Exhibit 99.2
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS AS OF
JUNE 30, 2001 AND 2000
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000 (UNAUDITED)
June 30, December 31,
ASSETS 2001 2000
- ------ -------- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,505,541 $ 5,525,240
Other current assets 36,394 750
-------------- --------------
Total current assets 5,541,935 5,525,990
-------------- --------------
EQUIPMENT, FURNITURE AND FIXTURES: 4,368,532 2,316,556
Less- Accumulated depreciation (298,276) (118,002)
-------------- --------------
Total equipment, furniture and fixtures, net 4,070,256 2,198,554
-------------- --------------
INTANGIBLE ASSETS, net 18,081 18,763
DEPOSITS 47,429 45,293
-------------- --------------
Total assets $ 9,677,701 $ 7,788,600
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 906,788 $ 733,833
Accrued liabilities 138,389 93,281
Short-term notes payable - 130,000
Current portion of lease obligations payable 87,742 79,966
-------------- --------------
Total current liabilities 1,132,919 1,037,080
-------------- --------------
LONG-TERM LIABILITIES:
Lease obligation payable 57,115 110,708
Convertible debentures and accrued interest 585,000 562,500
Note payable 1,459,118 -
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE, CONVERTIBLE, CUMULATIVE, PARTICIPATING PREFERRED STOCK
10,020,369 8,580,931
SERIES B REDEEMABLE, CONVERTIBLE, CUMULATIVE, PARTICIPATING PREFERRED STOCK
8,348,958 -
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 5,595,000 shares authorized, and 1,387,555
and 1,312,144 shares issued and outstanding at June 30, 2001
and December 31, 2000, respectively 13,876 13,121
Additional paid-in capital 4,564,387 1,689,399
Deficit accumulated during the development stage (16,504,041) (4,205,139)
-------------- --------------
Total shareholders' equity (deficit) (11,925,778) (2,502,619)
-------------- --------------
Total liabilities and shareholders' equity (deficit) $ 9,677,701 $ 7,788,600
============== ==============
The accompanying notes are an integral part of these balance sheets.
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AND THE
PERIOD FROM INCEPTION (APRIL 16, 1999) TO JUNE 30, 2001 (UNAUDITED)
Six Months Ended June 30, April 16, 1999
----------------------------- to June 30,
2001 2000 2001
-------- -------- ------
REVENUES:
Grant revenue $ - $ 250,000 $ 250,000
OPERATING EXPENSES:
Research and development 6,610,656 625,579 8,911,056
General and administrative 5,282,324 572,735 7,277,542
-------------- ------------- -------------
Total operating expenses 11,892,980 1,198,314 16,188,598
-------------- ------------- -------------
OPERATING LOSS (11,892,980) (948,314) (15,938,598)
OTHER INCOME (EXPENSE):
Interest income 145,632 - 283,512
Interest expense (77,583) (27,014) (172,050)
-------------- ------------- -------------
Total other income (expense), net 68,049 (27,014) 111,462
-------------- ------------- -------------
Net loss (11,824,931) (975,328) (15,827,136)
DIVIDENDS ON PREFERRED STOCK (473,971) - (676,905)
-------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (12,298,902) $ (975,328) $ (16,504,041)
============== ============= =============
Basic net loss applicable to common shareholders per common
share, $ (9.20) $ (.86) $ (13.82)
============== ============= =============
Weighted average common shares outstanding
used to compute basic net loss
applicable to common shareholders per
common share 1,336,408 1,137,823 1,194,611
============== ============= =============
The accompanying notes are an integral part of these financial statements.
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 16, 1999) TO JUNE 30, 2001 (UNAUDITED)
Deficit
Accumulated
Common Stock Additional During the Total
---------------- Paid-in- Development Shareholders'
Shares Amount Capital Stage Equity (Deficit)
---------- ---------- ----------- --------- ----------------
Issuance of common stock 1,084,134 $ 10,841 $ 361,360 $ - $ 372,201
Net loss - - - (294,616) (294,616)
----------- ----------- ------------ --------------- ---------------
Balance, December 31, 1999 1,084,134 10,841 361,360 (294,616) 77,585
Issuance of common stock 228,010 2,280 1,241,039 - 1,243,319
Net loss - - - (975,328) (975,328)
----------- ----------- ------------ --------------- ---------------
Balance, June 30, 2000 1,312,144 13,121 1,602,399 (1,269,944) 345,576
Accrued preferred stock dividends
- - - (202,934) (202,934)
Stock option compensation - - 87,000 - 87,000
Net loss - - - (2,732,261) (2,732,261)
----------- ----------- ------------ --------------- ---------------
Balance, December 31, 2000 1,312,144 13,121 1,689,399 (4,205,139) (2,502,619)
Issuance of common stock 75,411 755 353,118 - 353,873
Accrued preferred stock dividends - - - (473,971) (473,971)
Stock option compensation - - 2,521,870 - 2,521,870
Net loss - - - (11,824,931) (11,824,931)
----------- ----------- ------------ --------------- ---------------
Balance, June 30, 2001 1,387,555 $ 13,876 $ 4,564,387 $ (16,504,041) $ (11,925,778)
=========== =========== ============ =============== ===============
The accompanying notes are an integral part of these financial statements.
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AND THE
PERIOD FROM INCEPTION (APRIL 16, 1999) TO JUNE 30, 2001 (UNAUDITED)
Six Months Ended June 30, April 16, 1999
----------------------------- to June 30,
2001 2000 2001
-------- -------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,824,931) $ (975,328) $ (15,827,136)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 180,956 41,911 300,660
Settlement of Neose transaction 2,497,943 - 2,497,943
Expenses paid with common stock 7,185 136,560 170,745
Stock option compensation 2,521,870 - 2,608,870
Change in operating assets and liabilities-
Increase in other current assets (35,644) (4,950) (36,394)
Increase in current liabilities 88,063 37,775 1,045,177
Increase in accrued interest 22,500 - 22,500
-------------- ------------- --------------
Net cash used in operating activities (6,542,058) (764,032) (9,217,635)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and intangible assets (2,051,976) (195,599) (4,388,997)
Increase in other assets (2,136) (9,794) (47,429)
-------------- ------------- --------------
Net cash used in investing activities (2,054,112) (205,393) (4,436,426)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 353,873 1,106,759 1,798,648
Proceeds from sale of preferred stock 8,268,415 - 16,653,597
Proceeds from sale of convertible debentures - 562,500 562,500
Proceeds from capital leases - 209,975 209,975
Payments under capital leases (45,817) (2,757) (65,118)
-------------- ------------- --------------
Net cash provided by financing activities 8,576,471 1,876,477 19,159,602
Net increase (decrease) in cash and cash equivalents
(19,699) 907,052 5,505,541
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
5,525,240 89,220 -
-------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,505,541 $ 996,272 $ 5,505,541
============== ============= ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Accrued preferred stock dividends $ 473,971 $ - $ 676,905
============== ============= ==============
The accompanying notes are an integral part of these financial statements.
NOVAZYME PHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000 (UNAUDITED)
1. BASIS OF PRESENTATION:
----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 2001, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. For further information, refer to
the consolidated financial statements and notes thereto for the year ended
December 31, 2000.
The Company is presently working on a number of long-term development projects
which involve experimental and unproven technology, may require many years and
substantial expenditures to complete, and may be unsuccessful. To date, the
Company has not developed or sold any products, and no assurance can be given
that the Company will be able to develop, manufacture or market any products in
the future. In addition, no assurance exists that future revenues will be
significant, that any sales will be profitable, or that the Company will have
sufficient funds available to complete its research and development programs or
market any products which it may develop.
To date, the Company has financed its operations primarily through the sale of
common and preferred stock and convertible debentures. In the future, the
Company expects to incur substantial research and development expenditures as
the Company develops biotherapeutics for the treatment of human diseases.
Consequently, the Company expects that its operating losses will increase during
2001 and subsequent years because:
o The Company expects to incur significant clinical trial costs for the
Pompe, Mucopolysaccharidosis I, Fabry and other lysosomal storage
disease drugs. These costs include:
-- Hiring personnel to direct and carry out all operations related to
clinical trials;
-- Hospital and procedural costs;
-- Services of a contract research organization; and
-- Purchasing and formulating large quantities of the drugs to be used
in such trials.
Furthermore, the Company anticipates that the administrative costs associated
with these efforts will be significant. The amount and timing of expenditures
will depend, among other things, on the Company's progress in ongoing research,
clinical development and commercialization efforts. At present, the Company
anticipates that it will require between $15 and $18 million, during 2001, to
proceed with all of its drug development programs on the accelerated timelines
followed in prior years. In the first six months of 2001, the Company has raised
approximately $9.6 million through the sale of preferred and common stock.
The Company anticipates that it will need to raise substantial funds for future
operations, which may be raised through collaborative arrangements, public or
private issuance of debt or equity, or
-2-
other arrangements. The Company expects that additional expenditures will be
required if additional drug candidates enter clinical trials, which may require
additional expenditures for laboratory space, scientific and administrative
personnel, and services on contract research organizations. There can be no
assurance that the Company will be able to obtain such additional financing on
acceptable terms or in time to fund any necessary or desirable expenditures. In
the event such financings are not obtained, the Company's drug development
programs may be delayed, scaled back or eliminated; or the Company may be
required to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of the
Company's technologies, drug candidates or products that the Company would not
otherwise relinquish. The Company's ability to raise additional funding is
contingent upon a number of factors which include, (i) ongoing cost of research
and development activities, (ii) cost of clinical development of drug
candidates, (iii), attainment of research and clinical goals for drug
candidates, (iv) timely approval of drug candidates by appropriate governmental
and regulatory agencies, (v) effect of any current or future competitive
products, (vi) ability to manufacture and market products commercially, (vii)
retention of key personnel and (viii) capital market conditions.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in a development stage
and will require additional equity or debt to complete research and development
of its products which raises substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
2. CAPITAL STOCK:
--------------
During the six months ended June 30, 2001, the Company raised approximately $8.3
million through the sale of 796,531 shares of 8% Cumulative, Redeemable,
Convertible, Participating Preferred Stock ("Series B Preferred"). The shares of
Series B Preferred are initially convertible on a one-for-one basis into common
stock upon certain events including a change of control. Dividends are accrued
on the Series B Preferred at 8% per annum, whether or not declared by the board
of directors, and totaled approximately $134,000 at June 30, 2001. All Series B
Preferred shares are cancelled upon conversion. In addition, the Series B
Preferred shareholders participate in dividends to common shareholders on an
equivalent basis as if it had been converted to common shares. The Series B
Preferred is redeemable at the option of the holder at the earlier of April 2004
or the sale of the Company, at the higher of its liquidation value ($10.399 per
share plus cumulative accrued dividends) or the fair value of the underlying
common stock into which the Series B Preferred is convertible. As of June 30,
2001 none of the Series B Preferred had been converted.
In April 2001 the Company amended its statement of incorporation to increase the
number of common shares available to 5,595,000. This amendment also increased
the Series A Preferred and Series B Preferred shares authorized to 1,125,000 and
1,780,000 shares, respectively.
In August 2001 the Company amended its Certificate of Designation of the Series
A and Series B Preferred to require conversion of these classes of preferred
stock into the Company's common stock upon a change of control (see Note 5).
3. STOCK OPTIONS:
--------------
In April 2001, the Company granted approximately 383,000 options to purchase
common stock at $1.00 per share, which was below the fair market value of a
share of common stock at the date of grant. These options vest over a three year
period beginning on the employee date of hire. Accordingly, for the six months
ended June 30, 2001, the Company recognized compensation expense of
approximately $1.7 million which is reflected in research and development and
general and administrative expense on the accompanying statement of operations.
The Company anticipates it will record additional expense of approximately $1.3
million over the remaining vesting period of the options.
-3-
In 2000, the Company entered into a stock option agreement that allowed an
officer of the Company to vest in 50,000 stock options based on the occurrence
of certain events. The Company recognized $788,000 in compensation expense
related to this option for the six months ended June 30, 2001. This amount is
recorded in general and administrative expense on the accompanying statement of
operations. In July 2001 the Company waived the conditions of exercisability
related to the 50,000 options and immediately vested the options.
In July 2001 the Company accelerated the vesting of certain stock options to
various officers of the Company. The Company also extended loans to certain
officers of approximately $766,000 to enable them to purchase their vested stock
options.
In July 2001, the Company granted approximately 73,000 options to purchase
common stock at $1.00 per share, which was below the fair market value of a
share of common stock at the date of grant. These options vest over a
three-year period beginning on the employee date of hire. Accordingly, the
Company will recognize approximately $1.7 million in expense over the vesting
period.
4. NEOSE SETTLEMENT:
-----------------
On May 18, 2000, the Company signed a strategic alliance agreement ("Neose
Agreement") with Neose Technologies, Inc. ("Neose") to develop and potentially
market a drug for the treatment of lysosomal storage diseases. Upon consummation
of the transaction, Neose purchased $562,500 of 8% convertible subordinated
debentures and received a seven-year common stock purchase warrant for 37,500
shares of common stock at an exercise price of $8.25 per share. Neose also had
an obligation to purchase an additional $562,500 of 8% convertible subordinated
debentures on the same terms as the original purchase upon receipt of certain
data, and it had the option to enter into a 50/50 joint venture for the
development of the Company's first drug to treat lysosomal storage diseases. On
February 26, 2001, the Company renegotiated the Neose Agreement. Under the terms
of the amended agreement, Neose relinquished its option to enter into the joint
venture and the 37,500 share common stock purchase warrant. In addition, Neose
was released from its obligation to purchase the second $562,500 of debentures
and received 112,500 shares of the Series A Preferred stock, royalties on future
potential licensing agreements and net sales of certain lysosomal storage
disease drugs. In addition, they will also receive certain installment payments
to be made by Novazyme. Accordingly, the Company recognized expense of
approximately $2.5 million which is reflected as research and development
expense on the accompanying statement of operations. This expense reflects
issuance of 112,500 shares of Series A Preferred at $9.24 per share and the
recording of a liability of approximately $1.46 million related to its required
installment payments.
5. SUBSEQUENT EVENT:
-----------------
On August 6, 2001, the Company entered into a merger agreement under which
Genzyme General, a wholly owned subsidiary of Genzyme Corp., will issue stock in
exchange for the outstanding common stock of the Company. The value of such
consideration is expected to be $137.5 million initially. In addition, the
Company's stockholders would be entitled to receive up to an additional $87.5
million in Genzyme General stock upon attainment of certain product milestones.
In addition, the Company's Board of Directors has authorized the acceleration of
the vesting of stock options covering 433,678 shares of common stock, which may
result in additional compensation expense.