-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HzWNeRl8Uao27tE16O8LyzeuwypYXxY/teUTlOxqdCaaIIKCFphWl0tI+Xod70Zm QtMsaD176yNKlfG4O4JYdw== 0000950144-99-010186.txt : 19990816 0000950144-99-010186.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950144-99-010186 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAPEUTIC ANTIBODIES INC /DE CENTRAL INDEX KEY: 0000944744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 621212485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-25978 FILM NUMBER: 99689766 BUSINESS ADDRESS: STREET 1: 1207 17TH AVENUE SOUTH STREET 2: STE 103 CITY: NASHVILLE STATE: TN ZIP: 37212 BUSINESS PHONE: 6153271027 MAIL ADDRESS: STREET 1: 1207 17TH AVENUE SOUTH STREET 2: STE 103 CITY: NASHVILLE STATE: TN ZIP: 37212 10-K/A 1 THERAPEUTIC ANTIBODIES INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended December 31, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ COMMISSION FILE NO.: 0-25978 THERAPEUTIC ANTIBODIES INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE 62-1212485 - ---------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1207 17th Avenue South, Suite 103 Nashville, Tennessee 37212 - -------------------------------------- ---------- Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (615) 327-1027 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ----------------------------------- ----------------------------------- NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE --------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates on March 26, 1999 ($.91 per share) was $42,581,409. As of March 26, 1999, the registrant had outstanding 52,057,219 shares of Common Stock. 2 List of Items Amended PART II
Item Page - ---- ---- 6. Selected Financial Data 2 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 7A. Quantitative and Qualitative Disclosure About Market Risk 17 8. Financial Statements 18 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 46
Text of Amendments Explanatory Note: Each of the above listed Items is hereby amended by deleting the Item in its entirety and replacing it with the Items included herein. The purpose of the amendment is to make certain changes to the Selected Financial Data (Item 6), the Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7), the Quantitative and Qualitative Disclosures About Market Risk (Item 7A), and the Financial Statements (Item 8) in Part II of the Annual Report on Form 10-K for the year ended December 31, 1998 of Therapeutic Antibodies Inc. (the "company") that was filed on March 31, 1999 (the "Original Filing"). A restated financial data schedule, solely for the use of the Securities and Exchange Commission ("SEC"), is also filed with this amendment. The amendment is being made to reflect certain comments received by the company from the SEC. The SEC requested that the company amend the Original Filing to, among other things, (i) separately quantify and discuss product revenues and contract revenues for all periods; (ii) provide descriptions, in the footnotes to the financial statements and in Management's Discussion and Analysis, of the impact of Financial Accounting Standards Board Statements of Position Nos. 98-1 and 98-5 on the company's accounting methods; (iii) revise the company's discussion of its exposure to fluctuations in interest rates and foreign currency rates; (iv) revise its Statements of Operations to separately present non-operating revenues and expenses below operating revenues and expenses; and (v) to add certain disclosures in the footnotes to the company's financial statements. Any items in the Original Filing not expressly changed hereby shall be as set forth in the Original Filing. All information contained in this amendment and the Original Filing is subject to updating and supplementing as provided in the company's periodic reports filed with the SEC subsequent to the date of such reports. 1 3 PART II ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data as and for each of the five fiscal years in the period ended December 31, 1998 and the cumulative development stage from the Company's inception on August 10, 1984 through December 31, 1998. The selected financial data for the Company has been derived from the audited consolidated financial statements of the Company. The selected consolidated financial data is qualified by, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto included elsewhere herein and also with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
8/10/84 Years Ended December 31, (Inception) -------------------------------------------------------------------------- through 1998 1997 1996 1995 1994 12/31/98 ---- ---- ---- ---- ---- ------------- Statement Of Operations Data: Operating revenues (1) .............. $ 3,392,447 $ 1,791,420 $ 927,532 $ 650,519 $ 1,092,122 $ 9,070,522 Operating expenses: Research and development ....... 11,363,218 11,462,352 9,185,126 6,321,674 5,107,894 53,405,675 General and administrative, marketing and distribution ..... 4,598,073 4,176,139 3,083,151 2,247,472 1,619,824 19,517,793 Depreciation and amortization .. 1,561,951 1,643,922 1,387,916 856,756 864,288 7,073,621 Other (2) ...................... 451,243 328,158 355,360 36,368 119,052 1,331,226 ------------ ------------ ------------ ------------ ------------ ------------- Total operating expenses ..... 17,974,485 17,610,571 14,011,553 9,462,270 7,711,058 81,328,315 Operating loss ................. $(14,582,038) (15,819,151) (13,084,021) (8,811,751) (6,618,936) (72,257,793) ============ ============ ============ ============ ============ ============= Net loss ....................... $(15,888,928) $(16,847,718) $(12,746,117) $ (9,100,038 (6,717,753) $(75,301,311) ============ ============ ============ ============ ============ ============ Preferred stock dividends (5) .. (32,877) -- -- -- -- (32,877) ============ ============ ============ ============ ============ ============= Net loss applicable to common shareholders .................. (15,921,805) (16,847,718) (12,746,117) (9,100,038) (6,717,753) (75,334,188) ============ ============ ============ ============ ============ ============= Basic and diluted net loss per share ......................... $ (0.59) $ (0.74) $ (0.68) $ (0.57) $ (0.47) ============ ============ ============ ============ ============ Balance Sheet Data: Cash and cash equivalents ...... $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 3,397,082 $ 593,154 (1)(4)(5)(6) Total assets (3)(4)(5)(6) ...... 21,421,502 20,800,065 37,179,990 15,157,099 12,103,994 Long term debt, net of current portion (3)(6) ................ 4,744,216 6,059,072 8,592,755 9,595,420 2,917,251 Deficit accumulated during development stage ............. (75,301,311) (59,412,383) (42,564,665) (29,818,548) (20,718,510) Stockholders' equity (4)(5)(6) .. 12,022,434 9,758,345 25,215,530 894,479 4,862,404
- -------------------- (1) At December 31, 1998, the Company held approximately U.S. $7,508,000 denominated in British pounds and U.S. $31,500 in Australian dollars. The decline in the exchange rate at year end between the British pound and Australian dollar versus the U.S. dollar resulted in a foreign currency transaction loss of U.S. $240,703. At December 31, 1997, the Company held approximately U.S. $2,960,000 which was denominated in British pounds. As a result of improvement in the exchange rate between the British pound and the U.S. dollar, the Company experienced a foreign currency transaction loss of U.S. $913,119 for the year ended December 31, 1997. 2 4 (2) Includes cost of goods sold and other expense items. (3) In 1995 and 1994, the Company constructed a pilot production facility in London and a manufacturing facility in Wales. These facilities were funded through financing arrangements provided by Aberlyn Capital Management Company, Inc. and the Welsh Development Agency. See Note 5 to the consolidated financial statements. (4) On July 23, 1996, the Company completed an initial public offering of 4,190,477 shares of its common stock on the London Stock Exchange at (pound)5.25 ($8.14 based on the noon buying rate on July 23, 1996) per share. See Note 1 to the consolidated financial statements. (5) 100 shares of Therapeutic Antibodies Series A Convertible Redeemable Preferred Stock, issued on September 28, 1998, together with dividends accrued therein, were converted into 2,995,692 shares of Therapeutic Antibodies common stock on November 9, 1998. (6) On October 26, 1998, Therapeutic Antibodies announced a placement of 21,300,000 shares of its common stock of (pound)0.40 ($0.68 based on the noon buying rate on October 26, 1998) per share. At the same time it entered into agreements to convert $2.9 million of outstanding debt into 4,394,869 shares of common stock. A portion of the proceeds of the placement were used to repay further outstanding debt. 3 5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and notes thereto. GENERAL Since its inception, the Company has been in the development stage, devoting its efforts and resources to drug discovery and development programs relating to the development of highly purified, polyclonal antibodies for the treatment of disease. The Company's revenues have been primarily derived from licensing agreements with corporate partners, contract agreements, product sales, grant income, and interest income. The Company has incurred net losses each year since its inception and the Company expects to continue to incur operating losses during at least the next year due to continued spending on research, product development and the requirements for process development, preclinical and clinical testing, regulatory affairs, initial manufacturing activities and administration. To fund these activities, the Company will continue to evaluate opportunities to raise further funding which will be required to carry out the current business plan. The Company conducts its operations from its headquarters in the United States and through subsidiaries located in the United Kingdom and Australia. For a discussion of the Company's international operations for the past three fiscal years, see Note 11 to the Company's financial statements. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 The Company's operating revenues for 1998 increased by 89% to $3,392,000 from $1,791,000 for 1997. Licensing revenue increased 129% to $2,544,000 for the year ended December 31, 1998 from $1,113,000 for the year ended December 31, 1997. This increase is primarily attributable to milestone payments received from licensing agreements with pharmaceutical partners. Included in the 1998 milestone payments is $1,500,000 which was received under the Altana agreement. An additional $1,000,000 was received when the Company entered into an agreement with G.D. Searle & Co., as discussed under "Liquidity and Capital Resources" below. The 1997 licensing revenues consists primarily of $1,000,000 in milestone payments from Altana. A 79% increase in sales revenue to $530,000 during the year ended December 31, 1998 from $295,000 during the year ended December 31, 1997 was due primarily to the recognition in 1998 of a $219,000 sale of Therapeutic Antibodies' Nigerian EchiTAb(TM) product. Contract revenue in 1998 increased 102% to $197,000 from $98,000 as a result of an increase in the number of sheep managed by the Company under contractual arrangements with third parties in the United Kingdom. Grant revenue decreased 80% in 1998. The Company received a $129,000 grant from the Welsh Government in 1997 for expansion of the Company's Welsh operations. The Company's total operating expenses for the year ended December 31, 1998 were slightly more than 1997 expenses. Research and development expenses for 1998 decreased to $11,363,000 from $11,462,000 in 1997 due to cost reduction measures initiated by the Company in 1998. Research and development expenses had increased between 18% and 50% per year for the previous five years ending in 1997. In early 1998, management implemented a plan to conserve cash and to sharpen the focus of the Company's research and development efforts. As part of this streamlining, some of the Company's basic research activities and certain clinical trial programs, including research into the application of CytoTAb(TM) to treat the symptoms of sepsis syndrome, have ceased. The Company is 4 6 currently pursuing other applications for CytoTAb(TM). The Company began to realize the results of these cost reduction measures during late 1998. General and administrative expenses for the year ended December 31, 1998 increased by 14% to $4,051,000 from $3,562,000 for the year ended December 31, 1997. This increase is due to one-time costs of approximately $162,000 incurred for management changes, $35,000 for the development of an information systems department, and fees of $283,000 incurred for restructuring the Company's United Kingdom subsidiary entities. Marketing and distribution expenses decreased for the year ended December 31, 1998 by 11% to $547,000 from $615,000 for the year ended December 31, 1997 primarily as a result of a vacancy in the Director of Business Development position from April until December 1998. Marketing and distribution expenses exceeded sales and contract revenues for the years ended December 31, 1998 and December 31, 1997 primarily due to the fact that many of the Company's products were still in the development stage and not yet providing revenue. Depreciation and amortization expenses for the year ended December 31, 1998 decreased by 5% to $1,562,000 from $1,644,000 for the year ended December 31, 1997. The Company had significant capital expenditures in 1994 through 1996 for the establishment of the Welsh and Australian production facilities. Expenditures for production facilities incurred in 1997 and 1998 resulted in a leveling off and slight reduction in depreciation expense in 1998. In addition, the majority of 1998 expenditures occurred later in the year resulting in less depreciation during the year. Interest income for the year ended December 31, 1998, decreased 73% to $239,000 from $887,000 for 1997 due to lower cash and short-term investment holdings during 1998. Interest expense for the year ended December 31, 1998 increased by 30% to $1,306,000 from $1,002,000 for the year ended December 31, 1997. During 1998, the Company incurred an additional $516,000 in interest and warrant expense related to the Company's private placement of $4,025,000 principal amount of short-term bridge notes between June and September 1998. Changes in foreign currency exchange rates resulted in the recording of less foreign currency loss in 1998 than in 1997. Gains and losses are the result of fluctuations in the exchange rates of the currencies in which the Company conducts its business compared to the United States dollar. The Company's net loss for the year ended December 31, 1998, was $15,889,000 compared to a net loss of $16,848,000 for the year ended December 31, 1997. The Company's net loss applicable to common shareholders for the year ended December 31, 1998 was $15,922,000 compared to a net loss applicable to common shareholders of $16,848,000 for the year ended December 31, 1997. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 The Company's operating revenues for 1997 increased by 93% to $1,791,000 from $928,000 for 1996. Licensing revenue increased 676% to $1,113,000 for the year ended December 31, 1997 from $144,000 for the year ended December 31, 1996 primarily due to the receipt of $1,000,000 in milestone payments from Altana in the fourth quarter of 1997. Sales revenue for 1997 remained fairly consistent increasing 2% over the 1996 total. Contract revenue decreased during the year ended December 31, 1997 primarily because 1996 included a one time payment of $173,000 attributable to Therapeutic Antibodies' Nigerian EchiTAb(TM) contract. In 1997, grant revenue increased $87,000 due to a grant received from the Welsh Government for expansion of the Company's Welsh operations. 5 7 Total operating expenses for the year ended December 31, 1997 increased by 26% to $17,611,000 from $14,012,000 for the same period in 1996. Research and development expenses during the same periods increased by 25% to $11,462,000 from $9,185,000 as a result of the following: advanced clinical trial activities for DigiTAb(R) and CytoTAb(TM); continued preparation for the regulatory review process for CroTAb(R); manufacturing the Company's products for clinical trials; and conducting and establishing the necessary quality control and assurance systems. Additionally, the expansion of the Australian facility was completed in early 1997 and the Company began devoting resources to that facility to meet the need for increased serum requirements for commercial production. General and administrative expenses for the year ended December 31, 1997 increased by 31% to $3,562,000 from $2,722,000 for the year ended December 31, 1996. This increase relates primarily to increased insurance requirements, stockholder relations and other activities required following the Company's initial public offering in the United Kingdom in 1996. Marketing and distribution expenses increased for the year ended December 31, 1997 by 70% to $615,000 from $361,000 in the year ended December 31, 1996. This increase reflects additional staffing and associated expenses. Marketing and distribution expenses exceeded sales and contract revenues for the years ended December 31, 1997 and December 31, 1996 primarily due to the fact that many of the Company's products were still in the development stage and not yet providing revenue. Depreciation and amortization expenses for the year ended December 31, 1997 increased by 18% to $1,644,000 from $1,388,000 for the year ended December 31, 1996. This increase is the result of the depreciation of the capital expenditure for the Australian production facility, which was placed in service in February 1997. Interest income in the year ended December 31, 1997, increased 46% to $887,000 from $607,000 due to additional cash and short-term investment holdings from the proceeds of the Company's initial public offering in the United Kingdom in July 1996. Interest expenses for the year ended December 31, 1997 decreased by 17% to $1,002,000 from $1,201,000 in the year ended December 31, 1996. This decrease is a result of The Company's repayment in 1996 of approximately $4,750,000 in debt obligations. During the year ended December 31, 1996, the Company recorded a foreign currency transaction gain of $1,733,000 as a result of the United States dollar's improvement during 1996 against the British pound sterling compared to a loss of $913,000 for the year ended December 31, 1997. The Company's net loss for the year ended December 31, 1997, was $16,848,000 compared to a net loss of $12,746,000 for the year ended December 31, 1996. In addition to the factors described above, changes in foreign currency exchange rates used to translate the foreign subsidiaries financial statements into United States dollars resulted in higher expense levels. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has been in the development stage, devoting its efforts and resources to drug discovery and development programs. Capital resources have been used for the establishment and expansion of production facilities, for product research and development activities, for clinical testing and to meet the Company's overall increased working capital requirements. Management does not expect revenues from product sales to be a significant source of funding until additional products receive regulatory approval. Although the Company anticipates the 6 8 launch of CroTAb(R) following FDA approval in 1999, revenues from sales of CroTAb(R) are not expected to be significant in 1999. Future capital requirements will depend on numerous factors including the progress of the Company's research programs and clinical trials, the development of regulatory submissions, the receipt of FDA approval of CroTAb(R), the commercial viability of the Company's products, the ability to attract collaborative partners with sales, distribution and marketing capabilities, and the terms of any new licensing arrangements. Funds for the Company's operating and capital requirements historically have been provided by the sale of equity and debt and from collaboration agreements and other financing arrangements. In November 1998, the Company completed the private placement (described below) of 28,690,561 shares of common stock in the United States and in the United Kingdom, raising net cash proceeds of $12,600,000. At the time of the private placement, the Company estimated that the fundraising, together with licensing and contract revenue, would provide sufficient funds to allow the Company to reach the launch of several of its products, and accordingly bring the Company to the point at which its revenues can sustain ongoing product development. With the loss of the 1999 milestone payments and product revenues that would have been received under the Searle agreement (described below), the Company will need to raise additional financing by mid-1999 to fund operations. The Company is currently pursuing several financing alternatives, including preliminary discussions that may lead to a merger on a share exchange basis. The Board has also entered into discussions with third parties relating to the sale of additional debt or equity securities, the disposal of certain non-core investments, additional product licensing arrangements, and possible combinations or collaborations with strategic partners. While the Directors believe that they will be able to successfully implement one or more of these financing strategies, there can be no assurance that they will be able to do so or to otherwise obtain financing on terms acceptable to the Company. In the meantime, the Company continues to take measures, implemented in 1998, to conserve cash resources, while sustaining the progress of clinical trials for products that promise the most success. See "Item 1. Business -- Overview and Recent Developments." At December 31, 1998, the Company had cash and cash equivalents totaling $7,760,000, of which approximately $7,508,000 was denominated in British pounds. The Company's net cash used in operating activities during the year ended December 31, 1998 totaled $13,283,000, a decrease of 1% from the year ended December 31, 1997. Trade receivables decreased $527,000 from December 31, 1997 to December 31, 1998 even though operating revenues increased by $1,601,000 during 1998 compared to 1997. This is because the Company recorded as trade receivables a $500,000 milestone payment from Altana in December 1997, although the Company received payment on the receivable in January 1998. Capital expenditures increased 10% to $1,385,000 in 1998 from $1,257,000 in 1997. Capital expenditures included replacement of certain essential equipment, computer hardware and software upgrades to meet Year 2000 needs (see below), and facility improvements prior to the early 1999 inspection of the Welsh facility by the FDA. Capital expenditures of $1,900,000 are budgeted for 1999. These expenditures are for process improvement and scale-up of the Company's facilities for commercial production and will be contingent upon availability of funding. The Company uses sheep for the production of its polyclonal antibodies and supplies all the antisera required from its own flocks. The Company's subsidiaries currently have approximately 6,200 sheep. The Company will keep the number of sheep constant through much of 1999 and add sheep in late 1999 in anticipation of increased TriTAb(R) production requirements. The Company has agreed to repay the outstanding balance of an $800,000 term loan, plus accrued interest, to Equitas, L.P. on or before March 31, 1999. The loan currently bears interest at an annual rate of 11.5%. During 1998, the Company received milestone payments of $1,500,000 under the Altana Agreement as a result of the FDA's acceptance of the Company's PLA and ELA for CroTAb(R). The Company is entitled to receive additional payments under the agreement based on achievement of certain milestones relating to CroTAb(R) and the Company's DigiTAb(R) and TriTAb(R) products. The 7 9 Company anticipates receiving additional payments under the agreement of $2,000,000 in 1999 based on FDA approval of CroTAb(R) and progression of the DigiTAb(R) and TriTAb(R) regulatory filings with the FDA. In May 1998, the Company entered into an agreement with G. D. Searle & Co. ("Searle") for the identification, development and commercialization of a new antibody based drug designed to titrate the effects of Searle's new xemilofiban and orbofiban anticoagulant products. Searle anticipated that it would pay the Company up to $8,000,000 over the term of the agreement for research and development and product supplies based on achieving certain milestones. The Company received its first milestone payment of $1,000,000 upon execution of the agreement in May 1998. In January 1999, however, Searle made the decision to cease development of its xemilofiban and orbofiban projects and exercised its right to terminate its agreement with the Company. Between June and September 1998, the Company raised $4,025,000 in a private placement of 15% Subordinated Promissory Notes (the "1998 Notes"). The 1998 Notes matured in the fourth quarter of 1998 and interest was payable quarterly. The Company issued warrants to purchase 25,000 shares of its common stock to each purchaser of $250,000 principal amount of 1998 Notes. As part of the Company's November 1998 Placing (described below), the holders of $2,375,000 aggregate principal amount of the 1998 Notes converted principal plus accrued interest of $107,000 into a total of 3,658,058 shares of the Company's common stock. A portion of the proceeds of the Company's 1998 Placing was used to repay $1,650,000 of the outstanding principal balance and $80,000 of accrued interest on the 1998 Notes in November 1998. In September 1998, the Company issued 100 shares of Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") to an institutional investor and received total proceeds of $2,000,000. In November 1998, as a part of the 1998 Placing, the investor exercised its right to convert all outstanding shares of the Series A Preferred Stock and $33,000 of accrued dividends into 2,995,692 shares of the Company's common stock. On November 9, 1998, the Company completed a $19,500,000 capital refinancing involving the issuance of 28,690,561 new shares of the Company's common stock on the London Stock Exchange at $.68 per share. The refinancing included the private placement of 21,300,000 shares of common stock for cash and the conversion of all outstanding shares of Series A Preferred Stock and $2,900,000 principal and interest amount of the 1998 Notes and certain other loan notes into a total of 7,390,561 shares of the Company's common stock. Included in the loans converted was $500,000 principal amount of an outstanding $750,000 loan from an officer of the Company which was converted into 736,811 shares of common stock. Of the approximately $12,600,000 in cash raised in the private placement, net of expenses, $1,730,000 was used to repay the outstanding balance of principal and interest on the 1998 Notes. The remaining proceeds were and continue to be used to fund the ongoing development of the Company's products. In April 1998, the Company received a loan of $162,000 from the Department of Primary Industries and Resources of the South Australian Government to be used for the construction of transportable buildings at the Company's Australian facility. The interest rate on the loan is currently 6.5% annually and is variable at the discretion of the Minister for Primary Industries. Principal on the loan is payable in 20 equal semi-annual installments, together with interest accrued thereon, beginning October 1998 through April 2008. In June 1998, the Company received the final installment on a loan from the Department of Industry and Trade ("DIT") of the South Australian Government. In April 1996, the DIT agreed to loan the Company up to $62,000 based upon the number of local citizens employed by the Company through April 1998. At December 31, 1998, the Company had received a total of $50,000. This loan is provided interest-free and is due in full on April 29, 2006. 8 10 YEAR 2000 READINESS GENERAL The following material is designated a Year 2000 readiness disclosure for purposes of the Year 2000 Information Readiness and Disclosure Act. The Company utilizes management information systems and software technology that may be affected by Year 2000 issues. During 1998, the Company implemented a plan called the Y2K project to ensure that its systems would be Year 2000 compliant. The Y2K project is addressing the issue of programmable logic controllers and computer programs being able to distinguish between dates in the 20th century and dates in the 21st century. The Y2K project is expected to make all of the Company's business systems Year 2000 compliant. Y2K PROJECT The Company's Y2K project is divided into five phases. The project phases are as follows: - Phase 1: compile an inventory of all equipment; - Phase 2: assign priorities to the equipment identified as being at risk for Year 2000 issues; - Phase 3: assess the Year 2000 compliance of items identified as being significant to the operational activities of the Company; - Phase 4: repair or replace material items that are determined not to be Year 2000 compliant; and - Phase 5: test and validate material items. A task force has been established to carry out these tasks which includes subgroups at each of the Company's four locations, Nashville, USA; Adelaide, Australia; London, UK; and Llandysul, UK. During 1998, the Company completed the inventory and priority assignment phases (phases 1 and 2) for each location. The assessment of Year 2000 compliance (phase 3) includes the identification and prioritization of critical external suppliers. The Company is currently communicating with its critical suppliers to evaluate their progress and preparation for Year 2000 compliance. Based on the results of these evaluations the Company will develop contingency plans in the second quarter of 1999. The Company plans to complete Phase 3 by mid-1999. Phase 4, the repair and replacement of equipment and application software that is not Year 2000 compliant, includes conversion, where available from the supplier, or replacement. Finally, Phase 5, the testing phase, will be undertaken as the hardware and software is converted or replaced. During 1998, the Y2K task force had identified the accounting software used in Australia as not being Year 2000 compliant. During the first quarter of 1999 the software vendor has released an upgrade solution that is Year 2000 compliant which the Company is planning to implement during the third quarter of 1999. In addition, the Company has identified a possible risk to Year 2000 compliance posed by some of the programmable logic controllers or embedded systems controlling the site utilities at each of its production sites in Wales and Australia. The Company is currently researching the extent of this risk and the optimal solution by obtaining confirmation from suppliers that there is no hidden coding in the embedded systems and also by looking at the source code to 9 11 determine where dates are used and the impact those have on the operation of the system. Changes in equipment will be made during the Company's September shut-down. All phases of the Y2K project are expected to be complete before the end of 1999. The phases are concurrent rather than consecutive; therefore, more than one phase may be in progress at the same time. COSTS The total estimated cost associated with the Y2K project is not expected to be material to the Company's financial position. The total capital cost is estimated to be no more than $150,000. This figure will depend on the cost of any replacements needed after completion of the assessment phase of the Y2K project. The total operating cost attributable to staff time and effort devoted to the Y2K project to date is $45,000. The estimated future operating cost of completing the project is $60,000. RISKS The failure to correct any Year 2000 problem could result in an interruption in, or a failure of normal business activities or operations. Due to the inherent uncertainty when dealing with Year 2000 issues, and from the uncertainty of the Year 2000 readiness of suppliers and other third parties, the Company is unable to determine whether or not any Year 2000 failures will have a material effect on the Company, its operations or its financial condition. The Y2K project is expected to significantly reduce the level of uncertainty about any Year 2000 problems posed to the Company, either internally, or by the compliance of its third party suppliers. The Company believes that with the implementation and completion of its Y2K project the possibility of significant interruptions of normal operations should be minimal. Despite the efforts of the Company to address year 2000 issues, the Company can provide no assurance that the year 2000 issues will not have an adverse effect upon the Company's operations or financial condition. Further, although the Company has received assurances of year 2000 compliance from third parties with which the Company has significant relationships, the Company cannot guarantee that these parties will be year 2000 compliant. NET OPERATING LOSS CARRYFORWARDS As of December 31, 1998, the Company had approximately $70.5 million of net operating loss carryforwards for income tax purposes, of which $57.7 million are available to offset United States federal income taxes and expire from 1999 through 2018. In addition, the Company has approximately $307,000 of research and development tax credits available to offset future federal income tax, subject to limitations for alternative minimum tax. The Internal Revenue Code of 1986, as amended, contains certain limits on net operating loss carryforwards available to be used in any given year if certain events occur, including significant changes in ownership. At present the Company's net operating loss carryforwards are subject to these limitations. No assets have been recognized in the Company's financial statements for these net operating loss carryforwards because management believes the criteria for recognition under generally accepted accounting principles have not been met. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued Statement of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" and Statement of Position No. 98-5 "Reporting on the Costs of Start-Up Activities." The Company will adopt Statement of Position No. 98-1 and Statement of Position No. 98-5 in 1999 as required. 10 12 The Company primarily purchases all computer software from third party vendors and does not engage in the development of internal use software. The Company capitalizes all costs to acquire computer software from third party vendors. Consequently, the implementation of Statement of Position No. 98-1 is not expected to have a material impact on the Company. The Company expenses all start-up related costs and accordingly, the implementation of Statement of Position No. 98-5 will not have a significant impact on the Company. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). In general, SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet at their fair value, and sets forth the manner in which gains or losses thereon are to be recorded. The treatment of such gains and losses is dependent upon the type of exposure, if any, for which the derivative is designated as a hedge. This statement is effective for periods beginning after June 15, 1999. Management is currently assessing the impact of adopting SFAS No. 133, but does not anticipate a significant impact on the Company's financial position or results of operations. BUSINESS RISKS We have made forward-looking statements in this report that are based on the beliefs of management as well as assumptions made by and information currently available to us. These statements include the completion of certain clinical trials involving our products, the receipt of regulatory approvals, the adequacy of our capital resources, trends relating to the biopharmaceutical industry and others. When used in this document, the words "anticipate," "believe," "estimate," "expect," "plan," and "intend" and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Forward-looking statements reflect our current view with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by the forward-looking statements, including, among others, those set forth in this section and the following: - the results of pre-clinical and clinical trials involving our products; - the failure to receive regulatory approvals on a timely basis or at all; - the failure to maintain adequate capital resources; - the introduction of competing products by other companies; - the lack of acceptance of any new products we may develop; - changes in currency exchange rates; - changes in general economic and business conditions; and - changes in business strategy. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, believed, estimated, expected, planned or intended. 11 13 IF WE ARE UNABLE TO DEVELOP COMMERCIALLY SUCCESSFUL PRODUCTS, WE WILL BE UNABLE TO GENERATE SIGNIFICANT REVENUES. Our limited product launches to date have not generated significant revenues and may not generate significant revenues in the future. We have a variety of product candidates in various stages of development and will need to undertake substantial additional research and development and preclinical and clinical testing of our product candidates. These efforts may not result in the development of any commercially successful products, in which case we will not be able to generate significant revenues. We may fail to successfully develop a product candidate for many reasons including: - a product candidate fails in preclinical studies; - a potential product is not shown to be safe and effective in clinical trials; - we fail to obtain regulatory approval for the product; - we fail to produce a product in commercial quantities at an acceptable cost; and - a product does not gain market acceptance. BECAUSE WE ARE AN EARLY STAGE BIOTECHNOLOGY COMPANY THAT HAS A HISTORY OF OPERATING LOSSES, WE ANTICIPATE FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. To date, we have not been profitable. We expect to incur operating losses over the next several years and may never be profitable. We had on a U.S. GAAP basis: - net losses of approximately $12.7 million for the fiscal year ended December 31, 1996; - net losses of approximately $16.8 million for the fiscal year ended December 31, 1997; and - net losses of approximately $15.9 million for the fiscal year ended December 31, 1998. Losses result principally from costs associated with research, development and clinical testing activities before the marketing of products. Collaborative research, development and licensing arrangements, research grants and interest income have generated most of our revenue to date. Our profitability will depend on our ability to generate revenues from product candidates that are currently under development and to enter into new partnerships for the licensing of our product candidates while maintaining existing partnerships. IF WE ARE UNABLE TO MAINTAIN AND ENTER INTO NEW COLLABORATIVE ARRANGEMENTS, OUR ABILITY TO DEVELOP AND MARKET PRODUCT CANDIDATES WILL SUFFER AND WE WILL BE UNABLE TO SUSTAIN OUR BUSINESS. Our primary focus will continue to be on the research and development of new pharmaceutical products and, therefore, we will be dependent on our existing alliances and new alliances with third parties to provide development, manufacturing, marketing and sales capabilities. Our ability to obtain new agreements will depend, in part, on the success of our clinical trials. Collaborators and licensees have significant discretion over the resources they devote to these efforts. Our success, therefore, will depend on the ability and intention of these outside parties to perform their responsibilities and devote sufficient resources to collaborations with us. We cannot guarantee that: 12 14 - we will be able to establish additional collaborative arrangements or license agreements; - any collaborative arrangement or agreement will be on favorable terms; or - any existing or future collaborative arrangement or agreement will result in a successful product and/or generate significant revenue. In addition, there can be no assurance that our collaborators and licensees will not pursue alternative technologies either on their own or in collaboration with others, including our competitors. IF WE FAIL TO OBTAIN ADEQUATE INTELLECTUAL PROPERTY RIGHTS FOR OUR PRODUCT CANDIDATES, COMPETITORS MAY BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS. WE MAY ALSO BE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT BY THIRD PARTIES. Our success will depend, in large part, on our ability to obtain and maintain patent or other proprietary protection for our technologies, products and processes. If we are not able to obtain patent protection for certain of our products or secure patents that are sufficiently broad in their scope, competitors may be able to take advantage of our research and development efforts. Legal standards relating to the validity of patents covering pharmaceutical or biotechnological inventions and the scope of claims made under such patents are still developing. There is no consistent policy regarding the breadth of claims allowed in biotechnology patents. The patent position of a biotechnology company is highly uncertain and involves complex legal and factual questions. There can be no assurance that competitors will not develop substantially equivalent techniques or otherwise gain access to our technologies. We may have to initiate litigation to enforce our patent and license rights. If our competitors file patent applications that claim technology also claimed by us, we may have to participate in interference or opposition proceedings to determine the priority of invention. An adverse outcome could subject us to significant liabilities to third parties and require us to cease using technology owned by, or to license disputed rights from, third parties. Our success also depends on our ability to operate without infringing the proprietary rights of third parties with respect to products that facilitate our ability to develop and exploit our own products. If infringement occurs, we may have to develop an alternative technology or reach an agreement for the license of the necessary rights from the third party. Should this be necessary, we cannot assure you that we can obtain or develop those technologies or obtain those licenses, and as a result, may be unable to develop and market our product candidates. The cost to us of any litigation or proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of litigation more effectively than us because of their substantially greater resources. IF WE ARE UNABLE TO GENERATE SIGNIFICANT REVENUES FROM OPERATIONS, WE WILL REQUIRE ADDITIONAL FINANCING. THIS FINANCING MAY NOT BE AVAILABLE OR MAY BE AVAILABLE ON TERMS THAT DILUTE OUR SHAREHOLDERS' INTERESTS. We will require significant revenue from product sales, collaborative and licensing arrangements and strategic alliances to fund our ongoing operations. If we are unsuccessful in generating this revenue or this revenue is insufficient to fund proposed projects, then we will require additional financing. Additional financing may not be available to us on favorable terms or at all. If we have insufficient funds or are unable to raise additional funds, we may be required to delay, reduce or cease certain of our programs and may be unable to continue our operations at their current level. 13 15 Future financings may result in the substantial dilution of shareholders' interests and may result in future investors being granted rights superior to those of existing shareholders. For a discussion of our liquidity, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON OUR BUSINESS ACTIVITIES. The production and sale of pharmaceutical products is highly regulated. Our ability and the ability of our partners to secure regulatory approval for our products and to continue to satisfy regulatory requirements will determine our future success. We may not receive required regulatory approvals for our products or receive approvals in a timely manner. In particular, the U.S. Food and Drug Administration and comparable agencies in foreign countries, including the European Medicines Evaluation Agency and the Medicine Control Agency in the U.K., must approve human therapeutic and preventive products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. While the time required to obtain approval varies, it can take several years. Delays in obtaining or the failure to obtain regulatory approvals or the restriction, suspension or revocation of regulatory approvals could adversely affect the marketing of products and our ability to receive product revenues or royalties. We cannot guarantee that we will be able to obtain the necessary approvals for clinical testing or for the manufacturing and marketing of any products that we develop. We are also subject to ongoing regulatory review. Discovery of previously unknown problems with a product, manufacturer or facility or other violations of regulatory requirements may result in - fines; - suspensions of regulatory approvals; - product recalls; and - criminal prosecution. For further discussion of regulations and potential penalties, see "Item 1. Business - Government Regulation." OUR COMPETITORS MAY HAVE GREATER RESOURCES FOR DEVELOPING PRODUCTS AND AS A RESULT MAY BE ABLE TO DEVELOP PRODUCTS THAT ARE SUPERIOR TO OUR PRODUCT CANDIDATES OR LAUNCH COMPETING PRODUCTS BEFORE WE DO. The pharmaceutical industry is highly competitive. We compete with pharmaceutical companies in the United States, the United Kingdom, Europe and elsewhere for both our existing products and those currently under development. Many of these companies have research, development, marketing, financial and personnel resources greater than ours. Competitors may develop and receive regulatory approval for a marketable product before we do. Competitors may also develop a product that is more effective or economically viable than our product candidates, rendering our product candidates obsolete. We anticipate that we will face increased competition in the future as new companies enter our markets and alternative drugs and technologies become available. 14 16 THE LOSS OF KEY EMPLOYEES COULD WEAKEN OUR SCIENTIFIC AND MANAGEMENT EXPERTISE AND DELAY THE DEVELOPMENT OF OUR PRODUCT CANDIDATES. Although we have employment agreements with our key personnel with the aim of securing their services for a minimum period, we cannot guarantee the retention of their services. The loss of certain key personnel could weaken our scientific and management expertise and delay the development of our product candidates. ANNOUNCEMENTS, DEVELOPMENTS AND/OR REGULATORY CHANGES IN THE BIOTECHNOLOGY SECTOR MAY CAUSE OUR SHARE PRICE TO FLUCTUATE. The market price of our common stock may be affected by announcements from or about other companies in the biotechnology sector. Factors that could cause our stock price to fluctuate in the future may include: - announcements by other biotechnology companies of clinical trial results and other product developments; - adverse developments in the protection of intellectual property or other legal matters; - announcements in the scientific and research community; - changes in treatment recommendations or guidelines by private health organizations or science foundations; - regulatory changes that affect our products; and - changes in third-party reimbursement policies or in medical practices. THIRD-PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES MAY CONSTRAIN OUR FUTURE REVENUES. Our ability to market successfully any product we may develop will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. We may not be able to sell our products profitably if reimbursement is unavailable or limited in scope. Increasingly, third-party payors are attempting to contain health care costs in ways that are likely to impact our development of products including: - challenging the prices charged for health care products; - limiting both coverage and the amount of reimbursement for new therapeutic products; - denying or limiting coverage for products that are approved by the regulatory agencies but are considered experimental or investigational by third-party payors; and - refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval. WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE. The testing, marketing and sale of our products involve significant product liability risks. We may be held liable for damages for product failures or adverse reactions resulting from the use of our products. Although we maintain product liability insurance, this insurance may not provide 15 17 adequate coverage against product liability claims. Furthermore, in the future, we may not be able to obtain insurance on acceptable terms and any insurance we do obtain may not provide adequate coverage against any asserted claims. IF OUR LIVESTOCK DEVELOP DISEASES, WE MAY BE UNABLE TO SUSTAIN OUR CURRENT OR FUTURE ANTIBODY PRODUCTION CAPACITIES. We supply all of the antisera required for the production of our antibody products from our own flocks of sheep. We take stringent precautions to minimize the risk of animal diseases, including scrapie, that could affect our sheep or the safety of our products. All of the sheep used to produce our antisera are located in Australia, which the office of the Australian Chief Veterinary Officer has acknowledged as being scrapie free. However, animal diseases, including scrapie, could affect our flocks and therefore our ability to produce antisera. YEAR 2000 ISSUES COULD CAUSE INTERRUPTION OR FAILURE OF OUR OR OTHER COMPUTER SYSTEMS. We use a significant number of computer systems and software programs in our operations, including applications used in our accounting and administrative functions. Although we believe that our internal systems and software applications contain or will contain source codes that are able to interpret appropriately the dates following December 31, 1999, our failure to make or obtain necessary modifications to our systems and software could result in an interruption in or failure of normal business activities and operations. Failure by our key service providers, vendors and worldwide research and development, manufacturing and clinical trial partners to make their computer software programs and operating systems Year 2000 compliant could have a similar effect. For a discussion of our Y2K readiness, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness." 16 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates. The Company's operations consist of manufacturing and sales activities in foreign countries exposing the Company to the effects of changes in foreign currency rates. The Company has exposure to changes in interest rates on certain floating rate debt instruments. The Company does not currently purchase derivative instruments or engage in hedging activities to mitigate the risks of fluctuations in foreign currency exchange rates or interest rates. The value of market risk sensitive financial instruments is subject to change as a result of movements in market rates and prices. For purposes of specific risk analysis, the Company uses sensitivity analysis to determine the impact that market risk exposures may have on the Company's debt and other financial instruments. The Company is exposed to foreign currency gains or losses from the translation of U.S. dollars into other foreign currencies and from sales and purchases transactions with certain customers and suppliers in foreign countries. For these transactions, currency exchange rates are agreed upon prior to the time of the actual transfer of cash. The Company realizes a transaction gain or loss based upon the actual currency exchange rate at the time the transaction is completed and records these gains and losses in operations. To reduce exposure to these fluctuations, the Company maintains cash balances in its primary foreign currencies. Historically, the primary net foreign currency market exposures have related to British pounds and Australian dollars. At December 31, 1998, the Company held cash balances of $7,508,000 denominated in British pounds and $31,500 denominated in Australian dollars. As of December 31, 1998, a hypothetical 10 percent weakening in the levels of foreign currency exchange rates against the U.S. dollar with all other variables held constant would result in a decrease in the Company's results of operations and the fair market value of its financial instruments of $527,000, as compared to a decrease of $250,000 as of December 31, 1997. Actual results may differ. A hypothetical 10 percent movement in interest rates affecting the Company's floating rate debt instruments would have an immaterial effect on the Company's results of operations. 17 19 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 and the cumulative development stage from August 10, 1984 (inception) through December 31, 1998
Page ---- Report of Independent Accountants................................................................................19 Consolidated Financial Statements: Balance Sheets..........................................................................................20 Statements of Operations................................................................................21 Statements of Stockholders' Equity......................................................................22 Statements of Cash Flows................................................................................24 Notes to Financial Statements...........................................................................25
18 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Therapeutic Antibodies, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Therapeutic Antibodies, Inc. and Subsidiaries, A Development Stage Company (the Company) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 and for the period August 10, 1984 (inception) through December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has been in the development stage since inception with its primary activities being research and development and has not yet commenced planned principal operations. The Company's efforts to obtain additional financing necessary to support 1999 activities have not been concluded, raising substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ PRICEWATERHOUSECOOPERS, LLP Louisville, Kentucky March 5, 1999 19 21 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED BALANCE SHEETS
December 31, 1998 December 31, 1997 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents ............................................... $ 7,760,328 $ 4,915,077 Restricted cash ......................................................... 419,168 -- Short-term investments .................................................. -- 1,997,240 Trade receivables ....................................................... 67,677 594,267 Value added tax receivable .............................................. 326,849 179,629 Inventories ............................................................. 287,802 489,138 Other current assets .................................................... 712,370 409,929 ------------ ------------ Total current assets ...................................... 9,574,194 8,585,280 Property and equipment, net .................................................. 11,074,766 11,456,690 Patent and trademark costs, net .............................................. 678,306 598,924 Other assets, net ............................................................ 94,236 159,171 ------------ ------------ Total assets .............................................. $ 21,421,502 $ 20,800,065 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ................................... $ 1,755,098 $ 1,457,121 Accrued interest ........................................................ 122,486 146,326 Current portion of notes payable ........................................ 2,159,428 2,545,701 ------------ ------------ Total current liabilities ................................. 4,037,012 4,149,148 Notes payable, net of current portion ........................................ 4,744,216 6,059,072 Deferred revenue ............................................................. 342,363 559,467 Other liabilities ............................................................ 275,477 274,033 ------------ ------------ Total liabilities ......................................... 9,399,068 11,041,720 ------------ ------------ Convertible redeemable preferred stock - par value $.01 per share; 1,000,000 shares authorized .......................................... -- Stockholders' equity: Common stock - par value $.001 per share; 59,000,000 shares authorized, 52,057,219 issued and outstanding December 31, 1998; 30,000,000 shares authorized, 23,252,825 issued and outstanding December 31, 1997 ...... 52,057 23,253 Additional paid-in capital .............................................. 87,074,215 68,927,203 Deficit accumulated during the development stage (1984-1998) ............ (75,301,311) (59,412,383) Other comprehensive income .............................................. 197,473 220,272 ------------ ------------ Total stockholders' equity ................................ 12,022,434 9,758,345 ------------ ------------ Total liabilities and stockholders' equity ................ $ 21,421,502 $ 20,800,065 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 20 22 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Cumulative For the Years Ended Development Stage December 31, from August 10, 1984 ------------------------------------------------------ (inception) through 1998 1997 1996 December 31, 1998 ------------ ------------ ------------ -------------------- Operating revenues: Sales revenue .......................... $ 529,754 $ 295,328 $ 288,155 $ 1,664,868 Contract revenue ....................... 197,206 97,560 312,452 1,853,209 Licensing revenue ...................... 2,543,925 1,112,955 143,500 3,900,380 Grant income ........................... 41,488 205,569 118,535 774,007 Value-added tax and insurance recoveries -- -- -- 577,170 Other .................................. 80,074 80,008 64,890 300,888 ------------ ------------ ------------ ------------ 3,392,447 1,791,420 927,532 9,070,522 ------------ ------------ ------------ ------------ Operating expenses: Cost of sales revenue .................. 374,371 50,172 136,842 630,443 Cost of contract revenue ............... 66,387 60,568 198,147 355,473 Research and development ............... 11,363,218 11,462,352 9,185,126 53,405,675 General and administrative ............. 4,050,667 3,561,541 2,721,889 16,993,834 Marketing and distribution ............. 547,406 614,598 361,262 2,523,959 Depreciation and amortization .......... 1,561,951 1,643,922 1,387,916 7,073,621 Other .................................. 10,485 217,418 20,371 345,310 ------------ ------------ ------------ ------------ 17,974,485 17,610,571 14,011,553 81,328,315 ------------ ------------ ------------ ------------ Operating loss ............................. (14,582,038) (15,819,151) (13,084,021) (72,257,793) Interest income ....................... 239,362 886,511 607,479 2,162,048 Interest expense ...................... (1,305,549) (1,001,959) (1,201,335) (5,036,131) Foreign currency gains ................ -- -- 1,733,357 1,785,984 Foreign currency losses ............... (240,703) (913,119) -- (1,153,822) Debt conversion expense ............... -- -- (801,597) (801,597) ------------ ------------ ------------ ------------ Net loss ................................... (15,888,928) (16,847,718) (12,746,117) (75,301,311) Preferred stock dividends .................. (32,877) -- -- (32,877) ------------ ------------ ------------ ------------ Net loss applicable to common shareholders . (15,921,805) (16,847,718) (12,746,117) (75,334,188) Other comprehensive income (loss), before and after tax: Change in equity due to foreign currency translation adjustments .............. (22,799) (455,521) 859,202 197,473 ------------ ------------ ------------ ------------ Total comprehensive loss ................... $(15,944,604) $(17,303,239) $(11,886,915) $(75,136,715) ============ ============ ============ ============ Basic and diluted net loss per share ....... $ (0.59) $ (0.74) $ (0.68) ============ ============ ============ Weighted average shares used in computing basic and diluted net loss per share ... 26,910,291 22,888,226 18,821,524 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 21 23 THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996 and for the Cumulative Development Stage from August 10, 1984 (inception) through December 31, 1998
Common Stock Additional --------------------------------- Common Stock Paid-In Shares Par Value Subscribed Capital ------------ --------------- -------------- ------------- Sale of common stock 1985 - 1995 ............. 10,055,243 $10,055 2,122 $ 27,418,235 One thousand-for-one stock split 1985 ........ 2,797,200 2,797 (2,797) Exercise of stock warrants at $.75 per share 1989 and $.50-$.75 1995 166,402 167 110,134 Issuance of shares 1990, 1992, 1994 and 1995 . 2,121,883 2,122 (2,122) (13,677) Issuance of shares for acquisition of PAL 1992 ............................. 1,415,875 1,416 3,155,984 Issuance of warrants 1992 and 1993 ........... 212,000 Translation adjustment 1992 - 1995 Net loss from August 10, 1984 (inception) to December 31, 1995 ................... ---------- ------- ----------- ------------ Balance, December 31, 1995 ................... 16,556,603 16,557 -- 30,879,879 Issuance of shares upon debt conversion ...... 466,383 466 2,564,639 Debt conversion charge ....................... 801,597 Sale of common stock, net .................... 164,332 165 933,384 Initial public offering, net ................. 4,190,477 4,190 30,370,518 Exercise of stock warrants at $.75-$4.50 per share ................. 942,897 943 1,332,989 Exercise of stock options .................... 33,000 33 89,667 Issuance of warrants ......................... 46,944 Stock-based compensation expense ............. 62,431 Net loss 1996 ............................... Translation adjustment ....................... ---------- ------- ----------- ------------ Balance, December 31, 1996 ................... 22,353,692 22,354 -- 67,082,048 Exercise of stock warrants at $.60-$3.50 per share ................. 888,716 889 1,357,197 Stock-based compensation expense ............. 469,438 Exercise of stock options .................... 10,417 10 18,520 Net loss 1997 ................................ Translation adjustment ....................... ---------- ------- ----------- ------------ Balance, December 31, 1997 ................... 23,252,825 23,253 -- 68,927,203 Refinancing, net ............................. 28,690,561 28,690 -- 17,642,828 Exercise of stock warrants at $2.50 per share ...................... 20,500 21 51,229 Stock-based compensation expense ............. 160,129 Exercise of stock options .................... 93,333 93 (93) Issuance of warrants ......................... 292,919 Net loss 1998 ................................ Translation adjustment ....................... ---------- ------- ----------- ------------ Balance, December 31, 1998 ................... 52,057,219 $52,057 -- $ 87,074,215 ========== ======= =========== ============ Deficit Stock Accumulated During Other Subscriptions Development Comprehensive Receivable Stage Income Total ----------------- ------------------ ------------- ------------ Sale of common stock 1985 - 1995 ............. (3,528,537) -- -- $23,901,875 One thousand-for-one stock split 1985 ........ Exercise of stock warrants at $.75 per share 1989 and $.50-$.75 1995 110,301 Issuance of shares 1990, 1992, 1994 and 1995 3,528,537 3,514,860 Issuance of shares for acquisition of PAL 1992 ............................. 3,157,400 Issuance of warrants 1992 and 1993 ........... 212,000 Translation adjustment 1992 - 1995 ........... $ (183,409) (183,409) Net loss from August 10, 1984 (inception) to December 31, 1995 .................... $(29,818,548) (29,818,548) ------------ ------------ ----------- ----------- Balance, December 31, 1995 ................... -- (29,818,548) (183,409) 894,479 Issuance of shares upon debt conversion ...... 2,565,105 Debt conversion charge ....................... 801,597 Sale of common stock, net .................... 933,549 Initial public offering, net ................. 30,374,708 Exercise of stock warrants at $.75-$4.50 per share ................. 1,333,932 Exercise of stock options .................... 89,700 Issuance of warrants ......................... 46,944 Stock-based compensation expense ............. 62,431 Net loss 1996 ................................ (12,746,117) (12,746,117) Translation adjustment ....................... 859,202 859,202 ------------ ------------ ----------- ----------- Balance, December 31, 1996 ................... -- (42,564,665) 675,793 25,215,530 Exercise of stock warrants at $.60-$3.50 per share ................. 1,358,086 Stock-based compensation expense ............. 469,438 Exercise of stock options .................... 18,530 Net loss 1997 ................................ (16,847,718) (16,847,718) Translation adjustment ....................... (455,521) (455,521) ------------ ------------ ----------- ----------- Balance, December 31, 1997 ................... -- (59,412,383) 220,272 9,758,345 Refinancing, net ............................. -- 17,671,518 Exercise of stock warrants at $2.50 per share ...................... 51,250 Stock-based compensation expense ............. 160,129 Exercise of stock options .................... -- Issuance of warrants ......................... 292,919 Net loss 1998 ................................ (15,888,928) (15,888,928) Translation adjustment ....................... (22,799) (22,799) ------------ ------------ ----------- ----------- Balance, December 31, 1998 ................... -- $(75,301,311) $ 197,473 $12,022,434 ============ ============ =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 22 24 Therapeutic Antibodies Inc. and Subsidiaries (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR the Cumulative For the Years Ended Development Stage December 31, From August 10, 1984 ----------------------------------------------- (Inception) Through 1998 1997 1996 December 31, 1998 ------------- ------------ ------------ ------------------- Cash flow from operating activities: Net loss ............................................... $(15,888,928) $(16,847,718) $(12,746,117) $(75,301,311) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ...................... 1,561,951 1,643,922 1,387,916 7,073,621 Disposal of property and equipment ................. 279,328 282,806 532,817 1,206,566 Foreign currency loss (gain) ....................... 240,703 913,119 (1,733,357) (632,162) Warrant expense .................................... 292,919 -- 46,944 486,913 Stock-based compensation expense ................... 160,129 487,968 62,431 710,528 Debt conversion expense ............................ -- -- 801,597 801,597 Changes in: Restricted cash ............................... (419,168) -- -- (419,168) Trade receivable .............................. 355,227 (434,140) (52,373) (154,005) Inventories ................................... 201,335 (88,971) (7,073) (173,629) Other current assets .......................... (301,155) 60,616 (128,813) (709,262) Accounts payable and accrued expenses ......... 333,821 646,550 (340,411) 1,887,203 Accrued interest .............................. 86,749 (777) (37,512) 862,974 Deferred revenue .............................. (218,581) (84,063) 313,670 11,026 Other ......................................... 32,877 -- (234,301) (10,612) ------------ ------------ ------------ ------------ Net cash used in operating activities ................ (13,282,793) (13,420,688) (12,134,582) (64,359,721) ------------ ------------ ------------ ------------ Cash flows from investing activities: Purchase of property and equipment ..................... (1,385,027) (1,257,448) (3,293,214) (15,273,350) Patent and trademark costs, net ........................ (99,657) (109,709) (198,502) (760,654) Purchase of short-term investments ..................... -- (11,931,028) (2,002,266) (13,933,294) Maturity of short-term investments ..................... 2,094,509 11,838,785 -- 13,933,294 Other .................................................. -- -- -- 69,750 ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities .. 609,825 (1,459,400) (5,493,982) (15,964,254) ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from notes payable ............................ 4,641,239 17,605 2,518,239 20,450,244 Payments on notes payable .............................. (3,346,423) (1,299,211) (1,969,138) (9,523,894) Proceeds from line of credit ........................... -- 61,897 123,371 3,371,278 Payments on line of credit ............................. (43,836) (118,505) (1,018,738) (3,371,278) Proceeds from convertible debt, net .................... -- -- 5,432,500 9,655,000 Payments on convertible debt ........................... -- -- (4,320,325) (4,320,325) Proceeds from issuance of stock, net ................... 14,707,529 1,358,086 32,326,264 71,719,109 Proceeds from issuance of warrants ..................... -- -- -- 65,000 Other .................................................. (1,869) 39,184 (5,628) (149,467) ------------ ------------ ------------ ------------ Net cash provided by financing activities ............ 15,956,640 59,056 33,086,545 87,895,667 ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (438,421) (766,427) 1,647,473 188,636 ------------ ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents ....... 2,845,251 (15,587,459) 17,105,454 7,760,328 Cash and cash equivalents, beginning of period ............. 4,915,077 20,502,536 3,397,082 -- ------------ ------------ ------------ ------------ Cash and cash equivalents, end of period ................... $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 7,760,328 ============ ============ ============ ============ Supplemental cash flow disclosures: Cash payments for interest (net of amount capitalized) . $ 929,106 $ 1,017,000 $ 1,142,738 $ 1,612,778 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS OF THE COMPANY: Therapeutic Antibodies Inc. (the "Company") was incorporated on August 10, 1984 for the purpose of engaging in the research, development, production and marketing of therapeutic antibodies that provide protection against venoms, drugs, toxins and infectious diseases. The Company is a development stage company as defined in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises, and is devoting substantially all of its present efforts to research and development, including pre-production activities. Certain of the Company's research and development and product testing activities are carried out through affiliations with scientists at academic institutions around the world. These affiliations include preclinical and clinical research agreements, consulting agreements, patent and royalty agreements and facility leases. Inherent in the development stage is a range of risks including the need for, and uncertainty of, future financing. The Company also faces risks stemming from the nature of the biopharmaceutical industry, such as the risk of competition, the risk of regulatory change, including potential changes in health care coverage, uncertainties associated with obtaining and enforcing patents and proprietary technology, uncertainty of the approval of products by governmental agencies and risks related to fluctuations in interest rates and foreign currencies. Since its inception, the Company has been in the development stage, devoting its efforts and resources to drug discovery and development programs. Capital resources have been used for the establishment and expansion of production facilities, for product research and development activities, for clinical testing and to meet Therapeutic Antibodies' overall increased working capital requirements. Management does not expect revenues from product sales to be a significant source of funding until additional products receive regulatory approval. Although the Company anticipates the launch of CroTAb(R) following FDA approval in mid-1999, revenues from sales of CroTAb(R) are not expected to be significant in 1999. Future capital requirements will depend on numerous factors including the progress of the Company's research programs and clinical trials, the development of regulatory submissions, the receipt of FDA approval of CroTAb(R), the commercial viability of the Company's products, the ability to attract collaborative partners with sales, distribution and marketing capabilities, and the terms of any new licensing arrangements. Funds for the Company's operating and capital requirements historically have been provided by the sale of equity and debt and from collaboration agreements and other financing arrangements. In November 1998, the Company successfully completed the private placement (described below in more detail) of 28,690,561 shares of Common Stock in the United States and in the United Kingdom, raising net cash proceeds of $12,600,000. At the time of the private placement, the Company estimated that the fundraising, together with licensing and contract revenue, would provide sufficient funds to allow the Company to reach the launch of several of its products, and accordingly bring the Company to the point at which its revenues can sustain ongoing product development. With the loss of the 1999 milestone payments and product revenues that would have been received under the Searle agreement, the Company will need to raise additional financing by mid-1999 to fund operations. The Company is currently pursuing several financing alternatives, including preliminary discussions that may lead 24 26 to a merger on a share exchange basis at a value that approximates the current market value of Therapeutic Antibodies. The Board has also entered into discussions with third parties relating to the sale of additional debt or equity securities, the disposal of certain non-core investments, entering into additional product licensing arrangements, and possible combinations or collaborations with strategic partners. While the Directors believe that they will be able to successfully implement one or more of these financing strategies, there can be no assurance that they will be able to do so or to otherwise obtain financing on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In the meantime, the Company continues to take measures, implemented in 1998, to conserve cash resources, while sustaining the progress of clinical trials for products that promise the most success. On November 9, 1998, the Company completed a $19,500,000 ((pound)11,500,000) capital refinancing involving the issuance of 28,690,561 new shares of Common Stock on the London Stock Exchange at $.68 (40 pence) per share. The refinancing included the private placement of 21,300,000 new shares of Common Stock. It also included the conversion of $2,000,000 (all outstanding shares) of the Series A Convertible Redeemable Preferred Stock issued by the Company in September 1998 and accrued dividends thereon of $33,000 into 2,995,692 shares of the Company's Common Stock and of $2,900,000 ((pound)1,700,000) principal and interest amount of certain loan notes into 4,394,869 shares of Common Stock. Approximately $12,600,000 ((pound)7,500,000) in cash was raised in the private placement, net of expenses, which will be used to fund the ongoing development of the Company's products and to repay the balance of the outstanding 15% Notes (see Note 5). 25 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. b. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries denominated in foreign currencies are translated to United States (U.S.) dollars at period-end exchange rates. Revenues and expenses denominated in foreign currencies are translated at average exchange rates for the period. Translation adjustments are reported as a separate component of stockholders' equity. The effects of translation of intercompany loans to international subsidiaries, which have been designated as long-term investments, are also included in the separate component of stockholders' equity. At December 31, 1998, the Company had approximately (pound) 4,524,000 in British sterling and $31,500 in Australian dollars which were translated to U.S. dollars at the year end currency rates of 1.6595 and 0.6123, respectively. Foreign currency transaction losses for the years ended December 31, 1998 and 1997 were $240,703 and $913,119 and foreign currency transaction gains for the year ending December 31, 1996 were $1,733,357. c. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: All highly liquid investments with an original maturity of three months or less when purchased are classified as cash equivalents. Restricted cash relates to amounts received pursuant to Therapeutic Antibodies' collaborative agreement with G.D. Searle & Co. The funds were to be used for the identification, development and commercialization of a new antibody based drug designed to titrate the effects of Searle's new xemilofiban and orbofiban anticoagulant products. In January 1999, however, Searle made the decision to cease development of its xemilofiban and orbofiban projects and exercised its right to terminate its agreement with the Company. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and temporary cash investments. The Company places substantially all of its cash and temporary cash investments with one major financial institution. As of December 31, 1998, and at times throughout the period, cash balances were in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such accounts and believes no significant exposure from this concentration exists with respect to cash and temporary cash investments. The Company also maintains balances at a U.S. institution denominated in British pounds sterling and Australian dollars. Short-term investments consisted of governmental and corporate debt instruments. The carrying value of these short-term investments approximated fair value at December 31, 1997. d. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out) or market. 26 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: e. LONG-LIVED ASSETS: Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful life of the asset as follows: Buildings and improvements - 10 to 20 years Furniture, fixtures and equipment - 3 to 10 years Livestock - 5 years Leasehold improvements are amortized over the shorter of their estimated life or the period of the related leases, including anticipated renewals for which the Company has an option. Patent costs consist of legal fees associated with patent applications and filings and trademark costs consists of legal fees associated with trademark procurement. Once a patent is granted, costs are amortized using the straight-line method over 17 years from the patent grant date. Accumulated amortization was $55,117 and $27,282 as of December 31, 1998 and 1997, respectively. Trademark costs are amortized using the straight-line method over 10 years. Accumulated amortization was $27,231 and $34,790 as of December 31, 1998 and 1997, respectively. The carrying value of long-lived assets is reviewed if the facts and circumstances suggest that they may be impaired. If this review indicates that the carrying value will not be recoverable, the carrying value is reduced to fair value. f. REVENUE RECOGNITION: Revenues from sales of products are recognized at the time of shipment. Revenues from licensing agreements are recognized when earned based upon signing the agreement, if applicable, and upon reaching predefined milestones in the development program. Product sales revenues, contract revenues and licensing revenues are nonrefundable and not subject to any future obligations. The Company has received grants from the United Kingdom (U.K.) and Australia as a result of reaching certain employment levels and constructing production facilities. Grants related to employment levels and conducting clinical trials are recognized as income at the point in time that the conditions of the grant are satisfied. Grants related to construction of production facilities are recognized over the life of the facility. Deferred grant income of $249,000 relating to U.K. grants received in 1995 and 1994 is included in deferred revenue at December 31, 1998. For the years ended December 31, 1998, 1997 and 1996 deferred grant income relating to the 1995 and 1994 U.K. grants was recognized in the amounts of $41,000, $77,000 and $39,000, respectively. In 1996, the Company received a $79,000 development grant from the Department of Industry and Trade of the Government of South Australia for expansion of the Company's Australian operations. The grant is structured in the form of a 99 year interest-free loan and the entire amount was recognized upon receipt. The Company received a $129,000 grant from the Welsh Government in 1997 for expansion of the Company's Welsh operations 27 29 and the entire amount was recognized upon receipt. g. RESEARCH AND DEVELOPMENT COSTS: Research and development costs ("R&D"), costs for developing and improving manufacturing processes, pilot plant operations and inventories of products not yet approved for sale by governmental regulatory authorities are expensed when incurred. 28 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED h. BASIC AND DILUTED EARNINGS PER COMMON SHARE: The basic and diluted earnings per common share calculation was based on SFAS No. 128, "Earnings per Share", which the Company adopted during the year ended December 31, 1997. The calculations are based upon the weighted average number of shares of common stock outstanding during each period. Options to purchase 2,589,609, 2,032,388 and 1,612,376 and warrants to purchase 1,265,207, 737,374 and 1,726,738 shares of common stock for the years ended December 31, 1998, 1997 and 1996, respectively, have been excluded from the computation of diluted earnings per common share because their effect is antidilutive. i. VALUE-ADDED TAX RECEIVABLE: The Company's operations in the U.K. are subject to value-added tax (VAT) where the Company pays tax at a rate of 17.5% on most goods and services purchased. These VAT taxes are subject to refund based on returns, which are filed quarterly with U.K. taxing authorities. VAT paid by the Company after December 31, 1993 is recorded as a receivable at the time it is paid. In years prior to 1994, VAT tax paid was included with the related expense. In 1994, the Company determined it could file refunds for VAT paid in prior years in the amount of $475,760 which was recorded as revenue in 1994. j. FINANCIAL STATEMENTS ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: During 1998, the Financial Accounting Standards Board issued Statement of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No. 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The Company will adopt SOP No. 98-1 and SOP No. 98-5 in 1999 as required. The Company primarily purchases all computer software from third party vendors and does not engage in the development of internal use software. The Company capitalizes all costs to acquire computer software from third party vendors. Consequently, the implementation of SOP No. 98-1 is not expected to have a material impact on the Company. The Company expenses all start-up related costs and accordingly, the implementation of SOP No. 98-5 will not have a significant impact on the Company. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". In general, SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet at their fair value, and sets forth the manner in which gains or losses thereon are to be recorded. The treatment of such gains and losses is dependent upon the type of exposure, if any, for 29 31 which the derivative is designated as a hedge. This statement is effective for periods beginning after June 15, 1999. Management is currently assessing the impact of adopting SFAS No. 133, but does not anticipate a significant impact on the Company's financial position or results of operations. 30 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. PROPERTY AND EQUIPMENT: Property and equipment at December 31 consists of the following:
1998 1997 ----------- ----------- Land $ 617,668 $ 614,429 Buildings and improvements 8,314,053 7,976,570 Construction in progress - 64,571 Furniture, fixtures and equipment 7,870,686 7,141,732 Livestock 905,062 870,323 ----------- ----------- 17,707,469 16,667,625 Accumulated depreciation 6,632,703 5,210,935 ----------- ----------- $11,074,766 $11,456,690 =========== ===========
Buildings and improvements includes $10,120 and $38,288 of capitalized interest associated with the construction of a building in Australia in 1997 and 1996, respectively and $491,408 with the construction of buildings in the U.K. in 1995. 31 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. Notes Payable: Notes payable at December 31 consist of:
1998 1997 ----------- ------------ 6% convertible notes payable, principal due October 1, 2000, interest due semi-annually on April 1 and October 1 $ 2,905,000 $ 2,905,000 Capital lease payable to Phoenixcor Inc. (formerly Aberlyn Capital Management Limited Partnership), interest at 14.5%-18%, collateralized by equipment in the U.K. with a net book value of $1 million with monthly payments due through January 2000 568,118 1,697,708 11.5% note payable to Equitas, LP, principal due March 1999, interest due quarterly in November, February, May, and August, collateralized by various assets of the Company's subsidiaries and common shares of the Company's subsidiary, TAb U.K. 800,000 800,000 12% and 15% unsecured notes payable to an officer of the Company, interest due monthly and/or quarterly, principal due January 1999 and December 2000, respectively 500,000 1,000,000 Note payable to Bank of Wales PLC, collateralized by certain real property in the U.K., interest at 2.5% over Bank of Wales lending rate (effective rate of 8.75% at December 31, 1998), principal and interest due monthly over 10 years through February 2005 356,445 395,363 Notes payable to South Australian Minister for Primary Industries, collateralized by building and equipment, interest rates from 6.5% to 9%, principal repayable in annual installments through April 2008 1,199,775 1,217,177 Capital equipment leases, interest rates from 10.6% to 21.3%, principal and interest payable monthly through 2001 206,711 327,172 6% note payable to CATO, Inc., interest due semi-annually, principal due December 2000 100,000 100,000 Other 267,595 162,353 ----------- ------------ 6,903,644 8,604,773 Less current portion 2,159,428 2,545,701 ----------- ------------ $ 4,744,216 $ 6,059,072 =========== ============
32 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: In August 1995, the Company initiated a private placement of its 6% Convertible Notes due October 1, 2000 (the "6% Notes"). Interest on the 6% Notes is payable semi-annually and the notes are convertible into shares of the Company's Common Stock at $8.00 per share at any time prior to maturity upon the election of the holder. The 6% Notes are not collateralized. In January 1996, the Company offered each holder of the 6% Notes the opportunity to exchange all or a portion of their 6% Notes for shares of the Company's Common Stock at the rate of $5.50 per share until February 9, 1996. Pursuant to this offer, the holders of $2,565,105 aggregate amount of principal and accrued interest on the 6% Notes elected to tender their 6% Notes to the Company in exchange for 466,383 shares of common stock. This exchange conversion resulted in a non-cash debt conversion expense of $801,597. The Company has capital lease agreements with Aberlyn Capital Management Limited Partnership under which it has financed $1,000,000 at 18% and $3,203,573 at 14.5%. The borrowings are collateralized by certain of the Company's equipment located in the U.K. Principal amounts mature through January 2000. During 1998, the $1,000,000 leases at 18% were repaid in full. Principal and interest payments on the remaining leases of $568,118 are due monthly. In connection with the agreement, the Company issued warrants in 1995 and 1994 to purchase a total of 102,514 shares of the Company's Common Stock at $5.00 per share. In June 1998, Aberlyn assigned the $3,203,573 leases at 14.5% to Phoenixcor Inc. In 1995, the Company obtained the proceeds of an $800,000 loan from Equitas, LP. The loan agreement provides for interest at an annual rate of 11.5% to be paid quarterly. Principal is due in full at maturity on July 24, 2000. However, the lender has elected to exercise its right to call the loan early and principal will be repaid in March 1999. The lender received warrants to purchase 22,198 shares of the Company's Common Stock at $8.00 per share. The loan is collateralized by accounts receivable, antisera inventory, and livestock from certain of the Company's subsidiaries as well as limited guarantees from those subsidiaries. The common shares of the Company's subsidiary, TAb U.K., additionally collateralize this loan. In April 1996, an officer of the Company made a short-term unsecured loan to the Company of $1,000,000 bearing interest at 12% (the "12% Note"). In May 1996, the officer converted $750,000 principal amount of the 12% Note into an equal amount of the Company's 1996 notes bearing interest at 15% (the "15% Notes"). In November 1998, $500,000 of the 15% Note was converted into 736,811 shares of the Company's Common Stock as a part of the capital refinancing. The $250,000 principal balance on the remaining 12% Note was paid in full with accrued interest in January 1999. The remaining $250,000 principal balance on the 15% Note is due in December 2000. 33 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: In January 1995, financing of $465,900 was obtained from Bank of Wales PLC collateralized by certain real property in the U.K. The note is repayable over 10 years beginning in February 1995. Interest is paid at 2.5% over the Bank of Wales's base lending rate (effective rate of 8.75% at December 31, 1998). The Company's subsidiary, TAb Australasia Pty. Ltd., has two loan agreements with the South Australian Minister for Primary Industries (the "Minister"). The first agreement allowed TAb Australasia Pty. Ltd. to draw up to $2,000,000 Australian dollars ($1,224,600 U.S. dollars at December 31, 1998) to assist with construction and equipment of buildings at its Turretfield location in South Australia. The loan is to be repaid over ten years in equal annual installments through August 2007. Interest is variable at the discretion of the Minister and is due annually. The interest rates at December 31, 1998 and 1997 were 9% and 11% per annum. The loan is collateralized by a mortgage on the building and equipment purchased. The second agreement provided for a loan of $250,000 Australian dollars ($153,075 U.S. dollars at December 31, 1998) for the construction of transportable buildings at the Company's Australian location. Principal and interest accrued thereon are to be repaid in semi-annual installments through April 2008. The interest rate at December 31, 1998 was 6.5% and is variable at the discretion of the Minister. The Company has available lines of credit at December 31, 1998 totaling 150,000 British pounds sterling with the Bank of Scotland and its subsidiary, Bank of Wales PLC, in the U.K. Interest is paid at 2.5% over the relevant bank's base lending rate (effective rate of 8.75% at December 31, 1998). The Company also has available lines of credit at December 31, 1998 of 50,000 Australian dollars with the Westpac Bank. This line of credit bears interest at 1.75% above the bank's base lending rate (effective rate of 10.5% at December 31, 1998). These lines of credit are collateralized by the guarantee of the Company and are due on demand. At December 31, 1998, the Company had no outstanding borrowings on these lines of credit. The weighted average interest rate on these lines of credit outstanding at December 31, 1997 was 9%. 34 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE, CONTINUED: Aggregate maturities of fixed payments on notes payable for the next five years follow:
YEARS ENDING DECEMBER 31: ------------ 1999 $2,159,428 2000 3,514,044 2001 193,623 2002 202,405 2003 215,733 Thereafter 618,411 ---------- $6,903,644 ==========
At December 31, 1998 and 1997, $1,700,250 and $1,868,967, respectively, of the Company's debt obligations were denominated in British pounds sterling or Australian dollars and were translated to U.S. dollars at year-end exchange rates. The Company is subject to foreign currency risk to the extent that exchange rates between the U.S. dollar and the foreign currencies change. For accounting purposes, changes in exchange rates for the debt obligations result in translation adjustments which are reported as part of the separate component of stockholders' equity. At December 31, 1998 and 1997, the amount included in the cumulative translation adjustment related to the Company's debt obligations was $320,484 and $242,956 of gain, respectively. The Company does not hedge its exposure to foreign currency risks. 35 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. INCOME TAXES: Under SFAS No. 109, Accounting for Income Taxes, deferred income taxes are recognized for future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted laws and statutory rates applicable in the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company determined that at December 31, 1998 and 1997 its ability to realize future benefits of deferred tax assets did not meet the "more likely than not" criteria in SFAS No. 109. The components of the net deferred tax liability recognized in the accompanying consolidated balance sheets are as follows:
DECEMBER 31, 1998 1997 ------------ ------------ Deferred tax assets $ 24,916,109 $ 19,214,452 Deferred tax liabilities (275,477) (643,339) Valuation allowance (24,916,109) (18,845,146) ------------ ------------ $ (275,477) $ (274,033) ============ ============
The deferred tax liability arose due to tax differences in the bases of assets and liabilities relative to the acquisition of Polyclonal Antibodies, Ltd. and the temporary difference in capital allowance in U.K. assets. The deferred tax asset arises primarily from the Company's net operating loss carryforwards. At December 31, 1998, the Company had available net operating loss carryforwards for U.S. federal tax purposes of approximately $57,700,000, which expire in various amounts through 2018 and approximately $307,000 of research and development tax credits which expire through 2013. As a result of the capital refinancing in 1998 discussed in Note 1, the Company experienced an "ownership change" within the meaning of Section 382 of the Internal Revenue Code. Consequently, the Company is subject to an annual limitation on the amount of net operating loss carryforwards that can be used to offset taxable income. The annual limitation is $1,502,000 plus certain gains included in taxable income attributable to the Company prior to the ownership change. United Kingdom net operating loss carryforwards of $11,128,000 and Australian net operating loss carryforwards of $1,687,000 are available to offset future taxable income generated in those respective countries and may be carried forward indefinitely. The Company's effective tax rate varies from the federal statutory rate due to the recognition of a valuation allowance for financial reporting purposes. 36 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS: At December 31, 1998 there were warrants outstanding to purchase 1,265,207 shares of the Company's Common Stock at prices ranging from $.68 to $8.00 (average price of $4.18) per share. All outstanding warrants expire from 1999 to 2003. Activity in stock warrants is as follows:
NUMBER OF EXERCISE PRICE WARRANTS PER SHARE ------------------------------- Outstanding at December 31, 1995 2,303,135 $ .60-$8.00 Granted 366,500 $ 8.00 Forfeited -- -- Exercised (942,897) $ .75-$4.50 Outstanding at December 31, 1996 1,726,738 $ .60-$8.00 Granted 5,000 $ 1.25 Forfeited (105,648) $1.25-$3.50 Exercised (888,716) $ .60-$3.50 Outstanding at December 31, 1997 737,374 $2.50-$8.00 Granted 707,500 $ .68-$2.49 Forfeited (159,167) $2.50-$3.50 Exercised (20,500) $ 2.50 ----------- Outstanding at December 31, 1998 1,265,207 $ .68-$8.00 ===========
On April 26, 1996, the Board of Directors of the Company amended the Therapeutic Antibodies Inc. 1990 Stock Incentive Plan (the "1990 Plan"). Up to 1,650,000 shares of the Company's Common Stock may be subject to incentives under the 1990 Plan. The 1990 Plan provides for the grant to key employees, advisors, officers and directors of the Company of stock options complying with Section 422(a) of the Internal Revenue Code (qualified options) or options not qualifying under such provision (nonqualified options) as well as stock appreciation rights (SARs). The 1990 Plan provides for adjustment of the number of shares under the 1990 Plan in the event of stock splits, stock dividends and certain other events. The 1990 Plan also provides that if the Company shall not be the surviving corporation in a business combination, the holder of an outstanding option will be entitled to purchase stock in the surviving corporation on the same terms and conditions as the options. Options are nontransferable, and options and SARs are subject to any restrictions contained in the grant and applicable securities laws. 37 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS, CONTINUED: On April 27, 1997, shareholders of the Company voted in favor of adopting the Company's 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan states that 1,100,000 shares of the Company's Common Stock will be reserved for issuance, at the discretion of the Company's Compensation Committee, to any director, employee, consultant or advisor of the Company or any of its subsidiaries. The 1997 Plan provides for adjustment of the number of shares available under the 1997 Plan in the event of stock splits, stock dividends and certain other events. Between the 1990 Plan and the 1997 Plan, options to purchase 2,589,609 shares of the Company's Common Stock were outstanding at December 31, 1998 at prices ranging from $.90 to $8.18 (average price of $3.97). Options granted under both the 1990 and 1997 Plans have a contractual life of ten years. The average remaining contractual life of outstanding options under both plans at December 31, 1998 is approximately 7.4 years. Generally, the Company grants options with a graded vesting requirement, which typically vests ratably over one to five years. The options are issued at or above the fair value of the underlying stock at date of grant. At December 31, 1998, 1,611,259 options were exercisable at a weighted average price of $4.09. All options expire from 1999 to 2008. The Company has granted its Chairman an option to purchase a number of shares of its common stock determined by dividing up to a maximum of 10% of the increase in the Company's market capitalization between June 8, 1998 and the date of exercise by the market price of the Company's common stock on the date of exercise. The Chairman will be entitled to exercise the option only if the increase in the market price of the Company's common stock between June 8, 1998 and the date of exercise, when compared to the increase in the share price of the companies constituting the FTSE Smallcap Index at the date of grant and exercise, ranks in the top quartile. The Chairman will receive nothing if the Company is in the median position, but options earned will increase on a straight-line basis between the median position and the position representing the 25th percentile. The award may be exercised in two tranches following the second and third years of employment, but if the Chairman exercises the award following the second anniversary, the terms of the calculation of any future award is reset. The exercise price of each grant is one pound, or approximately $1.61 at December 31, 1998. The Company has not recognized any compensation expense in connection with this arrangement because it is not currently probable that any awards will be earned under the arrangement. Should it become likely that an award will be earned under this arrangement, the Company will record compensation expense over the three-year period of the arrangement in accordance with FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans." 38 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS, CONTINUED: Activity in stock options is as follows:
NUMBER OF EXERCISE PRICE WEIGHTED OPTIONS PER SHARE AVERAGE PRICE --------------------------------------------------- Outstanding at December 31, 1995 1,108,626 $1.25-$6.00 $ 3.10 Granted 538,050 $6.00-$8.18 $ 6.12 Forfeited (1,300) $ 6.00 $ 6.00 Exercised (33,000) $2.40-$3.00 $ 2.49 Outstanding at December 31, 1996 1,612,376 $1.25-$8.18 $ 4.12 Granted 504,450 $4.00-$6.00 $ 5.49 Forfeited (84,438) $3.00-$6.00 $ 4.18 Exercised -- -- -- Outstanding at December 31, 1997 2,032,388 $1.25-$8.18 $ 4.46 Granted 1,042,670 $ .90-$3.37 $ 2.71 Forfeited (287,949) $2.40-$6.58 $ 4.73 Exercised (197,500) $ 1.25 $ 1.25 --------- Outstanding at December 31, 1998 2,589,609 $ .90-$8.18 $ 3.97 =========
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the Company follows the provisions of Accounting Principles Board Opinion 25 "Accounting For Stock Issued to Employees", and related interpretations in accounting for its stock option grants. Compensation expense for employees has not been recognized for options issued under the 1990 Plan and the 1997 Plan. Had compensation been determined based on the fair value of the awards at the grant date consistent with the provisions of SFAS No. 123, the Company's net loss and basic and diluted net loss per share would have been increased to the pro forma amounts that follow:
1998 1997 1996 ------------ ------------ ------------ Net loss applicable to common shareholders As reported $(15,921,805) $(16,847,718) $(12,746,117) Pro forma $(16,572,715) $(17,249,174) $(12,922,164) Basic and diluted net loss per share As reported $ (0.59) $ (0.74) $ (0.68) Pro forma $ (0.62) $ (0.75) $ (0.69)
39 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. STOCK WARRANTS AND STOCK OPTIONS, CONTINUED: During 1998, 1997 and 1996, the Company granted options to non-employees to purchase 395,420, 290,650 and 107,550 shares, respectively, of the Company's Common Stock. The expense related to these grants recognized during 1998, 1997 and 1996 was approximately $160,000, $469,000 and $62,000 respectively. The weighted average fair value of options granted during 1998, 1997 and 1996 was $1.55, $2.88 and $0.97, respectively. Fair value estimates were determined using a variation of the Black-Scholes model with the following weighted average assumptions for 1998, 1997 and 1996:
1998 1997 1996 --------- --------- ------- Risk-free interest rate 6.0% 6.0% 6.0% Volatility factor 55% 30% 25% Expected term of options (in years) 10 10 5 Dividend yield none none none
The effects of applying SFAS No. 123 in this pro forma disclosure are not necessarily indicative of the future amounts. SFAS No. 123 does not apply to awards made prior to December 31, 1995, and the Company anticipates making awards in the future under its stock-based compensation plan. 40 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. NET LOSS PER COMMON SHARE COMPUTATIONS:
1998 1997 1996 ----------- ------------- ------------ Net loss applicable to common shareholders used for basic and diluted per share computations (numerator) $(15,921,805) $(16,847,718) $(12,746,117) Shares used for basic and diluted per share computations (denominator) 26,910,291 2,888,226 18,821,524 Basic and diluted net loss per amount share $ (0.59) $ (0.74) $ (0.68)
9. COMMITMENTS: ROYALTY COMMITMENT: In 1992, the Company entered into a patent sale and royalty agreement with scientists who at the time worked at the University of Arizona. Under the agreement, the Company purchased the scientists' rights under their U.S. patent and certain U.S. patent applications. The Company agreed to pay royalties to the sellers with respect to products developed and sold under the patents. Currently, no royalty payments have yet been required under this agreement. LEASES: The Company leases laboratory and office space under operating leases. Aggregate rent expense incurred under these leases was approximately $694,915 in 1998, $475,209 in 1997 and $190,248 in 1996. Future minimum rental commitments under noncancelable operating leases as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31, ------------ 1999 $ 733,941 2000 696,087 2001 535,883 2002 519,836 2003 508,965 ---------- $2,994,712 ==========
41 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. RELATED PARTY TRANSACTIONS: The Company incurred interest expense and loan guarantee fees of $167,312, $142,500 and $115,241 in the years ended December 31, 1998, 1997 and 1996, respectively, on notes payable to certain directors of the Company and loan guarantees made by certain directors on behalf of the Company in order to obtain short-term loan financing. 42 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. INTERNATIONAL OPERATIONS: The Company operates in one business segment and conducts its activities in the U.S., the U.K., Australia and before 1998, New Zealand. International operations are primarily located in the U.K. Intercompany sales between regions are made at cost plus markup. Summarized financial data by region are as follows:
1998 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------ ------------ ------------ Revenues: Trade $ 3,292,859 $ 338,950 $ -- $ 3,631,809 Intercompany (a) 908,323 9,747,363 (10,655,686) -- ------------ ------------ ------------ ------------ $ 4,201,182 $ 10,086,313 (10,655,686) $ 3,631,809 ============ ============ ============ ============ R & D expense (a) $ 11,512,863 $ 9,268,170 $ (9,417,815) $ 11,363,218 ============ ============ ============ ============ Foreign currency loss $ 240,703 $ 157,652 $ (157,652) $ 240,703 ============ ============ ============ ============ Net loss $(13,386,190) $ (2,490,904) $ 11,834 $(15,888,928) ============ ============ ============ ============ Capital expenditures $ 33,126 $ 1,351,901 $ -- $ 1,385,027 ============ ============ ============ ============ Long lived assets $ 1,375,562 $ 10,483,745 $ (12,000) $ 11,847,307 ============ ============ ============ ============ 1997 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------- ------------ ------------ Revenues: Trade $ 2,255,334 $ 422,597 $ -- $ 2,677,931 Intercompany (a) 779,507 10,912,302 (11,691,809) -- ------------ ------------ ------------ ------------ $ 3,034,841 $ 11,334,899 $(11,691,809) $ 2,677,931 ============ ============ ============ ============ R & D expense (a) $ 13,458,565 $ 8,871,785 $(10,867,998) $ 11,462,352 ============ ============ ============ ============ Foreign currency loss $ 913,119 $ 696,969 $ (696,969) $ 913,119 ============ ============ ============ ============ Net loss $(15,763,860) $ (1,819,741) $ 735,883 $(16,847,718) ============ ============ ============ ============ Capital expenditures $ 54,712 $ 1,202,736 $ -- $ 1,257,448 ============ ============ ============ ============ Long lived assets $ 1,459,792 $ 10,766,992 $ (12,000) $ 12,214,784 ============ ============ ============ ============
43 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. INTERNATIONAL OPERATIONS, CONTINUED:
1996 U.S. INTERNATIONAL ELIMINATIONS NET - ---- ------------ ------------- ------------ ------------ Revenues: Trade $ 1,184,619 $ 350,392 $ -- $ 1,535,011 Foreign currency gain 1,733,357 -- -- 1,733,357 Intercompany (a) 1,301,702 5,318,319 (6,620,021) -- ------------ ------------ ----------- ------------ $ 4,219,678 $ 5,668,711 $(6,620,021) $ 3,268,368 ============ ============ =========== ============ R & D expense (a) $ 5,279,302 $ 6,860,712 $(2,954,888) $ 9,185,126 ============ ============ =========== ============ Net loss $ (5,468,662) $ (5,223,305) $(2,054,150) $(12,746,117) ============ ============ =========== ============ Capital expenditures $ 99,035 $ 3,194,179 $ -- $ 3,293,214 ============ ============ =========== ============ Long lived assets $ 1,528,257 $ 11,931,885 $ (12,000) $ 13,448,142 ============ ============ =========== ============
(a) Intercompany revenues include interest income earned by the U.S. parent company on loans made to international subsidiaries and sales of products to, and the performance of contract research and development for, the U.S. parent company by international subsidiaries on a cost plus markup basis. The intercompany account associated with this activity is eliminated in consolidation. 12. NONCASH INVESTING AND FINANCING ACTIVITIES: During 1998 and 1997 the Company purchased equipment in the amounts of $19,195 and $227,000, respectively, which was financed under capital lease agreements. On November 9, 1998 holders of $2,375,000 of the 15% Notes issued in 1998 converted principal plus accrued interest of $107,000 into 3,658,058 shares of the Company's Common Stock. On November 9, 1998, the Company converted $2,000,000 (all of the 100 outstanding shares) of its Series A Convertible Redeemable Preferred Stock and $33,000 of accrued dividends into 2,995,692 shares of its Common Stock. On November 9, 1998 the Company also converted $500,000 principal of the 15% Note held by an officer of the Company into 736,811 shares of the Company's Common Stock. On February 9, 1996 the Company issued 466,383 shares of common stock in exchange for $2,500,000 of principal and $65,000 of accrued interest on the 6% Notes. In May 1996 an officer of the Company converted $750,000 principal of the 12% Note into an equal principal amount of the Company's 15% Notes. On October 21, 1996 the Company issued 150,000 shares of common stock in exchange for(pound)250,000 principal on two notes payable to the Welsh Development Agency. 13. CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents and short-term 44 46 investments approximates fair value due to the short maturities of these instruments. The Company believes that it is not practicable to estimate the fair value of its long-term debt because these instruments were generally issued in a convertible form or in conjunction with warrants to purchase the Company's Common Stock. The Company would be required to obtain an independent valuation of each specific instrument. 45 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K This Item has been amended for the sole purpose of listing the following amended exhibits to the Original Filing:
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 27.1 - Restated Financial Data Schedule (SEC use only)
46 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. THERAPEUTIC ANTIBODIES INC. Date: August 13, 1999 By: /s/ Andrew John Heath, M.D., Ph.D. --------------------------------------- Andrew John Heath, M.D., Ph.D. Chief Executive Officer (Interim Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ Andrew John Heath, M.D., Ph.D.* August 13, 1999 - ----------------------------------------------- Stuart Michael Wallis Chairman of the Board /s/ Andrew John Heath, M.D., Ph.D. Chief Executive Officer, Vice Chairman of August 13, 1999 - ----------------------------------------------- The Board Andrew John Heath, M.D., Ph.D. /s/ Andrew John Heath, M.D., Ph.D.* August 13, 1999 - ----------------------------------------------- Martin Shallenberger Brown Secretary and Director /s/ Andrew John Heath, M.D., Ph.D.* Senior Vice President-Research and August 13, 1999 - ----------------------------------------------- Development Administration and Director Timothy Chard, M.D.
*Executed by Andrew John Heath, M.D., Ph.D. in his capacity as attorney-in-fact pursuant to Power of Attorney on file with the Securities and Exchange Commission. 47 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 8,179,496 0 67,677 0 287,802 9,574,194 17,707,468 6,632,702 21,421,502 4,037,012 4,744,216 0 0 52,057 11,970,377 21,421,502 529,754 3,392,447 374,371 17,974,485 240,703 0 1,305,549 (15,888,928) 0 (15,888,928) 0 0 0 (15,888,928) (.59) (.59)
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