U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended
December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-21994
GLYKO BIOMEDICAL LTD.
(Exact name of small business issuer as specified in its charter)
Canada 68-0230537
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Pimentel Court, Novato, California 94949
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (415) 382-3500
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III to the Form 10-KSB
or any amendment to this Form 10-KSB. ______
State issuer's revenues for its most recent fiscal year. $1,330,635.
The approximate aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of February 28, 1997 was
$7,561,630.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 17,243,044 common shares outstanding
as of February 28, 1997.
<PAGE>
GLYKO BIOMEDICAL LTD.
This report contains certain forward looking statements which involve
risks and uncertainties, including statements regarding the Company's
strategy, financial performance and revenue sources. The Company's
actual results could differ materially from the results anticipated in
these forward looking statements as a result of certain factors set
forth under "Risk Factors" and elsewhere in this report.
Item 1. Description of Business
Glyko Biomedical Ltd. was incorporated by Certificate and Articles of
Incorporation under the laws of Canada on June 26, 1992 ("Glyko"). On December
21, 1992, simultaneously with an initial public offering of the Company's Common
Shares on The Toronto Stock Exchange, Glyko acquired 100 percent of the shares
of Glyko, Inc. a corporation incorporated under the laws of Delaware on October
15, 1990 upon an exchange of shares with the stockholders of Glyko, Inc. The
registered office of Glyko is Scotia Plaza, Suite 2100, 40 King Street West,
Toronto, Canada M5H 3C2. The registered and principal office of Glyko, Inc. is
11 Pimentel Court, Novato, California. BioMarin Pharmaceutical, Inc., a wholly
owned subsidiary of Glyko Biomedical Ltd. was incorporated under the laws of
Delaware on October 25, 1996. In this Statement, unless otherwise indicated, a
reference to "Glyko" or to the "Company" means Glyko and its wholly-owned
subsidiaries Glyko, Inc. and BioMarin Pharmaceutical, Inc.
Glyko, Inc. was established in 1990 under a joint venture agreement, ("the Joint
Venture Agreement"), dated December 18, 1990 among Millipore Corporation
("Millipore"), Glycomed Incorporated ("Glycomed"), Gwynn R. Williams
("Williams"), and John C. Klock, M.D. (collectively, the "Founders"), Astroscan,
Ltd. and Astromed, Ltd., corporations controlled by Williams, and Glyko, Inc. to
conduct original scientific research aimed at developing novel analytic and
research instrumentation for carbohydrate research and for human medical
diagnosis. The Company's principal activities are the sale of chemical kits and
equipment incorporating its proprietary carbohydrate technology and the
development of commercial applications based on complex carbohydrates.
The Company is developing new techniques to analyze and manipulate carbohydrates
for research and diagnostic purposes. The Company may develop business
opportunities in multiple areas such as research laboratory instrumentation,
human diagnostics, and the pharmaceutical industry. BioMarin Pharmaceutical,
Inc. was formed to exploit opportunities in the pharmaceutical area. There can
be no assurance that the Company will successfully develop any of such business
opportunities.
The Company's scientific and business strategies are based on a product line of
laboratory instrumentation and chemical kits, referred to as analytic products,
which are used in carbohydrate testing including detection, separation, and
sequencing. The Company's technology is called "FACE(R)" or
Fluorophore-Assisted-Carbohydrate-Electrophoresis.
As of December 31, 1996 the Company had 13 employees including four Ph.D.s/M.D.s
with specialized training in carbohydrate biotechnology.
Analytic Products
The Company manufactures integrated products for the analysis of carbohydrates.
The products consists of:
A series of kits with chemicals, enzymes, pre-cast gels, and standards for
performing analyses of carbohydrates. A cooled electrophoresis system for
performing high-quality analysis of the research sample.
A computer-controlled CCD camera system.
Copyrighted, proprietary software for image analysis and data
manipulation.
The Company believes the system has the advantages of low cost, ease of use,
high sensitivity and applicability to a broad range of carbohydrate materials
including genetically engineered products, pharmaceuticals and food and beverage
products. The Company began to market its products in 1994 directly and through
authorized distributors. The Company's customers include university research
laboratories, biotechnology companies and pharmaceutical companies.
1
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Diagnostic Products
Background
Currently, there are very few carbohydrate diagnostics tests. They include
glucose monitoring for diabetics, certain blood typing tests and the measurement
of certain carbohydrates in the blood of persons with cancer. The Company
believes the development of carbohydrate diagnostic products has been limited by
the lack of appropriate analytical systems. The Company's FACE(R) diagnostic
technology should give clinicians the capability to detect the presence of
specific carbohydrate markers indicating certain disease states.
In November 1995, the Company received approval from the United States Food and
Drug Administration to market its diagnostic test for Lysosomal Storage
Diseases, the Urinary Carbohydrate Analysis Test Kit. The Company believes that
its technology has potential for further diagnostic applications. The Company
has successfully completed certain studies using human clinical samples which
are from several broad diagnostic categories: congenital and inborn metabolic
diseases, therapeutic drug monitoring and acquired conditions of adults. These
areas represent potential new diagnostic products.
The Company's efforts towards meeting these objectives may be limited by the
availability, or lack thereof, of additional funding. See "Risk Factors - Future
Capital Requirements - Uncertainty of Future Funding." Depending on available
funding, the Company may begin research in other key research areas, although
there is no assurance that it will be able to do so. There can be no assurance
that any of the Company's current or future products will be successfully
developed, prove to be effective in clinical trials, receive required regulatory
approvals or be successfully marketed. See "Risk Factors - Diagnostic Products."
Lysosomal storage diseases
Lysosomal storage diseases are a class of inherited metabolic diseases. There
are at least 25 different individual diseases, including Tay-Sachs disease,
Gaucher's disease and lesser known classes such as the mucopolysaccharidoses.
Currently, only a small fraction of patients are tested for these diseases,
usually those in high-risk groups (i.e. Ashkenazi Jews for Tay-Sachs disease) or
those with clinical symptoms such as physical deformity or mental retardation.
In November 1995, The Company received approval from the United States Food and
Drug Administration to market its Urinary Carbohydrate Analysis Test Kit. This
test is capable of detecting more than two dozen conditions in this group. The
Company is planning to market the test kit to pediatricians as a primary
screening test for these conditions.
Thrombosis
Heparin, a major anticoagulant drug, is a carbohydrate. The Company believes
there is currently no satisfactory direct analytic method for measuring heparin
which is approved for use. A test that would accurately measure serum levels of
heparin would enable physicians to more directly measure the effectiveness and
potential toxicity of this widely used drug. The Company has used FACE(R) to
develop methods which could be used to measure the levels of heparin in the
blood of patients The Company's current studies in testing for heparin need to
be followed by additional clinical studies before FDA approval can be sought.
There is no assurance that such testing studies will be successful.
Osteoporosis
A test that would accurately measure the breakdown of bone would enable
physicians to more directly measure the metabolic state of patients as well as
the effectiveness of treatments. Glyko has used FACE(R) to develop a way to
measure the levels of carbohydrates in the urine of patients with osteoporosis.
Preliminary work shows that FACE(R)can reliably measure these carbohydrates
which appear in a characteristic pattern in urine tests. A non X-ray test that
could measure the rate of breakdown and build-up of bone would be a major step
forward in the management of these patients. The Company feels that on the basis
of its current studies that there is enough promise to continue with further
studies. Such studies will require funding and the Company may seek a partner to
share the cost of such studies. There is no assurance that such testing studies
will be successful.
2
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Patents and Trade Secrets
The Company has or has licensed a number of issued patents covering its core
technologies as well as a number of pending patent applications in the field.
Twenty of the Company's patents have been granted in the U.S., U.K. and the
European Common Market. The Company's success will depend in part on its ability
to obtain patents, protect trade secrets and not infringe the patents of others.
The Company has been issued patents as well as filed applications for U.S. and
foreign patents and has exclusive licenses to patents or patent applications of
others. The Company intends in the future to apply for patents in various
jurisdictions for inventions forming part of its technology. No assurance can be
given that patent applications will result in the issue of patents or that, if
issued, patents obtained by the Company will confer on the Company a preferred
position with respect to the technology or products claimed.
Competition
Carbohydrate biotechnology is a rapidly evolving field. Future technological
developments could result in the Company's potential products or services
becoming obsolete before the Company recovers its research and development and
capital expenditures. The Company will experience competition both from analytic
instrument companies as well as from diagnostic or pharmaceutical companies
which have other methods to analyze carbohydrates. The Company's diagnostic
products may face competition from major diagnostic companies which are large
medical and pharmaceutical companies. These companies have substantially greater
financial, manufacturing, marketing, and technical resources than the Company.
The Company believes that the relative speed with which others can develop
products, complete clinical testing and regulatory approval processes and supply
commercial quantities to the market will be important competitive factors. There
can be no assurance that others will not independently develop products similar
to the Company's, duplicate the Company's products or design around the
Company's patents. In addition the Company may be required to obtain licenses to
others' patents. No assurance can be given that such licenses can be obtained on
terms acceptable to the Company. These factors could cause the Company to
encounter delays in product market introductions or adversely affect the
Company's development or sale of products requiring licenses from third parties.
The Company's products and technologies could be subject to claims of
infringement by others. Patent conflicts and litigation can be expensive, and
could have a material adverse effect on the Company's financial position and
results of operations.
Government Regulation
The manufacture and sale of analytic products do not require government approval
in the United States or Canada. The manufacture and sale of medical diagnostic
products in the United States are controlled by the Food and Drug Administration
("FDA"), and the manufacture and sale of analytic products in Canada are
controlled by the Health Protection Branch ("HPB"). The laws of each country
require the licensing of manufacturing facilities located in its jurisdiction,
and carefully controlled clinical trials in humans and extensive testing of
products. The manufacturer must establish the safety and efficacy of its
products, good manufacturing practices and control over marketing activities
before it will be allowed to market and sell its products. The safety and
efficacy of a new diagnostic product must be demonstrated through clinical
trials carried out under procedures acceptable to the FDA or the HPB, as the
case may be.
In order to be able to market and sell its diagnostic products, the Company must
successfully complete clinical trials. The sales program is initiated by
applying to the FDA or the HPB, as the case may be, for permission to
manufacture and market products. The Company must submit specific information on
the results of carefully controlled clinical trials using blood or other
specimens obtained from humans. In addition, manufacturing methods and
standards, and the stability of the product components must be presented to
enable the regulatory agency to conclude that the product that may eventually be
sold to the public has the same composition and performance as that determined
to be effective in clinical trials. The controls on a new diagnostic product do
not cease once it is on the market and continued reporting of its performance
must be submitted by the manufacturer to the FDA or the HPB, as the case may be.
This is required to keep the product on the market. The Company is unable to
predict whether future regulatory developments will affect the Company's
products under development.
3
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RISK FACTORS
Future Capital Requirements - Uncertainty of Future Funding
The Company believes that its available cash will allow it to fund planned
operations through the second quarter of 1997. The Company's Report of
Independent Public Accountants for the year ended December 31, 1996 indicates
that there is substantial doubt about the Company's ability to continue as a
going concern reflecting both the necessity and the uncertainty of future
funding. Such funding may come individually or collectively from stock
issuances, licensing and marketing agreements or by collaborative research
agreements with strategic partners. No assurance can be given that additional
financing will be available or, if available, that it will be on terms
acceptable to the Company or its stockholders. If adequate funding is not
obtained, operations may be adversely affected. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The Company
will delay or eliminate expenditures in respect of certain products under
development such as additional analytical kits and diagnostic tests in the event
sufficient funding is unavailable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
History of Operating Losses - Uncertainty of Future Profitability
The Company commenced its research activities in December 1990 and first
recorded revenues in December 1992. While sales increased in 1994 and 1995, the
Company has not yet made a net annual operating profit. There is no assurance
that sales will increase in future quarters. See "Note 10" to the financial
statements. The accumulated deficit as of December 31, 1996 was approximately
$13.0 million. The Company anticipates that operating losses may continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Diagnostic Products - No Prior Commercial Manufacturing or Marketing
In 1996 the Company began marketing its first diagnostic product, the Urinary
Carbohydrate Analysis Kit. In order to manufacture its diagnostic products in
commercial quantities and to market products independently, the Company will
need to expand its production and marketing capabilities and/or establish
arrangements with third parties having the capacity for such manufacturing or
marketing. Anticipated operating revenues and cash resources will not be
sufficient to expand manufacturing and marketing capabilities for diagnostic
products currently under development. There can be no assurance that the Company
will be able to successfully market or manufacture its diagnostic products. To
the extent that the Company arranges with third parties to manufacture or market
any diagnostic products, the commercial success of such products may depend upon
the efforts of those third parties. See "Description of Business--Business of
the Company."
Early Stage of Diagnostic Product Development
Only one of the Company's diagnostic products has been approved for commercial
sale, the Urinary Carbohydrate Analysis Kit. See "Diagnostic Products -
Lysosomal Storage Diseases". Potential products currently under development by
the Company will require significant additional development, and some must
undergo several phases of clinical testing and will likely require significant
further investment prior to their final commercialization. See "Government
Regulation." Anticipated operating revenues and cash resources will not be
sufficient to facilitate significant further development of diagnostic products.
There can be no assurance that any of the Company's products under development,
either now or in the future, will be successfully developed, prove to be
effective in clinical trials, receive required regulatory approvals, be capable
of being produced in commercial quantities at reasonable costs, or be
successfully marketed. See "Description of Business-Business of the Company."
4
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Technology and Competition
The primary competitive factors in biotechnology are the ability to create and
maintain scientifically advanced technology, to attract and maintain personnel,
and to have available adequate financial resources to maintain the Company
through its research, development and commercialization of technology stages.
The technology on which the Company's business is based uses proven laboratory
methods of electrophoresis and bioseparation. Nevertheless there is a technical
risk associated with reducing-to-practice the basic technology for new
applications. There is no assurance that the Company will be able to develop an
economical or practical way to separate human materials for clinical diagnosis,
or that it will be able to devise specific reagents required to obtain a needed
reaction. Other companies may develop basic carbohydrate technology which
directly competes for the carbohydrate diagnostic market. Furthermore,
conventional diagnostic technology (such as enzyme or radioactive immunoassay)
may accomplish new breakthroughs in analyzing carbohydrates (which so far has
been difficult). Additionally, other newer technologies such as nucleic acid
hybridization may become competitive and erode the Company's potential shares of
diagnostic markets.
Competition in bioinstrumentation is intense. Many companies, universities, and
research organizations are engaged in the research and development of products
in the areas being developed by the Company. Many of these have financial,
technical, manufacturing and marketing resources greater than those of the
Company. Several major research instrument companies have undertaken recently to
establish capabilities in carbohydrate technology and may apply such technology
for essentially the same purpose as the Company. As a result carbohydrate
technology will become an area of more intense competition. In order to compete
successfully the Company must expand its efforts to develop new products and
uses for its current products in research and diagnosis. There can be no
assurance that the Company will be able to do so effectively.
Patents and Proprietary Technology
The Company's success will depend in part on its ability to obtain patents,
protect trade secrets and not infringe the patents of others. The Company has
been issued patents as well as filed applications for U.S. and foreign patents
and has exclusive licenses to patents or patent applications of others. The
Company intends in the future to apply for patents in various jurisdictions for
inventions forming part of its technology. No assurance can be given that patent
applications will result in the issue of patents or that, if issued, patents
obtained by the Company will confer on the Company a preferred position with
respect to the technology or products claimed. See "Description of
Business--Patents and Trade Secrets."
There can be no assurance that others will not independently develop products
similar to the Company's, duplicate the Company's products or design around the
Company's patents. In addition the Company may be required to obtain licenses to
others' patents. No assurance can be given that such licenses can be obtained on
terms acceptable to the Company. These factors could cause the Company to
encounter delays in product market introductions or adversely affect the
Company's development or sale of products requiring licenses from third parties.
The Company's products and technologies could be subject to claims of
infringement by others. Patent conflicts and litigation can be expensive, and
could have a material adverse effect on the Company's results of operations.
Product Liability and Lack of Insurance
The Company is subject to the risk of exposure to product liability claims in
the event that the use of its technology results in adverse effects during
testing or commercial sale. The Company currently does not maintain product
liability insurance. There can be no assurance that the Company will be able to
obtain product liability insurance coverage at economically reasonable rates, or
that such insurance will provide adequate coverage against all possible claims.
Uncertainty of Regulatory Approval
The Company's diagnostics products will require regulatory approval by
government agencies. This includes pre-clinical and clinical testing and
approval processes in the U.S. and other countries. Compliance can take several
years and require substantial expenditures. There can be no assurance that
difficulties or excessive costs will not be encountered by the Company in this
process or that required approvals will be obtained. The Company will not be
able to market its diagnostic products until required approvals have been
obtained. See "Description of Business--Government Regulation."
5
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Dependence on Key Personnel
The Company's success will depend in large part upon its ability to attract and
retain highly qualified scientific and management personnel. The Company faces
competition for such personnel from other companies, academic institutions,
government entities and other organizations. The Company depends on its key
management, including John Klock and Christopher Starr, and the departure of
either person could have a material adverse effect on the Company.
Employees
At February 28, 1997 the Company had 12 employees. All employees
are full time and 11 employees work in Novato, California.
Item 2. Description of Property
The Company moved to an 11,000 square foot facility in Novato, California in
February, 1997. The new facility includes approximately 3,000 square feet of
laboratory space, a 2,000 square foot manufacturing facility, and 6,000 square
feet of office space. Minimum lease payments for this facility in 1997 are
$98,902 and are subject to annual increases based upon the Consumer Price Index.
The terms of the lease extend through March 31, 2000. The Company believes that
its facility is adequate to meet its current and reasonably foreseeable
requirements for the conduct of its business, including the manufacturing of
analytic products. See "Certain Relationships and Related Transactions" and
"Legal Proceedings."
Item 3. Legal Proceedings.
Millipore Corporation has filed suit against the Company to recover unpaid rent
and related facilities charges of approximately $270,000 for the Company's
former leased facility. The Company does not believe that Millipore's claim is
valid and does not agree with the amount claimed by Millipore. Additionally, the
Company believes Millipore has an outstanding royalty obligation due to the
Company from 1993 and 1994 which could be $50,000 or more. The Company's
management is currently negotiating a settlement of this legal action. To
the best of the Company's knowledge, there were no other pending legal
proceedings against the Company or its property.
Item 4. Submission of Matters to a Vote of Security-Holders. None
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
As of November 1993, the Company's stock has been listed on the NASD Electronic
Bulletin Board under the symbol "GLYK". The Company's Common Shares have been
listed and traded on The Toronto Stock Exchange (TSE) since December, 1992 under
the symbol "GBL." The following table sets forth the sales prices for the Common
Shares for the periods noted, as reported by TSE. Price of the Common Share
refers to the closing price on the TSE.
<TABLE>
<CAPTION>
Prices
(In Canadian Dollars)
Year Period High Low
<S> <C> <C> <C> <C>
1993 Fourth Quarter $3.25 $2.60
1994 First Quarter $2.80 $1.40
1994 Second Quarter $1.50 $0.90
1994 Third Quarter $1.00 $0.80
1994 Fourth Quarter $1.00 $0.60
1995 First Quarter $1.00 $0.72
1995 Second Quarter $1.00 $0.80
1995 Third Quarter $0.90 $0.79
1995 Fourth Quarter $1.15 $0.60
1996 First Quarter $1.65 $0.61
1996 Second Quarter $1.05 $0.55
1996 Third Quarter $0.80 $0.53
1996 Fourth Quarter $0.70 $0.40
</TABLE>
6
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Holders
As of February 28, 1997, there were 170 holders of record of 17,243,044
outstanding Common Shares of the Company.
Outstanding Options
As of February 28, 1997, options to acquire 2,168,077 of the Company's Common
Shares had been granted and were outstanding.
Certain Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person (a "United States holder") who,
for the purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the
Convention between Canada and the United States with respect to Taxes on Income
and Capital (the "Convention") and at all relevant times, is resident in the
United States and not resident in Canada, deals at arm's length with the
Company, holds Common Shares as capital property and does not use or hold and is
not deemed to use or hold the Common Shares in carrying on business in Canada.
Special rules, which are not discussed in this summary, may apply to a United
States holder that is an insurer that carries on an insurance business in Canada
and elsewhere.
This summary is based on the current provisions of the Convention and of the
Canadian Tax Act and the regulations thereunder, all specific proposals to amend
the Canadian Tax Act and the regulations announced by the Minister of Finance
(Canada) prior to the date hereof (the "Proposed Amendments") and the published
administrative practices of Revenue Canada, Taxation. This summary assumes the
Proposed Amendments will be enacted in the form currently proposed. This summary
does not take into account or anticipate any changes in the governing law, other
than the Proposed Amendments, whether by federal, governmental or legislative
decision or action, nor does it take into account the tax legislation or
considerations of any province, territory or foreign jurisdiction.
This summary is of a general nature only and is not, and should not be
interpreted as, legal or tax advice to any particular United States holder and
no representation is made with respect to the Canadian income tax consequences
to any particular person. Accordingly, United States holders are advised to
consult their own tax advisors with respect to their particular circumstances.
Under the Canadian Tax Act and pursuant to the Convention, Canadian withholding
tax will apply to dividends on Common Shares paid or deemed to be paid to a
United States holder at the rate of 15 percent of the gross amount of such
dividends, or, in the case of a United States holder that is a corporation which
owns at least 10 percent of the voting stock of the company, six percent of the
gross amount of such dividends paid in 1996 and five percent of the gross
dividends paid thereafter.
In general, a United States holder will not be subject to Canadian income tax on
capital gains arising on the disposition of Common Shares unless (i) at any time
in the five-year period immediately preceding the disposition, 25 percent or
more of the issued shares of any class or series of the Company belonged to the
United States holder, to persons with whom the United States holder did not deal
at arm's length, or to the United States holder and persons with whom he did not
deal at arm's length, and (ii) the value of the Common Shares at the time of the
disposition is derived principally from real property (as defined in the
Convention) situated in Canada.
A disposition of Common Shares to the Company (unless the Company acquires the
shares in the open market in the manner in which shares would normally be
purchased by any member of the public) will result in a deemed dividend to the
United States holder equal to the amount by which the consideration paid by the
Company to acquire the Common Shares exceeds the paid-up capital of such shares
for purposes of the Canadian Tax Act. The amount of such deemed dividend will be
subject to the withholding tax described above.
Dividend Policy
Glyko does not anticipate the payment of dividends in the foreseeable future. At
present, Glyko's policy is to retain earnings, if any, to finance the
development of its business. The payment of dividends in the future will depend
upon, among other factors, Glyko's earnings, capital requirements and operating
and financial condition.
7
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Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The following discussion and analysis of financial condition and results of
operations contains certain forward looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward looking statements.
Glyko Biomedical Ltd. is a Canadian company which holds all of the capital stock
of Glyko, Inc. and BioMarin Pharmaceutical, Inc. The following discussion and
the accompanying consolidated financial statements include the accounts of Glyko
Biomedical Ltd., Glyko, Inc. and Biomarin Pharmaceutical, Inc. presented on a
consolidated basis. Since its inception in October 1990, Glyko has been engaged
in the research and development of new techniques to analyze and manipulate
carbohydrates for research, diagnostic and pharmaceutical purposes. The Company
has developed a line of analytic instrumentation laboratory products which
include an imaging system, analysis software and chemical analysis kits. The
first commercial shipments of these analytic products were late in 1992. The
Company is continuing to develop additional chemical kits for use with the
imaging system, and is also developing a line of carbohydrate diagnostic
products. In November 1995, the Company received approval from the United States
Food and Drug Administration to market its first diagnostic product, the Urinary
Carbohydrate Analysis Test Kit. The Company has incurred a net loss in each
period since its inception and expects to continue to incur losses. For the
period from its inception to December 31, 1996, the Company has incurred
cumulative losses of $12,933,837.
Results of Operations
Revenues in 1996 were $1,330,635 and consisted primarily of sales of chemical
analysis kits, sales of imaging equipment and custom analytical service fee
revenues. Revenues in 1995 were $1,568,810 and consisted primarily of sales of
imaging equipment, sales of chemical analysis kits, licensing and grant fee
revenues and analytical service fee revenues. Sales of imaging systems were
responsible for slightly less than half of total revenue in 1995.
The decrease in revenues in 1996 compared to 1995 was due primarily to the
effect of distributor licensing fees earned in 1995 but not in 1996 and lower
sales volumes of imaging systems to distributors for resale. The effect upon
total revenue of the factors noted above was partially offset by increased sales
volumes of chemical analysis kits and higher analytical service revenues in
1996. Prices for products and services in 1996 were slightly higher than in 1995
but did not have a material effect upon total revenues.
Gross margin on sales of products and services was 60 percent in 1996 and 62
percent in 1995. As the Company is still in the early stages of product sales
and production, management expects that margins will fluctuate for some time and
that current margins are not necessarily indicative of future margins.
Research and development expenses in 1996 were $1,014,966 compared to $1,063,054
in 1995, a decrease of $48,088. In 1996, analytical service work volume
increased considerably. Relative to 1995, research and development staff
resources were directed more towards analytical service work and less towards
research projects. As a result, departmental expense allocated to the cost of
analytical service revenue was higher in 1996 and research and development
expense was lower. This was the principal reason for the decrease in total
research and development expense in 1996. The overall decrease in research and
development expense was partially offset by consultancy expenses incurred
towards development of a new generation imaging system.
Selling, general and administrative expense was $1,425,484 in 1996, a decrease
of $236,420 from 1995 expense of $1,661,904. Marketing and promotion costs were
lower in 1996, chiefly due to reduced advertising media placements. Payroll
costs were lower in 1996 principally due to the effect of layoffs announced late
in the third quarter. Travel costs were also lower in 1996, primarily as a
result of the layoffs. Rent expense in 1996 was offset by a write-off of
the deferred rent balance of $62,538 at December 31, 1996 related to a lease
abandonment (see Note 6 of the financial statements). Expenses related to
the formation of BioMarin Pharmaceutical, Inc. were approximately $120,000
in 1996 and partially offset the reduction of total selling, general and
administrative expense caused by the factors noted above.
Interest income earned in 1996 and 1995 reflected earnings on cash invested in
short term interest bearing accounts. Interest expense in 1996 and 1995 was
immaterial.
8
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Liquidity and Capital Resources
During the second quarter of 1995, the Company closed a private equity placement
offering (the Q295 Financing). Investors participating in the Q295 Financing
purchased approximately 4.786 million "units" that consisted of one share of
common stock and one five year warrant to purchase one share of common stock.
The Company issued units in exchange for cash, and also in exchange for the
settlement of certain outstanding liabilities. The units were priced at
Cdn.$0.80 with an exercise price on the warrant of Cdn.$0.90. The Q295 Financing
raised approximately $2.78 million, consisting of approximately $2.36 million in
cash and $420,000 for the settlement of a stockholder/director bridge loan,
common stock issued for financing service and certain other liabilities.
During the second quarter of 1996, the Company closed a second private equity
placement offering (the Q296 Financing). Investors participating in the Q296
Financing purchased 2.5 million units each consisting of one share of common
stock and one half of a two year warrant. One warrant is required to purchase
one share of common stock. The units were priced at Cdn.$0.60 with an exercise
price on the warrant of Cdn.$0.80. The Q296 Financing raised approximately
$1.077 million. An additional 175,000 units and 250,000 warrants valued at
approximately $130,000 were distributed to brokers in exchange for services
rendered in connection with the Q296 Financing. The Company utilized the
Black-Scholes model to value the warrants issued in the Q296 Financing at
approximately $156,000.
The Company's net cash position decreased by $409,728 in 1996. Net cash proceeds
of $1.054 million from the Q296 Financing were offset by cash used in operating
activities of $1,389,172. Cash used in operating activities in 1996 reflected
the operating loss of $1,575,859 partially offset by collections of accounts
receivable and deferral of payments for facilities costs. Capital expenditures
in 1996 were higher than in 1995 but were still relatively insignificant at
$61,061.
The Company's net cash position increased by $541,426 in 1995. Cash proceeds
from the Q295 Financing were offset by cash used in operating activities of
$1,698,164. Cash used in operating activities in 1995 reflected the operating
loss of $1,648,682. The cash effect of payments of deferred liabilities upon
completion of the Q295 Financing was offset by the receipt, in the fourth
quarter, of an advance upon future sales received from a foreign distributor.
Capital expenditures in 1995 were not material.
Management believes the proceeds of the Q296 Financing plus the financing and
the one-time distribution agreement fee earned in the first quarter of 1997 will
allow the Company to maintain liquidity through the second quarter of 1997. See
"Note 10" to the financial statements. To maintain liquidity beyond that time
the Company will have to maintain its current level of sales. There can be no
assurance that the Company will be successful in maintaining liquidity. Late in
the third quarter of 1996, the Company announced layoffs and other cost cutting
measures. The Company will continue to seek additional funding through various
means including but not limited to stock issuances, licensing and marketing
agreements and collaborative research agreements with strategic partners.
However, there can be no assurance that such agreements will be reached and that
additional funding will be obtained. The Company's Report of Independent Public
Accountants for the year ended December 31, 1996 indicates that there is
substantial doubt about the Company's ability to continue as a going concern
reflecting both the necessity and the uncertainty of future funding. See "Risk
Factors Future Capital Requirements."
In 1997, management expects spending to increase due to the start-up costs and
program expenses for BioMarin of approximately $3.0 million. These expenditures
will be funded by the Q297 financing and the anticipated subsequent 1997
financings for BioMarin. See "Note 10" to the financial statements. The Company
is not committed to make any significant capital expenditures.
Item 7. Financial Statements
The information required to be filed in this item appears on pages F.2 to F.13
and is incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
9
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Directors and Executive Officers
The directors and executive officers of the company are as follows:
<TABLE>
<CAPTION>
Year Joined
Name Age Position Company
<S> <C> <C> <C>
R. William Anderson(1)(2) 56 Director 1991
John H. Craig 49 Secretary and Director 1992
John S. Glass 60 Director 1994
John C. Klock, M.D. (1) 52 President, Chief Executive
Officer and Director 1990
Christopher M. Starr, Ph.D. 44 Vice-President, Research
and Development 1991
Gwynn R. Williams(1) 63 Director 1990
<FN>
(1) Member of Audit Committee
(2) Member of Compensation Committee
</FN>
</TABLE>
All directors hold office until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers are appointed by the Board
of Directors and serve at the discretion of the Board. There are no family
relationships among the officers and directors of the Company.
Mr. R. William Anderson has served as a Director since 1992 and is Chief
Financial Officer at Fidus Corporation in Fremont, California. From 1994 to 1996
he was an independent consultant. From 1989 to 1994 he served as
Vice-President-Finance and Chief Financial Officer at Glycomed Incorporated.
From July 1985 to April 1989 he served as Vice President of Finance and
Administration and Chief Financial Officer for Chiron Corporation, a
biotechnology company. Prior to Chiron, Mr. Anderson was Controller and Director
of Financial Planning and Analysis at Syntex Laboratories, Inc., the domestic
pharmaceutical subsidiary of Syntex Corporation. Mr. Anderson holds an MBA from
the Harvard Business School.
Mr. John H. Craig has served as a Director and Secretary of the Corporation
since 1992 and has been a solicitor and partner with Cassels Brock and
Blackwell and previously with Holden Day Wilson, Toronto law firms, since
1973. Mr. Craig is a director of a number of public companies listed on the
Toronto Stock Exchange.
Mr. John S. Glass has served as a Director since August 1994 and is Vice
President and Chief Financial Officer of Milkhaus Laboratory, Inc., a
clinical stage biopharmaceutical company. In 1995 he was an independent
consultant. From 1968 to 1994 he served in various capacities at Millipore
Corporation, most recently as Director of Investor Relations and Vice
President of Millicorp, a venture capital subsidiary. Previously
Mr. Glass was a research and development manager at Polaroid Corporation.
Mr. Glass holds a Masters degree in management from the Massachusetts
Institute of Technology.
Dr. John C. Klock was formerly an academic physician and carbohydrate researcher
at the University of California at San Francisco (1976-1981), Scientific
Director of the Institute of Cancer Research of California Pacific Medical
Center in San Francisco (1982-1986), a research director at Murex Corporation, a
diagnostic pharmaceutical company (1985-1986) and the scientific founder of
Glycomed Incorporated, a therapeutic company based on complex carbohydrate
technology (1986-1990).
Dr. Christopher M. Starr has been Vice President-Research and Development of the
Company since 1991. He received his Ph.D. in Biochemistry from the State
University of New York, Upstate Medical Center (Syracuse) and did post-doctoral
work at the National Institutes of Health (1987-1991). He is a carbohydrate
biochemist and molecular biologist.
10
<PAGE>
Mr. Gwynn R. Williams is a founder of Glyko (established 1990). He is also
founder and owner of Astromed and Astroscan, UK manufacturers of scientific
equipment established in 1984. Mr. Williams was a partner in Arthur Andersen &
Co., (1971-1982). Previously he was a mathematician with General Motors Research
in Detroit (1961-1970) and with British Steel (1958-1960).
Effective October, 1996 John Hamilton, Chief Financial Officer, and John Dorson,
Vice President and General Business Manager of the Analytical Business Unit,
were laid-off by the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and directors,
as well as persons who own ten percent or more of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company Officers, directors and ten percent or more stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company or written representations that no other reports were
required, during the fiscal year ended December 31, 1996, all officers,
directors, and ten percent stockholders complied with all Section 16(a) filing
requirements except that the Forms 5 for all officers, directors, and 10 percent
stockholders were filed late.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the total compensation that was awarded to,
earned by or paid to the Company's Chief Executive officer and the other most
highly compensated officers other than the Chief Executive Officer who earned
more than $100,000 and who were serving as executive officers as of the end of
the fiscal years ended December 31, 1996 and 1995, (together, "the Named
Officers"). No other executive officer of the Company earned more than $100,000
during the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Long - Term
Annual Compensation Compensation
Name and Principal Position Year Salary Option grants
<S> <C> <C> <C>
John C. Klock, M.D. 1996 $ 187,297 -
President, Chief Executive Officer & Director 1995 $ 192,500 128,318
Christopher M. Starr, Ph.D. 1996 $ 126,528 -
Vice-President, Research and Development 1995 $ 130,000 80,249
John Dorson, Ph.D. (terminated October 1996) 1996 $128,885 -
Vice-President & General Manager, Analytic 1995 $141,100 73,933
Business Unit
John F. Hamilton (terminated October 1996) 1996 $115,759 -
Vice-President, Finance and Administration 1995 $113,000 64,762
& Chief Financial Officer
</TABLE>
11
<PAGE>
Aggregated Fiscal Year End Option Values
There were no option exercises in fiscal 1996 by the Named Officers. The
following table provides information with respect to the value of unexercised
options held by the Named Officers at the close of business on December 31,
1996.
<TABLE>
<CAPTION>
Number of Number of Value of Value of
Unexercised Unexercised Unexercised Options Unexercised Options
Options at Fiscal Options at at Fiscal Year End, at Fiscal Year End,
Year End, Fiscal Year End, Exercisable (1) Unexercisable (1)
Exercisable Unexercisable
<S> <C> <C> <C> <C>
John C. Klock, M.D. 481,949 128,599 $ -- $ --
Christopher M. Starr, Ph.D. 237,458 451 $ -- $ --
<FN>
(1) The market value of underlying securities is based on the closing price of
the Company's common shares on December 31, 1996 of $0.2920 minus the exercise
price. The closing price of $0.2920 was calculated by applying a Canadian
dollar/US dollar exchange rate of $0.7301 to the closing price at December 31,
1996 of Canadian $ 0.40.
</FN>
</TABLE>
Director Compensation
During the fiscal year ended December 31, 1996, the Company's directors,
including non-employee directors, were not compensated for services provided as
directors.
Employment Agreement
In connection with the Joint Venture Agreement, Glyko, Inc. entered into an
employment agreement (the "Employment Agreement") with Dr. John C. Klock, M.D.
(Klock) dated December 20, 1990. The Board of Directors ("the Board") approved a
renewal of the Employment Agreement for an additional two years effective
January 1, 1994 retaining Klock as the Company's president. Under the renewed
Employment Agreement, the Board annually reviews Klock's salary and makes
adjustments which the Board in its discretion deems to be appropriate. Glyko,
Inc. is obligated to continue paying Klock's compensation for a period of six
months following Klock's mental or physical incapacity or his death. Absent
notification of intention not to renew by Klock or the Board, the Employment
Agreement renews for subsequent periods, subject to agreement by the parties on
Klock's compensation for the renewal terms. The Employment Agreement may be
terminated by Klock upon three months' notice and by Glyko, Inc. upon six
months' notice or immediately upon a breach of Klock's duties required under the
Employment Agreement. By its terms, the Employment Agreement does not terminate
upon a merger, consolidation or sale of substantially all of the Company's
assets, and the obligations under the Employment Agreement shall be delegated to
the successor entity in such a situation.
Stock Option Plan
Glyko has a stock option plan (the "Plan") under which options to purchase
Common Shares may be granted by the board of directors of Glyko to directors,
officers, consultants and key employees of Glyko. Options granted under the Plan
may either be "incentive stock options" under Section 422 of the United States
Internal Revenue Code, or non-statutory options. The Plan is administered by the
board of directors of Glyko. Options granted under the Plan will have an
exercise price which will not be less than the market price, less any
permissible discounts, of the Common Shares on the date prior to the date of
grant, which market price is deemed to be the closing sales price, or the
closing bid price if no sales were reported, of the Common Shares on any
established stock exchange or national market system upon which the Common
Shares are listed, including The Toronto Stock Exchange, or, if listed upon more
than one exchange or system, the exchange or system with the greatest volume of
trading in Common Shares on the date prior to the date of grant, or, if there is
no established market for the Common Shares, the fair market value of the Common
Shares as determined by the board of directors. Options will be exercisable over
a number of years specified at the time of the grant which cannot exceed ten
years. The aggregate number of Common Shares subject to options granted under
the Plan cannot exceed three million Common Shares and no one optionee is
entitled to hold options exceeding five percent of the Common Shares outstanding
at the time of the grant. Also, the maximum number of shares which may be
reserved for issuance to insiders under the Plan shall not exceed 10 percent of
common shares outstanding at the time of the grant.
Incentive stock options granted under the Plan terminate within 90 days of the
termination of an optionee's employment. Non-statutory options granted under the
Plan terminate within a period of time following the termination of the
optionee's employment, consulting or officer or director relationship which is
determined by the board of directors. Options also terminate within 12 months of
the death or total and permanent disability of the optionee. Options granted
under the Plan are not transferable. As of February 28, 1997, 2,168,077 options
(net of exercised options) had been approved by the board of directors.
Options will only be granted in compliance with applicable securities
legislation, and the Plan will be operated in conformity with the requirements
of any stock exchange upon which the Common Shares of Glyko may become listed.
12
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table lists certain information regarding beneficial ownership of
the Glyko's Common Shares as of February 28, 1997, by (i) those persons who own
more than 5 percent of the Company's common stock, (ii) the Company's Chief
Executive Officer, (iii) each of the Company's directors, and (iv) the total
amount of Common Shares held by the Company's officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Owner of Class
<S> <C> <C>
Common Shares Millipore Corporation (1) 2,461,177 12.8%
80 Ashby Road
Bedford, MA 01730
Common Shares Gwynn R. Williams (2) 2,947,393 15.3%
c/o Astroscan Ltd.
Ballabeg House
Cronkbourne Village
Bradden, Isle of Mann
British Isles, United Kingdom
Common Shares New York Life Insurance Company 2,436,250 12.7%
Common Shares Glycomed Corporation 1,326,654 6.9%
860 Atlantic Avenue
Alameda, CA 94501
Common Shares John C. Klock, M.D. (3) 1,144,348 6.0%
c/o Glyko, Inc.
11 Pimentel Court
Novato, CA 94949
Common Shares Christopher M. Starr (4) 245,325 1.3%
c/o Glyko, Inc.
11 Pimentel Court
Novato, CA 94949
Common Shares R. William Anderson (5) 70,420 *
Common Shares John H. Craig (5) 71,421 *
Common Shares John Glass (6) 68,000 *
Common Shares All Officers and Directors (7) 4,526,907 23.7%
<FN>
* Less than 1%.
(1) Does not reflect pending issuance of 500,000 shares in exchange for
termination of marketing rights.
(2) Includes 70,420 Common Shares issuable upon exercise of options within
60 days of February 28, 1997.
(3) Includes 521,303 Common Shares issuable upon exercise of options within
60 days of February 28, 1997.
(4) Includes 237,553 Common Shares issuable upon exercise of options within
60 days of February 28, 1997.
(5) Includes 70,420 Common Shares issuable upon exercise of options within
60 days of February 28, 1997.
(6) Includes 68,000 Common Shares issuable upon exercise of options within
60 days of February 28, 1997.
(7) Includes 1,038,116 Common Shares issuable upon exercise of options within
60 days of February 28, 1997, excludes shares held by Millipore
and Glycomed.
</FN>
</TABLE>
13
<PAGE>
Item 12. Certain Relationships and Related Transactions
All material transactions of the Company during the past two years in which any
director or senior officer, or any principal stockholder of the Company has an
interest are as described below:
In October 1994, the Company entered into a bridge financing agreement with
Gwynn Williams providing the Company with a $250,000 convertible working capital
credit facility to support operations pending completion of equity financing
efforts. In the fourth quarter of 1994 the Company drew upon this bridge loan
facility in the amount of $250,000. On April 5, 1995, in conjunction with the
successful completion of private equity financing efforts, that note and accrued
interest thereupon of $7,808 were converted into 400,748 shares of common stock
and warrants to purchase an equal number of shares of common stock.
The Company rented facilities from Millipore in 1996 and 1995, incurring
rental and facilities expense of $274,284 and $260,232 respectively.
Millipore
In 1992 Glyko, Inc. granted Millipore exclusive worldwide rights to market and
sell Glyko, Inc.'s analytic products to the laboratory research market, (the
"Distribution Agreement"). The Distribution Agreement had a term of six years
commencing on October 1, 1992. In September, 1993, the Company negotiated an
amendment to the Distribution Agreement pursuant to which the Company received
the non-exclusive right to market and distribute its analytic products in
certain markets, principally the United States. In April 1994, the Company and
Millipore agreed to terminate the Distribution Agreement. In exchange for
relinquishing marketing rights to Glyko products, Millipore will receive 500,000
shares of Glyko common stock pending regulatory approval. In the third quarter
of 1994, the Company recorded a charge of $219,811 for costs related to the
termination of the Distribution Agreement. This amount represents the estimated
fair market value, at April 1994, of stock to be issued to Millipore as a result
of the termination of the Distribution Agreement. The Toronto Stock Exchange has
turned down the issuance of the 500,000 shares due to an arms-length issue and
requires that an independent valuation be performed in order to reconsider the
issuance of these shares. No such valuation has been performed to date.
Share Transfer Restrictions
Millipore, Glycomed and Williams (the "Corporate Partners") have agreed to
certain restrictions relating to their shares in Glyko. The Corporate Partners'
shares in Glyko may not be transferred except to Glyko or Glyko, Inc., when
transferred to an 80 percent or more owned subsidiary of the Corporate Partner
that agrees to be bound by the share transfer restrictions, in a transaction in
which at least 65 percent of the voting power of Glyko is acquired by a party
other than a Corporate Partner, in a transaction (including a public offering),
in which no more than 5 percent of Glyko's voting stock is transferred to any
single person or group, pursuant to Rule 144 of the 1933 Act (when applicable),
in response to a tender offer made by or on behalf of, or not opposed by, Glyko
and the offeror agrees to be bound by the sale of business provisions of the
Joint Venture Agreement and the Distribution Agreement. In addition, a Corporate
Partner may sell shares in the case of a tender offer for at least 40 percent of
Glyko's shares; provided that Glyko shall have an assignable right of first
refusal with respect to the Corporate Partner's shares in such situation.
Pursuant to an agreement (the "Escrow Agreement") dated December 10, 1992 among
the Founders, Montreal Trust Company of Canada (the "Trustee") and Glyko,
6,030,428 Common Shares (the "Escrowed Shares") were placed on closing on
deposit with the Trustee. The Trustee will release the Escrowed Shares to the
Founders as follows: (a) 10 percent on September 10, 1993; (b) 20 percent on
September 10, 1994, September 10, 1995 and September 10, 1996, respectively; and
(c) the remaining 30 percent on September 10, 1997. As of December 31, 1996,
1,809,124 of the escrowed shares remained on deposit with a trustee.
14
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following documents are filed as part of this report
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1 Registrant's Articles of Incorporation and Bylaws (filed as exhibit
3.1 to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
10.1 Registrant's Stock Option Plan (filed as exhibit 10.1 to Form 10-SB
Registration Statement No. 0-21994 dated August 6, 1993 and
incorporated herein by reference).
10.2 Joint Venture Agreement between: Registrant; Millipore Corporation;
Glycomed Incorporated; Gwynn R. Williams; Astroscan, Ltd.; and
Astromed, Ltd. dated December 18, 1990 (filed as exhibit 10.2 to
Form 10-SB Registration Statement No. 0-21994 dated August 6, 1993
and incorporated herein by reference).
10.3 Distribution Agreement between Registrant and Millipore
Corporation dated December 18, 1990 (filed as exhibit 10.3
to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
10.4 License Agreement between Registrant, and Astroscan, Ltd. and
Astromed, Ltd. (filed as exhibit 10.4 to Form 10-SB Registration
Statement No. 0-21994 dated August 6, 1993 and incorporated herein by
reference).
10.5 License Agreement between Registrant and Glycomed
Incorporated (filed as exhibit 10.5 to Form 10-SB
Registration Statement No. 0-21994 dated August 6, 1993 and
incorporated herein by reference).
10.6 Loan Agreement between Registrant, and Millipore Corporation
and Gwynn R. Williams, dated April 9, 1992(filed as exhibit
10.6 to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
10.7 Employment Agreement between Registrant and John C. Klock, M.D., dated
December 20, 1990 (filed as exhibit 10.7 to Form 10-SB Registration
Statement No. 0-21994 dated August 6, 1993 and incorporated herein
by reference).
10.8 Exchange Agreements between Registrant, and the share and
option holders of Glyko, Inc., dated December 10, 1992
(filed as exhibit 10.8 to Form 10-SB Registration Statement
No. 0-21994 dated August 6, 1993 and incorporated herein by
reference).
10.9 Amendment Number Two to Exclusive Distribution and Supply
Agreement between Registrant and Millipore Corporation dated
September 22, 1993 (filed as exhibit 10.4 to Form 10-KSB
Statement dated December 31, 1993 and incorporated herein by
reference).
10.10 Amendment Number Two to Joint Venture Agreement between: Registrant;
Millipore Corporation; Glycomed Incorporated; Gwynn R. Williams;
Astroscan, Ltd.; and Astromed, Ltd. dated April 28, 1994 (filed as
exhibit 10.1 to Form 10-QSB dated March 31, 1994 and incorporated
herein by reference).
10.11 Employment Agreement between Registrant and John C. Klock,
M.D., dated January 1, 1994 (filed as exhibit 10.2 to Form
10-QSB dated March 31, 1994 and incorporated herein by
reference).
10.12 Glyko Biomedical Share Option Plan - 1994 (filed as exhibit 10.1 to
Form 10-QSB dated June 30, 1994 and incorporated herein by reference).
10.13 Development and Supply Agreement between Registrant and
Bio-Rad Laboratories, Inc., dated February 16, 1995 (filed
as exhibit 10.1 to Form 10-KSB dated March 31, 1996 and
incorporated herein by reference).
10.14 International Distribution Agreement between Registrant and
Toyobo Co., Ltd. and MC Medical. Inc. dated September 12, 1995 (filed
as exhibit 10.2 to Form 10-KSB dated March 31, 1996 and incorporated
herein by reference).
10.15 Commercial Lease between Registrant and Douglas R. Kaye
dated December 23, 1996 (confidential treatment has been
requested for a portion of this exhibit).
21.1 List of Registrant's Subsidiaries (filed as exhibit 22.1 to Form 10-SB
Registration Statement No. 0-021994 dated August 6, 1993 and
incorporated herein by reference).
</TABLE>
15
<PAGE>
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December 31,
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLYKO BIOMEDICAL LTD.
Dated: March 25, 1997 By: \s\ John C. Klock, M.D.
- --------------------------------------- ----------------------------
John C. Klock, M.D.
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John C. Klock, his attorney-in-fact, with
the power of substitution, for him in any and all capacities, to sign any
amendments to the Report on Form 10-KSB and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
\s\ John C. Klock, M.D March 25, 1997
- ---------------------- --------------------
John C. Klock, M.D. President, Chief Executive Officer, Director
and Chief Accounting Officer
\s\Christopher M. Starr, Ph.D. March 25, 1997
- ----------------------------- --------------------
Christopher M. Starr, Ph.D. Vice-President Research and Development
\s\ R. William Anderson March 25, 1997
- ----------------------- --------------------
R. William Anderson Director
\s\ John S. Craig March 25, 1997
- ----------------- --------------------
John H. Craig Secretary and Director
\s\ John S. Glass March 25, 1997
- ----------------- --------------------
John S. Glass Director
\s\ Gwynn R. Williams March 25, 1997
- --------------------- --------------------
Gwynn R. Williams Director
16
<PAGE>
Index to Financial Statements
Report of Independent Public Accountants F.2
Consolidated Balance Sheets F.3
Consolidated Statements of Operations F.4
Consolidated Statements of Stockholders' Equity (Deficit) F.5
Consolidated Statements of Cash Flows F.6
Notes to Consolidated Financial Statements F.7 to F.13
F.1
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Glyko Biomedical Ltd.:
We have audited the accompanying consolidated balance sheets of Glyko
Biomedical Ltd. and subsidiaries (the Company) as of December 31, 1996
and 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Glyko
Biomedical Ltd. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company has
incurred significant recurring losses and does not have sufficient
cash to fund planned 1997 operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note
1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Oakland, California Arthur Andersen LLP
January 17, 1997
F.2
<PAGE>
PART I.
ITEM 1. Financial Statements
GLYKO BIOMEDICAL LTD.
CONSOLIDATED BALANCE SHEETS
( U.S. dollars)
December 31, December 31,
1996 1995
--------------- ----------------
Assets
Current assets:
Cash $ 210,992 $ 620,720
Trade receivables 156,176 356,806
Inventories 68,452 108,518
Other current assets 26,025 5,132
---------------- ---------------
Total current assets 461,645 1,091,176
Property, plant and equipment, net 108,045 112,169
Other assets 2,200 2,239
---------------- ---------------
Total assets $ 571,890 $1,205,584
================ ===============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 174,732 $ 122,375
Accrued liabilities 204,504 221,424
Deferred revenue - 174,386
Payable to stockholder 219,811 219,811
Deferred rent and related costs 269,718 -
---------------- ---------------
Total current liabilities 868,765 737,996
Deferred rent and related costs - 166,535
Deferred rent - 76,590
---------------- ---------------
Total liabilities 868,765 981,121
Stockholders' equity (deficit):
Common stock, no par value, unlimited shares
authorized, 17,243,044 shares issued and
outstanding (14,567,944 in 1995) 12,203,065 11,304,356
Common stock warrants 433,897 278,085
Accumulated deficit (12,933,837) (11,357,978)
---------------- ---------------
Total stockholders' equity (deficit) (296,875) 224,463
---------------- ---------------
Total liabilities and stockholders'
equity (deficit) $ 571,890 $1,205,584
================ ===============
See accompanying notes.
F.3
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. Dollars)
Twelve Months Ended
December 31,
---------------------------------
1996 1995
--------------- ---------------
Revenues:
Sales of products and services $ 1,271,933 $ 1,342,406
Other revenues 58,702 226,404
--------------- ---------------
Total revenues: 1,330,635 1,568,810
Expenses:
Cost of products and services 509,248 511,654
Research and development 1,014,966 1,063,054
Selling, general and administrative 1,425,484 1,661,904
---------------- ----------------
2,949,698 3,236,612
---------------- ----------------
Loss from operations (1,619,063) (1,667,802)
Interest income 18,367 29,802
Other income and expense 24,837 (10,682)
---------------- ----------------
Net loss $(1,575,859) $(1,648,682)
================ ================
Net loss per common share $ (0.10) $ (0.12)
================ ================
Weighted average number of shares
used in computing per
share amounts 16,058,994 13,255,616
================ ================
See accompanying notes.
F.4
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. dollars)
<TABLE>
<CAPTION>
Common Stock
-------------------------- Common Stock Accumulated
Shares Amount Warrants Deficit Total
------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,781,522 $ 9,000,711 $ - $ (9,709,296) $ (708,585)
Net loss for the year (1,648,682) (1,648,682)
Private placement financing,
net of issuance costs
of $201,722 4,786,422 2,303,645 278,085 - 2,581,730
------------ ------------- ------------- ------------ -----------
Balance at December 31, 1995 14,567,944 $11,304,356 $ 278,085 $(11,357,978) $ 224,463
Net loss for the year - - (1,575,859) (1,575,859)
Exercise of stock options 100 48 - - 48
Private placement financing,
net of issuance costs
of $152,156 2,675,000 898,661 155,812 - 1,054,473
------------ ------------- ------------- ------------- ----------
Balance at December 31, 1996 17,243,044 $12,203,065 $ 433,897 $(12,933,837) $(296,875)
============ ============= ============= ============= ==========
</TABLE>
See accompanying notes.
F.5
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars)
Years ended December 31,
-------------------------------
1996 1995
-------------- -------------
Cash flows from operating activities:
Net loss $(1,575,859) $(1,648,682)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 61,139 88,533
Loss on disposal of property and equipment 4,046 -
Gain on lease abandonment (62,538) -
Interest accrued on bridge loan - 4,777
Change in assets and liabilities:
Trade receivables 200,630 (52,747)
Inventories 40,066 (69,854)
Other assets (20,854) 4,025
Accounts payable 52,357 (105,221)
Accrued liabilities and deferred rent (16,956) 52,049
Deferred revenue (174,386) 174,386
Deferred compensation - (81,083)
Deferred rent and related costs 103,183 (64,347)
--------------- --------------
Total adjustments 186,687 (49,482)
--------------- --------------
Net cash used in operating activities (1,389,172) (1,698,164)
Cash flows from investing activities:
Purchase of property and equipment (61,061) (22,187)
--------------- --------------
Net cash used in investing activities (61,061) (22,187)
Cash flows from financing activities:
Exercise of stock options 48 -
Net proceeds from issuance of common stock
and warrants 1,054,473 2,280,622
Repayments on capital lease obligation (14,016) (18,845)
--------------- --------------
Net cash provided by financing activities 1,040,505 2,261,777
--------------- --------------
Net increase (decrease) in cash (409,728) 541,426
Cash and cash equivalents, beginning of period 620,720 79,294
--------------- --------------
Cash and cash equivalents, end of period $ 210,992 $ 620,720
=============== ==============
Supplemental disclosure of noncash financing activities:
Conversion of deferred compensation to
common stock and warrants $ - $ 33,000
Conversion of accounts payable to
common stock and warrants - 10,300
Conversion of bridge loan to
common stock and warrants - 257,808
Common stock and common stock warrants
issued in exchange for financing services 129,539 118,403
See accompanying notes.
F.6
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Description of the Business
Glyko Biomedical Ltd. (the Company) is a Canadian company which was
established in 1992 to acquire all of the outstanding capital stock of
Glyko, Inc., a Delaware corporation. The Company, through its
wholly-owned subsidiary Glyko, Inc., is developing new techniques to
analyze and manipulate carbohydrates for research, diagnostic and
pharmaceutical purposes. The Company has developed a product line of
laboratory instruments and chemical kits, referred to as analytic
products, which are used in carbohydrate analysis. Shipments of these
products began in December 1992. The Company is also developing certain
carbohydrate diagnostic products. In October, 1996, the Company formed
BioMarin Pharmaceutical, Inc., a Delaware corporation, to develop the
Company's pharmaceutical products.
Since its inception, the Company has incurred cumulative losses of
$12,933,837 and expects to continue to incur losses. The Company does
not have sufficient cash to fund planned 1997 operations. These factors
raise substantial doubt about the Company's ability to continue as a
going concern. In December 1992, the Company successfully completed an
initial public offering on the Toronto Stock Exchange. Since that time,
the Company has maintained liquidity by utilizing the proceeds of that
offering, by utilizing the proceeds of private equity placements in both
the second quarter of 1995 and the second quarter of 1996, by using cash
flow from operations, and by drawing upon a bridge loan from a
stockholder. To continue as a going concern the Company must maintain
its current sales level and seek additional funding. Such funding may
come individually or collectively from stock issuances, licensing and
marketing agreements or by collaborative research agreements with
strategic partners. On March 21, 1997, the Company closed a $2.0 million
(Canadian) financing offering to fund the start-up of BioMarin
Pharmaceutical, Inc. (see Footnote 10). There can be no assurance that
additional funding will be obtained. If adequate funding is not
obtained, operations may be adversely affected.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements and related footnotes
have been prepared in conformity with U.S. generally accepted accounting
principles using U.S. dollars. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary
Glyko, Inc. All significant intercompany accounts and transactions have
been eliminated. Certain balances in the prior years have been
reclassified to conform with the current year presentation.
Use of Estimates:
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions. Actual results could differ from
those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents consist of amounts held with banks and
short-term investments with original maturities of 90 days or less.
Inventories:
Inventories consist of raw materials, analytic kits, and instrument-based
systems held for sale. Inventories are stated at the lower of cost
(first-in, first-out method) or estimated market value. The components of
inventories are as follows:
December 31,
1996 1995
----------------- ----------------
Raw materials $62,925 $41,768
Finished products 5,527 66,750
----------------- ----------------
$68,452 $108,518
================= ================
F.7
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. The cost and
accumulated depreciation for property, plant and equipment sold, retired,
or otherwise disposed of are relieved from the accounts, and the
resulting gains or losses are reflected in the consolidated statements of
operations. Depreciation is computed using the straight-line method over
the following estimated useful lives:
Office furniture 5 years
Computer equipment 3 years
Lab and production equipment 5 years
Depreciation relating to equipment used in research and development
activities is included in research and development expense in the
consolidated statements of operations.
Foreign Exchange:
As all of the Company's operations are located in the United States, the
Company has adopted the U.S. dollar as its functional currency. In
accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation", assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year end and revenues and expenses are translated at
the average monthly exchange rates. Transaction gains and losses included
in the consolidated statements of operations are not material.
Product Sales:
The Company recognizes product revenues and related cost of sales upon
shipment of products. Service revenues are recognized upon completion of
services as evidenced by the transmission of reports to customers. Other
revenues, principally licensing and distribution fees, are recognized
upon completion of applicable contractual obligations.
At times, the Company has received payment in advance for future product
shipments. Such payments are classified as deferred revenue on the
accompanying Balance Sheet. Upon shipment of products, revenue is
recognized and the corresponding liability (deferred revenue) is reduced.
Total revenues of $1,330,635 in 1996 and $1,568,810 in 1995 consisted
entirely of direct product sales, sales to distributors for resale,
analytical service fees and other revenues.
In 1996, revenues to three major customers (including two distributors)
were 14 percent, 14 percent, and 13 percent of total revenues
respectively. In 1995, net revenues (including sales and licensing fees)
to one distributor were 30 percent of total revenues.
In 1990, the Company entered into an agreement (the "Agreement") giving
one of its stockholders the exclusive right to market and distribute the
Company's analytic products for an initial period of six years from the
time the Company developed a commercially marketable product. During
1993, the Agreement was amended to grant the Company the non-exclusive
right to market and distribute the Company's analytic products in the
United States (direct product sales). In April 1994, the stockholder and
the Company agreed to terminate the Agreement. In exchange for
relinquishing its rights under the Agreement, the stockholder will
receive 500,000 shares of common stock, subject to regulatory approval.
In the third quarter of 1994 the Company recorded a charge to operations
of $219,811 for costs related to the termination of the Agreement. This
amount represents the estimated fair market value of stock to be issued
as a result of the termination of the Agreement. The Toronto Stock
Exchange has turned down the issuance of the 500,000 shares due to an
arms-length issue and requires that an independent valuation be performed
in order to reconsider the issuance of these shares. No such valuation
has been performed to date.
F.8
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes:
In 1992 the Company adopted FASB Statement No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income.
Net Loss Per Common Share:
Net loss per common share is computed based on the weighted average
number of shares outstanding during each period.
Adoption of Accounting Pronouncements:
The Company adopted SFAS No. 121, " Accounting for the Impairment of
Long-Lived Assets and for the Long-Lived Assets to be Disposed of"
beginning January 1, 1996. The Company also adopted SFAS No. 123,
"Accounting for Stock-Based Compensation" beginning January 1, 1996. The
adoption of these pronouncements did not have a material impact on the
financial statements of the Company taken as a whole.
3. Property, Plant and Equipment
Property, plant and equipment at December 31, 1996 and 1995 consisted of
the following:
December 31,
1996 1995
---------------- ----------------
Lab equipment $282,468 $242,349
Computer equipment 212,330 195,672
Production equipment 42,095 42,095
Office furniture 18,069 18,069
Leasehold improvement 8,554 8,554
---------------- ----------------
563,516 506,739
---------------- ----------------
Less accumulated
depreciation 455,471 394,570
---------------- ----------------
Property, plant and
equipment, net $108,045 $112,169
================ ================
F.9
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Income Taxes
The Company's deferred tax asset at December 31, 1996 and 1995 is:
December 31,
1996 1995
---------------- ----------------
Net operating loss carryovers $ 5,167,000 $ 4,313,000
Research and development expenses
capitalized for tax purposes 151,000 205,000
Research and development
credit carryovers 524,000 490,000
Issue cost carryovers 152,000 216,000
Other temporary differences (258,000) (248,000)
---------------- ----------------
5,736,000 4,976,000
Valuation allowance (5,736,000) (4,976,000)
---------------- ----------------
Net deferred tax asset $ -- $ --
================ ================
Total U.S. federal and state net tax operating loss carryforwards as of
December 31, 1996 are approximately $12,293,000 and $5,430,000,
respectively. Federal operating loss carryforwards expire from 2006 to
2011 and state operating loss carryforwards expire from 1997 to 2001. The
Company also has federal and state research and development credit
carryovers of $524,000 which expire from 2007 to 2010. For Canadian
income tax purposes, the Company has net operating loss carryforwards of
approximately $1,084,000 which expire from 1999 to 2002. Under current
U.S. tax law, future changes in ownership of the Company may limit the
utilization of U.S. net operating loss and credit carryforwards.
5. Bridge Loan
In the fourth quarter of 1994 the Company drew upon a bridge loan
facility from one of its stockholders in the amount of $250,000. This
bridge loan and accrued interest incurred thereupon were converted into
400,748 units, consisting of one share of common stock and one warrant to
purchase one share of common stock, in the second quarter of 1995.
6. Commitments
The Company leases its facilities, and office and other equipment under
agreements that expire at various dates through 2000.
The Company leased its facilities from one of its stockholders. The
Company had negotiated payment deferrals for rent payments and related
facility charges under this agreement.
In October, 1996, the company notified the lessor that the lease would be
abandoned in January, 1997. Subsequent to year-end, the lessor claimed
$269,718 in deferred rent and related costs related to the period prior
to December 31, 1996. While the Company does not believe that the
lessor's claim is valid and does not agree with the amount claimed by the
lessor, the amount has been accrued and is reflected on the balance sheet
at December 31, 1996. Management does not believe the Company will be
held responsible for continuing lease obligations and, as such, no
additional amounts have been accrued as of December 31, 1996.
The Company recognized rental expense under the agreement on a
straight-line basis calculated over the full term of the sublease
agreement. The difference between cumulative rental payments under the
original lease agreement and rental expense was classified as a
non-current liability at December 31, 1995. As a result of the
abandonment subsequent to year-end, the remaining deferred rent balance
at December 31, 1996 of $62,538 was written off against selling, general
and administrative expenses.
F.10
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate minimum annual rental commitments under operating leases
(excluding the abandoned lease) are as follows:
Years ending December 31,
---------------------------------------
1997 $105,802
1998 115,692
1999 125,582
2000 34,559
2001 and thereafter --
---------------
$381,635
===============
Rent expense was $274,284 in 1996 and $226,668 in 1995.
7. Stockholders' Equity
In December 1992, the Company completed an initial public offering of
2,881,601 shares of its common stock on the Toronto Stock Exchange. In
connection with that offering, 6,030,428 common shares held by the
founders of the Company were placed on deposit with a trustee.
The trustee will release the escrowed shares to the founders as follows:
a) 10 percent immediately after nine months following the date of the
public offering; b) 20 percent immediately after each of the first,
second and third anniversary dates following the date of the first
release of shares and c) the remaining 30 percent immediately after the
fourth anniversary date thereafter. As of December 31, 1996 1,809,124 of
the escrowed shares remained on deposit with a trustee.
In the second quarter of 1995, the Company closed a private equity
placement offering (the Q295 Financing). Investors participating in the
Q295 Financing purchased units which consisted of one share of common
stock and one warrant to purchase one share of common stock. The Company
issued units in exchange for cash, and also in exchange for the
settlement of certain outstanding liabilities. The units were priced at
Cdn. $0.80 with an exercise price on the warrant of Cdn. $0.90. The
Company established a balance sheet value for the 4,786,422 common stock
warrants issued in the Q295 Financing by subtracting the discounted fair
market value for one share of the Company's common stock from the price
of one unit. The common stock warrants expire in 2000. The Financing
raised approximately $2.78 million, consisting of approximately $2.36
million in cash and $420,000 for the settlement of a stockholder/director
bridge loan, common stock issued for financing services and certain other
liabilities.
During the second quarter of 1996, the Company closed a second private
equity placement offering (the Q296 Financing). Investors participating
in the Q296 Financing purchased 2.5 million units each consisting of one
share of common stock and one half of a two year warrant. One warrant is
required to purchase one share of common stock. The units were priced at
Cdn. $0.60 with an exercise price on the warrant of Cdn. $0.80. The Q296
Financing raised approximately $1.077 million. An additional 175,000
units and 250,000 warrants valued at approximately $130,000 were
distributed to brokers in exchange for services rendered in connection
with the Q296 Financing. The Company utilized the Black-Scholes model to
value the 1,587,500 warrants issued in the Q296 Financing at
approximately $156,000.
F.11
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Option Plan
The Company has a stock option plan (the Plan) under which options to
purchase common stock may be granted by the Board of Directors to
directors, officers, consultants and key employees at not less than fair
market value, less any permissible discounts, on the date of grant.
Options granted under the Plan may be incentive stock options (as defined
under Section 422 of the U.S. Internal Revenue Code) or non-statutory
stock options. Options are exercisable over a number of years specified
at the time of the grant which cannot exceed ten years. The maximum
aggregate number of shares which may be optioned and sold under the Plan
is 3,000,000 shares.
The Company accounts for the Plan under APB Opinion No. 25, under which
no compensation cost has been recognized because, under the Option Plan,
the option exercise price equals the market value of stock on the date of
grant. The Plan options vest over 48 months and all options expire after
5 years or 90 days after employee termination.
Had compensation cost for the Plan been determined consistent with FASB
Statement No. 123, the Company's net loss would have been increased to
the following pro forma amounts:
1996 1995
Net loss As reported $(1,575,859) $(1,648,682)
Pro forma $(1,644,687) $(1,674,068)
Net loss per As reported $(0.10) $(0.12)
common share Pro forma $(0.10) $(0.13)
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
A summary of the status of the Company stock option plan at December 31,
1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Shares Wtd avg ex Shares Wtd avg ex
price (2) price
<S> <C> <C> <C> <C> <C>
Outstanding beginning
of year 2,204,879 Cdn. $ 1.39 1,434,300 Cdn. $1.79
Granted (1) 118,000 Cdn. $ 0.55 839,109 Cdn. $0.76
Exercised (100) Cdn. $ 0.60 --- ---
Canceled (68,182) Cdn. $ 0.88 (68,530) Cdn. $2.09
Outstanding at end of ---------- ---------
year 2,254,597 Cdn. $1.36 2,204,879 Cdn. $1.39
Exercisable at end of year 1,965,086 1,210,797
Weighted average fair
value of options granted Cdn. $0.22 Cdn. $0.36
<FN>
(1) In 1996, includes 100,000 options issued to a consultant with a
fair value of $0.26 per option excluded from pro forma net loss
and pro forma net loss per common share.
(2) The US$ equivalent of Canadian $1.00 at December 31, 1996 was
approximately $0.7329.
</FN>
</TABLE>
There are 745,303 options available for grant under the plan at
December 31, 1996.
F.12
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995,
respectively: risk-free weighted average interest rates of 5.3 and 5.8
percent; expected dividend yield of zero percent; expected life of 4 years
for the Plans' options; expected volatility of 87 percent.
9. Related Party Transactions
The Company has entered into certain transactions with its stockholders
since its inception. These transactions include the purchase of supplies
and equipment and rental of the Company's facilities. Total costs of
these transactions for the years ended December 31, 1996 and 1995 were
approximately $274,284 and, $260,232, respectively. By agreement with its
stockholder the Company has deferred payments on certain facilities
charges. Deferred facilities charges were $269,718 at December 31, 1996
and $166,535 at December 31, 1995.
10. Subsequent Events
On February 17, 1997, the Company entered into a diagnostic distribution
agreement which generated a one-time fee of $250,000 received on February
21, 1997. This agreement will increase the sales territory of the
Company's products.
On March 21, 1997, the Company closed a $2.0 million (Canadian) financing
to fund the start-up of BioMarin Pharmaceutical, Inc. which was formed to
develop the Company's pharmaceutical products. As a result of this
financing, the Company issued 4,000,000 units at Cdn. $0.50 per unit, each
unit consisting of one common share and one common share purchase warrant.
Each warrant can be exercised for one share of common stock at Cdn. $1.00
per share, expiring on March 21, 1999.
F.13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Location in Form 10-KSB
10.1 Commercial Lease Agreement between
Registrant and Douglas Kaye
dated December 23, 1996 Page 33
27.1 Financial Data Schedules at
December 31, 1996
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
COMMERCIAL LEASE AND DEPOSIT RECEIPT
RECEIVED FROM Glyko, Inc., A California Corporation, hereinafter referred to as
LESSEE, the sum of $XXX (XXX dollars), evidenced by a check, as a deposit which
shall belong to Lessor and shall be applied as follows: Rent for the period from
2/1/97 to 2/28/97 $XXX, Security deposit (not applicable toward last month's
rent) $XXX. TOTAL RECEIVED $XXX. In the event this Lessee is not accepted by the
Lessor within 5 days, the total deposit received will be refunded. Lessee offers
to lease from Lessor the premises situated in he City of Novato, County of
Marin, State of CA, described as 11 Pimental Ct. (XXX sf office) and 13 Pimental
Ct. (XXX sf whse.) upon the following terms and conditions: TERM: The term will
commence on February 1, 1997, and end on March 31, 2000. RENT: The XXX rent will
be $XXX, payable as follows: XXX. All rents will be paid to Lessor, or his/her
agent, at the following address: XXX, or at such other places as may be
designated by Lessor from time to time. In the event rent is not paid within 10
days after due date, Lessee agrees to pay a late charge of $XXX plus interest at
XXX% per annum on the delinquent amount. Lessee further agrees to pay $XXX for
each dishonored bank check. The late charge period is not a grace period, and
Lessor is entitled to make written demand for any rent if not paid when due.
USE: The premises are to be used for the operation of Biomedical Laboratory and
associated office use, and for no other purpose, without prior written consent
of Lessor. Lessee will not commit any waste upon the premises, or any nuisance
or act which may disturb the quiet enjoyment of any tenant in the building. USES
PROHIBITED: Lessee will not use any portion of the premises for purposes other
than those specified. No use will be made or permitted to be made upon the
premises, nor acts done, which will increase the existing rate of insurance upon
the property, or cause cancellation of insurance policies covering the property.
Lessee will not conduct or permit any sale by auction on the premises.
ASSIGNMENT AND SUBLETTING: Lessee will not assign this Lease or sublet any
portion of the premises without prior written consent of the Lessor, which will
not be unreasonably withheld. Any such assignment or subletting without consent
will be void and, at the option of the Lessor, will terminate this Lease.
ORDINANCES AND STATUTES: Lessee will comply with all statutes, ordinances, and
requirements of all municipal, state and federal authorities now in force, or
which may later be in force, regarding the use of the premises. The commencement
or pendency of any state or federal court abatement proceeding affecting the use
of the premises will, at the option of the lessor, be deemed a breach of the
Lease. MAINTENANCE, REPAIRS, ALTERATIONS: Unless otherwise indicated, Lessee
acknowledges that the premises are in good order and repair. Lessee shall, at
his/her own expense, maintain the premises in a good and safe condition,
including plate glass, electrical wiring, plumbing and heating and air
conditioning installations, and any other system or equipment. The premises will
be surrendered, at termination of the Lease, in as good condition as received,
normal wear and tear excepted. Lessee will be responsible for all repairs
required, except the following which will be maintained by Lessor: roof,
exterior walls, structural foundations (including any retrofitting required by
governmental authorities) and: Parking lot and driveways. Lessor will also
maintain in good condition the landscaping subject to 100% reimbursement from
Lessee. No improvement or alteration of the premises will be made without the
prior written consent of the Lessor. Prior the commencement of any substantial
repair, improvement, or alteration, Lessee will give lessor at least two (2)
days written notice in order that Lessor may post appropriate notices to avoid
any liability for liens. ENTRY AND INSPECTION: Lessee will permit Lessor or
Lessor's agents to enter the premises at reasonable times and upon reasonable
notice for the purpose of inspecting the premises, and will permit Lessor, at
any time within sixty (60) days prior to the expiration of the Lease, to place
upon the premises any usual "For Lease" signs, and permit persons desiring to
lease the premises to inspect the premises at reasonable times. INDEMNIFICATION
OF LESSOR: Lessor will not be liable for any damage or injury to Lessee, or any
other person, or to any property, occurring on the premises. Lessee agrees to
hold Lessor harmless from any claims for damages arising out of Lessee's use of
the premises, and to indemnify Lessor for any expense incurred by lessor in
defending any such claims. POSSESSION: If Lessor is unable to deliver possession
of the premises at the commencement date set forth above, Lessor will not be
liable for any damage caused by the delay, nor will this Lease be void or
voidable, but Lessee will not be liable for any rent until possession is
delivered. Lessee may terminate this Lease if possession is not delivered within
30 days of the commencement term in item 1. LESSEE'S INSURANCE: Lessee, at
his/her expense will maintain plate glass, public liability, and property damage
insurance insuring Lessee and lessor with minimum coverage as follows: XXX.
Lessee will provide Lessor with a Certificate of Insurance showing Lessor as
additional insured. The policy will require ten (10) day's written notice to
Lessor prior to cancellation or material change of coverage. LESSOR'S INSURANCE:
Lessor will maintain hazard insurance covering one hundred percent (100%) actual
cash value of the improvements throughout the Lease term. Lessor's insurance
will not insure Lessee's personal property, leasehold improvements, or trade
fixtures. SUBROGATION: To the maximum extent permitted by insurance policies
which may be owned by the parties, Lessor and Lessee waive any and all rights of
subrogation which might otherwise exist. UTILITIES: Lessee agrees that he/she
will be responsible for the payment of all utilities, including water, gas,
electricity, heat and other services delivered to the premises. SIGNS: Lessee
will not place, maintain, nor permit any sign or awning on any exterior door,
wall, or window of the premises without the express written consent of Lessor,
which will not be unreasonably withheld. ABANDONMENT OF PREMISES: Lessee will
not vacate or abandon the premises at any time during the term of this Lease. If
Lessee does abandon or vacate the premises, or is dispossessed by process of
law, or otherwise, any personal property belonging to Lessee left on the
premises will be deemed to be abandoned, at the option of Lessor. CONDEMNATION:
If any part of the premises is condemned for public use, and a part remains
which is susceptible of occupation by Lessee, this Lease will, as to the part
taken, terminate as of the date the condemnor acquires possession. Lessee will
be required to pay such
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
proportion of the rent for the remaining term as the value of the premises
remaining bears to the total value of the premises at the date of condemnation;
provided, however, that Lessor may at his/her option, terminate this Lease as of
the date the condemnor acquires possession. In the event that the premises are
condemned in whole, or the remainder is not susceptible for use by the Lessee,
this Lease will terminate upon the date which the Lessee will be entitled to
retain any amount awarded to him/her for his/her trade fixtures or moving
expenses. TRADE FIXTURES: Any and all improvements made to the premises during
the term will belong to the Lessor, except trade fixtures of the Lessee. Lessee
may, upon termination, remove all his/her trade fixtures, but will pay for all
costs necessary to repair any damage to the premises occasioned by the removal.
DESTRUCTION OF PREMISES: In the event of a partial destruction of the premises
during the term, from any cause, Lessor will promptly repair the premises,
provided that such repairs can be reasonably made within sixty (60) days. Such
partial destruction will not terminate this Lease, except that Lessee will be
entitled to a proportionate reduction of rent while such repairs are being made,
based upon the extent to which the making of such repairs interferes with the
business of Lessee on the premises. If the repairs cannot be made within sixty
(60) days, This Lease may be terminated at the option of either party by giving
written notice to the other party within the sixty (60) day period. HAZARDOUS
MATERIALS: Lessee will not use, store, or dispose of any hazardous substances
upon the premises, except the use and storage of such substances that are
customarily used in Lessee's business, and are in compliance with all
environmental laws. Hazardous substances means any hazardous waste, substance or
toxic materials regulated under any environmental laws or regulations applicable
to the property. Lessee will be responsible for the cost of removal of any toxic
contamination cased by lessee's use of the premises. INSOLVENCY: The appointment
of a receiver, an assignment for the benefits of creditors, or the filing of a
petition in bankruptcy by or against Lessee, will constitute a breach of the
Lease by Lessee. DEFAULT: In the event of any breach of this Lease by Lessee,
Lessor may, at his/her option, terminate the Lease and recover from Lessee: (a)
the worth at the time of award of the unpaid rent which had been earned at the
time of termination; (b) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
the award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided: (C) the worth at the time of the award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided: and (d) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform his/her
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom.
Lessor may, in the alternative, continue this Lease in effect, as long
as Lessor does not terminate Lessee's right to possession, and Lessor may
enforce all of Lessor's rights and remedies under the Lease, including the right
to recover the rent as it becomes due under the Lease. If said breach of Lease
continues, Lessor may, at any time thereafter, elect to terminate the Lease.
These provisions will not limit any other rights or remedies which
Lessor may have.
SECURITY: The security deposit will secure the performance of the Lessee's
obligations. Lessor may, but will not be obligated to, apply all or portions
of the deposit on account of Lessee's obligations. Any balance remaining upon
termination will be returned to Lessee. Lessee
will not have the right to apply the security deposit in payment of the last
month's rent. DEPOSIT REFUNDS: The balance of all deposits will be refunded
within three weeks (or as otherwise required by law), from date possession is
delivered to lessor or his/her authorized agent, together with a statement
showing any charges made against the deposits by Lessor. ATTORNEY FEES: In any
action or proceeding involving a dispute between Lessor and Lessee arising out
of the Lease, the prevailing party will be entitled to reasonable attorney fees.
WAIVER: No failure of Lessor to enforce any term of the Lease will be deemed to
be a waiver. NOTICES: Any notice which either party may or is required to give,
will be given by mailing the notice, postage prepaid, to Lessee at the premises,
or to Lessor at the address shown in Item 2, or at such other places as may be
designated in writing by the parties from time to time. Notice will be effective
five days after mailing, or on personal delivery, or when receipt is
acknowledged in writing. HOLDING OVER: Any holding over after the expiration of
this Lease, with the consent of the Owner, will be a month-to-month tenancy at a
monthly rent of $XXX, payable in advance and otherwise subject to the terms of
this Lease, as applicable, until either party will terminate the tenancy by
giving the other party thirty (30) days written notice. TIME: Time is of the
essence of the Lease. HEIRS, ASSIGNS, SUCCESSORS: This Lease is binding upon and
inures to the benefit of the heirs, assigns, and successors of the parties. TAX
INCREASE: In the event there is any increase during any year of the term of the
Lease in real estate taxes over and above the amount of such taxes assessed for
the tax year during which the term of the Lease commences, Lessee will pay to
Lessor an amount equal to 100% of the increase in taxes upon the land and
building in which the leased premises are situated. In the event that such taxes
are assessed for a tax year extending beyond the term of the Lease, the
obligation of Lessee will be prorated. Lessee will not be responsible for any
tax increase occasioned solely by a sale or transfer of the premises by Lessor.
COST OF LIVING INCREASE: The rent provided for in Item 2 will bi adjusted
effective upon the first day of the month immediately following the expiration
of 12 months from date of commencement of the term, and upon the expiration of
each 12 months thereafter, in accordance with changes in the U.S. Consumer Price
Index for All Urban Consumers (1982-84=100) ("CPI"). The monthly rent will be
increased to an amount equal to the monthly rent set forth in Item 2, multiplied
by a fraction the numerator of which is the CPI for the second calendar month
immediately preceding the adjustment date, and the denominator or which is the
CPA for the second calendar month preceding the commencement of the Lease term;
provided, however, that the monthly rent will not be less than the amount set
forth in Item 2. AMERICANS WITH DISABILITIES ACT: The parties are alerted to the
existence of the Americans With Disabilities Act, which may require costly
structural modifications. The parties are advised to consult with a professional
familiar with the requirements of the Act. LESSOR'S LIABILITY: In the event of a
transfer of Lessor's title or interest to the property during the term of the
Lease, Lessee agrees that the grantee of such title or interest will be
substituted as the Lessor under this Lease, and the original Lessor will be
released of all further liability; provided, that all deposits will be
transferred to the grantee.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ESTOPPEL CERTIFICATE:
(a) On ten (10) days prior written notice from Lessor, Lessee will
execute, acknowledge, and deliver to Lessor a statement in
writing: (1) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in
full force and effect), the amount of any security deposit, and
the date to which the rent and other charges are paid in advance,
if any; and (2) acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor, or
specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective buyer or
encumbrancer of the premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time will be a material breach of this Lease or will
be conclusive upon Lessee; (1) that this Lease is in full force
and effect, without modification except as may be represented by
Lessor; (2) that there are no uncured defaults in Lessor's
performance; and (3) that not more than one month's rent has been
paid in advance.
(c) If Lessor desires to finance, refinance, or sell the premises, or
any part therof, Lessee agrees to deliver to any lender or buyer
designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or buyer. All financial
statements will be received by the Lessor or the lender or buyer
in confidence and will be used only for the purposes set forth.
ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the
parties and may be modified only in writing signed by all
parties. The following exhibits are a part of this Lease:
Addendum to Lease
Brokerage Disclosures
LESSEE: GLYKO, INC., A California Corporation
By: XXX
Its: XXX
Date: 12/23/96
LESSOR: XXX
By: XXX
Date: 12/23/96
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ADDENDUM TO LEASE
BY & BETWEEN
XXX
AND
GLYKO, INC., LESSEE
DATED: DECEMBER 20, 1996
1. Heating, Ventilating and Air Conditioning (HVAC)
Pursuant to section 7 of the lease Lessee shall be responsible to maintain
and repair the HVAC system in the Premises pursuant to manufacturer's
recommended maintenance schedule. In the event the HVAC compressors or
exchangers need to be repaired or replaced not due to Lessee's lack of
regularly scheduled HVAC maintenance, as described herein, Lessor shall be
responsible to repair or replace the compressors or exchangers at Lessor's
sole cost and expense. In the event the HVAC compressors or exchangers need
to be repaired or replaced and Lessee has not been maintaining or repairing
the HVAC system as described herein, or Lessee has modified the HVAC system
without Lessor's consent, Lessee shall be solely responsible to repair or
replace the compressors or exchangers as required, at Lessee's sole cost
and expense.
Upon the commencement date of this lease, Lessor represents to Lessee that
the building systems, including the HVAC, electrical, plumbing, lighting,
and structural elements of the building, are in good condition and repair.
Additionally, Lessor shall repair the warehouse roof on or before the lease
commencement date at Lessor's sole cost and expense.
2. Letter of Credit
This lease agreement is absolutely subject to the Lessee providing the
Lessor within 15 days of lease execution, a Letter of Credit in the amount
of XXX naming the lessor beneficiary of the Letter of Credit if Lessee
defaults under the terms and conditions of this lease agreement. So long
that Lessee has not been in default under any of the terms and conditions
of the lease the Letter of Credit will be reduced to XXX at the end of the
second year of the lease term. The Letter of Credit shall expire upon the
expiration of the lease term so long as Lessee has not been in default
under the terms and conditions of this lease.
Upon execution of this lease agreement, Lessee shall deposit with Lessor a
Security Deposit of XXX. Upon issuance of Letter of Credit, Lessor shall
return the Security deposit to Lessee.
3. Trailer
Lessee shall have the right to park a 10" x 20" trailer at the rear of the
parking lot fo storage of non-hazardous materials subject to the following:
The trailer shall conform with all codes and regulations, shall be a mobile
trailer not attached to the Premises and Lessee shall be responsible for
any taxes, fees or fines relating to Lessee's use and occupancy of the
trailer.
4. Consumer Price Index
Pursuant to section 32 of the lease agreement in no event shall the annual
Consumer Price Index rental adjustment exceed 5% per adjustment period.
5. Access to Premises
Upon execution of this lease Lessee shall have access to the Premises for
inspecting the Premises with its contractor, and for installing its
telephone and computer system, and for construction of tenant improvements
in warehouse only.
6. Subleases
Lessee shall have the right, and Lessor consents hereto, to sublease a
portion of the Premises to XXX.
7. Free Rent
So long as Lessee is not in default of any obligation of this lease, Lessee
shall have the socond (2nd) and thirteenth (13th) months of the lease term
rent free.
LESSOR: XXX LESSEE: GLYKO, INC., A CALIFORNIA CORPORATION
BY: XXX BY: XXX
ITS: XXX
DATE: 12/23/96 DATE: 12/23/96
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
PROPERTY: 11 & 13 Pimental Court, Novato, CA
HAZARDOUS MATERIALS WARNING: Current and future federal, state and local laws
and regulations may require the clean-up of such toxic, hazardous or undesirable
materials at the expense of those persons who in the past, present or future
have had any interest in the Property including, but not limited to, current,
past and future owners and users of the Property. Lessor and Lessee are advised
to consult with independent legal counsel of their choice or other expers, to
determine their potential liability.
AMERICANS WITH DISABILITIES ACT: On July 26, 1991, the federal legislation known
as the Americans with Disabilities Act (ADA) was signed into law. The purpose of
the ADA is to integrate persons with disabilities into the economic and social
mainstream of American life. Title III of the ADA applies to landlords and
tenants of "places of public accommodation" and "commercial facilities," and
requires that places of public accommodation undertake "readily achievable"
removal of communication and access barriers to the disables. This requirement
of Title III of the ADA is effective January 26, 1992. Lessor and Lessee should
seek expert advice regarding the implications of the Act as it affects this
agreement.
LIABILITY RELEASE: XXX , and its salespeople in this transaction have no
expertise regarding hazardous materials or the Americans with Disabilities Act.
Lessor and Lessee agree that they shall indemnify and hold XXX and its
salespeople harmless from any claim, liability, or expense regarding hazardous
materials or the ADA.
BROKER REPRESENTATION: XXX is the real estate broker for the Lessor and the
Lessee, and both parties consent hereto.
LESSOR: XXX LESSEE: Glyko, Inc.
By: XXX
Title: XXX
Date: 12/23/96 Date: 12/23/96
<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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