-----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, IGexFX0xtXs2c3uAIA0QYrLdIw10Rs1MxrS2jVGg6qi3qUXvu0h0ZVBnJIqoKAHo MxA9PjYKEoYb0j3xJGY1ZQ== 0000950115-97-001271.txt : 19970815 0000950115-97-001271.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950115-97-001271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 1934 Act SEC FILE NUMBER: 000-27718 FILM NUMBER: 97661929 BUSINESS ADDRESS: STREET 1: 102 WITMER ROAD 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) - ------ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE X SECURITIES EXCHANGE ACT OF 1934 - ------ For the quarterly period ended June 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: 9,495,623 shares of common stock, $.01 par value, were outstanding as of July 31, 1997. NEOSE TECHNOLOGIES, INC. (a development-stage company) INDEX -----
Page ---- PART I. FINANCIAL INFORMATION: - ------- ---------------------- Item 1. Financial Statements Balance Sheets (unaudited) at December 31, 1996 and June 30, 1997........................................3 Statements of Operations (unaudited) for the three and six months ended June 30, 1996 and 1997, and from the period of inception through June 30, 1997 ...........................................................................................4 Statements of Cash Flows (unaudited) for the six months ended June 30, 1996 and 1997, and from the period of inception through June 30, 1997............................................................................................5 Notes to Unaudited Financial Statements..................................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................................10 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.......................................................................................16 Item 6. Exhibits and Reports on Form 8-K........................................................................16 SIGNATURES.......................................................................................................17 - ----------
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NEOSE TECHNOLOGIES, INC. (a development-stage company) BALANCE SHEETS (unaudited)
ASSETS December 31, 1996 June 30, 1997 ----------------- ------------- CURRENT ASSETS: Cash and cash equivalents ......................................................... $ 32,845,025 $ 28,121,460 Marketable securities ............................................................. -- 19,013,761 Restricted funds .................................................................. 73,828 2,273,815 Prepaid expenses and other ........................................................ 210,122 387,893 ------------ ------------ Total current assets .......................................................... 33,128,975 49,796,929 PROPERTY, PLANT AND EQUIPMENT, net ..................................................... 3,973,619 12,957,062 OTHER ASSETS ........................................................................... 15,049 3,400 ------------ ------------ $ 37,117,643 $ 62,757,391 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ................................................. $ 678,122 $ 1,014,218 Accounts payable .................................................................. 217,283 262,955 Accrued compensation .............................................................. 264,440 178,000 Other accrued expenses ............................................................ 161,130 248,651 Deferred revenue .................................................................. 41,667 41,667 ------------ ------------ Total current liabilities ..................................................... 1,362,642 1,745,491 OTHER LIABILITIES ...................................................................... 78,806 -- LONG-TERM DEBT ......................................................................... 556,405 9,215,193 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 9,495,290 shares issued and outstanding ............................. 82,146 94,953 Additional paid-in capital ........................................................ 60,830,513 81,503,473 Deferred compensation ............................................................. (269,925) (408,313) Deficit accumulated during the development stage .................................. (25,522,944) (29,393,406) ------------ ------------ Total stockholders' equity .................................................... $ 35,119,790 $ 51,796,707 ------------ ------------ $ 37,117,643 $ 62,757,391 ============ ============
The accompanying notes are an integral part of these statements. 3 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Six Months Ended Period from June 30, June 30, Inception ----------------------------- ---------------------------(January 17, 1989) 1996 1997 1996 1997 to June 30, 1997 ----------- -------------- ------------ ------------ ---------------- REVENUES FROM COLLABORATIVE AGREEMENTS ... $ 356,100 $ 312,500 $ 693,600 $ 625,000 $ 5,854,713 ----------- -------------- ------------ ------------ -------------- OPERATING EXPENSES: Research and development ... 1,739,908 1,979,911 3,389,543 3,748,805 26,727,363 General and administrative . 630,980 775,650 1,191,508 1,689,062 10,882,748 ----------- -------------- ------------ ------------ -------------- Total operating expenses 2,370,888 2,755,561 4,581,051 5,437,867 37,610,111 ----------- -------------- ------------ ------------ -------------- Operating Loss ......... (2,014,788) (2,443,061) (3,887,451) (4,812,867) (31,755,398) ----------- -------------- ------------ ------------ -------------- INTEREST INCOME .............. 496,507 587,078 794,983 1,171,480 3,717,410 INTEREST EXPENSE ............. (65,472) (186,004) (137,830) (229,075) (1,355,418) ----------- -------------- ------------ ------------ -------------- NET LOSS ..................... $(1,583,753) $ (2,041,987) $ (3,230,298) $ (3,870,462) $ (29,393,406) =========== ============== ============ ============ ============== PRO FORMA NET LOSS PER SHARE .................... $ (0.19) $ (0.22) $ (0.43) $ (0.42) =========== ============== ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ...... 8,176,000 9,495,000 7,492,000 9,295,000 =========== ============== ============ ============
The accompanying notes are an integral part of these statements 4 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, Period from Inception -------------------------- (January 17, 1989) 1996 1997 to June 30, 1997 ---------- ---------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................... $ (3,230,298) $ (3,870,462) $(29,393,406) Adjustments to reconcile net loss to cash used in operating activities-- Depreciation and amortization ............. 316,773 376,766 2,315,564 Common stock issued for non-cash charges.................................... -- -- 34,961 Changes in operating assets and liabilities Restricted funds ...................... 73,799 (2,199,987) (2,273,815) Prepaid expenses and other ............ (154,708) (177,771) (387,893) Other assets .......................... -- 11,649 (3,400) Accounts payable ...................... 17,709 45,672 262,955 Accrued compensation .................. (43,318) (86,440) 222,473 Other accrued expenses ................ (143,213) 87,521 248,651 Deferred revenue ...................... -- -- 41,667 Other liabilities ..................... 4,928 (78,806) -- ---------- ---------- ----------- Net cash used in operating activities.. (3,158,328) (5,891,858) (28,932,243) ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment .. (445,717) (9,309,075) (14,269,163) Proceeds from sale-leaseback of equipment ... -- -- 1,382,027 ---------- ---------- ----------- Net cash used in investing activities ..... (445,717) (9,309,075) (12,887,136) ---------- ---------- -----------
(Continued) 5 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited) (continued)
Six Months Ended June 30, Period from Inception ---------------------------- (January 17, 1989) 1996 1997 to June 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 ................... (368,144) (405,116) (2,167,935) Proceeds from issuance of preferred stock, net -- -- 29,497,297 Proceeds from issuance of common stock, net ... -- 87,041 467,706 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 ....... 118,137 70,191 295,221 Dividends paid ................................ (18,000) -- (72,000) Issuance costs resulting from conversion of notes to common stock -- -- (36,402) ------------ ------------ ------------ Net cash provided by financing activities ... 29,268,157 29,491,129 88,954,600 ------------ ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS........ 25,664,112 14,290,196 47,135,221 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................................... 11,189,001 32,845,025 -- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END .................. OF PERIOD $ 36,853,113 $ 47,135,221 $ 47,135,221 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest ........................ $ 142,391 $ 193,573 $ 1,243,284 ============ ============ ============ 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 June 30, 1997, for the three and six months ended June 30, 1996 and 1997, and for the period from inception (January 17, 1989) to June 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 June 30, 1997 ----------------- ------------- Cash and money market accounts $ 1,254,681 $ 275,192 Repurchase agreements 31,590,344 -- U.S. Government Agency security -- 27,846,268 ----------- ----------- $32,845,025 $28,121,460 =========== =========== 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 June 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 June 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. 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. 5. 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. 6. Net Loss Per Share For the three and six months ended June 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 and six months ended June 30, 1997, net loss per share was computed using the weighted-average number of 8 common shares outstanding during the period. Common stock equivalents were excluded for all periods presented because they are antidilutive. 7. 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 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 No. 130, "Reporting Comprehensive Income" ("SFAS 130"), was issued in June 1997. The Company does not expect SFAS 129 or SFAS 130 to result in any substantive changes in its disclosure. 9 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 six months ended June 30, 1997, and as of June 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 June 30, 1997, had a deficit accumulated during the development stage 10 of approximately $29.4 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 six months ended June 30, 1997, were $312,500 and $625,000, respectively, compared to $356,100 and $693,600, respectively, for the corresponding periods in 1996. The decreases for the comparable three and six month periods were due to non-recurring revenues received during the 1996 periods. Operating Expenses Research and development expenses for the three and six months ended June 30, 1997, were $1,979,911 and $3,748,805, respectively, compared to $1,739,908 and $3,389,543, respectively, for the corresponding periods in 1996. The increase was primarily attributable to financing expenses associated with the MCIDA Bond Issuance, increased clinical trial expenditures for NE-0080, and increased funding of external research. General and administrative expenses for the three and six months ended June 30, 1997, were $775,650 and $1,689,062, respectively, compared to $630,980 and $1,191,508, respectively, for the corresponding periods in 1996. The increase was primarily attributable to increased business development expenses and expenses associated with being a public company. Interest Income and Expense Interest income for the three and six months ended June 30, 1997, was $587,078 and $1,171,480, respectively, compared to $496,507 and $794,983, 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 six months ended June 30, 1997, was $186,004 and $229,075, respectively, compared to $65,472 and $137,830, 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. 11 Net Loss The Company incurred net losses of $2,041,987 and $3,870,462, or $0.22 and $0.42 per share, for the three and six months ended June 30, 1997, respectively, compared to net losses of $1,583,753 and $3,230,298, or $0.19 and $0.43 per share, for the corresponding periods in 1996. The decrease in the net loss per share for the six months ended June 30, 1997 was primarily attributable to an increase in the shares used in computing net loss per share subsequent to the issuance of Common Stock in the Follow-on Offering in January 1997, which offset the increased actual loss for the 1997 period. Liquidity and Capital Resources From inception through June 30, 1997, the Company has incurred a cumulative net loss of approximately $29.4 million, and has financed its operations through private and public offerings of its securities and revenues from its strategic alliances. The Company had approximately $47.1 million in cash and investments at June 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 12 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 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 $7.5 million, of which $6.4 million and $1.2 million were expended as of June 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 June 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 six months ended June 30, 1997, the Company purchased approximately $9.3 million of property and equipment, of which $3.8 million was expended to purchase its facility, and $5.2 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. 13 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. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. In connection with the MCIDA Bond Issuance, the Company gave a first mortgage on its land, building, improvements, and certain machinery and equipment to its bank. In addition, the Company agreed to maintain minimum cash and short-term investment balances ("Unrestricted Cash") of $20 million. If Unrestricted Cash should fall below $20 million (but not less than $15 million), the Company shall be required to transfer into a restricted cash account, an amount of Unrestricted Cash equal to one-half of the remaining letter-of-credit amount of the taxable portion of the MCIDA Bond Issuance ("MCIDA Restricted Cash"). If Unrestricted Cash, together with MCIDA Restricted Cash, should fall below $15 million, the Company shall be required to transfer into a restricted cash account, an amount of Unrestricted Cash equal to the remaining letter-of-credit amount of the taxable portion of the MCIDA Bond Issuance, less the initial transfer of MCIDA Restricted Cash. In addition, the Company is required to maintain a minimum working capital position (including MCIDA Restricted Cash) of $20 million. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. A. The Company's Annual Meeting of Stockholders was held on June 19, 1997. B. The motions before stockholders were: 1. To elect seven Directors. Votes Votes Votes Broker Name of Director For Against Withheld Abstentions Nonvotes ---------------- --- ------- -------- ----------- -------- Stephen A. Roth, Ph.D. 7,765,165 -- 17,668 -- -- P. Sherrill Neff 7,769,333 -- 13,500 -- -- William F. Hamilton, Ph.D. 7,769,333 -- 13,500 -- -- Douglas J. MacMaster, Jr 7,769,333 -- 13,500 -- -- Lindsay A. Rosenwald, M.D 7,769,333 -- 13,500 -- -- Lowell E. Sears 7,769,333 -- 13,500 -- -- Jerry A. Weisbach, Ph.D 7,769,333 -- 13,500 -- -- 15 2. To approve and adopt the Company's Amended and Restated 1995 Stock Option/Stock Issuance Plan (the "Amended Plan") to, among other things, comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended, increase the number of shares authorized for issuance under the Amended Plan, and change the amount of shares issuable to any individual under the Amended Plan. Votes For 4,442,072 Votes Against 1,556,904 Votes Withheld -- Abstentions 49,308 Broker Nonvotes -- 3. To ratify the selection of Arthur Andersen LLP, independent public accountants, as auditors of the Company for the fiscal year ending December 31, 1997. Votes For 7,760,332 Votes Against 5,234 Votes Withheld -- Abstentions 17,267 Broker Nonvotes -- Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. None. 16 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: August 14, 1997 By: /s/ P. Sherrill Neff --------------------- P. Sherrill Neff President and Chief Financial Officer EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1 3-MOS DEC-31-1997 JUN-30-1997 28,121,460 19,013,761 0 0 0 49,796,929 14,837,021 1,879,959 62,757,391 1,745,491 0 0 0 94,953 51,701,754 62,757,391 0 625,000 0 0 5,437,867 0 229,075 (3,870,462) 0 (3,870,462) 0 0 0 (3,870,462) (.42) (.42)
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