10-Q

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 March 31, 2003.
OR
o	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 incorporation or organization)		(I.R.S. Employer Identification No.)
102 Witmer Road
Horsham, Pennsylvania		19044
(Address of principal executive offices)		(Zip Code)
(215) 315-9000
(Registrant’s telephone number, including area code)

               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   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   x No   o

               Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  17,211,099 shares of common stock, $.01 par value, were outstanding as of April 30, 2003.

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

INDEX

			Page
PART I.		FINANCIAL INFORMATION:
Item 1.		Financial Statements (unaudited)
	Balance Sheets at December 31, 2002 and March 31, 2003		3
	Statements of Operations for the three months ended March 31, 2002 and 2003, and for the period from inception through March 31, 2003		4
	Statements of Cash Flows for the three months ended March 31, 2002 and 2003, and for the period from inception through March 31, 2003		5
	Notes to Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.		Quantitative and Qualitative Disclosure About Market Risk	15
Item 4.		Controls and Procedures	16
PART II.		OTHER INFORMATION:
Item 6.		Exhibits and Reports on Form 8-K	17
SIGNATURES			18

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PART I.     FINANCIAL INFORMATION

Item 1.        Financial Statements

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)

	December 31, 2002			March 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	31,088		$	32,072
Marketable securities		9,952			18,276
Restricted funds		977			1,279
Prepaid expenses and other current assets		558			1,446
Total current assets		42,575			53,073
Property and equipment, net		36,508			35,856
Acquired intellectual property, net		2,507			2,358
Other assets		1,502			2,384
Total assets	$	83,092		$	93,671
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	1,851		$	2,678
Accounts payable		1,127			871
Accrued compensation		1,339			1,190
Accrued expenses		1,880			1,590
Deferred revenue		320			320
Total current liabilities		6,517			6,649
Long-term debt		5,560			7,572
Other liabilities		330			751
Total liabilities		12,407			14,972
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 30,000 shares authorized; 14,330 and 17,214 shares issued; 14,324 and 17,208 shares outstanding		143			172
Additional paid-in capital		178,945			195,320
Treasury stock, 6 shares at cost		(175	)		(175	)
Deferred compensation		(170	)		(140	)
Deficit accumulated during the development-stage		(108,058	)		(116,478	)
Total stockholders’ equity		70,685			78,699
Total liabilities and stockholders’ equity	$	83,092		$	93,671

The accompanying notes are an integral part of these financial statements.

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NEOSE TECHNOLOGIES, INC.
(a development-stage company)

STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

	Three months ended March 31,						Period from inception (January 17, 1989) to March 31, 2003
	2002			2003
Revenue from collaborative agreements	$	771		$	70		$	17,516
Operating expenses:
Research and development		5,835			5,619			105,295
Marketing, general and administrative		2,920			3,005			52,079
Total operating expenses		8,755			8,624			157,374
Operating loss		(7,984	)		(8,554	)		(139,858	)
Other income		—			—			7,773
Interest income		389			170			18,948
Interest expense		—			(37	)		(3,342	)
Net loss	$	(7,595	)	$	(8,421	)	$	(116,479	)
Basic and diluted net loss per share	$	(0.54	)	$	(0.53	)
Weighted-average shares outstanding used in computing basic and diluted net loss per share		14,120			15,801

The accompanying notes are an integral part of these financial statements.

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NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

	Three months ended March 31,						Period from inception (January 17, 1989) to March 31, 2003
	2002			2003
Cash flows from operating activities:
Net loss	$	(7,595	)	$	(8,421	)	$	(116,479	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		665			1,048			14,157
Non-cash compensation		1,560			—			4,773
Common stock issued for non-cash and other charges		—			—			35
Changes in operating assets and liabilities:
Prepaid expenses and other current and non-current assets		203			(888	)		(1,698	)
Accounts payable		(41	)		(256	)		871
Accrued compensation		301			(612	)		771
Accrued expenses		(1,984	)		(249	)		1,529
Deferred revenue		(104	)		—			320
Other liabilities		—			2			332
Net cash used in operating activities		(6,995	)		(9,376	)		(95,389	)
Cash flows from investing activities:
Purchases of property and equipment		(3,995	)		(353	)		(47,461	)
Proceeds from sale-leaseback of equipment		—			—			1,382
Purchases of marketable securities		—			(18,259	)		(402,997	)
Proceeds from sales of marketable securities		—			—			11,467
Proceeds from maturities of and other changes in marketable securities		—			10,000			373,860
Purchase of acquired technology		—			—			(4,550	)
Investment in equity securities		—			—			(1,250	)
Net cash used in investing activities		(3,995	)		(8,612	)		(69,549	)
Cash flows from financing activities:
Proceeds from issuance of debt		—			2,954			17,170
Repayment of debt		—			(115	)		(8,267	)
Restricted cash related to debt		(278	)		(302	)		(1,208	)
Proceeds from issuance of preferred stock, net		—			—			29,497
Proceeds from issuance of common stock, net		—			16,435			153,659
Proceeds from exercise of stock options and warrants		798			—			6,406
Acquisition of treasury stock		—			—			(175	)
Dividends paid		—			—			(72	)
Net cash provided by financing activities		520			18,972			197,010
Net increase (decrease) in cash and cash equivalents		(10,470	)		984			32,072
Cash and cash equivalents, beginning of period		76,245			31,088			—
Cash and cash equivalents, end of period	$	65,775		$	32,072		$	32,072

The accompanying notes are an integral part of these financial statements.

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NEOSE TECHNOLOGIES, INC.
(a development-stage company)

NOTES TO FINANCIAL STATEMENTS
(unaudited)

	1.	Basis of Presentation
We have used accounting principles generally accepted in the United States for interim financial information to prepare our unaudited financial statements:
		•	As of March 31, 2003;
		•	For the three months ended March 31, 2002 and 2003; and
		•	For the period from inception (January 17, 1989) to March 31, 2003.

             Our unaudited financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In our opinion, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. You should not base your estimate of our results of operations for 2003 solely on our results of operations for the three months ended March 31, 2003. You should read these unaudited financial statements in combination with:

• The other Notes in this section;

• “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the following section; and

• The Financial Statements, including the Notes to the Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2002.

             Certain prior year amounts have been reclassified to conform to our current year presentation.

2. Revenue Recognition

             Our revenue from collaborative agreements consists of up-front fees, research and development funding, and milestone payments. We recognize revenues from these agreements consistent with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101), issued by the Securities and Exchange Commission. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period based on the specific terms of each collaborative agreement, but the actual performance period may vary. We adjust the performance periods based on available facts and circumstances. Periodic payments for research and development activities are recognized over the period that we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based on the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

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             In January 2003, the Financial Accounting Standards Board issued Emerging Issues Task Force Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). Our existing revenue recognition policy under SAB 101 of recognizing revenue from the achievement of substantive milestone events when such milestones are met, complies with EITF 00-21.

3. Long-term Debt

             During the quarter ended March 31, 2003, we borrowed $2,954,000 secured by laboratory equipment. We are required to make monthly principal and interest payments at an annual rate of 8.35% through September 2006.

4. Stockholders’ Equity

             In February 2003, we sold 2,866,763 shares of common stock in a private placement to a group of institutional and individual investors at a price of $6.00 per share, generating net proceeds of $16,320,000.

             In January 2003, employees participating in our employee stock purchase plan purchased 16,724 shares of common stock at a total purchase price of $115,000.

5. Severance Expense

             In March 2002, we entered into a Separation and Consulting Agreement with our former Chief Executive Officer, Stephen A. Roth. Under this agreement, we agreed to provide medical benefits to Dr. Roth and to pay him $39,622 per month for 12 months. During the quarter ended March 31, 2002, we recorded severance expense related to this agreement of $309,000, which represented the present value of his future benefit payments.

             Prior to March 29, 2003, Dr. Roth had the right to extend his non-competition and non-solicitation commitments for two additional years by entering into a separate non-competition agreement. Dr. Roth extended his commitments in March 2003 and, therefore, we will pay him $39,622 per month for 24 additional months and continue his stock option vesting and exercisability during the additional two-year period. During the quarter ended March 31, 2003, we recorded a liability of $882,000, which represented the present value of the future payments, and a corresponding asset for the value of the non-competition commitment. The asset will be amortized over the two-year term of the agreement.

             In January 2002, we entered into a retirement agreement with our Vice President, Research. Under the agreement, he terminated his employment effective June 30, 2002. We have committed to pay a retirement benefit over a five-year period. We will continue to provide Dr. McGuire health insurance benefits through December 31, 2003. During the quarter ended March 31, 2002, we recorded severance expense related to this agreement of $516,000, which represented the present value of his future retirement benefit. In addition, we extended the period during which he may exercise his stock options and recorded a non-cash severance charge of $1,608,000 associated with this option modification.

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6. Net Loss Per Share

             Basic and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. For the three months ended March 31, 2002 and 2003, the effects of the exercise of outstanding stock options and warrants to purchase 3,548,802 and 4,650,376 shares, respectively, were antidilutive; accordingly, they were excluded from the calculation of diluted net loss per share.

7. Stock-based Compensation

             We apply the intrinsic value method of accounting for all stock-based employee compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share.

             We have elected to adopt only the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS 123 (in thousands, except per share data):

Three Months Ended March 31,	2002			2003
Net loss – as reported	$	(7,595	)	$	(8,421	)
Add: Stock-based employee compensation expense included in reported net loss		28			11
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(2,892	)		(3,870	)
Net loss – pro forma	$	(10,459	)	$	(12,280	)
Basic and diluted net loss per share – as reported	$	(0.54	)	$	(0.53	)
Basic and diluted net loss per share – pro forma	$	(0.74	)	$	(0.78	)

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8. Supplemental Disclosure of Cash Flow Information

             The following table contains additional cash flow information for the periods reported.

	Three months ended March 31,					Period from inception (January 17, 1989) to March 31, 2003
	2002		2003
Supplemental disclosure of cash flow information:
Cash paid for interest	$	30	$	52		$	3,497
Non- compete agreement	$	—	$	882		$	882
Non-cash investing activities:
Increase / (decrease) in accrued property and equipment	$	—	$	(41	)	$	61
Non-cash financing activities:
Issuance of common stock for dividends	$	—	$	—		$	90
Issuance of common stock to employees in lieu of cash compensation	$	—	$	—		$	44

9. Comprehensive Loss

             Our comprehensive loss for the three months ended March 31, 2002 and 2003 was $7,595,000 and $8,421,000, respectively. Comprehensive loss is comprised of net loss and other comprehensive income or loss.  For the periods reported, there are no separate sources of other comprehensive income or loss.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995:

             This report and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report and the documents incorporated herein by reference, the words “anticipate,” “believe,” “estimate,” “may,” “expect,” “intend,” and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements include, among others, the statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations about our:

• estimate of the length of time that our existing cash, cash equivalents and marketable securities, expected revenue, and interest income will be adequate to finance our operating and capital requirements;

• expected losses;

• expectations for future capital requirements;

• expectations for increases in operating expenses;

• expectations for increases in research and development, and marketing, general and administrative expenses in order to develop products, manufacture

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	commercial quantities of reagents and  products, and commercialize our technology;
•	expectations for the development of an improved EPO and subsequent proprietary drug candidates;
•	expectations for incurring additional capital expenditures for renovations of our facilities;
•	expectations for generating revenue;
•	ability to enter into new or expanded collaboration agreements and the ability of our existing collaboration partners to develop and commercialize products incorporating our technologies.

             Our actual results could differ materially from those results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect our actual results include the following:

• our ability to obtain the funds necessary for our operations;

• our ability to develop and commercialize any therapeutic proteins or to commercialize our technologies;

• our ability to develop commercial-scale manufacturing processes;

• our ability to enter into and maintain collaborative arrangements;

• our ability to obtain adequate sources of proteins and reagents;

• our ability to expand and protect our intellectual property and to operate without infringing the rights of others;

• our ability to compete successfully in an intensely competitive field;

• our ability to attract and retain key personnel; and

• general economic conditions.

             These and other risks and uncertainties that could affect our actual results are discussed in this report and in our other filings with the Securities and Exchange Commission, particularly the section of Part II of our Annual Report on Form 10-K for the year ended December 31, 2002, entitled “Factors Affecting the Company’s Prospects.”  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements other than as required by applicable law.

             We do not undertake any duty to update after the date of this report any of the forward-looking statements in this report to conform them to actual results.

             You should read this section in combination with the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2002, included in our Annual Report on Form 10-K and in our 2002 Annual Report to Stockholders.

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Overview

             We are a biopharmaceutical company focused on improving glycoprotein therapeutics using our proprietary technologies. Most therapeutic proteins in development or on the market today are glycoproteins—proteins with carbohydrate structures attached.  These carbohydrates are important to the proper functioning of the proteins.  The process by which carbohydrates are attached to proteins is called “glycosylation.”  Manufacturing protein drugs using traditional biotech cell systems often results in the problem of incomplete glycosylation.  We are using our GlycoAdvance™, GlycoPEGylation™ and GlycoConjugation™ technologies to develop improved versions of currently marketed drugs with proven efficacy, to complete the natural glycosylation of proteins, and to improve therapeutic profiles of glycoproteins in development for our partners. We expect these next generation proteins to offer significant advantages over drugs that are now on the market, potentially including less frequent dosing and improved safety and efficacy. In addition to developing our own products or co-developing products with others, we expect to enter into strategic partnerships for including our technologies into the product design and manufacturing processes of other biotechnology and pharmaceutical companies. While our primary goal is protein drug development, our technologies offer multiple opportunities to participate in the evolving therapeutic protein market by addressing other challenges, such as manufacturing efficiency, manufacturing consistency, and the use of non-mammalian cell expression systems.

             As of March 31, 2003, we had an accumulated deficit of approximately $116.5 million. We expect additional losses in 2003 and over the next several years as we expand product research and development efforts, increase manufacturing scale-up activities and, potentially, begin sales and marketing activities.

Liquidity and Capital Resources

       Overview

             We have incurred operating losses each year since our inception. As of March 31, 2003, we had an accumulated deficit of approximately $116.5 million. We have financed our operations primarily through proceeds from private and public placements of equity securities.  We have also funded our operations to a lesser extent from interest earned on investments, proceeds from property and equipment financing, revenues from corporate collaborations and gains from the sale of investments. We had approximately $50.3 million in cash, cash equivalents and marketable securities as of March 31, 2003, compared to approximately $41.0 million in cash, cash equivalents and marketable securities as of December 31, 2002. The increase during 2003 was primarily attributable to the net proceeds from our February 2003 private placement as discussed below, offset by the use of cash to fund our operating loss and capital expenditures.

             In February 2003, we sold 2,866,763 shares of common stock in a private placement to a group of institutional and individual investors, generating net proceeds of $16,320,000. We believe that our existing cash, cash equivalents and marketable securities, expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through the middle of 2004, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to

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deplete our cash and marketable securities sooner than the above estimate. The timing and amount of our future capital requirements and the adequacy of available funds will depend on many factors, including if and when any products manufactured using our technology are commercialized.

             During 2002, we focused our business on the development of next generation proprietary protein therapeutics, which we plan to pursue both independently and in collaboration with selected partners. This development and commercialization will require substantial investments by us and our collaborators. Most of our 2002 revenues were derived from agreements that have been terminated or will conclude early in 2003. As a result, our 2003 revenues are difficult to project and will be largely dependent on entering into new collaborations and on the financial terms of any new collaborations. Other than revenues from any future collaborations, we expect to generate no significant revenues until such time as products incorporating our technologies are commercialized, which is not expected during the next several years. We expect an additional several years to elapse before we can expect to generate sufficient cash flow from operations to fund our operating and investing requirements. Accordingly, we will need to raise substantial additional funds to continue our business activities and fund our operations beyond the middle of 2004.

       Capital Expenditures

             During the three months ended March 31, 2003, we invested $312,000 in property, equipment, and building improvements.  We anticipate additional capital expenditures during 2003 of approximately $3.2 million to $4.7 million, which excludes the impact of resuming the facility renovations described below. We may finance some or all of these capital expenditures through the issuance of new debt or equity. If we issue new debt, we may be required to maintain a minimum cash and investments balance, or to transfer cash into an escrow account to collateralize some portion of the debt, or both.

             We entered into a lease agreement in 2002 for a 40,000 square foot building, which we intended to convert into laboratory and office space for an expected cost of approximately $12.0 million. Later in 2002, we suspended plans to complete these renovations and we have not yet made a final decision as to when or if we will resume this project. Our property and equipment at March 31, 2003 includes approximately $4,027,000 in renovations to this facility. To the extent that we determine the partially completed renovations are of no future use to us, we would be required to recognize an impairment loss in our statement of operations. If we decide to resume the project, we anticipate expending an additional $8.0 million to restart the project and complete the renovations.

       Long-term Debt

             Montgomery County (Pennsylvania) IDA Bonds

             In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9.4 million of taxable and tax-exempt bonds, of which $5.1 million remained outstanding as of March 31, 2003. The bonds were issued to finance the purchase of our headquarters building and the construction of a pilot-scale manufacturing facility within our building. The bonds are supported by an AA-rated letter of credit, and a reimbursement agreement between our bank and the letter of credit issuer. The interest rate on the bonds will

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vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. During the quarter ended March 31, 2003, the weighted-average, effective interest rate was 1.7% per year, including letter-of-credit and other fees. The terms of the bond issuance provide for monthly, interest-only payments and a single repayment of principal at the end of the twenty-year life of the bonds. However, under our agreement with our bank, we are making monthly payments to an escrow account to provide for an annual prepayment of principal. As of March 31, 2003, we had restricted funds relating to the bonds of $1,279,000, which consisted of our monthly payments to an escrow account plus interest revenue on the balance of the escrow account. In April 2003, we transferred $1,200,000 out of the escrow account to make a principal payment on the bonds. During the next 12 months, we will be required to make payments of $1,200,000 into the escrow account.

             To provide credit support for this arrangement, we have given a first mortgage on the land, building, improvements, and certain machinery and equipment to our bank. We have also agreed to maintain a minimum required cash and short-term investments balance of at least two times the outstanding loan balance. If we fail to comply with this requirement, we are required to deposit with the lender cash collateral up to, but not more than, the unpaid balance of the loan. At March 31, 2003, we were required to maintain $10,200,000 of cash and short-term investments.

       Equipment Loans

             In March 2003, we borrowed $2,954,000 to finance the purchase of equipment, which is collateralizing the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 42 months at an interest rate of 8.35%. During the next 12 months, we will be required to make payments of $976,000 under this agreement.

             In December 2002, we borrowed $2,261,000 to finance the purchase of equipment, which is collateralizing the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 36 months at an interest rate of 8.0%. During the next 12 months, we will be required to make payments of $850,000 under this agreement.

       Capital Lease Obligation

             In November 2002, we entered into a capital lease to lease $50,000 of equipment. The terms of the lease require us to make monthly payments of $1,561 through November 2005. During the next 12 months, we will be required to make payments of $19,000 under this agreement.

Off-Balance Sheet Arrangements

             We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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Recent Accounting Pronouncements

             In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002, and are included in Note 7.

Results of Operations

             Our net loss for the three months ended March 31, 2003 increased to $8,421,000 from $7,595,000 for the corresponding period in 2002. The following section explains the changes between the reporting periods in each component of net loss.

       Revenue from Collaborative Agreements

             Revenues from collaborative agreements for the three months ended March 31, 2003 decreased to $70,000 from $771,000 for the corresponding period in 2002. Our 2003 revenues relate to a research and development collaboration we entered into during 2002. Our 2002 revenues were primarily related to our agreements with Wyeth Pharmaceuticals and Wyeth Nutrition. The Wyeth Pharmaceuticals agreement was terminated in September 2002, and we expect to receive no further revenues under this agreement. Under our agreement with Wyeth Nutrition, we received in October 2002 the final payment of $250,000, which we have recorded as deferred revenue on our balance sheet as of March 31, 2003 and December 31, 2002. We anticipate the completion of our activities under the agreement during the quarter ended June 30, 2003, at which time we will recognize the revenues from collaborative agreements on our statement of operations.

       Research and Development Expense

             Research and development expenses for the quarter ended March 31, 2003 decreased to $5,619,000 from $5,835,000 in the comparable 2002 period. Research and development expenses for 2002 included severance expense of $2,124,000, of which $1,608,000 was a non-cash charge, related to an agreement entered into with one of our former executive officers. Substantially offsetting the decrease in severance expense in the 2003 period were increases related to depreciation of our recently completed pilot manufacturing facility, which was placed in service in January 2003, additional personnel since the first quarter of 2002, and the purchase of more supplies and outside services than in the first quarter of 2002.

             In January 2003, we announced the selection of an improved erythropoietin (EPO) as the target for our first proprietary drug development program. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of anemia associated with oncology chemotherapy, end stage renal disease, and chronic renal insufficiency. Based on preliminary laboratory data and animal studies, we believe it is feasible to develop a longer-acting EPO through GlycoPEGylation. We are planning to conduct

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various preclinical activities during 2003 and the first half of 2004, with the goal of initiating clinical trials in the second half of 2004.

             The process we have begun with erythropoietin will be expanded to other currently marketed proteins. We are generating internal data on other potential proprietary drug candidates, and we expect to select our second proprietary candidate in the second half of 2003.  Concurrently, we are continuing to invest in the development of our core technologies, particularly new applications of our GlycoPEGylation and GlycoConjugation technologies.

       Marketing, General and Administrative Expense

             Marketing, general, and administrative expenses increased to $3,005,000 for the quarter ended March 31, 2003 from $2,920,000 for the first quarter of 2002. The 2002 period included severance expense of $309,000 related to an agreement entered into with one of our former executive officers. Offsetting the decrease in severance expense in the 2003 period were increased salary expense related to additional executive personnel since the first quarter of 2002 and higher insurance premiums and patent-related legal expenses than in the first quarter of 2002.

       Interest Income and Expense

             Interest income for the three months ended March 31, 2003 decreased to $170,000 from $389,000 for the corresponding period in 2002. The decrease was due to lower interest rates during the 2003 period as well as lower average cash, cash equivalents and marketable securities balances during the 2003 period.

             Interest expense for the three months ended March 31, 2003 was $37,000. We reported no interest expense for the quarter ended March 31, 2002. During the 2002 period, our investment in property and equipment was significant enough to require the capitalization of all interest incurred on outstanding debt. During the 2003 period, we capitalized $15,000 of interest related to our investment in property and equipment during the period.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

             Our holdings of financial instruments are comprised primarily of government agency securities. All such instruments are classified as securities held to maturity. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities, while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum. As of March 31, 2003, we held $18.3million in obligations of U.S. government agencies with original maturities ranging from 103 to 183 days.  The balance of our investment portfolio was held in money market securities and in obligations of U.S. government agencies with original maturities of three months or less.  The approximate principal amount and weighted-average interest rate per year of our investment portfolio as of March 31, 2003 was $50.3 million and 2.0%, respectively.

             We have exposure to changing interest rates on our taxable and tax-exempt bonds, and we are currently not engaged in hedging activities. Interest on approximately $5.1 million of

15

outstanding indebtedness is at an interest rate that varies weekly, depending on the market rates for AA-rated taxable and tax-exempt obligations. During the quarter ended March 31, 2003, the weighted-average, effective interest rate was approximately 1.7% per year.

Item 4. Controls and Procedures

             Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, and our internal controls and procedures for financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures are effective. There were no significant changes in these controls or procedures, or in other factors that could significantly affect these controls or procedures, subsequent to the date of their evaluation.

             Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our internal controls and procedures for financial reporting are designed to provide reasonable assurance, and management believes that they provide such reasonable assurance, that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

             Our management group, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls and related procedures will prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable assurance that the objectives of the control system are met. In addition, the design and implementation of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered in relation to their costs. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, which may prove to be incorrect. Due to the limitations of all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within an organization have been detected.

16

PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K.
	(a)	List of Exhibits:
		10.1     Amended and Restated License Agreement, dated as of February 27, 2003, between University of Pennsylvania and Neose Technologies, Inc. (incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K filed with the SEC on March 18, 2003).
		10.2     Common Stock Purchase Agreement between Neose Technologies, Inc. and the Purchasers, dated as of February 13, 2003 (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K filed with the SEC on March 18, 2003).
		10.3     Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated March 28, 2003.
		10.4     Confidentiality, Intellectual Property and Non-Competition Agreement, dated March 29, 2003, between Neose Technologies, Inc. and Stephen A. Roth, Ph.D.
		99.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	(b)	Reports on Form 8-K:
		On January 7, 2003, we filed a Current Report on Form 8-K announcing the selection of our first proprietary product candidate.
		On January 8, 2003, we filed Current Report on Form 8-K disclosing plans to develop proprietary second generation proteins and data on product profile improvements to our first proprietary product candidate.
		On February 13, 2003, we filed a Current Report on Form 8-K announcing $17 million financing.

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:	May 13, 2003	By:	/s/ ROBERT I. KRIEBEL
			Robert I. Kriebel
			Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

CERTIFICATIONS

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, C. Boyd Clarke, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

18

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 13, 2003	/s/ C. B OYD CLARKE
Date	C. Boyd Clarke President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Robert I. Kriebel, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

19

	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 13, 2003	/s/ ROBERT I. KRIEBEL
Date	Robert I. Kriebel Senior Vice President and Chief Executive Officer

20

EX-10.3

                                                                    EXHIBIT 10.3

                                 PROMISSORY NOTE

                                     3/28/03
                                     (DATE)

FOR VALUE RECEIVED, Neose Technologies, Inc. an other located at the address
stated below ("Maker") promises, jointly and severally if more than one, to pay
to the order of General Electric Capital Corporation or any subsequent holder
hereof (each, a "Payee") at its office located at 401 Merritt 7 Suite 23,
Norwalk, CT 06851-1177 or at such other place as Payee or the holder hereof may
designate, the principal sum of Two Million Nine Hundred Fifty Four Thousand
Four Hundred Twenty Five and 34/00 Dollars ($2,954,425.34), with interest on the
unpaid principal balance, from the date hereof through and including the dates
of payment, at a fixed interest rate of Eight and Thirty Five Hundredths percent
(8.35%) per annum, to be paid in lawful money of the United States, in Forty Two
(42) consecutive monthly installments of principal and interest as follows:

        Periodic
       Installment                 Amount
      --------------            ------------

      Forty One (41)            $  81,365.08

each ("Periodic Installment") and a final installment which shall be in the
amount of the total outstanding principal and interest. The first Periodic
Installment shall be due and payable on 5/1/03 and the following Periodic
Installments and the final installment shall be due and payable on the same day
of each succeeding month (each, a "Payment Date"). Such installments have been
calculated on the basis of a 360 day year of twelve 30-day months. Each payment
may, at the option of the Payee, be calculated and applied on an assumption that
such payment would be made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.

The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.

This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "Security
Agreement").

Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) Maker is in default under,
or fails to perform under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
accrued interest thereon and any other sum payable under this Note or any
Security Agreement, at the election of Payee, shall immediately become due and
payable, with interest thereon at the lesser of eighteen percent (18%) per annum
or the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).

Notwithstanding anything to the contrary contained herein or in the Security
Agreement, Maker may not prepay in full or in part any indebtedness hereunder
without the express written consent of Payee in its sole discretion.

It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed



by the courts having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of interest contracted
for, charged or received under this Note or any Security Agreement which are
made for the purpose of determining whether such rate exceeds the maximum lawful
contract rate, shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the indebtedness evidenced hereby, all interest at
any time contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to receive a
greater interest per annum rate than is presently allowed, the Maker agrees
that, on the effective date of such amendment or preemption, as the case may be,
the lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States of
America.

The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees. Maker and each Obligor agrees that fees not in excess of twenty percent
(20%) of the amount then due shall be deemed reasonable.

Maker hereby irrevocably authorizes and empowers the Prothonotary or Clerk, or
any attorney for any Court of record to appear for Maker in such Courts, at any
time, and confess a judgement against Maker, without process, in favor of any
holder hereof, without the filing of a declaration of default, with release of
errors, without stay of execution, for such amount as may appear from the face
hereof to be due hereunder (or, if such attorney so elects, for the amount which
may be due hereon as evidenced by an affidavit signed by a representative of
holder setting forth the amount then due) together with charges, attorney's fees
and costs as herein provided, and Maker hereby waives and releases all benefits
and relief from any and all appraisement, stay or exemption laws of any state,
now in force or hereafter to be passed. If a copy hereof, verified by an
affidavit, shall have been filed in said proceeding, it shall not be necessary
to file the original as a warrant of attorney. No single exercise of the
foregoing warrant and power to confess judgement shall be deemed to exhaust the
power, whether or not such exercise shall be held by any Court to be invalid,
voidable, or void, but the power shall continue undiminished and may be
exercised from time to time as often as the holder hereof shall elect, until all
sums payable or that may become payable hereunder by Maker have been paid in
full.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.



Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.

                                           NEOSE TECHNOLOGIES, INC.

                                           By: /s/ A. Brian Davis
__________________________________            -------------------
(Witness)

                                           Name: A. Brian Davis
__________________________________              ---------------
(Print name)

                                           Title: Vice President, Finance
__________________________________               ------------------------
(Address)

                                           Federal Tax ID#: 13-3549286

                                           Address: 102 Witmer Rd, Horsham,
                                           Montgomery County, PA 19044

EX-10.4

                                                                    EXHIBIT 10.4

                     CONFIDENTIALITY, INTELLECTUAL PROPERTY
                          AND NON-COMPETITION AGREEMENT

          THIS CONFIDENTIALITY, INTELLECTUAL PROPERTY AND NON-COMPETITION
AGREEMENT (this "Agreement") is made as of the 29th day of March, 2003 by and
between NEOSE TECHNOLOGIES, INC. (the "Company") and STEPHEN A. ROTH, Ph.D.
("Dr. Roth").

          WHEREAS, Dr. Roth has served as a consultant to the Company and as
Chief Executive Officer and Chairman of the Board of the Company, positions of
substantial authority and responsibility in which he has had access to the
Company's customers, vendors, trade secrets, proprietary information, and
intellectual property;

          WHEREAS, the Company desires to obtain certain assurances from Dr.
Roth that he will not harm the Company's business interests;

          NOW THEREFORE, in consideration of these premises and intending to be
legally bound hereby, the parties agree as follows:

SECTION 1.       Definitions. To the extent not defined in the preamble of this
Agreement, capitalized terms used herein will have the meanings provided below:

          1.1.   "Business" means research, development, manufacture, supply,
marketing, licensing, use and sale of biologic, pharmaceutical and therapeutic
materials and products and related process technology including, without
limitation, research, development, manufacture, supply, marketing, licensing,
use and sale or products and technology directed to (a) the enzymatic synthesis
of complex carbohydrates for use in food, cosmetic, therapeutic, consumer and
industrial applications, (b) enzymatic synthesis or modification of the
carbohydrate portion of proteins or lipids, and (c) carbohydrate-based
therapeutics.

          1.2.   "Board" means the Board of Directors of the Company.

          1.3.   "Effective Date" means March 29, 2003.

          1.4.   "Restricted Period" means the two-year period commencing on the
Effective Date.

          1.5.   "Restrictive Covenants" means the provisions contained in
Section 3 of this Agreement.

SECTION 2.       Consideration. In consideration for the covenants described in
Section 3, subject to Section 5.2:

          2.1.   The Company will pay to Dr. Roth $39,622 on March 31, 2003 and
on the last day of each of the first 23 months thereafter;



          2.2.   Notwithstanding the terms of the Company's equity incentive
plans and any stock option award agreement between Dr. Roth and the Company,
solely for purposes of the vesting and expiration of the options to purchase
shares of the Company's common stock held by Dr. Roth as of the Effective Date,
Dr. Roth will be treated as continuing in the service of the Company until the
later of (a) the second anniversary of the Effective Date and (b) the end of Dr.
Roth's service as a member of the Board; and

          2.3.   In light of the compensation paid to Dr. Roth under this
Agreement, during the term of this Agreement, Dr. Roth will not be entitled to
any separate compensation for his service as a member of the Board of Directors
of the Company. Accordingly, Section 3.2 of the Separation and Consulting
Agreement made as of March 29, 2002 is hereby amended by deleting the second
sentence thereof.

SECTION 3.       Restrictive Covenants. In consideration of all the payments and
benefits provided under this Agreement, Dr. Roth covenants that, during the
Restricted Period, he will not (except in his capacity as a consultant of the
Company) do any of the following, directly or indirectly, anywhere in the world:

          3.1.   engage or participate in any business competitive with the
Business (as defined below);

          3.2.   become interested in (as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent or consultant) any person, firm,
corporation, association or other entity engaged in any business competitive
with the Business. Notwithstanding the foregoing, Dr. Roth may hold up to 4.9%
of the outstanding securities of any class of any publicly-traded securities of
any company;

          3.3.   engage in any business, or solicit or call on any customer,
supplier, licensor, licensee, contractor, agent, representative, advisor,
strategic partner, distributor or other person with whom the Company shall have
dealt or any prospective customer, supplier, licensor, licensee, contractor,
agent, representative, advisor, strategic partner, distributor or other person
that the Company shall have identified and solicited at any time during Dr.
Roth's employment or retention by the Company for a purpose competitive with the
Business;

          3.4.   influence or attempt to influence any employee, consultant,
customer, supplier, licensor, licensee, contractor, agent, representative,
advisor, strategic partner, distributor or other person to terminate or modify
any written or oral agreement, arrangement or course of dealing with the
Company; or

          3.5.   solicit for employment or employ or retain (or arrange to have
any other person or entity employ or retain) any person who has been employed or
retained by the Company within the 12 months preceding the application of this
provision to that person.

SECTION 4.       Acknowledgements. Dr. Roth acknowledges that the Restrictive
Covenants are reasonable and necessary to protect the legitimate interests of
the Company and its affiliates and that the duration and geographic scope of the
Restrictive Covenants are reasonable given the nature of this Agreement and Dr.
Roth's relationship

                                        2



with the Company. Dr. Roth further acknowledges that the Restrictive Covenants
are included herein in order to induce the Company to make the payments provided
for herein and that the Company would not have entered into this Agreement in
the absence of the Restrictive Covenants.

SECTION 5.       Remedies and Enforcement Upon Breach.

          5.1.   Specific Enforcement. Dr. Roth acknowledges that any breach by
him, willfully or otherwise, of the Restrictive Covenants will cause continuing
and irreparable injury to the Company for which monetary damages would not be an
adequate remedy. Dr. Roth will not, in any action or proceeding to enforce any
of the provisions of this Agreement, assert the claim or defense that such an
adequate remedy at law exists. In the event of any such breach by Dr. Roth, the
Company will have the right to enforce the Restrictive Covenants by seeking
injunctive or other relief in any court, without any requirement that a bond or
other security be posted, and this Agreement will not in any way limit remedies
of law or in equity otherwise available to the Company.

          5.2.   Termination of Payments and Vesting Service. If Dr. Roth
breaches Section 3 in any respect, then (a) he will not be entitled to any
further payments under this Agreement, (b) he will immediately cease to treated
as continuing in the service of the Company for purposes of vesting and
expiration of his Company stock options, and (c) all of his entitlements under
this Agreement will cease.

          5.3.   Extension of Restricted Period. If Dr. Roth breaches Section 3
in any respect, the Restricted Period will be extended for a period equal to the
period that Dr. Roth was in breach.

          5.4.   Accounting. If Dr. Roth breaches any of the Restrictive
Covenants, the Company will have the right and remedy to require Dr. Roth to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Dr. Roth as the
result of such breach. This right and remedy will be in addition to, and not in
lieu of, any other rights and remedies available to the Company under law or in
equity.

          5.5.   Judicial Modification. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, such court will have the power
to modify such provision and, in its modified form, such provision will then be
enforceable.

          5.6.   Enforceability. If any court holds the Restrictive Covenants
unenforceable by reason of their breadth or scope or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the right of the Company to the relief provided above in the courts of
any other jurisdiction within the geographic scope of such Restrictive
Covenants.

          5.7.   Disclosure of Restrictive Covenants. Dr. Roth agrees to
disclose the existence and terms of the Restrictive Covenants to any entity to
whom Dr. Roth provides services during the Restricted Period.

                                        3



SECTION 6.       Miscellaneous.

          6.1.   Claims Against Officers or Directors. Dr. Roth hereby (a)
waives any right to claim payment of amounts owed to him, now or in the future,
pursuant to this Agreement from directors or officers of the Company in the
event the Company becomes insolvent, and (b) fully and forever releases and
discharges the Company's officers and directors from any and all claims,
demands, liens, actions, suits, causes of action or judgments arising out of any
present or future claim for such amounts.

          6.2.   Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the Company and Dr. Roth and their respective
successors, executors, administrators, heirs. The Company may assign this
Agreement to any successor to all or substantially all of its assets and
business by means of liquidation, dissolution, merger, consolidation, transfer
of assets, or otherwise. Dr. Roth may not assign his rights or obligations under
this Agreement.

          6.3.   Notice. Any notice or communication required or permitted under
this Agreement will be made in writing and (a) sent by overnight courier, (b)
mailed by certified or registered mail, return receipt requested or (c) sent by
telecopier, addressed as follows:

                 If to Dr. Roth:

                          Stephen A. Roth, Ph.D.
                          1105 Rose Glen Road
                          Gladwyne, PA 19035

                 with a copy to:

                          Steven L. Gershman, Esq.
                          407 East Lancaster Avenue
                          Wayne, PA  19087
                          Fax: 610-971-2660

                 If to Company:

                          Neose Technologies, Inc.
                          102 Witmer Road
                          Horsham PA 19044
                          Attn: General Counsel
                          Fax: 215-441-5896

                                        4



                 with a copy to:

                          Pepper Hamilton LLP
                          3000 Two Logan Square
                          18th & Arch Streets
                          Philadelphia, PA 19103
                          Attn: Barry M. Abelson, Esquire
                          Fax: 215-981-4750

or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.

          6.4.   Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties hereto relating to the subject
matter hereof, and merges and supersedes all prior and contemporaneous
discussions, agreements and understandings of every nature relating to the
subject matter hereof. This Agreement may not be changed or modified, except by
an agreement in writing signed by each of the parties hereto.

          6.5.   Waiver. Any waiver by either party of any breach of any term or
condition in this Agreement will not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor will any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, in law or in equity.

          6.6.   Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.

          6.7.   Governing Law. This Agreement will be governed by, and enforced
in accordance with, the laws of the Commonwealth of Pennsylvania, without regard
to the application of the principles of conflicts of laws.

          6.8.   Enforcement. Any legal proceeding arising out of or relating to
this Agreement will be instituted in the United States District Court for the
Eastern District of Pennsylvania, or if that court does not have or will not
accept jurisdiction, in any court of general jurisdiction in the Commonwealth of
Pennsylvania, and Dr. Roth and the Company hereby consent to the personal and
exclusive jurisdiction of such court(s) and hereby waive any objection(s) that
they may have to personal jurisdiction, the laying of venue of any such
proceeding and any claim or defense of inconvenient forum.

                                        5



          6.9.   Section Headings. The section headings in this Agreement are
for convenience only; they form no part of this Agreement and will not affect
its interpretation.

          6.10.  Counterparts and Facsimiles. This Agreement may be executed,
including execution by facsimile signature, in one or more counterparts, each of
which will be deemed an original, and all of which together will be deemed to be
one and the same instrument.

                 IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Dr. Roth has executed this
Agreement, in each case as of the date first above written.

                                       NEOSE TECHNOLOGIES, INC.


                                       By: /s/ C. Boyd Clarke
                                           ------------------
                                           C. Boyd Clarke
                                           President & Chief Executive Officer


                                       STEPHEN A. ROTH, Ph.D.


                                       /s/ Stephen A. Roth
                                       -------------------

                                        6

EX-99.1

                                                                    EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, C. Boyd
Clarke, President and Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

          (1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

A signed original of this written statement required by Section 906 has been
provided to Neose Technologies, Inc. and will be retained by Neose Technologies,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

/s/ C. Boyd Clarke
- ------------------

C. Boyd Clarke
President and Chief Executive Officer

May 13, 2003

EX-99.2

                                                                    EXHIBIT 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Robert
I. Kriebel, Principal Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

          (1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

A signed original of this written statement required by Section 906 has been
provided to Neose Technologies, Inc. and will be retained by Neose Technologies,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

/s/ Robert I. Kriebel
- ---------------------

Robert I. Kriebel
Principal Financial Officer

May 13, 2003