanding (basic and diluted) 28,738 19,268 27,373 18,959
============= ============= ============= =============
Comprehensive loss:
Net loss (3,359) (2,846) (6,940) (9,395)
Other comprehensive loss:
Unrealized holding losses on available for sale
securities (58) (31) (17) (40)
------------- ------------- ------------- ------------
Total other comprehensive loss (58) (31) (17) (40)
------------- ------------- ------------- ------------
Comprehensive loss $ (3,417) $ (2,877) $ (6,957) $ (9,435)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
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GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JULY 2, JULY 4,
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,940) $ (9,395)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,398 2,770
Amortization of unearned compensation 1,615 55
Equity in loss of joint venture 2,208 1,843
Loss on disposal of fixed assets 2 -
Changes in assets and liabilities:
Accounts receivable and unbilled contract revenue (3,209) (591)
Inventory and other current assets 99 (637)
Accounts payable (55) (105)
Accounts payable - Genzyme Corporation (76) (390)
Other accrued expenses 32 662
Deferred contract revenue (508) 998
----------- ----------
Net cash used in operating activities (3,434) (4,790)
Cash flows from investing activities:
Purchase of property, plant and equipment (3,317) (3,114)
Investment in joint venture (2,151) (2,460)
Purchase of marketable securities (31,850) -
Other assets 75 (595)
----------- ----------
Net cash used in investing activities (37,243) (6,169)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 74,971 -
Net proceeds from the exercise of warrants 6,820 -
Net proceeds from employee stock purchase plan 559 517
Net proceeds from the exercise of stock options 4,368 34
Proceeds from long-term debt - 3,802
Repayment of long-term debt (1,508) (1,257)
Net borrowings (payments) under revolving line of credit (15,750) 4,604
Other long-term liabilities 8 (44)
----------- ----------
Net cash provided by financing activities 69,468 7,656
----------- ----------
Net increase (decrease) in cash and cash equivalents 28,791 (3,303)
Cash and cash equivalents at beginning of the period 7,782 11,740
----------- ----------
Cash and cash equivalents at end of period $ 36,573 $ 8,437
=========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
5
<PAGE>
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These unaudited condensed consolidated financial statements
should be read in conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 2000 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 Securities and Exchange Commission rules and
regulations.
The financial statements as of July 2, 2000 and for the three
and six months ended July 2, 2000 and July 4, 1999 are
unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring
adjustments) necessary for a fair statement of the results for
the periods presented.
2. ACCOUNTING POLICIES:
The accounting policies underlying the quarterly financial
statements are those set forth in Note 2 of the financial
statements included in the Company's Annual Report on Form
10-K for the year ended January 2, 2000.
Per share information is based upon the weighted average
number of shares of Common Stock outstanding during the
period. Common stock equivalents consisting of warrants and
stock options, totaled 2.7 million at July 2, 2000 and common
stock equivalents consisting of warrants, stock options and
convertible preferred stock, totaled 6.5 million at July 4,
1999. Since the Company was in a net loss position in the
periods ended July 2, 2000 and July 4, 1999, these common
stock equivalents were not used to compute diluted loss per
share, as the effect was antidilutive.
Included in the net loss for the six months ended July 2, 2000
is the Company's equity in the loss of a joint venture of
$2,208,000 which represents the Company's commitment to fund
its 30% share of the losses incurred in 2000 of the joint
venture between the Company and Genzyme Corporation ("ATIII
LLC"). Total net losses of the ATIII LLC in the first six
months of 2000 were $7.4 million and the ATIII LLC did not
record any revenues.
6
<PAGE>
Marketable securities held as available for sale can be
summarized as follows, in thousands:
<TABLE>
<CAPTION>
July 2, 2000 Amortized Cost Estimated Fair Value
--------------------- -----------------------------
<S> <C> <C>
Government backed obligations $ 2,993 $ 2,991
Corporate obligations 28,715 28,884
-------------- -----------
Total Investments $ 31,708 $ 31,875
============== ===========
</TABLE>
At January 2, 2000, the amortized cost and estimated fair
value of the Company's total investments was $42,000.
At July 2, 2000, the contractual maturities of the Company's
short-term investments available for sale range from over 3
months to 24 months. All of the Company's investments are
classified as short-term which is consistent with their
intended use.
3. NEW ACCOUNTING PRONOUNCEMENT:
In March 2000, the Financial Accounting Standards Board
("FASB") released FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"),
an interpretation of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). FIN
44 provides guidance for certain issues that arise in applying
APB 25. We anticipate that the adoption of FIN 44 will not
have a significant effect on our financial position and
results of operations.
4. NON-EMPLOYEE OPTIONS:
The Company had outstanding options to non-employees which
have been accounted for in accordance with Emerging Issues
Task Force ("EITF") 96-18 and Financial Interpretation No. 28
("FIN 28"), which require the Company to remeasure the fair
value of these options at each reporting period prior to
vesting and then finally at the vesting date of the option.
Due to the decrease and subsequent stability of the Company's
stock price in 1998 and 1999, the amounts expensed for those
years were not significant. During the first and second
quarter of 2000, the Company recorded $1.6 million of expense
relating to these options to reflect the increase in value of
the Company's common stock and the acceleration of their
vesting.
7
<PAGE>
5. INCOME TAXES:
Due to the profitability of some if its contract research
laboratories in certain states, the Company has recorded a
provision for income taxes for the period ended July 2, 2000.
This is solely a provision for state, not federal, income
taxes.
6. FACILITY CONSOLIDATION COSTS:
During the first quarter of 2000, the Company paid $282,000
relating to the facility consolidation reserve recorded in
1999, which had a balance of $943,000 at January 2, 2000. Of
this amount, $64,000 related to severance and $218,000 related
to rental and lease terminations.
During the second quarter of 2000, the Company paid an
additional $234,000 of which $85,000 related to severance and
$149,000 related to rental and lease terminations.
The Company recorded a reduction to the reserve of $18,000 and
$24,000 in each quarter ended July 2, 2000 and April 2, 2000,
respectively, based on changed circumstances. Similarly, the
Company has increased the rental and lease termination
reserves for an additional $18,000 and $78,000 at July 2, 2000
and April 2, 2000, respectively, based on changed
circumstances. These reductions and changes have been included
in selling, general and administrative expenses in 2000. The
remaining balance of the severance accrual and the rental and
lease termination accrual as of July 2, 2000 was $61,000 and
$3,000, respectively.
7. PUBLIC OFFERING:
In February 2000, the Company completed a public offering of
3.5 million shares of common stock at $20 per share. The
Company granted the underwriters an option to purchase an
additional 525,000 shares of its common stock to cover
overallotments, which was exercised. In total, the Company
issued 4,025,000 shares, including the underwriter's
overallotment, with net proceeds to the Company of $75.2
million. After the completion of the public offering, the
Company paid down the outstanding balance of $15.8 million on
its revolving credit line which remains fully available for
future borrowing.
In conjunction with the offering, the Company issued a Notice
of Redemption to Genzyme for all outstanding shares of the
Company's Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). Prior to the effectiveness of this
redemption, Genzyme converted the Series B Preferred Stock
into 1,048,021 shares of common stock. The Company paid a cash
dividend of $157,000 in conjunction with the conversion of
which $83,000 and $74,000 was recorded in the fourth
8
<PAGE>
quarter of 1999 and the second quarter of 2000, respectively.
As a result of the offering, the $6.3 million Genzyme credit
line was eliminated. As of July 2, 2000, Genzyme owned
approximately 28.4% of the Company's common stock. If Genzyme
exercises all of its outstanding warrants, its ownership would
be 29.4%.
8. SERIES A CONVERTIBLE PREFERRED STOCK WARRANT EXERCISE:
In March 2000, the Company issued a warrant call notice for
450,000 warrants to purchase common stock which had been
issued in connection with the Company's 1998 private
placement. The notice permitted the Company to redeem the
warrants unless they were exercised prior to redemption. Each
warrant had an exercise price of $15.16 per share. All of the
warrants were exercised in March prior to the redemption date,
resulting in proceeds to the Company of $6.8 million.
9. SEGMENT INFORMATION:
Below is the Company's segment information for its two
reportable segments: contract research organization
("Primedica") and research and development ("Transgenics").
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ------------------------
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Primedica - external customers $ 16,998 $ 14,314 $ 32,365 $ 27,390
Primedica - intersegment 178 345 451 776
Transgenics 4,167 4,288 7,737 5,981
---------- ---------- ---------- ----------
21,343 18,947 40,553 34,147
Elimination of intersegment revenues (178) (345) (451) (776)
---------- ---------- ---------- ----------
$ 21,165 $ 18,602 $ 40,102 $ 33,371
========== ========== ========== ==========
Income (loss) from operations:
Primedica $ 84 $ (384) $ (385) $ (1,277)
Transgenics (1,806) (34) (3,303) (3,290)
Unallocated amounts:
Corporate expenses (792) (1,336) (1,566) (2,316)
Equity in loss of joint venture (1,352) (977) (2,208) (1,843)
========== ========== ========== ==========
$ (3,866) $ (2,731) $ (7,462) $ (8,726)
========== ========== ========== ==========
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 2, 2000 AND JULY 4, 1999
Total revenues for the three-month period ending July 2, 2000 were $21.2
million, compared with $18.6 million for the comparable period in 1999, an
increase of $2.6 million or 14%. Service revenues from the Company's Primedica
subsidiary increased to $17 million in the second quarter of 2000 from $14.3
million in the second quarter of 1999, an increase of $2.7 million or 19%. The
increase in service revenues is due to a concerted effort to focus on faster
growing service areas. Research and development revenue from the Company's
transgenic development business decreased to $4.2 million in the second quarter
of 2000 from $4.3 million in the second quarter of 1999, a decrease of $100,000
or 2%, due to increased revenue in the 1999 period from the achievement of a $2
million milestone offset by an increase in the number of transgenic programs.
Cost of services for the second quarter of 2000 were $14.3 million compared to
$12.1 million for the comparable period in 1999, an increase of $2.2 million or
18% primarily due to the increase in revenues. Sponsored research and
development expenses increased to $3.5 million in the second quarter of 2000
from $2.2 million in the second quarter of 1999, an increase of $1.3 million or
59%. The increase in sponsored research and development expense was due to an
increase in the number of transgenic programs. Proprietary research and
development expenses increased to $1 million in the second quarter of 2000 from
$892,000 in the second quarter of 1999, an increase of $108,000 or 12%, due to
increased work being performed on proprietary research and development programs.
Gross profit, defined as revenues less service costs and research and
development costs, for the second quarter of 2000 was $2.3 million versus a
gross profit of $3.4 million in the second quarter of 1999. Gross profit on
services for the second quarter of 2000 was $2.7 million, representing a gross
margin of 16%, versus a gross profit of $2.2 million, representing a gross
margin of 15%, in the second quarter of 1999. The increase in services gross
margin is primarily due to the increase in revenues. Gross profit on sponsored
research and development for the second quarter of 2000 was $621,000,
representing a gross margin of 15%, versus a gross profit of $2.1 million,
representing a gross margin of 48%, in the second quarter of 1999. The decrease
in sponsored research and development gross margin is due to the impact on
revenue of the achievement of a $2 million milestone in the second quarter of
1999.
Selling, general and administrative ("SG&A") expenses decreased to $4.8 million
in the second quarter of 2000 from $5.2 million in the second quarter of 1999, a
decrease of $400,000 or 8%. The decrease is due to SG&A cost reductions at
Primedica resulting from its facility consolidation program and a decrease in
the transgenic insurance and legal expense, partially offset by the expense
attributed to the vesting and acceleration of non-employee stock options.
10
<PAGE>
Interest income increased to $1 million in the second quarter of 2000, from
$13,000 in the second quarter of 1999, due to the investment of the proceeds
generated by the public offering in February 2000. Interest expense decreased to
$438,000 in the second quarter of 2000 from $504,000 in the second quarter of
1999 due to a decreased balance on outstanding borrowings in 2000. The Company
did not record any other income in the second quarter of 2000, while it received
$484,000 in the second quarter of 1999, due to the receipt of an insurance
settlement in the earlier period.
The Company recognized $1.4 million of joint venture losses incurred on the
joint venture ("ATIII LLC") between the Company and Genzyme Corporation
("Genzyme") during the second quarter of 2000 as compared to $977,000 incurred
during the second quarter of 1999.
Due to the profitability of some of its contract research laboratories in
certain states, the Company has recorded a provision for state income taxes
during the second quarter of 2000.
SIX MONTHS ENDED JULY 2, 2000 AND JULY 4, 1999
Total revenues for the six-month period ending July 2, 2000 were $40.1 million,
compared with $33.4 million in the comparable period of 1999, an increase of
$6.7 million or 20%. Service revenues increased to $32.4 million during the
first six months of 2000 from $27.4 million in the comparable period of 1999, an
increase of $5 million or 18%. The increase in service revenues is due to a
concerted effort to focus on faster growing service areas. Research and
development revenue increased to $7.7 million during the first six months of
2000 from $6 million in the comparable period of 1999, an increase of $1.7
million or 28%. The increase in research and development revenue is due to
revenue being earned on an increasing number of transgenic programs, partially
offset by revenue earned in 1999 on the achievement of a $2 million milestone.
Cost of services during the first six months of 2000 were $27.6 million compared
to $23.6 million in the comparable period of 1999, an increase of $4 million or
17%, primarily due to the increase in revenues. Sponsored research and
development expenses increased to $6.5 million in the first six months of 2000
from $4.8 million in the comparable period of 1999, an increase of $1.7 million
or 35%. The increase in sponsored research and development expense is due to an
increase in the number of transgenic programs. Proprietary research and
development expenses decreased to $1.9 million in the first six months of 2000
from $2.2 million in the comparable period of 1999, a decrease of $300,000 or
14%. The decrease is primarily due to a concentration of resources on sponsored
research and development programs in the first quarter of 2000.
Proprietary research and development expenses fluctuate from quarter to quarter.
As a result of increased revenues, gross profit for the first six months of 2000
amounted to $4 million versus a gross profit of $2.8 million in the comparable
period of 1999. Gross profit on services for the first six months of 2000 was
$4.7 million, resulting in a gross margin of 15%, versus a gross profit on
services of $3.8 million, and a gross margin of 14%, in the comparable period of
1999. The increase in services gross margin is primarily due to the increase in
revenues. Gross profit on sponsored research and development for the first six
months of 2000 was $1.2 million, resulting in a gross margin of 16%, versus
gross profit on sponsored research and
11
<PAGE>
development of $1.2 million, and a gross margin of 20%, in the comparable period
of 1999. The decrease in sponsored research and development gross margin is due
to revenue being earned on an increasing number of transgenic programs in 2000,
offset by increased revenue due to a $2 million milestone being achieved in the
comparable period of 1999.
SG&A expenses decreased to $9.3 million in the first six months of 2000 from
$9.7 million in the comparable period of 1999, a decrease of $400,000 or 4%. The
decrease is primarily due to SG&A cost reductions at Primedica resulting from
its facility consolidation program and a decrease in the transgenic insurance
and legal expense, partially offset by the expense attributed to the vesting and
acceleration of non-employee stock options.
Interest income increased to $1.6 million in the first six months of 2000, from
$20,000 in the comparable period of 1999, due to the investment of the proceeds
generated by the public offering in February 2000. Interest expense decreased to
$920,000 in the first six months of 2000 from $1 million in the comparable
period of 1999 due to a decreased balance on outstanding borrowings in 2000. The
Company did not record any other income in the first six months of 2000, while
it recorded $484,000 in the comparable period of 1999, due to the receipt of an
insurance settlement.
The Company recognized $2.2 million of joint venture losses incurred on ATIII
LLC between the Company and Genzyme during the first six months of 2000 as
compared to $1.8 million incurred during the comparable period of 1999.
Due to the profitability of some of its contract research laboratories in
certain states, the Company has recorded a provision for state income taxes
during the first six months of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of $68.4
million at July 2, 2000. Of this amount, cash balances totaled $36.6 million at
July 2, 2000. During the first six months of 2000, the Company had a $28.8
million net increase in cash. Sources of funds during the period included $86.7
million of net proceeds from issuance of common stock comprised of $75 million
from the public offering, $6.8 million from the exercise of warrants and $4.9
million from the issuance of common stock under various employee stock plans.
Uses of funds during the period included $31.9 million used to purchase
marketable securities, $15.8 million used to pay down the bank revolving credit
line, which remains fully available for future borrowing, $3.4 million used in
operations, $3.3 million invested in capital equipment, further expansion of the
transgenic production facility and Primedica's laboratory facilities and $2.2
million invested in the ATIII LLC. As a result of the offering, the Genzyme
credit line was eliminated.
The Company had working capital of $66.9 million at July 2, 2000 compared to a
deficit of $13.9 million at January 2, 2000. As of July 2, 2000 the Company had
$15.8 million available under a line of credit with a commercial bank, $2.9
million available under various capital lease lines and $793,000 available under
a term loan for facility expansion. The Company is preparing plans for expansion
of its transgenic production facilities in Central Massachusetts as well as
establishment of a second production site in order to facilitate growth in the
number of development programs
12
<PAGE>
and commercialization of ongoing transgenic programs. Although no significant
contractual commitments have been made, it is anticipated that this capital
expansion will cost approximately $4 million in the second half of 2000 and
approximately $6 million in 2001.
Under the Company's current operating plan, existing cash balances along with
funds available under the bank and lease lines are expected to be sufficient to
fund the Company through the next few years.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the results of the
Company's Primedica business, the ability of the Company to enter into
transgenic research and development collaborations in the future and the terms
of such collaborations, the results of research and development and preclinical
and clinical testing, competitive and technological advances and regulatory
requirements. If the Company experiences increased losses, the Company may have
to seek additional financing through collaborative arrangements or from public
or private sales of its securities, including equity securities. There can be no
assurance that additional funding will be available on terms acceptable to the
Company, if at all. If additional financing cannot be obtained on acceptable
terms, to continue its operations the Company could be forced to delay, scale
back or eliminate certain of its research and development programs or to enter
into license agreements with third parties for the commercialization of
technologies or products that the Company would otherwise undertake itself.
NEW ACCOUNTING PRONOUNCEMENT
In March 2000, the Financial Accounting Standards Board ("FASB") released FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"), an interpretation of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). FIN 44
provides guidance for certain issues that arise in applying APB 25. We
anticipate that the adoption of FIN 44 will not have a significant effect on our
financial position and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements in
short-term marketable securities generally government backed obligations and
corporate obligations with an average maturity of less than one year. All
marketable securities are considered available for sale. Because of the quality
of the investment portfolio and the short-term nature of the marketable
securities, the Company does not believe that interest rate fluctuations would
impair the principal amount of the securities. There have been no other material
changes in the Company's market risk since January 2, 2000. The Company's market
risk disclosures are discussed in its Form 10-K for the year ended January 2,
2000 under the heading Item 7A, Quantitative and Qualitative Disclosures About
Market Risk.
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PART II
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 24, 2000,
the Company's stockholders voted as follows:
(a) To reelect Sandra Nusinoff Lehrman to the Board of Directors
for a three-year term.
Total Vote for the Proposal 23,664,134
Total Votes Withheld 714,462
(b) To amend the Company's Restated Articles of Organization to
increase the number of authorized shares of common stock from
40,000,000 to 100,000,000.
Total Vote for the Proposal 21,999,478
Total Vote Against the Proposal 2,332,226
Abstentions 46,822
(c) To amend the Company's 1993 Equity Incentive Plan to increase
the number of shares of common stock covered by the Plan by
750,000 shares.
Total Vote for the Proposal 21,534,777
Total Vote Against the Proposal 2,775,265
Abstentions 68,554
(d) To amend the Company's 1993 Employee Stock Purchase Plan to
increase the number of shares of common stock covered by the
Plan by 400,000 shares.
Total Vote for the Proposal 24,061,994
Total Vote Against the Proposal 251,304
Abstentions 65,298
ITEM 6: EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits
See the Exhibit Index immediately following the signature
page.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
July 2, 2000.
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GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
JULY 2, 2000
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 hereunto duly authorized.
Date: August 9, 2000 GENZYME TRANSGENICS CORPORATION
BY: /s/ John B. Green
-----------------------------------------
John B. Green
Duly Authorized Officer,
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
4.1 Articles of Amendment to the Restated Articles of Organization
of the Company filed with the Secretary of the Commonwealth of
Massachusetts on June 1, 2000. Filed as Exhibit 4.1.5 to the
Registrant's Registration Statement on Form S-8 filed with the
Commission on June 2, 2000 (Commission File No. 333-38490) and
incorporated herein by reference.
27 Financial Data Schedule. (EDGAR only.)
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