SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-27718
NEOSE TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3549286
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Witmer Road
Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
(215) 315-9000
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(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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 14,272,671 shares of
common stock, $.01 par value, were outstanding as of April 15, 2002.
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
INDEX
Page
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PART I.FINANCIAL INFORMATION:
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Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) at December 31, 2001 and
March 31, 2002 ............................................................. 3
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2001 and 2002, and for the period from inception through
March 31, 2002 ............................................................. 4
Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2001 and 2002, and for the period from inception through
March 31, 2002 ............................................................. 5
Notes to Unaudited Consolidated Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................. 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk ............. 14
PART II. OTHER INFORMATION:
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Item 6. Exhibits and Reports on Form 8-K ...................................... 14
SIGNATURES ..................................................................... 15
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
Assets December 31, 2001 March 31, 2002
----------------- -------------
Current assets:
Cash and cash equivalents $ 76,245 $ 65,775
Restricted funds 902 1,180
Prepaid expenses and other current assets 1,635 1,086
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Total current assets 78,782 68,041
Property and equipment, net 22,649 26,128
Other assets, net 4,355 4,552
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Total assets $105,786 $ 98,721
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $1,100 $ 1,100
Accounts payable 719 678
Accrued compensation 855 1,156
Accrued expenses 2,844 860
Deferred revenue 1,222 1,118
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Total current liabilities 6,740 4,912
Long-term debt 5,100 5,100
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Total liabilities 11,840 10,012
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Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 30,000 shares
authorized; 14,089 and 14,173 shares issued; 14,083 and
14,167 shares outstanding 141 142
Additional paid-in capital 176,124 178,393
Treasury stock, 6 shares at cost (175) (175)
Deferred compensation (503) (415)
Deficit accumulated during the development-stage (81,641) (89,236)
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Total stockholders' equity 93,946 88,709
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Total liabilities and stockholders' equity $105,786 $ 98,721
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three months Period from
ended March 31, inception
--------------------------- (January 17, 1989)
2001 2002 to March 31, 2002
--------------------------- ------------------
Revenue from collaborative agreements $ 312 $ 771 $ 13,404
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Operating expenses:
Research and development 3,167 3,711 82,085
Marketing, general and administrative 1,666 2,611 38,426
Severance charges -- 2,433 3,003
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Total operating expenses 4,833 8,755 123,514
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Operating loss (4,521) (7,984) (110,110)
Gain on sale of marketable security -- -- 6,120
Interest income 1,321 429 18,099
Interest expense (99) (40) (3,345)
------- ------- ---------
Net loss $(3,299) $(7,595) $ (89,236)
======= ======= =========
Basic and diluted net loss per share $ (0.24) $ (0.54)
======= =======
Basic and diluted weighted-average
shares outstanding 14,007 14,120
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended Period from
March 31, inception
-------------------------- (January 17, 1989)
2001 2002 to March 31, 2002
------------ ----------- -----------------
Cash flows from operating activities:
Net loss $(3,299) $(7,595) $(89,236)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 566 665 11,399
Non-cash compensation (112) 1,560 5,138
Common stock issued for non-cash and other charges - - 35
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (500) 203 (1,432)
Accounts payable (16) (41) 678
Accrued compensation (267) 301 1,156
Accrued expenses (232) (1,984) (1,622)
Deferred revenue (42) (104) 1,118
------- ------- --------
Net cash used in operating activities (3,902) (6,995) (72,766)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment (288) (3,995) (32,552)
Proceeds from sale-leaseback of equipment - - 1,382
Purchases of marketable securities (48,142) - (324,327)
Proceeds from sales of marketable securities - - 11,467
Proceeds from maturities of and other changes in marketable
securities 27,477 - 312,860
Purchase of acquired technology - - (4,550)
Investment in equity securities - - (1,250)
Restricted cash related to acquired technology - - -
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Net cash used in investing activities (20,953) (3,995) (36,970)
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Cash flows from financing activities:
Proceeds from issuance of debt - - 11,955
Repayment of debt - - (7,052)
Restricted cash related to debt (281) (278) (1,109)
Proceeds from issuance of preferred stock, net - - 29,497
Proceeds from issuance of common stock, net - - 136,840
Proceeds from exercise of stock options and warrants 286 798 5,627
Acquisition of treasury stock - - (175)
Dividends paid - - (72)
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Net cash provided by financing activities 5 520 175,511
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Net increase (decrease) in cash and cash equivalents (24,850) (10,470) 65,775
Cash and cash equivalents, beginning of period 66,989 76,245 -
------- ------- --------
Cash and cash equivalents, end of period $42,139 $65,775 $ 65,775
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 107 $ 30 $ 3,333
======= ======= ========
Non-cash investing activities:
Accrued property & equipment $ - $ - $ 2,075
======= ======= ========
Non-cash financing activities:
Issuance of common stock for dividends $ - $ - $ 90
======= ======= ========
Issuance of common stock to employees in lieu of
cash compensation $ - $ - $ 44
======= ======= ========
The accompanying notes are an integral part
of these consolidated financial statements
5
NEOSE TECHNOLOGIES, INC.
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
We have used generally accepted accounting principles for interim
financial information to prepare unaudited consolidated financial statements:
o As of March 31, 2002;
o For the three months ended March 31, 2001 and 2002; and
o For the period from inception (January 17, 1989) to March 31, 2002.
Our consolidated financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements. In our opinion, the unaudited
information includes 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 2002 solely on our results of operations for the three
months ended March 31, 2002. You should read these consolidated financial
statements in combination with:
o The other Notes in this section;
o "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in the following section; and
o The Consolidated Financial Statements, including the Notes to the
Consolidated Financial Statements, included in our Annual Report on
Form 10-K for the year ended December 31, 2001.
2. Severance Charges
In March 2002, we entered into a Separation and Consulting Agreement
with Stephen A. Roth, Ph.D., who was the Chief Executive Officer of the Company.
Under this agreement, we agreed to provide health insurance benefits to Dr. Roth
and to pay him $39,622 per month for twelve months. On or before the first
anniversary of the agreement, Dr. Roth may agree to extend his non-competition
and non-solicitation commitments for two additional years by entering into a
separate non-competition agreement. If he does so, the Company will continue his
health insurance benefits for six additional months, extend the $39,622 monthly
payments for 24 additional months and, for purposes of stock option vesting and
exercisability, treat Dr. Roth as remaining in service to the Company until the
third anniversary of his resignation as Chief Executive Officer of the Company
(or until the end of his service as a director, if later). We have recognized
$0.3 million in severance charges related to this agreement during the three
months ended March 31, 2002, and the remaining payment of $0.2 million will be
recognized over the one-year term of the agreement.
In January 2002, we entered into a Retirement Agreement with Edward J.
McGuire, Ph.D., Vice President, Research and Development. Following Dr.
McGuire's retirement, he will receive payments through 2006, including $87,500
in 2002, $125,000 in 2003, and $100,000 in each of 2004, 2005, and 2006. We will
continue to provide Dr. McGuire health insurance benefits through December 31,
2003. We also agreed to extend the period of time during which Dr. McGuire may
exercise his stock options subsequent to his retirement. We have recognized $2.1
million in severance charges, of which $1.6 million is a non-cash expense
related to the stock options, for this agreement during the three months ended
March 31, 2002.
6
3. 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
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding for the period. Diluted loss per share reflects the
potential dilution from the exercise or conversion of securities into common
stock. For the three months ended March 31, 2001 and 2002, the effects of the
exercise of outstanding stock options and warrants were antidilutive;
accordingly, they were excluded from the calculation of diluted earnings per
share.
4. Comprehensive Loss
Our comprehensive loss for the three months ended March 31, 2001 and
2002 was approximately $3.3 million and $7.6 million, 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.
5. Reclassifications
Certain prior year amounts have been reclassified to conform to our
current year presentation.
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:
o expectations for increases in operating expenses;
o expectations for increases in research and development, and
marketing, general and administrative expenses in order to develop
products, manufacture commercial quantities of products and
commercialize our technology;
7
o expectations for the development, manufacturing, and approval of new
products, including our own proprietary products;
o expectations for incurring additional capital expenditures to expand
our manufacturing capabilities;
o expectations for generating revenue or becoming profitable on a
sustained basis;
o ability to enter into additional collaboration agreements and the
ability of our existing collaboration partners to commercialize
products incorporating our technologies;
o estimate of the sufficiency of our existing cash and cash
equivalents and investments to finance our operating and capital
requirements;
o expected losses; and
o expectations for future capital requirements.
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:
o our ability to commercialize any products or technologies;
o our ability to maintain our existing collaborative arrangements and
enter into new collaborative arrangements;
o our ability to develop commercial-scale manufacturing facilities;
o our ability to protect our proprietary products, know-how, and
manufacturing processes;
o unanticipated cash requirements to support current operations or
research and development;
o the timing and extent of funding requirements for the activities of
our joint venture with McNeil Nutritionals;
o our ability to attract and retain key personnel; and
o general economic conditions.
These and other risks and uncertainties that could affect our actual
results are discussed in greater detail in this report and in our other filings
with the Securities and Exchange Commission. 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, 2001, included in our Annual Report on Form 10-K and in
our 2001 Annual Report to Stockholders.
8
Overview
Neose develops proprietary technologies for the synthesis and
manufacture of complex carbohydrates. Our enzymatic technology platform makes
feasible the synthesis and modification of a wide range of complex
carbohydrates, which are chains of simple sugar molecules that can be joined
together in many different combinations. Our platform enables the production and
manipulation of complex carbohydrates either as stand-alone carbohydrate
molecules or as carbohydrate structures attached to recombinant therapeutic
glycoproteins and glycolipids.
Our GlycoAdvance(TM) program uses our technology to complete the human
carbohydrate structures on therapeutic glycoproteins. We are also developing our
technology to create novel glycosylation patterns, and to link other molecules,
such as polyethylene glycol, to glycoproteins. The application of this
technology to proteins potentially results in improved clinical activity and
pharmacokinetic profile, enhanced drug development flexibility, stronger and
additional patent claims, and yield improvements.
Our GlycoTherapeutics(TM) program uses our technology to enable the
development of carbohydrate-based therapeutics. Our GlycoActives(TM) program
uses our technology to develop novel carbohydrate food and nutritional
ingredients. Neose was initially incorporated in January 1989, and began
operations in October 1990. We have incurred operating losses each year. As of
March 31, 2002, we had an accumulated deficit of approximately $89.2 million. We
expect additional losses for some time as we expand research and developments
efforts, manufacturing scale-up activities, and marketing activities.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the
consolidated financial statements included in Item 8 of our Form 10-K. We
believe our most critical accounting policies relate to recognition of revenue
and impairment of long-lived assets.
Revenue Recognition
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", issued by the Securities and
Exchange Commission in December 1999. Non-refundable up-front fees are deferred
and amortized to revenue over the related performance period. Periodic payments
for research and development activities are recognized over the period in which
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.
Impairment of Long-Lived Assets
As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121), we assess the recoverability of any long-lived
assets for which an indicator of impairment exists. Specifically, we calculate,
and recognize, any impairment losses by comparing the carrying value of these
assets to our estimate of the undiscounted future operating cash flows. Although
our current and historical operating and cash flows are indicators of
impairment, we believe the future cash flows to be received from our long-lived
assets will exceed the assets' carrying value. Accordingly, we have not
recognized any impairment losses through March 31, 2002.
9
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 replaces SFAS
121 for fiscal years beginning after December 15, 2001. We do not believe SFAS
144 will have a material impact on our consolidated financial position or
results of operations.
Liquidity and Capital Resources
We have incurred operating losses each year since our inception. As of
March 31, 2002, we had an accumulated deficit of approximately $89.2 million. We
have financed our operations through private and public offerings of our
securities, and revenues from our collaborative agreements. We had approximately
$65.8 million in cash and marketable securities as of March 31, 2002, compared
to approximately $76.2 million in cash and marketable securities as of December
31, 2001. The decrease in 2002 was primarily attributable to the use of cash to
fund our operating loss and capital expenditures.
During the three months ended March 31, 2002, we invested approximately
$3.9 million in property, equipment, and building improvements. We anticipate
capital expenditures during 2002 of approximately $9.0 million to provide
additional cGMP manufacturing capacity in our Horsham, Pennsylvania facility to
support our initial anticipated GlycoAdvance requirements, and $12.0 million to
renovate a 40,000 square foot facility, for which we entered into a lease
agreement in February 2002. We plan to relocate our non-cGMP research
laboratories and corporate office space from our current facility in Horsham,
Pennsylvania into the new facility, leaving our current facility available for
future expansion of our cGMP manufacturing capacity. We expect to finance the
cost of these capital projects by a combination of state economic development
programs, private debt financing, and cash from our balance sheet.
In December 2001, we entered into a research, development and license
agreement with Wyeth Pharmaceuticals, a division of Wyeth, for the use of our
GlycoAdvance technology to develop an improved production system for Wyeth's
biopharmaceutical compound, recombinant PSGL-Ig (P-selectin glycoprotein
ligand). rPSGL-Ig is being developed to treat inflammation and thrombosis
associated with acute coronary syndrome and reperfusion injury. It is currently
being evaluated in Phase II clinical trials for heart attack.
Under the agreement, we will receive license, research, and milestone
payments that would total up to $17.0 million if all milestones are met. In
addition to ongoing product payments, Neose and Wyeth would also enter into a
supply agreement for the long-term supply of GlycoAdvance process reagents for
their commercial production needs. In December 2001, we received an upfront-fee
of $1.0 million, of which $0.9 million is included in deferred revenue in our
consolidated balance sheet as of March 31, 2002. We will amortize the up-front
fee to revenue over the estimated four-year performance period.
10
In 2001, we announced a stock repurchase program authorizing the
repurchase of up to one million shares of common stock in the open market at
times and prices that we consider appropriate. During 2001, we purchased 6,000
shares of common stock in the open market for approximately $0.2 million.
In 1997, we issued, through the Montgomery County (Pennsylvania)
Industrial Development Authority, $9.4 million of taxable and tax-exempt bonds,
of which $6.2 million remained outstanding as of March 31, 2002. The bonds were
issued to finance the purchase of our previously leased 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 vary weekly, depending on market rates for AA-rated taxable and
tax-exempt obligations, respectively. During the quarter ended March 31, 2002,
the weighted-average, effective interest rate was 3.4% 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, 2002, we had restricted funds
relating to the bonds of approximately $1.2 million, which consisted of our
monthly payments to an escrow account plus interest earned on the balance of 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 a covenant to maintain a minimum
required cash and short-term investments balance of at least two times the
current loan balance. At March 31, 2002, we were required to maintain a cash and
short-term investments balance of $12.4 million. If we fail to comply with this
covenant, we are required to deposit with the lender cash collateral up to, but
not more than, the loan's unpaid balance.
We believe that our existing cash and short-term investments, expected
revenue from collaborations and license arrangements, and interest income should
be sufficient to meet our operating and capital requirements through at least
2003, although changes in our collaborative relationships or our business,
whether or not initiated by us, may cause us to deplete our cash and short-term
investments 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 or when any products manufactured using our technology are
commercialized.
Joint Venture with McNeil Nutritionals
We have a joint venture with McNeil Nutritionals. We account for our
investment in the joint venture under the equity method, under which we
recognize our share of the income and losses of the joint venture. In 1999, we
reduced the carrying value of our initial investment in the joint venture of
approximately $0.4 million to zero to reflect our share of the joint venture's
losses. We recorded this amount as research and development expense in our
consolidated statements of operations. We will record our share of post-1999
losses of the joint venture, however, only to the extent of our actual or
committed investment in the joint venture.
11
The joint venture developed a process for making fructooligosaccharides
and constructed a pilot facility in Athens, Georgia. In 2001, the joint venture
closed the pilot facility as it shifted focus to a second generation bulking
agent. The joint venture is exploring establishing a manufacturing arrangement
with a third party to produce these bulking agents.
During the years ended December 31, 2000 and 2001, the joint venture
reimbursed Neose approximately $1.6 million and $0.8 million, respectively, for
the cost of research and development services and supplies provided to the joint
venture. There were no such reimbursements during the year ended December 31,
1999. This amount has been reflected as a reduction of research and development
expense in our consolidated statements of operations. As of March 31, 2002, the
joint venture owed Neose approximately $0.4 million. This amount is included in
prepaid expenses and other current assets in our consolidated balance sheet. We
expect to provide significantly fewer research and development services during
2002, thereby significantly reducing our expected reimbursement from the joint
venture.
If the joint venture becomes profitable, we will recognize our share of
the joint venture's profits only after the amount of our capital contributions
to the joint venture is equivalent to our share of the joint venture's
accumulated losses. As of March 31, 2002, the joint venture had an accumulated
loss since inception of approximately $10.1 million, of which our share,
assuming a 50% ownership interest, is approximately $5.0 million. Until the
joint venture is profitable, McNeil Nutritionals is required to fund, as a
non-recourse, no-interest loan, all of the joint venture's aggregate capital
expenditures in excess of an agreed-upon amount, and all of the joint venture's
operating losses. The loan balance would be repayable by the joint venture to
McNeil Nutritionals over a seven-year period commencing on the earlier of
September 30, 2006 or the date on which Neose attains a 50% ownership interest
in the joint venture after having had a lesser ownership interest. In the event
of any dissolution of the joint venture, the loan balance would be payable to
McNeil Nutritionals before any distribution of assets to us. As of March 31,
2002, the joint venture owed McNeil Nutritionals approximately $8.4 million.
We may be required to make additional investments in the joint venture
to fund capital expenditures. If the joint venture builds additional production
facilities, and we wish to have a 50% ownership interest in the joint venture,
we are required to invest up to $8.9 million to fund half of such expenditures.
However, we may elect to fund as little as $1.9 million of the cost of the
facilities, so long as our aggregate investments in the joint venture are at
least 15% of the joint venture's aggregate capital expenditures. In this case,
McNeil Nutritionals will fund the remainder of our half of the joint venture's
capital expenditures, and our ownership percentage will be proportionately
reduced. We have an option, expiring in September 2006, to return to 50%
ownership of the joint venture by reimbursing McNeil Nutritionals for this
amount.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board finalized
Statements of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
which are effective for fiscal years beginning after December 15, 2001. SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. SFAS 142 no longer requires the amortization of
goodwill; rather, goodwill will be subject to a periodic assessment for
impairment by applying a fair-value-based test. In addition, an acquired
12
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. Such acquired intangible assets
will be amortized over their useful lives. All of our intangible assets were
obtained through contractual rights and have been separately identified and
recognized in our balance sheets. These intangibles are being amortized over
their estimated useful lives or contractual lives as appropriate. The adoption
of SFAS 142 in the first quarter of 2002 did not have a material impact on our
consolidated financial position or results of operations.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 changes the
accounting for long-lived assets by requiring that all long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell whether
included in reporting continuing operations or in discontinued operations. SFAS
144, which replaces SFAS 121 "Accounting for Impairment of Long-Lived Assets and
for Assets to be Disposed of," is effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS 144 did not have a material impact on
our consolidated financial position or results of operations.
Results of Operations
Revenues
Revenues from collaborative agreements for the three months ended March
31, 2002 increased to $0.8 million from $0.3 million for the corresponding
period in 2001. The increase is attributable to our agreement with Wyeth
Pharmaceuticals, which we entered into in December 2001. We received an up-front
payment of $1.0 million that is being recognized as revenue over the estimated
four-year performance period. In addition to the up-front payment, we recognized
$0.4 million in research funding during the quarter ended March 31, 2002 from
Wyeth. Our revenues in the first quarter of 2001 were related to our agreement
with Bristol-Myers.
Operating Expenses
Research and development expenses for the three months ended March 31,
2002 increased to $3.7 million from $3.2 million for the corresponding period in
2001. The increase during the 2002 period was primarily attributable to
increases in the number of employees engaged in research and development and
expenses related to GlycoAdvance.
Marketing, general and administrative expenses for the three months
ended March 31, 2002 increased to $2.6 million from $1.7 million for the
corresponding period in 2001. The increase during the 2002 period was primarily
due to additional business development personnel and expenses related to
GlycoAdvance products and services. The Company also incurred greater legal and
patent related expenses.
During the three months ended March 31, 2002, we incurred severance
charges of $2.4 million, of which $1.6 million is a non-cash charge related to
stock option modifications for agreements entered into with two of the Company's
executive officers. There were no such charges for the three months ended March
31, 2001.
13
Interest Income and Expense
Interest income for the three months ended March 31, 2002 decreased to
$429,000 from $1,321,000 for the corresponding period in 2001. The decrease was
due to lower average cash and marketable securities balances during the 2002
period.
Interest expense for the three months ended March 31, 2002 decreased to
$40,000 from $99,000 for the corresponding period in 2001. The decrease was due
to lower interest rates during the 2002 period.
Net Loss
Our net loss for the three months ended March 31, 2002 increased to
$7.6 million, or $0.54 per share, from $3.3 million, or $0.24 per share, for the
corresponding period in 2001.
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. At
March 31, 2002, our entire investment portfolio was held in money market
securities, with no amounts invested in government securities or other notes.
The approximate principal amount and weighted-average interest rate per year of
our investment portfolio as of March 31, 2002 was $65.5 million and 1.95%,
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 $6.2 million of 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, 2002, the
weighted-average, effective interest rate was approximately 3.4% per year.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits: None
(b) Report on Form 8-K:
On February 1, 2002, we filed a Current Report on Form 8-K
announcing a research, development and license agreement with
Wyeth-Ayerst Laboratories.
On April 4, 2002, we filed a Current Report on Form 8-K
announcing the appointment of C. Boyd Clarke as president, chief
executive officer, and director. The Current Report on Form 8-K
was subsequently amended on April 29, 2002.
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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: April 29, 2002 By: /s/ A. Brian Davis
-------------------------
A. Brian Davis
Principal Financial and
Accounting Officer
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