UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2005. |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from _________________ to _________________ |
Commission file number: 0-27718
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NEOSE TECHNOLOGIES, INC. |
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(Exact name of registrant as specified in its charter) |
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Delaware |
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13-3549286 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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102 Witmer Road Horsham, Pennsylvania |
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19044 |
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(Address of principal executive offices) |
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(Zip Code) |
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(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.
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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).
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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: 32,782,372 shares of common stock, $.01 par value, were outstanding as of April 25, 2005.
NEOSE TECHNOLOGIES, INC.
INDEX
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Page |
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PART I. |
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Item 1. |
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3 |
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Statements of Operations for the three months ended March 31, 2005 and 2004 |
4 |
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Statements of Cash Flows for the three months ended March 31, 2005 and 2004 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
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Item 4. |
26 |
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PART II. |
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Item 6. |
28 |
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29 |
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2
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Financial Statements |
Balance Sheets
(unaudited)
(in thousands, except per share amounts)
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March 31, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
64,275 |
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$ |
45,048 |
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Accounts receivable and other current assets |
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1,989 |
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2,768 |
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Total current assets |
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66,264 |
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47,816 |
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Property and equipment, net |
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40,219 |
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41,133 |
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Intangible and other assets, net |
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1,519 |
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1,782 |
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Total assets |
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$ |
108,002 |
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$ |
90,731 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Note payable |
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$ |
638 |
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$ |
— |
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Current portion of long-term debt and capital lease obligations |
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4,551 |
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4,586 |
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Accounts payable |
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2,069 |
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1,783 |
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Accrued compensation |
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865 |
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1,916 |
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Accrued expenses |
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2,049 |
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2,052 |
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Deferred revenue |
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1,006 |
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1,560 |
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Total current liabilities |
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11,178 |
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11,897 |
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Long-term debt and capital lease obligations |
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12,700 |
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13,759 |
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Deferred revenue, net of current portion |
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3,495 |
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3,688 |
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Other liabilities |
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518 |
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533 |
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Total liabilities |
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27,891 |
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29,877 |
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Stockholders’ equity: |
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Preferred stock, par value $.01 per share, 5,000 shares authorized, none issued |
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— |
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— |
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Common stock, par value $.01 per share, 50,000 shares authorized; 32,782 and 24,717 shares issued and outstanding |
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328 |
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247 |
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Additional paid-in capital |
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278,457 |
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248,027 |
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Deferred compensation |
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(26 |
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(39 |
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Accumulated deficit |
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(198,648 |
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(187,381 |
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Total stockholders’ equity |
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80,111 |
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60,854 |
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Total liabilities and stockholders’ equity |
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$ |
108,002 |
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$ |
90,731 |
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The accompanying notes are an integral part of these financial statements.
3
Statements of Operations
(unaudited)
(in thousands, except per share amounts)
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Three months ended March 31, |
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2005 |
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2004 |
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Revenue from collaborative agreements |
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$ |
1,348 |
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$ |
1,250 |
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Operating expenses: |
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Research and development |
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9,625 |
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7,878 |
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General and administrative |
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2,978 |
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2,862 |
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Total operating expenses |
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12,603 |
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10,740 |
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Operating loss |
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(11,255 |
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(9,490 |
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Other income |
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22 |
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— |
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Interest income |
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304 |
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105 |
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Interest expense |
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(338 |
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(118 |
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Net loss |
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$ |
(11,267 |
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$ |
(9,503 |
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Basic and diluted net loss per share |
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$ |
(0.40 |
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$ |
(0.48 |
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Weighted-average shares outstanding used in computing basic and diluted net loss per share |
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27,947 |
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19,943 |
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The accompanying notes are an integral part of these financial statements.
4
Statements of Cash Flows
(unaudited)
(in thousands)
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Three months ended March 31, |
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2005 |
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2004 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(11,267 |
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$ |
(9,503 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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1,636 |
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1,347 |
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Non-cash compensation expense |
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50 |
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14 |
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Changes in operating assets and liabilities: |
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Accounts receivable and other current assets |
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759 |
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(983 |
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Intangible and other assets |
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— |
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2 |
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Accounts payable |
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286 |
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(507 |
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Accrued compensation |
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(669 |
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(1,292 |
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Accrued expenses |
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(10 |
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(98 |
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Deferred revenue |
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(747 |
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456 |
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Other liabilities |
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(15 |
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(82 |
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Net cash used in operating activities |
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(9,977 |
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(10,646 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(452 |
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(3,968 |
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Proceeds from sale of equipment |
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20 |
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— |
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Net cash used in investing activities |
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(432 |
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(3,968 |
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Cash flows from financing activities: |
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Proceeds from issuance of debt |
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701 |
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9,941 |
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Repayments of debt |
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(1,157 |
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(4,426 |
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Debt issuance costs |
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— |
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(102 |
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Restricted cash related to debt |
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— |
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901 |
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Proceeds from issuance of common stock, net |
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30,092 |
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86 |
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Proceeds from exercise of stock options and warrants |
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— |
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30 |
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Net cash provided by financing activities |
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29,636 |
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6,430 |
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Net increase (decrease) in cash and cash equivalents |
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19,227 |
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(8,184 |
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Cash and cash equivalents, beginning of period |
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45,048 |
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48,101 |
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Cash and cash equivalents, end of period |
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$ |
64,275 |
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$ |
39,917 |
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The accompanying notes are an integral part of these financial statements.
5
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
1. Organization and Business Activities
Neose Technologies, Inc. is a biopharmaceutical company using its enzymatic technologies to develop proprietary drugs, focusing primarily on therapeutic proteins. We believe that our core enzymatic technologies, GlycoAdvance® and GlycoPEGylation™, improve the drug properties of therapeutic proteins by building out, and attaching polyethylene glycol (PEG) to, carbohydrate structures on the proteins.
Our revenue from collaborative agreements increased from $1,435 in 2003 to $5,070 in 2004. In April 2005, we entered into agreement with BioGeneriX AG for the use of our enzymatic technologies to develop a long-acting version of a currently marketed therapeutic protein (see Note 10). We have now partnered five of our six proprietary drug programs that are in various stages of research and preclinical development. Under our collaborative agreements, we have begun to receive significant revenues from our planned principal operation of developing proprietary drugs. As a result of the revenue growth in 2004 compared to 2003 and entering into new collaborative agreements, we are no longer considered a development-stage company as we have been since our inception in January 1989, and all cumulative information reported in prior years is no longer reported.
2. Interim Financial Information
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for presentation of interim financial statements. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations, and cash flows for the periods presented. In our opinion, however, 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 2005 solely on our results of operations for the three months ended March 31, 2005. 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 Item 2; 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, 2004.
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires us to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
6
NEOSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Revenue Recognition
Revenue from collaborative agreements consists of upfront fees, research and development funding, and milestone payments. Non-refundable upfront fees are deferred and amortized to revenue over the related estimated 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.
Stock-based Compensation
We apply the intrinsic value method of accounting for all stock-based employee compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, 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. In addition, we apply fair value accounting for option grants to non-employees in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), and Emerging Issues Task Force Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
We have elected to adopt only the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. 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 No. 123:
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Three months ended March 31, |
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2005 |
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2004 |
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Net loss – as reported |
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$ |
(11,267 |
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$ |
(9,503 |
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Add: Stock-based employee compensation expense included in reported net loss |
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301 |
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11 |
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Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards |
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(1,141 |
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(2,280 |
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Net loss – pro forma |
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$ |
(12,107 |
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$ |
(11,772 |
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Basic and diluted net loss per share – as reported |
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$ |
(0.40 |
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$ |
(0.48 |
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Basic and diluted net loss per share – pro forma |
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$ |
(0.43 |
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$ |
(0.59 |
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7
NEOSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Net Loss 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 is computed by dividing net loss by the sum of weighted-average number of common shares outstanding for the period and the number of additional shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares are excluded from the calculation of diluted net loss per share if the effect on net loss per share is antidilutive. Our diluted net loss