##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006.
 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.
 
 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)
 
   þ o
  o þ o
  o þ




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##### 



NEOSE TECHNOLOGIES, INC.
  
 INDEX
 PagePART I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Financial Statements (unaudited)Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Statements of Operations for the three and nine months ended September 30, 2006 and 2005
    
    
    4Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
    
    
    5Notes to Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    35PART II.
    
    OTHER INFORMATION:Item 1A.
    
    Risk Factors
    
    
    36Item 6.
    
    Exhibits
    
    
    36SIGNATURES
    
    
    38CERTIFICATION BY CHIEF EXECUTIVE OFFICERCERTIFICATION BY CHIEF FINANCIAL OFFICERCERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Neose Technologies, Inc.
 
 Balance Sheets
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    23,612
    
    
    $
    37,738Accounts receivable
    
    
    161
    
    
    
    1,076Prepaid expenses and other current assets
    
    
    1,444
    
    
    
    892Total current assets
    
    
    25,217
    
    
    
    39,706Property and equipment, net
    
    
    11,505
    
    
    
    24,708Intangible and other assets, net
    
    
    324
    
    
    
    949Total assets
    
    $
    37,046
    
    
    $
    65,363Liabilities and Stockholders EquityCurrent liabilities:Note payable
    
    $
    122
    
    
    $
    Current portion of long-term debt and capital lease obligations
    
    
    1,335
    
    
    
    4,031Accounts payable
    
    
    436
    
    
    
    722Accrued compensation
    
    
    1,763
    
    
    
    1,618Accrued expenses
    
    
    3,200
    
    
    
    2,697Deferred revenue
    
    
    539
    
    
    
    1,527Total current liabilities
    
    
    7,395
    
    
    
    10,595Long-term debt and capital lease obligations, net of current portion
    
    
    879
    
    
    
    10,423Deferred revenue, net of current portion
    
    
    3,832
    
    
    
    3,765Other liabilities
    
    
    498
    
    
    
    463Total liabilities
    
    
    12,604
    
    
    
    25,246Commitments and contingencies (Note 14)Stockholders equity:Common stock, par value $.01 per share, 75,000 and 50,000 shares
authorized; 32,971 and 32,782 shares issued and outstanding
    
    
    330
    
    
    
    328Additional paid-in capital
    
    
    280,914
    
    
    
    279,015Deferred compensation
    
    
    
    
    
    
    (6
    )Accumulated deficit
    
    
    (256,802
    )
    
    
    (239,220
    )Total stockholders equity
    
    
    24,442
    
    
    
    40,117Total liabilities and stockholders equity
    
    $
    37,046
    
    
    $
    65,363
  3




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Neose Technologies, Inc.
 
 Statements of Operations
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue from collaborative agreements
    
    $
    1,477
    
    
    $
    1,503
    
    
    $
    5,588
    
    
    $
    4,271Operating expenses:Research and development
    
    
    6,811
    
    
    
    7,521
    
    
    
    21,173
    
    
    
    26,154General and administrative
    
    
    3,028
    
    
    
    2,685
    
    
    
    9,050
    
    
    
    8,469Restructuring charges
    
    
    
    
    
    
    14,002
    
    
    
    
    
    
    
    14,002Total operating expenses
    
    
    9,839
    
    
    
    24,208
    
    
    
    30,223
    
    
    
    48,625Gain on sale of property and equipment
    
    
    7,335
    
    
    
    
    
    
    
    7,335
    
    
    
    21Operating loss
    
    
    (1,027
    )
    
    
    (22,705
    )
    
    
    (17,300
    )
    
    
    (44,333
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Interest income
    
    
    269
    
    
    
    415
    
    
    
    943
    
    
    
    1,138Interest expense
    
    
    (592
    )
    
    
    (331
    )
    
    
    (1,225
    )
    
    
    (1,000
    )Net loss
    
    $
    (1,350
    )
    
    $
    (22,621
    )
    
    $
    (17,582
    )
    
    $
    (44,173
    )Basic and diluted net loss per share
    
    $
    (0.04
    )
    
    $
    (0.69
    )
    
    $
    (0.54
    )
    
    $
    (1.42
    )Weighted-average shares outstanding
used in computing basic and diluted
net loss per share
    
    
    32,866
    
    
    
    32,782
    
    
    
    32,818
    
    
    
    31,188
  4




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Neose Technologies, Inc.
 
 Statements of Cash Flows
 Nine months endedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (17,582
    )
    
    $
    (44,173
    )Adjustments to reconcile net loss to net cash used in operating activities:Impairment of property and equipment
    
    
    121
    
    
    
    13,187Depreciation and amortization expense
    
    
    1,650
    
    
    
    3,831Non-cash compensation expense
    
    
    1,940
    
    
    
    484Gain on disposition of property and equipment
    
    
    (7,335
    )
    
    
    (21
    )Premiums paid on early repayment of debt
    
    
    215
    
    
    
    Accelerated amortization of debt issuance costs on early repayment of
debt
    
    
    133
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    915
    
    
    
    1,082Prepaid expenses and other current assets
    
    
    (122
    )
    
    
    (251
    )Accounts payable
    
    
    (220
    )
    
    
    (1,054
    )Accrued compensation
    
    
    274
    
    
    
    26Accrued expenses
    
    
    413
    
    
    
    774Deferred revenue
    
    
    (921
    )
    
    
    (657
    )Other liabilities
    
    
    35
    
    
    
    (47
    )Net cash used in operating activities
    
    
    (20,484
    )
    
    
    (26,819
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (499
    )
    
    
    (719
    )Proceeds from sale of property and equipment
    
    
    19,344
    
    
    
    70Proceeds from settlement of property and equipment dispute
    
    
    
    
    
    
    25Purchases of marketable securities
    
    
    
    
    
    
    (9,845
    )Net cash provided by (used in) investing activities
    
    
    18,845
    
    
    
    (10,469
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    539
    
    
    
    1,484Repayments of debt
    
    
    (12,649
    )
    
    
    (3,860
    )Premiums paid on early repayment of debt
    
    
    (215
    )
    
    
    Proceeds from issuance of common stock, net
    
    
    12
    
    
    
    30,092Payment of withholding taxes related to restricted stock units
    
    
    (174
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (12,487
    )
    
    
    27,716Net decrease in cash and cash equivalents
    
    
    (14,126
    )
    
    
    (9,572
    )Cash and cash equivalents, beginning of period
    
    
    37,738
    
    
    
    45,048Cash and cash equivalents, end of period
    
    $
    23,612
    
    
    $
    35,476
 
 5




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##### Table of Contents



NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 1. Organization and Business Activities
 ® de novo
   6




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 2. Interim Financial Information
  3. Summary of Significant Accounting Policies
 Use of Estimates
  Stock-based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
 Accounting for Stock Based Compensation
 7




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Accounting for Stock-Based Compensation, Transition and Disclosure
  Net Loss Per Share
  Comprehensive Loss
  Fair Value of Financial Instruments
  8




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
  Recent Accounting Pronouncements
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements Accounting
Changes and Error Corrections
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
  Accounting
Changes Reporting Accounting Changes in Interim Financial Statements
 Reclassification
  4. Supplemental Disclosure of Cash Flow Information
  Nine months endedSeptember 30,2006
    
    
    2005Supplemental disclosure of cash flow information:Cash paid for interest, net of amounts capitalized
    
    $
    1,109
    
    
    $
    986Non-cash investing activities:Increase (decrease) in accrued property and
equipment included in accounts payable and
accrued expenses
    
    $
    24
    
    
    $
    (63
    )Decrease in acquisition value of property and
equipment related to cancellation of a vendor
invoice as partial settlement of dispute (see
Note 6)
    
    $
    
    
    
    $
    116Decrease in acquisition value of property and
equipment related to receivable from vendor as
partial settlement of dispute (see Note 6)
    
    $
    
    
    
    $
    50Decrease in acquisition value of property and
equipment due to decrease in amount of remaining
minimum lease payments under capital lease
    
    $
    
    
    
    $
    10Non-cash financing activity:Conversion of accrued compensation from liability
to equity classified award upon grant of
restricted stock units (see Note 11)
    
    $
    129
    
    
    $
    382
 10




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 5. Prepaid Expenses and Other Current Assets
  September 30,
    
    
    December 31,2006
    
    
    2005Prepaid rent
    
    $
    387
    
    
    $
    61Prepaid insurance
    
    
    261
    
    
    
    96Prepaid maintenance agreements
    
    
    239
    
    
    
    276Prepaid clinical and preclinical studies
    
    
    193
    
    
    
    141Other prepaid expenses
    
    
    204
    
    
    
    144Other current assets
    
    
    160
    
    
    
    174$
    1,444
    
    
    $
    892
 6. Property and Equipment
  September 30,
    
    
    December 31,2006
    
    
    2005Building, facility improvements, and land
    
    $
    
    
    
    $
    9,522Leasehold improvements
    
    
    9,878
    
    
    
    9,964Laboratory, manufacturing, and office equipment
    
    
    5,813
    
    
    
    9,606Construction-in-progress
    
    
    248
    
    
    
    15,939
    
    
    
    29,092Less accumulated depreciation and amortization
    
    
    (4,434
    )
    
    
    (4,384
    )$
    11,505
    
    
    $
    24,708
  11




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
    2005 Activity
   12




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
   7. Intangible and Other Assets
  September 30,
    
    
    December 31,2006
    
    
    2005Acquired intellectual property, net
of accumulated amortization of $4,284
and $3,836 as of September 30, 2006
and December 31, 2005, respectively
    
    $
    266
    
    
    $
    714Deferred financing costs, net of
accumulated amortization $36 as of
December 31, 2005
    
    
    
    
    
    
    145Receivable from related party
    
    
    
    
    
    
    29Deposits
    
    
    58
    
    
    
    61$
    324
    
    
    $
    949
  13




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NEOSE TECHNOLOGIES, INC.


NOTES TO FINANCIAL STATEMENTS


8. Debt and Capital Lease Obligations




September 30,
    
    
    December 31,2006
    
    
    2005Term loan from bank
    
    $
    
    
    
    $
    7,111Industrial development authority bond
    
    
    
    
    
    
    1,000Term loan from landlord (unsecured), annual
interest at 13.0%, due June 2008
    
    
    720
    
    
    
    997Notes payable to equipment lender, secured by
equipment and facility improvements, interest
rates from 8.1% to 9.5%, due 2006 to 2008
    
    
    1,374
    
    
    
    5,075Note payable, secured by insurance policies,
annual interest at 5.4%, due November 2006
    
    
    122
    
    
    
    Subtotal
    
    
    2,216
    
    
    
    14,183Capital lease obligations
    
    
    120
    
    
    
    271Total debt and capital lease obligations
    
    
    2,336
    
    
    
    14,454Less note payable, secured by insurance policies
    
    
    (122
    )
    
    
    Less current portion of long-term debt
    
    
    (1,335
    )
    
    
    (4,031
    )Total long-term debt and capital lease
obligations, net of current portion
    
    $
    879
    
    
    $
    10,423


Term Loan from Bank and Industrial Development Authority Bond




Notes Payable to Equipment Lender


14




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Note Payable Secured by Insurance Policies
  9. Accrued Expenses
  September 30,
    
    
    December 31,2006
    
    
    2005Professional fees
    
    $
    1,390
    
    
    $
    1,346Contract research and development services
    
    
    742
    
    
    
    650Clinical and preclinical studies
    
    
    355
    
    
    
    183Other expenses
    
    
    713
    
    
    
    518$
    3,200
    
    
    $
    2,697
 10. Stockholders Equity
  11. Equity-based Compensation
 Equity Incentive Plans
  15




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
   Weighted -Weighted -
    
    
    
    
    
    
    averageaverage
    
    
    Aggregate
    
    
    remainingexercise
    
    
    intrinsic
    
    
    contractualShares
    
    
    price
    
    
    value
    
    
    life (years)Outstanding at
January 1, 2006
    
    
    4,995
    
    
    $
    14.01Granted
    
    
    1,403
    
    
    
    2.60Exercised
    
    
    (5
    )
    
    
    2.58Forfeited
    
    
    (229
    )
    
    
    4.36Expired
    
    
    (306
    )
    
    
    14.41Outstanding at
September 30, 2006
    
    
    5,858
    
    
    $
    11.64
    
    
    $
    
    
    
    
    6.4Vested at September
30, 2006 and
expected to vest
    
    
    5,423
    
    
    $
    12.25
    
    
    $
    
    
    
    
    6.6Exercisable at
September 30, 2006
    
    
    3,683
    
    
    $
    15.87
    
    
    $
    
    
    
    
    5.1
 16




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Fair Value Disclosures
   Three months ended
    
    Nine months endedSeptember 30, 2006
    
    September 30, 2006Expected volatility
    
    75%
    
    75%Expected term (years)
    
    4.7  7.7
    
    4.7  7.7Risk-free interest rate
    
    4.7%
    
    4.5  5.1%Expected dividend yield
    
    0%
    
    0%
 Share-Based Payment
 17




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
     18




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net loss  as reported
    
    $
    (22,621
    )
    
    $
    (44,173
    )Add: Stock-based
employee
compensation
expense included in
reported net loss
    
    
    (2
    )
    
    
    820Deduct: Total
stock-based
employee
compensation
expense determined
under fair
value-based method
for all awards
    
    
    (1,193
    )
    
    
    (4,139
    )Net loss  pro forma
    
    $
    (23,816
    )
    
    $
    (47,492
    )Basic and diluted net
loss per share  as
reported
    
    $
    (0.69
    )
    
    $
    (1.42
    )Basic and diluted net
loss per share  pro
forma
    
    $
    (0.73
    )
    
    $
    (1.52
    )
  Three months ended
    
    Nine months endedSeptember 30, 2005
    
    September 30, 2005Expected volatility
    
    75%
    
    75%Expected term (years)
    
    0.7  7.8
    
    0.7  8.5Risk-free interest rate
    
    3.9  4.3%
    
    3.9  4.3%Expected dividend yield
    
    0%
    
    0%
 Restricted Stock Units
   19




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
  Weighted-averageWeighted-average
    
    
    
    
    
    
    remaininggrant-date fair
    
    
    Aggregate intrinsic
    
    
    contractual lifeShares
    
    
    value
    
    
    value
    
    
    (years)Outstanding at
January 1, 2006
    
    
    290
    
    
    $
    3.68Awarded
    
    
    84
    
    
    
    2.29Settled
    
    
    (246
    )
    
    
    3.90Forfeited
    
    
    
    
    
    
    Outstanding at
September 30, 2006
    
    
    128
    
    
    $
    2.34
    
    
    $
    253
    
    
    
    0.2Vested at September
30, 2006 and
expected to vest
    
    
    128
    
    
    $
    2.34
    
    
    $
    253
    
    
    
    0.2
  12. Collaborative Agreements and Significant Customer Concentration
  20




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Novo Nordisk A/S Agreements
  13. Restructurings
 2006 Restructuring
  2005 Restructuring
   21




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NEOSE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Employee
    
    
    Facility closureseverance costs
    
    
    costs
    
    
    TotalInitial provision
    
    $
    815
    
    
    $
    
    
    
    $
    815Cash payments
    
    
    (542
    )
    
    
    
    
    
    
    (542
    )Balance as of September 30,
2005
    
    
    273
    
    
    
    
    
    
    
    273Additional provision
    
    
    52
    
    
    
    152
    
    
    
    204Cash payments
    
    
    (299
    )
    
    
    (91
    )
    
    
    (390
    )Balance as of December 31, 2005
    
    
    26
    
    
    
    61
    
    
    
    87Change in estimate
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )Cash payments
    
    
    (9
    )
    
    
    (61
    )
    
    
    (70
    )Balance as of September 30,
2006
    
    $
    
    
    
    $
    
    
    
    $
    
 14. Commitments and Contingencies
   22




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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 includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to,
statements about our plans, objectives, representations and contentions that are not historical
facts and that typically may be identified by use of terms such as anticipate, believe,
estimate, plan, may, expect, intend, could, potential, and similar expressions,
although some forward-looking statements are expressed differently. These forward-looking
statements include, among others, the statements about our:
 
    
    estimate that our existing cash and cash equivalents, expected revenue from
collaborations and license agreements, and interest income should be sufficient to meet
our operating and capital requirements at least through the first quarter of 2007;
    
    expected losses;
    
    expectations for future capital requirements;
    
    expectations for operating expenses;
    
    expectations for expenses for research and development, and general and
administrative activities, in order to develop products, procure commercial quantities
of reagents and products, and commercialize our technology;
    
    expectations regarding the scope and expiration of patents;
    
    expectations regarding the timing of preclinical activities, regulatory meetings and
submissions, as well as the progression of clinical trials, for NE-180 and preclinical
activities and the initiation of clinical trials for GlycoPEG-GCSF;
    
    expectations for the development of long-acting versions of EPO and G-CSF, and
subsequent proprietary drug candidates;
    
    expectations as to the benefits of the disposition of our Witmer Road Facility and
concurrent restructuring;
    
    expectations as to the costs of constructing additional laboratory and office space
in our leased facility;
    
    expectations regarding net cash utilization;
    
    expectations for generating revenue; and
    
    expectations regarding the timing and character of new or expanded collaborations
and for the performance of our existing collaboration partners in connection with the
development and commercialization of products incorporating our technologies.
 You should be aware that the forward-looking statements included in this report represent
managements current judgment and expectations, but our actual results, events and performance
could differ materially from those in the 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 meet forecasted timelines due to internal or external causes;
 23




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##### Table of Contents




    
    our ability to resolve the clinical hold issues raised by the FDA and to obtain
clearance to conduct clinical trials for NE-180 in the U.S.;
    
    our ability to obtain adequate sources of proteins and reagents either manufactured
internally or sourced externally;
    
    our preclinical and clinical results for our products may not be favorable;
    
    our ability to develop commercial-scale manufacturing processes for our products and
reagents, either independently or in collaboration with others;
    
    our ability to enter into and maintain collaborative arrangements;
    
    our collaborators willingness and ability to fund programs under our collaboration
agreements;
    
    our ability to develop and commercialize products without infringing the patent or
intellectual property rights of others;
    
    our ability to expand and protect our intellectual property and to operate without
infringing the rights of others;
    
    our ability and our collaborators ability to develop and commercialize therapeutic
proteins and our ability to commercialize our technologies;
    
    our ability to attract and retain key personnel;
    
    our ability to compete successfully in an intensely competitive field;
    
    our ability to renovate our facilities as required for our operations; 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 SEC, particularly in Item 1A of Part I of our Annual
Report on Form 10-K in the section entitled Risk Factors.
 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 any of the forward-looking statements after the date of this report to conform them to
actual results, except as required by the federal securities laws.
 You should read this section in combination with the section entitled Managements Discussion
and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2005,
included in our Annual Report on Form 10-K for the year ended December 31, 2005 and in our 2005
Annual Report to Stockholders.
 Overview
 ®
 24




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de novo
    25




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##### Table of Contents



Liquidity and Capital Resources
 Overview
   26




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
 Equity Financing Activities
  Debt Financing Activities
  27




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##### Table of Contents



Note Payable Secured by Insurance Policies
  Term Loan from Bank and Industrial Development Authority Bond
  Term Loan from Landlord
  Equipment Loans
  28




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##### Table of Contents



Capital Lease Obligations
  Operating Leases
    Summary of Contractual Obligations
  Off-Balance Sheet Arrangements
  29




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##### Table of Contents



Critical Accounting Policies and Estimates
  Stock-based Compensation
  Accounting for Stock Based Compensation Accounting for Stock-Based Compensation, Transition and Disclosure
 Share-Based Payment
  30




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Results of Operations
    Revenue from Collaborative Agreements
    31




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Research and Development Expense
  Development Stage
    
    
    StatusGlycoAdvance and GlycoPEGylationNE-180
    
    Phase I
    
    ActiveGlycoPEG-GCSF
    
    Phase I
    
    ActiveOther protein projects
    
    Preclinical/Research
    
    ActiveOther Glycotechnology ProgramsNon-protein therapeutic applications
    
    Research
    
    Active
    32




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005GlycoAdvance andGlycoPEGylation
    
    $
    3,495
    
    
    $
    3,843
    
    
    
    12,379
    
    
    $
    13,992Other Glycotechnology Programs
    
    
    102
    
    
    
    237
    
    
    
    434
    
    
    
    766Indirect expenses
    
    
    3,214
    
    
    
    3,441
    
    
    
    8,360
    
    
    
    11,396$
    6,811
    
    
    $
    7,521
    
    
    $
    21,173
    
    
    $
    26,154
 GlycoAdvance and GlycoPEGylation
  Other Glycotechnology Programs
  Indirect expenses
  General and Administrative Expense
  33




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##### Table of Contents



Other Income and Expense
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 .
  34




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Foreign Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Changes in internal controls over financial reporting
  35




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PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  Our clinical trials may be delayed.
  
    
    the failure to obtain or maintain regulatory clearance to conduct clinical trials;
    
    slower than anticipated patient enrollment;
    
    human errors in the conduct of the clinical trials;
    
    insufficient supplies of clinical trial materials;
    
    adverse events occurring during the clinical trial; and
    
    changes in regulatory requirements.
 You should read the above risk with all other risks and uncertainties discussed elsewhere in
this report and in our other filings with the SEC, particularly in Item 1A of Part I of our Annual
Report on Form 10-K in the section entitled Risk Factors.
 
 Item 6. Exhibits
 2.1*
    
    Purchase and Sale Agreement and Joint Escrow Instructions by and
between ARE-PA Region No. 6, LLC and Neose Technologies, Inc. dated September 1,
2006.10.1*
    
    Post-Closing Property Access Agreement by and between Auxilium
Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1, 2006.10.2*
    
    Consent to Property Access Agreement by and among ARE-PA Region No.6,
LLC, Auxilium Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1,
2006.31.1
    
    Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 36




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##### Table of Contents



32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference to our Current Report on Form 8-K filed with the SEC on September 6,
2006.
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##### Table of Contents



SIGNATURES
  NEOSE TECHNOLOGIES, INC.Date: November 2, 2006
    By:
    /s/ A. Brian DavisA. Brian DavisSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Signatory) 38




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| |  |  |  | 
| |  |  |  | 

Exhibit Index


Exhibit
    
    Description2.1*
    
    Purchase and Sale Agreement and Joint Escrow Instructions by and
between ARE-PA Region No.6, LLC and Neose Technologies, Inc. dated September 1,
2006.10.1*
    
    Post-Closing Property Access Agreement by and between Auxilium
Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1, 2006.10.2*
    
    Consent to Property Access Agreement by and among ARE-PA Region No.6,
LLC, Auxilium Pharmaceuticals, Inc. and Neose Technologies, Inc. dated September 1,
2006.31.1
    
    Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.





*
    
    Incorporated by reference to our Current Report on Form 8-K filed with the SEC on September 6,
2006.