-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CSPpewYVK0ALDRuEu/b1nIBjOyjIRmur0IQTPSw0sVFJMhmqJpYGRzJr2sMeaqOW VFE07jqEqbEUb4Kmdk+4RA== 0000950115-97-001785.txt : 19971117 0000950115-97-001785.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950115-97-001785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 133549286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27718 FILM NUMBER: 97721311 BUSINESS ADDRESS: STREET 1: 102 WITMER RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 0-27718 NEOSE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3549286 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 102 Witmer Road, Horsham, Pennsylvania 19044 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 441-5890 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 9,517,504 shares of common stock, $.01 par value, were outstanding as of October 31, 1997. NEOSE TECHNOLOGIES, INC. (a development-stage company) INDEX
Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Balance Sheets at December 31, 1996 and September 30, 1997 (unaudited).................................. 3 Statements of Operations (unaudited) for the three and nine months ended September 30, 1996 and 1997, and from the period of inception through September 30, 1997 ..................................................................................... 4 Statements of Cash Flows (unaudited) for the nine months ended September 30, 1996 and 1997, and from the period of inception through September 30, 1997...................................................................................... 5 Notes to Unaudited Financial Statements................................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................... 11 PART II. OTHER INFORMATION: Item 1. Legal Proceedings.................................................................................. 16 Item 2. Changes in Securities and Use of Proceeds.......................................................... 16 Item 3. Defaults Upon Senior Securities.................................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders................................................ 17 Item 5. Other Information.................................................................................. 17 Item 6. Exhibits and Reports on Form 8-K................................................................... 17 SIGNATURES ...................................................................................................... 18
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NEOSE TECHNOLOGIES, INC. (a development-stage company) BALANCE SHEETS
December 31, 1996 September 30, 1997 ----------------- ------------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents ...................................................... $ 32,845,025 $ 26,990,232 Marketable securities .......................................................... -- 18,802,820 Restricted funds ............................................................... 73,828 688,940 Prepaid expenses and other ..................................................... 210,122 308,369 ------------ ------------ Total current assets ......................................................... 33,128,975 46,790,361 PROPERTY AND EQUIPMENT, net ...................................................... 3,973,619 13,917,485 OTHER ASSETS ..................................................................... 15,049 3,400 ------------ ------------ $ 37,117,643 $ 60,711,246 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt .............................................. $ 678,122 $ 1,046,531 Accounts payable ............................................................... 217,283 206,048 Accrued compensation ........................................................... 264,440 253,000 Other accrued expenses ......................................................... 161,130 382,353 Deferred revenue ............................................................... 41,667 -- ------------ ------------ Total current liabilities .................................................... 1,362,642 1,887,932 OTHER LIABILITIES ................................................................ 78,806 -- LONG-TERM DEBT ................................................................... 556,405 9,035,969 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued .................................................................. -- -- Common stock, $.01 par value; 30,000,000 shares authorized; 8,214,624 and 9,513,878 shares issued and outstanding ........................ 82,146 95,139 Additional paid-in capital ..................................................... 60,830,513 81,640,449 Deferred compensation .......................................................... (269,925) (373,975) Deficit accumulated during the development stage ............................... (25,522,944) (31,574,268) ------------ ------------ Total stockholders' equity ................................................... $ 35,119,790 $ 49,787,345 ------------ ------------ $ 37,117,643 $ 60,711,246 ============ ============
The accompanying notes are an integral part of these statements. 3 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF OPERATIONS (unaudited)
Period from Three Months Ended Nine Months Ended Inception September 30, September 30, (January 17, 1989) ------------------------------- ------------------------------- to 1996 1997 1996 1997 September 30, 1997 ------------ ------------ ------------ ------------ ------------------ REVENUES FROM COLLABORATIVE AGREEMENTS .......... $ 312,500 $ 83,667 $ 1,006,100 $ 708,667 $ 5,938,380 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Research and development .......... 1,510,191 1,874,433 4,899,734 5,623,237 28,601,796 General and administrative ........ 596,836 1,079,184 1,788,343 2,768,247 11,961,932 ------------ ------------ ------------ ------------ ------------ Total operating expenses ...... 2,107,027 2,953,617 6,688,077 8,391,484 40,563,728 ------------ ------------ ------------ ------------ ------------ Operating Loss ................ (1,794,527) (2,869,950) (5,681,977) (7,682,817) (34,625,348) ------------ ------------ ------------ ------------ ------------ INTEREST INCOME ..................... 483,262 848,259 1,278,245 2,019,739 4,565,669 INTEREST EXPENSE .................... (58,318) (159,171) (196,148) (388,246) (1,514,589) ------------ ------------ ------------ ------------ ------------ NET LOSS ............................ $ (1,369,583) $ (2,180,862) $ (4,599,880) $ (6,051,324) $(31,574,268) ============ ============ ============ ============ ============ PRO FORMA NET LOSS PER SHARE ........................... $ (0.17) $ (0.23) $ (0.60) $ (0.65) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............. 8,193,000 9,506,000 7,728,000 9,366,000 ============ ============ ============ ============
The accompanying notes are an integral part of these statements 4 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, Period from Inception ------------------------------ (January 17, 1989) 1996 1997 to September 30, 1997 ------------ ------------ --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................................... $ (4,599,880) $ (6,051,324) $(31,574,268) Adjustments to reconcile net loss to cash used in operating activities-- Depreciation and amortization ............................. 416,986 629,708 2,568,506 Common stock issued for non-cash charges ................................................... -- -- 34,961 Changes in operating assets and liabilities- Restricted funds ........................................ 110,718 (615,112) (688,940) Prepaid expenses and other .............................. (134,198) (98,247) (308,369) Other assets ............................................ -- 11,649 (3,400) Accounts payable ........................................ 10,079 (11,235) 206,048 Accrued compensation .................................... 16,682 (11,440) 297,473 Other accrued expenses .................................. (167,023) 221,223 382,353 Deferred revenue ........................................ 312,500 (41,667) -- Other liabilities ....................................... 4,373 (78,806) -- ------------ ------------ ------------ Net cash used in operating activities ................. (3,962,282) (6,045,251) (29,085,636) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Sales and maturities (purchases) of marketable securities, net ................................ -- (18,802,820) (18,802,820) Purchases of property and equipment ......................... (667,150) (10,488,102) (15,448,190) Proceeds from sale-leaseback of equipment ................... -- -- 1,382,027 ------------ ------------ ------------ Net cash used in investing activities ..................... (667,150) (29,290,922) (32,868,983) ------------ ------------ ------------
(Continued) 5 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited) (continued)
Nine Months Ended September 30, Period from Inception ------------------------------ (January 17, 1989) 1996 1997 to September 30, 1997 ------------ ------------ --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of notes ........................ $ -- $ -- $ 1,225,000 Repayment of notes payable ................................. -- -- (565,250) Proceeds from issuance of short-term debt .................. -- -- 290,000 Repayment of short-term debt ............................... -- -- (290,000) Proceeds from issuance of long-term debt ................... -- 9,400,000 10,510,869 Repayment of long-term debt ................................ (562,678) (552,027) (2,314,846) Proceeds from issuance of preferred stock, net ............. -- -- 29,497,297 Proceeds from issuance of common stock, net ................ 59,830 188,791 569,456 Proceeds from public offering, net ......................... 29,536,164 20,339,013 49,466,174 Proceeds from exercise of warrants ......................... -- -- 333,920 Proceeds from exercise of stock options .................... 142,494 105,603 330,633 Dividends paid ............................................. (18,000) -- (72,000) Issuance costs resulting from conversion of notes to common stock ............................... -- -- (36,402) ------------ ------------ ------------ Net cash provided by financing activities ............ 29,157,810 29,481,380 88,944,851 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................................. 24,528,378 (5,854,793) 26,990,232 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................................................... 11,189,001 32,845,025 -- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................................... $ 35,717,379 $ 26,990,232 $ 26,990,232 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest .................................... $ 203,125 $ 355,221 $ 1,404,932 ============ ============ ============ Non-cash financing activities -- Issuance of common stock for dividends .................... $ -- $ -- $ 90,000 ============ ============ ============ Issuance of common stock to employees in lieu of cash compensation ......................... $ -- $ -- $ 44,473 ============ ============ ============
The accompanying notes are an integral part of these statements 6 NEOSE TECHNOLOGIES, INC. (a development-stage company) NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited financial statements at September 30, 1997, for the three and nine months ended September 30, 1996 and 1997, and for the period from inception (January 17, 1989) to September 30, 1997, contained herein have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management's opinion, the unaudited information includes all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of results expected for the full year. The financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 1996, included in Neose Technologies, Inc. ("Neose" or the "Company") Form 10-K and the Company's 1996 Annual Report. 2. Cash and Cash Equivalents Cash and cash equivalents consist of cash and marketable financial instruments with original maturities of 90 days or less. The Company held the following cash and cash equivalents on the dates indicated below. December 31, 1996 September 30, 1997 ----------------- ------------------ Cash and money market accounts $ 1,254,681 $ 2,993,976 Repurchase agreements 31,590,344 -- U.S. Government Agency security -- 23,996,256 -------------- -------------- $ 32,845,025 $ 26,990,232 ============== ============== 3. Marketable Securities In accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities," the Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation at each balance sheet date. At September 30, 1997, all marketable securities have been classified as "Available-for-Sale" securities. Available-for-Sale securities are carried at fair value, based on quoted market prices, with unrealized gains and losses reported as a separate component of stockholders' equity. At September 30, 1997, there were no material unrealized gains or losses. 7 Marketable securities consist of U.S. Treasury Notes with original maturities greater than 90 days. The Company has established guidelines relative to concentration, maturities, and credit ratings that maintain safety and liquidity. 4. Acquisition of Facility and Issuance of Long-term Debt On March 20, 1997, the Company purchased its previously leased facility for a total of approximately $3.8 million. In connection with the purchase of its facility and its planned GMP manufacturing expansion, on March 20, 1997, the Company issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate amount of $9.4 million of taxable and tax-exempt bonds (the "MCIDA Bond Issuance"). The bonds are supported by a AA-rated letter of credit, and a reimbursement agreement between the Company's bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. To provide credit support for this arrangement, the Company has given a first mortgage on the land, building, improvements, and certain machinery and equipment to its bank. In addition, the Company has agreed to certain covenants for the maintenance of minimum cash and short-term investment balances, and for minimum working capital requirements. 5. Sale of Common Stock On January 29, 1997, the Company offered and sold 1,250,000 shares of Common Stock at a public offering price of $17.50 per share (the "Follow-on Offering"). The net proceeds to the Company from the Follow-on Offering after the payment of placement fees and offering expenses were approximately $20,339,000. The Company's initial public offering of Common Stock (the "Offering") closed on February 22, 1996. The Company offered and sold 2,250,000 shares of Common Stock at a public offering price of $12.50 per share. The net proceeds to the Company from the Offering were approximately $25,204,000. Pursuant to the underwriters' over-allotment option, an additional 337,500 shares of Common Stock were offered and sold by the Company on March 4, 1996, resulting in additional net proceeds to the Company of approximately $3,923,000. 6. Shareholder Rights Plan In September 1997, the Company adopted a Shareholder Rights Plan ("the Rights Plan") to insure that any acquisition of the Company would be on terms that are fair to and in the best interest of all shareholders. Under the Rights Plan, holders of common stock are entitled to receive one right for each share of common stock held. Separate rights certificates would be issued and become exercisable in the event that any acquiring party accumulates 15% or more of the Company's common stock, or announces an offer to acquire 15% or more of the outstanding Company common stock. 8 Each right will entitle a holder, except a 15% or more holder, to buy one one-hundredth share of Series A Junior Participating Preferred Stock (the "Preferred Stock") at an exercise price of $150 per unit. Each one one-hundredth share of such Preferred Stock is essentially equivalent to one share of the Company's common stock. However, if an acquiring party accumulates 15% or more of the Company common stock or certain other events occur, each right entitles the holder (other than a 15% holder) to purchase, depending on the circumstances, for $150 either $300 worth of the Company's common stock or $300 worth of the 15% acquiror's common stock. The rights expire in September 2007 and may be redeemed by the Company at a price of $.01 per right at any time up to ten days after they become exercisable. 7. Net Loss Per Share For the nine months ended September 30, 1996, pro forma net loss per share was computed using the weighted-average number of common shares outstanding during the period, and includes all Convertible Preferred Stock which converted into shares of common stock immediately prior to the closing of the Offering as if they were converted into common stock on their original dates of issuance. For the three months ended September 30, 1996 and for the three and nine months ended September 30, 1997, net loss per share was computed using the weighted-average number of common shares outstanding during the period. Common stock equivalents were excluded for all periods presented because they are antidilutive. 8. Collaboration with Bracco During September 1997, the Company and Bracco Research USA, Inc. ("Bracco") mutually agreed to terminate their existing research collaboration. Pursuant to the terms of the collaborative research agreement, Bracco made a one-time, termination payment of $42,000. The Company recorded the entire payment as Revenues from Collaborative Agreements in September 1997. Neither the Company nor Bracco has any additional financial obligations to the other party. The Company is actively seeking to initiate another research collaboration in the area of diagnostic imaging agents. 9. New Accounting Pronouncements Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which supersedes APB Opinion No. 15, "Earnings per Share," was issued in February 1997. SFAS 128 requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures on the face of the income statement. Basic EPS is computed by dividing income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options. SFAS 128 is required to be adopted for year-end 1997; earlier application is not permitted. The Company does not 9 expect the basic or diluted EPS measured under SFAS 128 to be materially different than its primary or fully-diluted EPS measured under APB No. 15. Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), was issued in February 1997. In addition, Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130"), and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS" 131"), respectively, were issued in June 1997. The Company does not expect SFAS 129, SFAS 130, or SFAS 131 to result in any substantive changes in its disclosure. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the financial condition and results of operations of the Company contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the Company's future plans, events, or performance. Such statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, the early stage of development of the Company's products, technological uncertainties, dependence on collaborative partners, the need for regulatory approval and effects of government regulation, and dependence on patents and trade secrets, as well as those described under "Business--Factors Affecting the Company's Business, Operating Results and Financial Condition" in Part I of the Company's 1996 Annual Report on Form 10-K. The Management's Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 1997, and as of September 30, 1997, should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1996, included in the Company's Form 10-K and the Company's 1996 Annual Report. Overview Neose, a development-stage company, commenced operations in 1990, and has devoted substantially all of its resources to the development of its enzymatic carbohydrate synthesis technology and to the discovery and development of complex carbohydrates for a variety of applications, including nutritional additives and pharmaceuticals. The Company anticipates that its primary sources of revenue for the next several years will be payments under its strategic alliance with Abbott Laboratories ("Abbott") and other collaborative arrangements, license fees, payments from future strategic alliances and collaborative arrangements, if any, and interest income. Payments under strategic alliances and collaborative arrangements will be subject to significant fluctuation in both timing and amount. Therefore, the Company's results of operations for any period may not be comparable to the results of operations for any other period. In December 1992, the Company entered into its strategic alliance with Abbott for the development of breast milk oligosaccharides as nutritional additives. The Company has received approximately $11.2 million in contract payments, license fees, milestone payments, and equity investments in connection with its strategic alliance with Abbott. The Company has not generated any revenues from operations, except for interest income and revenues from strategic alliances. The Company has incurred losses since its inception and, as of September 30, 1997, had a deficit accumulated during the development 11 stage of approximately $31.6 million. The Company anticipates incurring additional losses over at least the next several years. Such losses may fluctuate significantly from quarter to quarter and are expected to increase as the Company expands its research and development programs, including preclinical studies and clinical studies for its pharmaceutical product candidates under development, and as the Company expands its manufacturing capabilities. Results of Operations Revenues Revenues from collaborative agreements for the three and nine months ended September 30, 1997, were $83,667 and $708,667, respectively, compared to $312,500 and $1,006,100, respectively, for the corresponding periods in 1996. The decreases for the comparable three and nine month periods were due to non-recurring revenues received during the 1996 periods. Operating Expenses Research and development expenses for the three and nine months ended September 30, 1997, were $1,874,433 and $5,623,237, respectively, compared to $1,510,191 and $4,899,734, respectively, for the corresponding periods in 1996. The increase was primarily attributable to increased preclinical trial expenditures for NE-1530, financing expenses associated with the MCIDA Bond Issuance, and increased funding of external research. General and administrative expenses for the three and nine months ended September 30, 1997, were $1,079,184 and $2,768,247, respectively, compared to $596,836 and $1,788,343, respectively, for the corresponding periods in 1996. The increase was primarily attributable to increased patent and business development expenses and expenses associated with being a public company. Interest Income and Expense Interest income for the three and nine months ended September 30, 1997, was $848,259 and $2,019,739, respectively, compared to $483,262 and $1,278,245, respectively, for the corresponding periods in 1996. The increase was primarily attributable to higher average cash and investment balances during the 1997 period resulting from the closing of the Company's Follow-on Offering in January 1997. Interest expense for the three and nine months ended September 30, 1997, was $159,171 and $388,246, respectively, compared to $58,318 and $196,148, respectively, for the corresponding periods in 1996. The increase was due to higher average loan balances during the period resulting from the MCIDA Bond Issuance in March 1997. 12 Net Loss The Company incurred net losses of $2,180,862 and $6,051,324, or $0.23 and $0.65 per share, for the three and nine months ended September 30, 1997, respectively, compared to net losses of $1,369,583 and $4,599,880, or $0.17 and $0.60 per share, for the corresponding periods in 1996. Liquidity and Capital Resources From inception through September 30, 1997, the Company has incurred a cumulative net loss of approximately $31.6 million, and has financed its operations through private and public offerings of its securities and revenues from its strategic alliances. The Company had approximately $45.8 million in cash and marketable securities at September 30, 1997, compared to $32.8 million at December 31, 1996. This increase is primarily attributable to the receipt of net proceeds from the Follow-on Offering in January 1997. In January 1997, the Company sold 1,250,000 shares of Common Stock to the public at a price per share of $17.50. The Company received proceeds of approximately $20.3 million after deducting placement fees and offering expenses. The Company and Abbott have entered into collaborative agreements to develop breast milk oligosaccharides as additives to infant formula and other nutritional products. Under this strategic alliance, the Company has received approximately $11.2 million in contract payments, license fees, milestone payments, and equity investments. In addition, Abbott is required to make an additional payment of $5 million to Neose within 60 days of the first commercial sale, if any, of infant formula containing the Company's nutritional additive. Abbott may (i) at any time prior to the first commercial sale, if any, of infant formula containing the Company's nutritional additive, elect to make its license agreement non-exclusive, in which event the license fees payable by Abbott after commercialization would be reduced by 50%, and Abbott's obligations to make contract and milestone payments, including the $5 million milestone payment, would be terminated, or (ii) elect to terminate the license agreement and return the licensed technology to Neose upon 60 days' notice, in which event it would have no further funding obligation to the Company, including no obligation to make the $5 million milestone payment. In addition, under the terms of the Abbott agreement, if Abbott fails to make appropriate regulatory filings with the FDA for the addition of Neose's oligosaccharide to infant formula prior to December 1, 1997, Neose, at its option, may elect to convert the license of Neose technology to a non-exclusive license to Abbott, in which event the license fees payable by Abbott after commercialization would be reduced by 50%, and Abbott's obligations to make contract and milestone payments, including the $5 million milestone payment, would be terminated. On March 20, 1997, the Company purchased its previously leased facility for a total of approximately $3.8 million. In addition, beginning in the fourth quarter of 1996, the Company commenced a construction project in its facility to expand GMP manufacturing capabilities for NE-0080, and to establish GMP manufacturing capabilities for NE-1530 and NE-0501 ("Planned GMP Manufacturing Expansion"). In each case, the Company believes 13 that the planned GMP capacity will be adequate to complete clinical trials for the respective compounds. In addition, the Company believes that the Planned GMP Manufacturing Expansion will give it capacity to manufacture under GMP conditions certain amounts of these and other carbohydrates for third parties. In connection with the Planned GMP Manufacturing Expansion, the Company expects to expend approximately $8.2 million, of which $7.4 million and $1.2 million had been expended as of September 30, 1997 and December 31, 1996, respectively. In connection with the purchase of its facility and the Planned GMP Manufacturing Expansion, on March 20, 1997, the Company issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate amount of $9.4 million of taxable and tax-exempt bonds. The bonds are supported by a AA-rated letter of credit, and a reimbursement agreement between the Company's bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. At September 30, 1997, the effective, blended interest rate was 7% per annum, including letter-of-credit and other fees. To provide credit support for this arrangement, the Company has given a first mortgage on the land, building, improvements, and certain machinery and equipment to its bank. In addition, the Company has agreed to certain covenants for the maintenance of minimum cash and short-term investment balances, and for minimum working capital requirements. During the nine months ended September 30, 1997, the Company purchased approximately $10.5 million of property and equipment, of which $3.8 million was expended to purchase its facility, and $6.2 million was expended in connection with the Company's Planned GMP Manufacturing Expansion. The Company also has obligations to certain of its employees under employment agreements. The Company has incurred negative cash flows from operations since its inception, and has expended, and expects to continue to expend in the future, substantial funds to continue its research and development programs. The Company expects that its existing capital resources will be adequate to fund its capital requirements through 1999. No assurance can be given that there will be no change that would consume available resources significantly before such time. The Company's future capital requirements and the adequacy of available funds will depend on many factors, including progress in its research and development activities, including its pharmaceutical discovery and development programs, the magnitude and scope of these activities, progress with preclinical studies and clinical trials, the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in existing collaborative research relationships and strategic alliances, the ability of the Company to establish additional collaborative arrangements for product development, the cost of manufacturing scale-up, and developing effective marketing activities and arrangements. 14 To the extent that funds generated from the Company's operations, together with its existing capital resources, and the interest earned thereon, are insufficient to meet current or planned operating requirements, it is likely that the Company will seek to obtain additional funds through equity or debt financings, collaborative or other arrangements with corporate partners and others, and from other sources. The terms and prices of any such financings may be significantly more favorable than those obtained by present stockholders of the Company, which could have the effect of diluting or adversely affecting the holdings or the rights of existing stockholders of the Company. The Company does not currently have any committed sources of additional financing. There can be no assurance that additional financing will be available when needed, if at all, or on terms acceptable to the Company. If adequate additional funds are not available, for these purposes or otherwise, the Company's business, financial condition, and results of operations will be materially and adversely affected. In such circumstances, the Company may be required to delay, scale back, or eliminate certain of its research and product development activities or certain other aspects of its business or attempt to obtain funds through collaborative arrangements that may require the Company to relinquish some or all of its rights to certain of its intellectual property, product candidates, or products. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. The Company's first Registration Statement on Form S-1 (Commission File No. 33-80693) was declared effective on February 15, 1996 (the "Registration Statement"). Of the 2,587,500 shares of common stock registered at an aggregate offering price of $32,343,750 (the "Gross Proceeds"), 2,250,000 shares of common stock were sold by the Company on February 22, 1996 at an aggregate offering price of $28,125,000 and 337,500 shares of common stock were sold by the Company on March 4, 1996 at an aggregate offering price of $4,218,750. The Offering did not terminate prior to the sale of all securities registered. The managing underwriters for the Offering were Smith Barney Inc. and Vector Securities, Inc. After deducting expenses of approximately $3,216,750 ("Total Expenses") from the Gross Proceeds, the Company received net proceeds of approximately $29,127,000 ("Net Proceeds"). Total Expenses consisted of approximately $2,308,000 of underwriting discounts and commissions and approximately $908,750 of other expenses. There were no payments for finders' fees or for expenses incurred by underwriters. None of the payments of Total Expenses were direct or indirect payments to directors, officers, persons owning ten percent or more of any class of equity securities of the Company, or to affiliates of the Company. As of September 30, 1997, the Company had used Net Proceeds as follows: $11,200,000 for research and development activities; $4,900,000 for general corporate purposes; $2,400,000 for the purchase and installation of machinery and equipment; $2,000,000 for the repayment of indebtedness; and $600,000 for the construction of plant, building, and facilities. The remaining $8,027,000 has been temporarily invested in a U.S. Treasury Note. None of the Net Proceeds have been used for the purchase of real estate, the acquisition of other business(es), or for working capital purposes. Also, none of the Net Proceeds were direct or indirect payments to directors, officers, persons owning ten percent or more of any class of equity securities of the Company, or to affiliates of the Company. At the time of the Registration Statement, the Company expected to use $10 million of the Net Proceeds for research and development activities, $3 million for capital expenditures, and $16.1 million for working capital and general corporate purposes. As of September 30, 1997, the Company has expended approximately $1.2 million more than anticipated for its research and development activities. This amount has been more than offset by $9.2 million of lower than anticipated 16 disbursements for working capital and general corporate purposes (including disbursements for the repayment of indebtedness), of which approximately $8 million has been temporarily invested. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: A Current Report on Form 8-K dated September 17, 1997 reporting information under "Item 5" relating to the adoption of the Company's Shareholder Rights Plan (see Note 6 of the Notes to Unaudited Financial Statements included in Part I of this Form 10-Q and incorporated herein) was filed with the Securities and Exchange Commission on October 1, 1997. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOSE TECHNOLOGIES, INC. Date: November 13, 1997 By: /s/ P. Sherrill Neff ------------------------------------- P. Sherrill Neff President and Chief Financial Officer 18 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1 3-MOS DEC-31-1997 SEP-30-1997 26,990,232 18,802,820 0 0 0 46,790,361 16,016,048 2,098,563 60,711,246 1,887,932 10,082,500 0 0 95,139 49,692,206 60,711,246 0 708,667 0 0 8,391,484 0 388,246 (6,051,324) 0 (6,051,324) 0 0 0 (6,051,324) (.65) (.65)
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