United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] 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 98-0195569
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., Suite 210, Novato, California 94949
(address of principal executive offices)
(415) 884-6700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 34,217,323 common shares
outstanding as of July 31, 2000.
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GLYKO BIOMEDICAL LTD.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets.................................................................2
Statements of Operations.......................................................3
Statements of Cash Flows.......................................................4
Notes to Financial Statements..................................................5
Item 2. Management's Discussion and Analysis.................................10
Item 3. Quantitative and Qualitative Disclosure about Market Risk............14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................15
Item 2. Changes in Securities................................................15
Item 3. Defaults upon Senior Securities......................................15
Item 4. Submission of Matters to a Vote of Security Holders..................15
Item 5. Other Information....................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................15
SIGNATURE.....................................................................16
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<TABLE>
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
GLYKO BIOMEDICAL LTD.
BALANCE SHEETS
(In U.S. dollars)
June 30, December 31,
2000 1999
------------------------ ------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,931,626 $ 574,648
------------------------ ------------------------
Total current assets 1,931,626 574,648
Investment in BioMarin Pharmaceutical Inc. 23,833,522 28,908,447
------------------------ ------------------------
Total assets $ 25,765,148 $ 29,483,095
======================== ========================
Liabilities and Shareholders' Equity
Current liabilities:
Accrued liabilities $ 413,051 $ 365,569
------------------------ ------------------------
Total current liabilities 413,051 365,569
------------------------ ------------------------
Shareholders' equity:
Common shares, no par value, unlimited shares
authorized, 34,154,323 and 31,835,322 shares
issued and outstanding at June 30, 2000
and December 31, 1999, respectively 22,321,124 20,772,469
Additional paid in capital 38,879,519 38,064,481
Common share warrants and options - 146,472
Note receivable from shareholder (746,637) (746,637)
Accumulated deficit (35,101,909) (29,119,259)
------------------------ ------------------------
Total shareholders' equity 25,352,097 29,117,526
------------------------ ------------------------
Total liabilities and shareholders' equity $ 25,765,148 $ 29,483,095
======================== ========================
The accompanying notes are an integral part of these statements.
</TABLE> 2
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GLYKO BIOMEDICAL LTD.
STATEMENTS OF OPERATIONS
(Unaudited, in U.S. dollars)
<TABLE>
Three months ended June 30, Six months ended June 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Expenses:
General and administrative $ 80,266 $ 66,088 $ 132,871 $ 133,002
---------------- ---------------- --------------- ---------------
Total expenses: 80,266 66,088 132,871 133,002
---------------- ---------------- --------------- ---------------
Loss from operations (80,266) (66,088) (132,871) (133,002)
Equity in loss of BioMarin Pharmaceutical Inc. (2,180,712) (2,804,902) (5,872,353) (4,523,934)
Interest income 14,715 111,967 22,574 153,208
---------------- ---------------- --------------- ---------------
Net loss $ (2,246,263) $ (2,759,023) $ (5,982,650) $ (4,503,728)
================ ================ =============== ===============
Net loss per common share, basic and diluted $ (0.07) $ (0.09) $ (0.18) $ (0.15)
================ ================ =============== ===============
Weighted average number of shares
used in computing per share amounts 34,145,910 31,485,870 33,532,196 30,478,824
================ ================ =============== ===============
The accompanying notes are an integral part of these statements.
3
</TABLE>
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GLYKO BIOMEDICAL LTD.
STATEMENTS OF CASH FLOWS
(Unaudited, in U.S. dollars)
<TABLE>
Six months ended June 30,
-----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,982,650) $ (4,503,728)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in the loss of BioMarin Pharmaceutical Inc. 5,872,353 4,523,934
Change in assets and liabilities:
Other assets - (116,680)
Accrued liabilities 47,482 (3,109)
----------------- ----------------
Total adjustments 5,919,835 4,404,145
----------------- ----------------
Net cash used in operating activities (62,815) (99,583)
----------------- ----------------
Cash flows from investing activities:
Investment in BioMarin Pharmaceutical Inc. - (4,300,000)
----------------- ----------------
Net cash used in investing activities - (4,300,000)
----------------- ----------------
Cash flows from financing activities:
Proceeds from the exercise of stock options and
common stock warrants 1,419,793 2,146,830
Repayment of note receivable - 100,000
----------------- ----------------
Net cash provided by financing activities 1,419,793 2,246,830
----------------- ----------------
Net increase (decrease) in cash 1,356,978 (2,152,753)
Cash and cash equivalents, beginning of period 574,648 2,567,824
----------------- ----------------
Cash and cash equivalents, end of period $ 1,931,626 $ 415,071
================= ================
The accompanying notes are an integral part of these statements.
4
</TABLE>
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
1. The Company and Description of the Business
Glyko Biomedical Ltd. (the Company or GBL), a Canadian company, was incorporated
in 1992 to acquire all of the outstanding capital stock of Glyko, Inc., a
Delaware corporation. Both entities were under common control and the share
exchange was accounted for in a manner similar to a pooling. Since its inception
in October 1990, Glyko, Inc. has been engaged in research, development,
manufacturing and marketing of new techniques to analyze and manipulate
carbohydrates for research, diagnostic and pharmaceutical purposes. Glyko, Inc.
has developed a line of analytic instrumentation laboratory products that
include an imaging system, analysis software and chemical analysis kits.
In October 1996, GBL incorporated BioMarin Pharmaceutical Inc. (BioMarin), a
Delaware corporation in the development stage, to develop the Company's
pharmaceutical products. BioMarin began business on March 21, 1997 and issued
1.5 million shares of common stock to GBL for $1.5 million. As consideration for
a certain license agreement dated June 1997, BioMarin issued GBL 7 million
shares of BioMarin common stock. Beginning in October 1997, BioMarin raised
capital from third parties with the result that at December 31, 1997, GBL's
ownership interest in BioMarin had been reduced to 41.3% of BioMarin's
outstanding capital stock. As of December 31, 1997, the Company began recording
its share of BioMarin's net loss utilizing the equity method of accounting.
On June 30, 1998, BioMarin raised net proceeds of $3.3 million (598,535 shares)
from a private placement including a $1.0 million investment from GBL. In
another private placement, on August 3, 1998, BioMarin raised an additional $8.1
million (1,416,800 shares) from third parties.
On September 4, 1998, BioMarin received $8 million from Genzyme Corp. (Genzyme)
upon execution of a joint venture agreement in which BioMarin issued 1,333,333
shares of common stock to Genzyme. BioMarin has a 50% interest in the income or
loss of this joint venture, BioMarin/Genzyme LLC.
On October 7, 1998, GBL sold to BioMarin 100% of the outstanding capital stock
of Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's common stock, the
assumptions of options, previously issued to employees of Glyko, Inc., to
purchase up to 585,969 shares of GBL's common stock (exercisable into 255,540
shares of BioMarin common stock) and $500 in cash.
On April 13, 1999, GBL purchased BioMarin convertible notes in the amount of
$4.3 million, as part of BioMarin's $26 million convertible note financing.
In May 1999, BioMarin's wholly-owned subsidiary, Glyko, Inc., acquired key
assets of the Biochemical Research Reagent Division of Oxford GlycoSciences Plc.
The acquisition was made to increase Glyko, Inc.'s product offerings and was
valued from $1.5 million to $2.1 million, depending on the future sales of the
acquired products, and was accounted for as a purchase.
On July 23, 1999, BioMarin closed its initial public offering (IPO) of 4.5
million shares at $13.00 per share concurrent with a $10 million private
placement from Genzyme, at the IPO price, raising net proceeds of approximately
$61.9 million. Additionally, BioMarin's convertible notes payable (including
interest accrued) were converted into 2,672,020 shares of BioMarin's common
stock at $10.00 per share. GBL's $4.3 million convertible note plus interest of
$119,110 was converted to 441,911 shares of BioMarin's common stock.
In August 1999, the BioMarin underwriters exercised their over-allotment option
for 675,000 shares at BioMarin's IPO price of $13 per share, raising additional
net proceeds of $8.1 million. GBL's percentage ownership of BioMarin's
outstanding common stock was 32.0% on June 30, 2000.
5
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GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
Since its inception, GBL has incurred a cumulative deficit of $35.1 million and
the Company expects to continue to incur losses through 2002 due to its share of
BioMarin's net loss resulting from the ongoing research and development of
BioMarin's pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc. on October 7, 1998, GBL has no operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investment in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations which are of limited scope and
cost for at least two years. BioMarin had an accumulated deficit of $62 million
at June 30, 2000 and is expected to incur significant losses at least through
2002. Management of BioMarin believes that the proceeds from the convertible
notes and the net proceeds of approximately $70.0 million from the initial
public offering (including underwriters' exercise of over-allotment) and the
concurrent Genzyme closing will be sufficient to meet its obligations at least
through mid-2001. Management of GBL believes that at June 30, 2000 there has not
been any impairment of its investment in BioMarin.
The accompanying financial statements should be read in conjunction with the
Company's annual report on form 10-KSB for the fiscal year ended December 31,
1999.
2. Summary of Significant Accounting Policies
The accompanying financial statements and related footnotes have been prepared
in conformity with U.S. generally accepted accounting principles using U.S.
dollars as essentially all of the Company's operations were located in the
United States. For the three and six month periods ended June 30, 2000 and 1999,
the operations of Glyko, Inc. have been consolidated into the operations of
BioMarin. The results of operations of BioMarin have been reported in the
Company's financial statements for the three and six month periods ended June
30, 2000 and 1999, based on the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated.
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 that effect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. 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.
Sale of Glyko, Inc. and Investment in BioMarin Pharmaceutical Inc.:
BioMarin acquired Glyko, Inc. from GBL through the exchange of BioMarin stock
for Glyko, Inc. stock and accounted for the acquisition based upon the fair
market value of the BioMarin stock issued (using the same per share price as
used in a recent arms-length transaction), the assumption of responsibility for
certain stock options previously issued to Glyko, Inc. employees (see Note 1),
and $500 in cash. In consolidating Glyko, Inc., BioMarin recorded intangible
assets, including goodwill, to the extent that the fair market value of the
stock issued exceeded the fair market value of the tangible assets of Glyko,
Inc. GBL recorded the stock of BioMarin received at the historical cost basis of
its investment in Glyko, Inc. GBL accounts for its investment in BioMarin using
the equity method of accounting. However, as it has not recorded its investment
in BioMarin at fair market value, it does not record its share of the losses
recorded by BioMarin related to the amortization of intangible assets recorded
on the acquisition of Glyko, Inc.
6
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
During the three and six month periods ended June 30, 2000, BioMarin recorded a
charge to operations of $271,274 and $542,548, respectively, in connection with
its purchase of Glyko, Inc. for the amortization of goodwill and other
intangible assets, which are being amortized over ten years. In recording its
share of BioMarin's loss for this period, GBL excluded its share of the
amortization of goodwill and other intangible assets.
As of June 30, 2000, GBL's percentage share of BioMarin's outstanding capital
stock was 32.0%. The exercise of BioMarin options or warrants will result in a
reduction of GBL's ownership percentage and future fundraising efforts of
BioMarin may result in a similar reduction of GBL's ownership percentage. To the
extent that the issuance of common stock by BioMarin to third parties at a per
share price greater than or less than the per share carrying value of GBL's
investment in BioMarin, the resulting gain or loss is reflected as an increase
or decrease, respectively, in additional paid in capital in the accompanying
balance sheets. Due to the issuance by BioMarin of its common stock upon the
exercise of common stock options, GBL recorded an increase to its Investment in
BioMarin and Additional Paid-in-Capital accounts of $797,429 during the six
month period ended June 30, 2000, respectively.
Accrued Liabilities:
During 1994, the Company recorded a charge to operations of $219,811 related to
the termination of an agreement with one of its shareholders. This charge was
the estimated fair value of 500,000 shares of common stock to be received by the
shareholder in settlement of the agreement. The Toronto Stock Exchange has not
permitted the issuance of the 500,000 shares because the transaction is not
considered arms length. The shareholder was a shareholder in the Company from
1990 until April 1998. At June 30, 2000 the liability of $219,811 is included in
accrued liabilities in the accompanying balance sheets.
Net Loss per Share:
Potentially dilutive securities outstanding at June 30, 2000 and 1999,
respectively, include options for the purchase of 207,500 and 339,560 shares of
common stock and warrants for the purchase of none and 2.5 million shares of
common stock, respectively. These securities were not considered in the
computation of dilutive loss per share because their effect would be
anti-dilutive for the six-month periods ended June 30, 2000 and 1999.
Reclassifications:
Certain balances in prior periods have been reclassified to conform with the
current period presentation.
7
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
3. Investment in BioMarin Pharmaceutical Inc.
Results of the Company's unconsolidated affiliate, BioMarin, a development stage
company, are summarized as follows for the six-month periods ended June, 2000
and 1999 and for the period from March 21, 1997 (inception) to June 30, 2000 ($
Thousands):
<TABLE>
Period from
Six Month Ended March 21, 1997
June 30, (Inception), to
------------------------------------- June 30,
1999 2000 2000
----------------- ------------------ --------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues:
Revenues - products $ 529 $ 1,087 $ 2,626
Revenues - services 78 168 365
Revenues from BioMarin/Genzyme LLC 1,904 5,126 11,263
Revenues - other 151 - 293
----------------- ------------------ --------------------
Total revenues 2,662 6,381 14,547
Operating Costs and Expenses:
Cost of products 117 292 703
Cost of services 38 53 214
Research and development 10,431 16,580 56,202
Selling, general and administrative 2,804 4,186 15,437
Carson Street closure - 4,423 4,423
----------------- ------------------ --------------------
Total operating costs and expenses 13,390 25,534 76,979
Loss from operations (10,728) (19,153) (62,432)
Interest income 453 1,590 4,172
Interest expense (561) (4) (736)
Loss from BioMarin/Genzyme LLC (555) (1,255) (2,975)
----------------- ------------------ --------------------
Net loss $(11,391) $ (18,822) $ (61,971)
================= ================== ====================
For the periods presented above, GBL's equity in loss of BioMarin was as follows ($ Thousands):
$ (4,524) $ (5,872) $ (22,172)
================= ================== ====================
</TABLE>
In the first quarter of 2000, BioMarin recorded a provision of $4.4 million for
the closure of its Carson Street clinical manufacturing facility. The facility
was no longer required for the production of Aldurazyme(TM), the initial purpose
of the plant, after a decision by the BioMarin/Genzyme LLC (joint venture) to
use BioMarin's Galli Drive facility for the manufacture of bulk Aldurazyme both
for the confirmatory Phase III trial and for the commercial launch of
Aldurazyme(TM). This decision was based in part on U.S. Food and Drug
Administration guidance to use an improved production process, which was
installed in the Galli facility, for the clinical trial and biologics license
application submission and for commercial production. The Carson Street facility
completed its final production lots in May. A majority of its technical staff at
the Carson Street facility in Torrance, California transfered to the Galli Drive
facility in Novato, California, which has significantly greater manufacturing
capacity. The provision primarily consisted of write-downs of leasehold
improvements and equipment located in the Carson Street facility.
8
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GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
4. Note Receivable
As part of its compensation for certain services, GBL issued stock options to a
consulting group. In September 1998, GBL loaned $100,000 to the consulting group
in anticipation that the Toronto Stock Exchange would approve the stock options.
In the first quarter of 1999, the options were approved by the Toronto Stock
Exchange and this note was repaid in full.
In November 1998, per the terms of the BioMarin acquisition of Glyko, Inc., GBL
loaned $712,261 to an officer of the Company to exercise expiring stock options.
The loan is secured by the stock and is a full recourse note. In May 2000, the
Board approved an extension of the shareholder note to mature in May 2001.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of financial condition and results of
operations contains certain forward looking statements within the meaning of
Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of
the U.S. Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties, such as statements regarding the Company's ongoing liquidity as
discussed in "Liquidity and Capital Resources." The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements. Risks are identified in "Overview, " "Results of Operations,"
"Liquidity and Capital Resources," and "Risk Factors."
Overview
Glyko Biomedical Ltd. (GBL or the Company) is a Canadian company that at June
30, 2000 owned 32.0% of the outstanding capital stock of BioMarin Pharmaceutical
Inc. (BioMarin). As of October 7, 1998, BioMarin owned 100% of the capital stock
of Glyko, Inc. Glyko, Inc. and BioMarin are operating companies based in
California. On October 7, 1998, BioMarin acquired Glyko, Inc., in a transaction
valued at $14.5 million. As consideration for the acquisition of all of the
outstanding shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common
stock to the Company, assumed Glyko, Inc.'s employee stock options exercisable
for 255,540 shares of BioMarin common stock, and paid $500 in cash. Glyko
Biomedical Ltd. consolidated the operations of Glyko, Inc. through October 7,
1998. Subsequent to October 7, 1998, the accounts of Glyko Biomedical Ltd. are
presented on a stand-alone basis. In this period the results of operations of
Glyko, Inc. have been consolidated into the results of operations of BioMarin.
BioMarin's results of operations are recorded by Glyko Biomedical Ltd. using the
equity method of accounting. Numerical references in the following discussion
are rounded to the nearest thousand.
Since its inception in October 1990, Glyko, Inc. has been engaged in the
research, development, manufacturing and marketing of new techniques to analyze
and manipulate carbohydrates for research, diagnostic and pharmaceutical
purposes. Glyko, Inc. has developed a line of analytic instrumentation
laboratory products that include an imaging system, analysis software and
chemical analysis kits. Glyko, Inc., as a wholly-owned subsidiary of BioMarin,
continues to develop additional chemical kits for use with the imaging system,
and is also developing a line of carbohydrate diagnostic products. In May 1999,
Glyko, Inc., acquired key assets of the Biochemical Research Reagent Division of
Oxford GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s
product offerings and was valued from $1.5 million to $2.1 million, depending on
the future sales of the acquired products and was accounted for as a purchase.
BioMarin is currently developing pharmaceutical products through its own
internal operations and through research grants with various universities.
BioMarin has completed its initial clinical trial of its lead enzyme replacement
product (Aldurazyme(TM)) for Mucopolysaccharidosis (MPS-I), a crippling and
fatal disease that afflicts young children. The initial clinical trial was
conducted under a Company Investigational New Drug (IND) application that
encompassed ten patients with all levels of severity of MPS-I. In April 1999,
BioMarin completed a twelve-month evaluation period for their initial clinical
trial of AldurazymeTM. Initiated in December 1997, this clinical trial treated
ten patients with MPS-I at five medical centers in the United States. BioMarin
is treating and monitoring these patients for an additional 12-month follow-up
period and, in collaboration with BioMarin's joint venture partner, Genzyme,
plans to initiate a Phase III Confirmatory Clinical Trial in mid-year 2000.
BioMarin intends to complete the filing of the biologics license application
(BLA) with the U.S. Food and Drug Administration (FDA) in 2001. BioMarin
received orphan drug designation for Aldurazyme(TM) in September 1997, allowing
BioMarin to market the product exclusively for seven years following FDA
approval if it is the first to gain such approval. BioMarin focuses on the
development of products in four therapeutic areas: genetic diseases, burn and
wound care, fungal infections and inflammation (initially psoriasis).
On April 13, 1999, GBL purchased BioMarin notes in the amount of $4.3 million,
as part of BioMarin's $26 million convertible note financing.
On July 23,1999, BioMarin closed its initial public offering (IPO) of 4.5
million shares at $13.00 per share concurrent with a $10 million private
placement (769,230 shares) from Genzyme, raising approximately $61.9 million.
Additionally, BioMarin's convertible notes payable were converted into 2,672,020
shares of BioMarin's common stock. GBL's $4.3 million convertible note plus
interest of $119,110 was converted to 441,911 shares of BioMarin's common stock.
10
<PAGE>
In August 1999, the underwriters exercised their over-allotment option for
675,000 shares at the IPO price of $13 per share, raising additional net
proceeds of $8.1 million. . GBL's ownership of BioMarin's outstanding common
stock was 32.0% on June 30, 2000.
The Company's net loss for the six-month periods ended June, 2000 and 1999 was
$5,983,000 and $4,504,000, respectively. The primary component of this loss was
the Company's share of the net loss of BioMarin accounted for under the equity
method of accounting. GBL expects to continue to incur losses through 2001 due
to its share of BioMarin's net loss resulting from BioMarin's ongoing research
and development of pharmaceutical product candidates including AldurazymeTM,
BM102 and a burn wound enzyme. The BioMarin losses do not have an impact on the
cash position of GBL. As a result of GBL's sale of Glyko, Inc., as of October 7,
1998, GBL has no operating activities and its principal asset is its investment
in BioMarin. BioMarin has an accumulated deficit of $62 million at June 30, 2000
and is expected to incur significant losses at least through 2002. Management of
BioMarin believes that the convertible note financing and the net proceeds of
approximately $70.0 million from the IPO (including underwriters' over-allotment
exercise) and the concurrent Genzyme closing will be sufficient to meet its
obligations through mid-2001. Management of GBL believes that at June 30, 2000
there has not been any impairment of its investment in BioMarin.
Results of Operations
The Quarters Ended June 30, 2000 and 1999
There were no revenues nor cost of revenues for the quarters ended June 30, 2000
and 1999 due to the sale of the Company's operating entity, Glyko, Inc. to
BioMarin in October 1998.
There were no research and development expenses for the quarters ended June 30,
2000 and 1999 due to the Company's sale of Glyko, Inc. to BioMarin in October
1998.
Selling, general and administrative expense was $80,000 for the quarter ended
June 30, 2000, an increase of $14,000 from selling, general and administrative
expenses of $66,000 incurred for the quarter ended June 30, 1999. The increase
was primarily due to the additional legal expenses in 2000 that did not occur in
1999. General and administrative expense for the quarters ended June 30, 2000
and 1999 represented management fees billed by BioMarin for management,
accounting, finance and government reporting, and legal and other outside
administrative support expenses.
Equity in loss of BioMarin for the quarter ended June 30, 2000 was $2,181,000
compared to $2,805,000 for the quarter ended June 30, 1999, a decrease of
$624,000.
Interest income earned for the quarters ended June 30, 2000 and 1999 of $15,000
and $112,000, respectively, resulted from earnings on cash invested in short
term interest bearing accounts. The decrease in interest income in the second
quarter 2000 compared to the same period in 1999 resulted from lower cash
balances available for investment due to the Company's investment in the
BioMarin convertible note financing of $4.3 million in April 1999. Interest
expense for the quarters ended June 30, 2000 and 1999 was immaterial.
The Six Months Ended June 30, 2000 and 1999
There were no revenues nor cost of revenues for the six months ended June 30,
2000 and 1999 due to the sale of the Company's operating entity, Glyko, Inc. to
BioMarin in October 1998.
There were no research and development expenses for the six months ended June
30, 2000 and 1999 due to the Company's sale of Glyko, Inc. to BioMarin in
October 1998.
11
<PAGE>
General and administrative expense were $133,000 for the six-month periods ended
June 30, 2000 and 1999. General and administrative expense for the quarters
ended June 30, 2000 and 1999 represented management fees billed to BioMarin for
management, accounting, finance and government reporting, and legal and other
outside administrative support expenses.
Equity in loss of BioMarin for the six months ended June 30, 2000 was $5,872,000
compared to $4,524,000 for the six months ended June 30, 1999, an increase of
$1,348,000. The increase was due to the increased net loss of BioMarin.
Interest income earned for the six months ended June 30, 2000 and 1999 of
$23,000 and $153,000, respectively, resulted from earnings on cash invested in
short term interest bearing accounts. The decrease in interest income in the
first half of 2000 compared to the same period in 1999 were the same as
described for the second quarter decrease in interest income.
Liquidity and Capital Resources
The Company's cash position increased by $1,357,000 in the first six months of
2000 to $1,932,000. Net cash proceeds of $1,420,000 relating to, primarily, the
issuance of common stock from the exercise of stock warrants and options were
partially offset by net cash used in operating activities of $63,000.
Since its inception, the Company has incurred a cumulative deficit of $35.1
million and GBL expects to continue to incur losses through 2002 due to its
share of BioMarin's net loss resulting from BioMarin's ongoing research and
development of pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc., as of October 7, 1998, GBL has no operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investments in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations, which are of limited scope and
cost for at least two years. BioMarin has an accumulated deficit of $62 million
at June 30, 2000 and is expected to incur significant losses at least through
2002. Management of BioMarin believes that the proceeds from the convertible
note financing, the net proceeds of approximately $70.0 million from the IPO
(including underwriters' exercise of over-allotment) and the concurrent Genzyme
closing will be sufficient to meet its obligations through mid-2001. Management
of GBL believes that at June 30, 2000 there has not been any impairment of its
investment in BioMarin. See "Risk Factors - Dependence on Investment in
BioMarin," "-History of Operating Losses - Uncertainty of Future Profitability."
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RISK FACTORS
Dependence on Investment in BioMarin
As of June 30, 2000, GBL's principal asset was its 32.0% ownership of BioMarin's
outstanding capital stock. GBL's success is dependent on the successful
operations of BioMarin including, but not limited to, BioMarin's ability to
receive FDA approval of existing and future pharmaceutical product candidates,
BioMarin's ability to retain key personnel, BioMarin's ability to manufacture
and market products effectively and successfully and BioMarin's ability to raise
additional cash to fund future operations. BioMarin is a development stage
company, with its only revenues currently being earned from the sale of its
analytic and diagnostic products resulting from the acquisition of Glyko, Inc.
and cost reimbursement revenues for services performed from its joint venture
with Genzyme for development and commercialization of Aldurazyme(TM).
History of Operating Losses - Uncertainty of Future Profitability
The Company's share of BioMarin's net loss resulted in the Company reporting a
net loss for the six-month period ended June 30, 2000 of $6 million. GBL expects
to continue to incur losses through 2002 due to its share of BioMarin's net loss
resulting from BioMarin's ongoing research and development of pharmaceutical
product candidates. As a result of GBL's sale of Glyko, Inc., as of October 7,
1998, GBL has no operating activities and its principal asset is its investment
in BioMarin. Accordingly, without further investments in other companies or
technologies, management believes that GBL has sufficient cash to sustain
planned operations. BioMarin has an accumulated deficit of $62 million at June
30, 2000 and is expected to incur significant losses at least through 2002.
Management of BioMarin believes that the proceeds from the convertible note
financing and the net proceeds of approximately $70.0 million from the IPO
(including underwriters' exercise of over-allotment) and the concurrent Genzyme
closing will be sufficient to meet its obligations through mid-2001. Management
of GBL believes that at June 30, 2000 there has not been any impairment of its
investment in BioMarin.
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Item 3: Quantitative and Qualitative Disclosure about Market Risk
GBL currently holds 11,367,617 shares of BioMarin's common stock representing
32.0% of BioMarin's outstanding common stock. Following the sale of Glyko, Inc.
in 1998, these securities represent substantially the only asset of GBL. These
securities have been acquired for investment purposes rather than for trading
purposes. The value of GBL's common stock may be substantially influenced by to
the value of BioMarin's common stock. Following BioMarin's IPO in July 1999,
BioMarin's common stock is traded on the NASDAQ and the Swiss Exchange (SWX New
Market). There are many risks associated with the listing of these securities on
two markets and with BioMarin's business itself. These risks are detailed in the
"Risk Factors" section above. GBL is subject to additional risks as its
investment portfolio is non-diversified. GBL does not hold substantially any
other securities other than the common stock of BioMarin.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
On May 30, 2000 we issued 12,833 shares of common stock to a European
corporation, upon exercise of a warrant previously issued in May of 1995. We
received total proceeds of Cn$11,549.70 upon exercise of this warrant. We issued
these securities under an exemption provided by Rule 903 of Regulation S under
the Securities Act Rules. We made no directed selling efforts of these
securities within the United States and we believe there is no Substantial U.S.
Market for our common stock as defined in Regulation S.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting, held on June 22, 2000, the Company's
shareholders took the following action:
(a) The following directors were nominated to serve until the next
Annual Meeting:
Vote
Director Elected For Against Withheld
---------------- --- ------- --------
John Klock 5,912,856 Nil Nil
Joerg Gruber 14,375,280 Nil Nil
Johannes Glaus 14,375,280 Nil Nil
John Kolada 14,375,280 Nil Nil
Urs Specker 14,375,280 Nil Nil
Jeffrey Trossman 14,375,280 Nil Nil
(b) Arthur Andersen LLP was appointed as the Company's auditors, by a vote of
20,288,136 shares in favor, no shares against, and no shares withheld.
There were 13,855,479 shares which abstained from all matters presented to the
meeting including broker non-votes.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report
See Exhibit Index attached hereto.
(b) Reports on Form 8K
No reports were filed on Form 8-K during the three months ended
June 30, 2000.
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SIGNATURE
In accordance with the requirements 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: August 14, 2000 By:
-------------------------- -----------------------------------------
Erich Sager
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit
Number Description
--------- -------------------
27.1 Financial Data Schedule (see Financial Data Schedule
attached hereto in EDGAR format only)
17
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