<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the transaction period from to
-------------- -------------------
Commission file number 0-20988
ANTEX BIOLOGICS INC.
(FORMERLY MICROCARB INC.)
(Name of small business issuer in its charter)
DELAWARE 52-1563899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PROFESSIONAL DRIVE, GAITHERSBURG, MARYLAND 20879
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 590-0129
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
UNITS, CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE WARRANT
(Title of Class)
REDEEMABLE WARRANTS TO PURCHASE ONE SHARE OF COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
( )
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
Issuer's revenues for the fiscal year ended December 31, 1996 were
$3,827,111.
As of JANUARY 31, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Issuer based upon the average bid and asked
prices of such stock on that date was $20,964,000.
At JANUARY 31, 1997, there were 22,479,679 shares of Common Stock of
the Issuer outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Directors and Officers, Executive
Compensation, and Security Ownership of Certain Beneficial Owners and
Management will be contained in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders and is incorporated by reference in Part III
hereof.
Transitional Small Business Disclosure Format Yes ( ) No (X)
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
dedicated to the development and production of therapeutic products to prevent
and treat infectious diseases and related disorders. The Company is a leader
in the discovery and research of technologies for the development of vaccines
against mucosal infections. The Company's initial focus has been the
development of vaccines for respiratory, gastrointestinal and urogenital
diseases. The Company (formerly known as MicroCarb Inc.), at its inception in
August 1991, was focused on researching a proprietary Adhesin-Receptor
Technology for vaccine development. In 1993, the Company broadened its
technology platform and began to develop its second core technology described
as Nutriment Signal Transduction. The combination of these two technologies
provides a platform to research and develop products to not only prevent, but
also treat infectious diseases and their related disorders.
BUSINESS
TECHNOLOGY OVERVIEW
General
Proteins and nucleic acids, two major groups of naturally occurring
molecules, and their respective roles in the development and treatment of
diseases, have received widespread attention from the scientific community.
The roles of complex carbohydrates and lipids in disease causation and
prevention, on the other hand, were largely ignored in the past because of the
chemical complexity of these molecules and the difficulty of analyzing them.
Their roles in biological functions such as infection, inflammation and other
disease processes are now being evaluated. Advances in molecular biology,
bacterial physiology and analytical techniques have enabled scientists to
characterize and begin to elucidate the roles of these bioactive molecules in
the infectious disease process.
Complex carbohydrates are associated with mammalian cells in several
forms and have been shown to serve as receptors on cell surfaces to which
viruses, bacteria and toxins (collectively, "microbes") can adhere, thereby
causing infection or disease in the host. Lipids also have a variety of
functions within the body. Certain types of lipids are reservoirs of
nutritional energy; others function in cell-cell adhesion and in communication
with other cells; and some make up the architecture of the plasma membranes of
individual cells of the body. These particular cell membrane lipids were once
thought to function only to maintain the shape and integrity of cells and to
serve as a barrier between extracellular and
3
<PAGE> 4
intracellular environments. However, discoveries by the Company's scientists
and collaborators have revealed that certain lipids (i.e., phospholipids),
particularly those found in the mucus layer overlaying certain cells in the
body, may play a major role in the pathogenesis of infection by serving as
receptors and nutrients for growth of bacteria.
Adhesin-Receptor Technology
Generally, the first step in the process of microbial infection is the
attachment of microbes to the surface of host cells through a binding process
known as adhesion. The Company has developed its proprietary Adhesin-Receptor
Technology (ART) to study the precise molecular events that underlie microbial
adhesion to host cell receptors. Much like a lock and key, adhesins (the
"key"), which are surface proteins on the outer membrane or cell wall of
microbes recognize only particular molecular conformations and bind to
specific, complementary receptors (the "lock") on the host cell surface. Using
its ART, the Company has identified host cell receptors and their corresponding
microbial adhesins for a number of microbes. The Company believes that certain
microbial adhesins may be critical elements in providing a microbe access to
the host cell by attaching to the corresponding protein, carbohydrate or lipid
receptor, thereby facilitating the colonization (i.e., growth) and subsequent
infection of the microbes.
One of the most safe and effective means of preventing disease and death
from infectious microbes has been immunization. Immunization is the act of
inducing immunity by active or passive means. Antigens are substances of
foreign agents, such as microbes, which signal to the immune system the
presence of those particular agents. Once the human immune system identifies
an antigen associated with a microbe, it produces substances called antibodies,
which are specific proteins that recognize and react with the particular
antigen. The presence of the particular antigen on the cell surface of the
microbe enables the appropriate or corresponding antibody to bind to those
cells but not to others. These antibodies are generally effective in
neutralizing microbes. Therefore, exposure to the antigen in the form of a
vaccine containing the antigen can stimulate the immune system to produce
antibodies, thereby inducing immunity against a disease. This process is
referred to as "active immunization." However, in some cases, the immune
system on its own may not produce the antibodies in sufficient quantity to
eliminate the undesirable agents or may not have been stimulated prior to the
infection. In such instances, it may then be possible to provide immunity by
injecting antibodies directly (i.e. rather than inducing their production) that
have been produced in another host, either naturally or through vaccination.
This process is referred to as "passive immunization."
One of the most difficult problems inherent in vaccine development is
that microbes of the same species often exhibit strain-to-strain diversity with
respect to the types of antigens on their surfaces. With such diversity in the
composition of microbes of the same species, the effect of vaccines targeted to
a single strain of the microbe may be limited. The Company believes its
proprietary ART may aid in circumventing the problems posed by strain diversity
and antigen variations within strains. The Company has discovered that
4
<PAGE> 5
some adhesins that occur on the outer membrane or cell wall of certain species
of microbes are the same throughout various strains within a given species
(i.e. they are "conserved"). Based on data from animal models, the Company
believes that the development of human vaccines aimed at stimulating the
production of antibodies against these highly conserved proteins (adhesins)
should be effective in providing immunity to a wide variety of strains of a
given species.
The first step in the process of developing adhesin vaccines is for the
Company to identify the host cell receptor and its molecular structure. To
date, the Company's scientists have identified the molecular structure of host
cell receptors for more than 60 microbes. Once the Company has identified the
receptor, the Company then uses it as a probe to identify and purify the
corresponding adhesin for further analysis and development. Monoclonal or
polyclonal antibodies and DNA probes are then used to identify the gene
responsible for the adhesin. The recombinant adhesin can then be produced in
sufficient quantities from the identified clone for preclinical and clinical
testing.
Nutriment Signal Transduction
Microbes require a specific environment and nutrients to survive and
reproduce. Not only does the mucosal surface, where more than ninety (90)
percent of infections start, serve as a barrier to infection but it can serve
as an environment for bacteria to survive and grow using substances found in
the mucus as a nutriment source. Nutriment Signal Transduction (NST) is the
regulation of cell growth through the stimulation or suppression of cellular
activities by substances or conditions that nourish or promote growth. The
application of NST is basically the use of physiologically logical signals to
permit growth and stimulate the production of clinically relevant microbial
antigens. The identification of growth components in mucus has made it
possible to duplicate in the laboratory the specific environment found in the
body by including these growth substances and conditions in laboratory growth
media. The behavior of a microbe during entry and invasion of the host is a
balancing act between the microbe and the host. Bacteria grown in an NST
environment express antigens that more closely resemble the antigens produced
within the body; these antigens may not be expressed in bacteria grown using
traditional laboratory conditions. Therefore, these newly expressed antigens
or antigenically enhanced microbes should result in more potent and better
targeted vaccines for inducing immunity against an infectious agent. In
addition, NST provides a platform for the Company to investigate drug discovery
and development for both infectious diseases and related disorders.
PRODUCTS UNDER RESEARCH AND DEVELOPMENT
The Company is currently conducting research and development activities
with respect to several product areas which are based on its ART and NST
technologies.
5
<PAGE> 6
Helicobacter pylori
The Company is engaged in ongoing efforts aimed at developing a vaccine
for Helicobacter ("H.") pylori, bacteria that can colonize in the stomach for
years and are believed to play a major role in peptic ulcers and other
gastrointestinal disorders, including gastritis and gastric cancer.
Approximately half the world's population is infected with this organism, and
one out of ten Americans are affected some time during their lives.
Using NST technology, the Company has produced H. pylori bacteria that
are antigenically enhanced when compared to conventionally grown H. pylori.
These cells have been formalin-inactivated (killed) and combined with a
proprietary mucosal adjuvant for use as a vaccine. A clinical trial is in
progress under a U.S. Food and Drug Administration ("FDA") Investigational New
Drug Application ("IND") to assess the safety and immunogenicity of this H.
pylori vaccine preparation. This randomized double-blinded Phase I clinical
trial will be conducted in volunteers with and without subclinical gastric
infection. Preclinical models indicate that the vaccine has both prophylactic
and therapeutic applications.
In addition, Company scientists and collaborators have identified host
cell receptors and have purified adhesins from H. pylori. The Company has
cloned the genes, produced the recombinant proteins and produced quantities of
the adhesins for preclinical animal testing. See "Production Facility".
Further, the Company is evaluating other surface proteins and acellular
antigens as potential vaccine candidates.
These potential vaccine products have been licensed for use in humans to
SmithKline Beecham through a corporate joint venture - MicroCarb Human Vaccines
Inc. ("MCHV") for further development and possible commercialization. Uses
other than as human vaccines are available for other collaborations that may be
entered into by the Company. See "Strategy for Commercial Development."
Chlamydia
The Company is involved in an adhesin vaccine development project aimed
at Chlamydia ("C.") trachomatis, the most common sexually transmitted bacteria.
More than four million infections occur annually in the United States in men
and women. Infection with these bacteria in women can lead to more severe
diseases, including pelvic inflammatory disease, and ultimately infertility.
The Company believes that through its proprietary ART it is possible that
an effective anti-Chlamydial vaccine could be developed. The Company has
identified and purified an adhesin from C. trachomatis and is completing the
cloning of the adhesin gene. The Company plans to produce the recombinant
adhesin to conduct initial animal testing. These potential vaccine products
have been licensed for use in humans to SmithKline Beecham through MCHV for
further development and possible commercialization. Uses other than
6
<PAGE> 7
as human vaccines are available for other collaborations that may be entered
into by the Company. See "Strategy for Commercial Development."
Based on the successful completion of a Phase I Small Business Innovation
Research grant (SBIR), the Company was awarded in August 1996 a $600,000 Phase
II SBIR from the National Institutes of Health ("NIH") to further develop this
antigen as a potential subunit vaccine.
Campylobacter
Campylobacter is a leading cause of diarrheal disease worldwide--over 400
million cases annually. The Company has entered into a Cooperative Research
and Development Agreement ("CRADA") with the United States Navy which has as
its objective the development of a safe and effective vaccine to prevent
diarrhea caused by enteropathogenic Campylobacter jejuni. The Company has
developed and produced a whole cell vaccine utilizing its know-how in NST.
Two successful clinical trials have been completed. The first was a
Phase I clinical study which showed the safety and immunogenicity of the
formalin-inactivated (killed) Campylobacter whole cell vaccine preparation.
The second trial tested the safety and immunogenicity of a killed Campylobacter
whole cell vaccine in combination with a mucosal adjuvant. Data from this
second study are being analyzed; however, preliminary results indicated that
the combination is safe and immunogenic. As a result of these successful Phase
I clinical studies, Phase II and III clinical studies are being planned. These
potential vaccine products have been licensed for use in humans to SmithKline
Beecham through MCHV for further development and possible commercialization.
Uses other than as human vaccines are available for other collaborations that
may be entered into by the Company. See "Strategy for Commercial Development."
Otitis Media
Otitis media, an ear infection, is the most frequent reason children
visit the doctor, occurring in almost 80% of all children at least once. The
three predominant types of bacteria found in infants and children with otitis
media are Haemophilus influenzae nontypeable, Moraxella catarrhalis, and
Streptococcus pneumoniae. The current treatment of choice for otitis media is
antibiotic therapy. However, because of the increase in the incidence of
antibiotic resistant strains of all three of these bacteria and the costs
associated with the treatment of this disease, the Company believes that an
otitis media vaccine would be a preferred alternative for addressing this
disease.
The Pittsburgh Otitis Media Research Center estimates that Haemophilus
("H.") influenzae nontypable is present in over 25% of otitis media infections.
The Company has identified an adhesin of H. influenzae and has successfully
cloned the gene for production of the recombinant adhesin. This adhesin is
extremely conserved in H. influenzae. The
7
<PAGE> 8
recombinant form of the adhesin has been shown in animal studies to elicit an
immune response.
In December 1994, the Company entered into a license agreement with
Pasteur Merieux Connaught ("PMC"), a wholly-owned subsidiary of Rhone Poulenc
Rorer, under which the Company granted to PMC an exclusive license to develop,
manufacture and sell one or more vaccines based on the Company's proprietary H.
influenzae technology. See "Strategy for Commercial Development". The Company
continues to collaborate with PMC in evaluation of this technology and has
received the first milestone payment according to the agreement.
In the territory not included in the PMC license, H. influenzae vaccine
preparations described above for use in humans have been licensed to SmithKline
Beecham through MCHV for further development and possible commercialization.
See "Strategy for Commercial Development".
In addition to its work on H. influenzae, the Company is currently
developing a recombinant adhesin for Moraxella catarrhalis, another primary
cause of otitis media. The Company has identified receptors and proprietary
adhesins for this bacteria and is in preclinical development efforts.
Other Projects/Products
Neisseria meningitidis is a respiratory pathogen that causes invasive
meningococcal infections primarily in children younger than 5 years of age and
travelers to countries recognized to have epidemic disease. The only vaccine
available to date is one comprising bacterial capsular polysaccharides. These
capsular polysaccharides have been shown to cross-react with neural cells,
potentially causing severe side effects. The Company is using both ART and NST
to identify novel adhesins or other surface proteins to develop a subunit
vaccine that should avoid the drawbacks of the vaccine currently being used.
Shigella is another leading cause of diarrheal disease worldwide with
over 1 billion cases reported. Infection is most common in children 1 to 4
years old. There is no vaccine available. NST is being used to produce
antigenically enhanced Shigella that may provide broad protective efficacy
against diarrheal diseases.
PRODUCTION FACILITY
The Company established a contract for the services of a FDA approved
pilot plant. This facility initially has been used for the production of the
Company's Campylobacter jejuni and Helicobacter pylori whole cell vaccines for
clinical trial purposes. The pilot plant was established and operates in
compliance with the FDA's Good Manufacturing Practices
8
<PAGE> 9
("GMP"). See "Government Regulation." The Company anticipates that it will
produce pilot/clinical trial lots of its other proposed vaccines in this pilot
facility.
STRATEGY FOR COMMERCIAL DEVELOPMENT
All of the Company's proposed vaccine products are in research,
preclinical or clinical development. Phase I clinical trials have been
completed for Campylobacter jejuni and Helicobacter pylori is currently in
Phase I clinical trials. All vaccine products will require substantial
additional research and development, preclinical testing, clinical trials
and/or regulatory approvals from the appropriate governmental agencies prior to
commercialization. See "Government Regulation." With respect to the Company's
proposed vaccine products, this process (from research to marketing) could
require significant expenditures over a number of years assuming that the
results obtained warrant continued development efforts.
In December 1994, the Company entered into a technology license agreement
with Pasteur Merieux Connaught (PMC), whereby the Company granted an exclusive
license to develop, produce and market any product using the Company's
Haemophilus influenzae nontypeable Hin47 adhesion protein in all countries
other than those of the Asia-Pacific region. Under the license agreement, PMC
is obligated to use commercially reasonable efforts to develop a marketable
product. However, at its option and for good cause, PMC may cease development
upon 6 months' prior written notice to the Company and upon payment of all
amounts due to the Company through the effective date of the termination (in
which case the licensed technology reverts to the Company). The Company earned
a license fee in 1994. The Company is entitled to milestone payments based on
the licensee's performance or the passage of time and earned the first
milestone payment of $150,000 in December 1995. Additionally, upon
commercialization, the licensee is obligated to pay a guaranteed minimum annual
royalty to the Company on sales of any product incorporating the Company's
technology. The licensee commenced a Phase I trial in February 1997 to
determine the safety and immunogenicity of the vaccine.
On May 7, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals
Manufacturing s.a. ("SmithKline"), effective March 1, 1996, which established
MCHV, to develop and commercialize human bacterial vaccines utilizing the
Company's proprietary technologies. The agreements provide for the following:
a payment of $3,000,000 to the Company in connection with SmithKline's
acquisition of a 26.25% equity interest in MCHV; a payment of $2,400,000 to the
Company to fund research and development for the first year; additional
committed research and development funding through February 28, 1998, with
SmithKline having the option to fund future years; two separate options granted
to SmithKline expiring October 1, 1997 and 1998, respectively, to acquire from
the Company additional equity interests in MCHV; an exchange option granted by
the Company to SmithKline enabling SmithKline to convert its equity interest in
MCHV for up to 4,793,685
9
<PAGE> 10
shares of the Company's common stock, under specified conditions; and a warrant
granted by the Company to SmithKline enabling SmithKline to acquire up to
7,682,637 shares of the Company's common stock, under specified conditions, and
only to the extent that certain options and warrants previously granted and
outstanding as of the date of the establishment of the strategic alliance are
exercised. The agreements also provide for SmithKline to make milestone
payments and pay royalties to MCHV; and for SmithKline to reimburse the Company
for expenses the Company incurs for agreed upon production lots of vaccines for
clinical trials, the conduct of agreed upon clinical trials, and the agreed
upon prosecution and maintenance of the Company's patents and patent
applications. As further stipulated in the agreements, SmithKline will be
responsible for conducting additional clinical trials, manufacturing, and sales
and distribution.
In August 1994, the Company entered into a CRADA with the United States
Navy, whereby the Company granted Government Purpose License Rights to its
Campylobacter vaccine technology. In exchange for the rights granted, the
United States Navy agreed to conduct and fund the costs involved in Phase I, II
and III clinical trials for the vaccine, subject to the availability of
required funds. Two Phase I trials have been successfully completed and Phase
II and III trials are being planned. The Company retained all commercial
rights to develop, produce and market any product involving its proprietary
Campylobacter technology. Either party may terminate the CRADA upon thirty
days written notice.
In October 1992, the Company entered into a license agreement with
Galagen Inc., a biotechnology company, pursuant to which Galagen paid the
Company a license fee for the exclusive rights to use Company technology,
including certain vaccines, to make, have made and sell non-parenteral passive
immunity antibodies and to use the Company's carbohydrate receptor technology
for certain therapeutic purposes. Under the license, Galagen also has
exclusive rights to use the Company's carbohydrate receptor technology for
certain purposes relating to the diagnosis and treatment of cancer. Galagen is
obligated to pay royalties on sales of certain products derived from such
technology.
Galagen Inc., and other entities to which it may sublicense certain of
the technologies pursuant to this agreement, may be competitors of the Company
in that they may be targeting the same infectious disease states as the Company
through alternative methods of treatment.
The Company may continue to grant licenses to certain of its proprietary
technologies in exchange for upfront license fees and/or royalty payments. The
Company anticipates seeking such arrangements with respect to technologies that
it is unwilling or unable to pursue on its own. The Company may seek one or
more corporate partners to finalize manufacturing and marketing of
VeroTest(TM).
10
<PAGE> 11
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
vaccines, drugs and certain diagnostic products are subject to rigorous FDA
review of safety and efficacy. The Federal Food, Drug and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in criminal prosecution and fines, recall or
seizure of products, total or partial suspension of production, refusal of the
government to approve Product License Applications ("PLAs") or refusal to allow
the Company to enter into supply contracts. The FDA also has the authority to
revoke product licenses and establishment licenses previously granted.
In order to obtain FDA approval to market a new biological or
pharmaceutical product, the Company or its licensees must submit proof of
safety, purity, potency and efficacy, which will require the Company or its
licensees to conduct extensive laboratory, preclinical and clinical tests.
This testing, as well as preparation of necessary applications and processing
of those applications by the FDA, are expensive and time-consuming and often
take several years to complete. There is no assurance that the FDA will act
favorably in making such reviews, and significant difficulties or costs may be
encountered by the Company or its licensees in its efforts to obtain FDA
approvals that could delay or preclude the Company or its licensees from
marketing any such products that it may develop. The FDA may also require
postmarketing testing and surveillance to monitor the effects of marketed
products or place conditions on any approvals that could restrict the
commercial applications of such products. Product approvals may be withdrawn
if compliance with regulatory standards is not maintained or if problems occur
following initial marketing. With respect to patented products or
technologies, delays imposed by governmental marketing approval processes may
materially reduce the period during which the Company or its licensees will
have the exclusive right to exploit patented products or technologies. See
"Patents and Other Rights." Refusals or delays in the regulatory process in
one country may make it more difficult and time consuming for the Company or
its licensees to obtain marketing approvals in other countries.
The FDA approval process for a new biological drug involves completion of
preclinical studies and the submission of the results of these studies to the
FDA in an IND, which must be approved before human clinical trials may be
conducted. The results of preclinical and clinical studies on biological drugs
are submitted to the FDA in the form of a PLA for approval to commence
commercial sales. In responding to a PLA, the FDA may require additional
testing or information, or may deny the application. In addition to obtaining
FDA approval for each biological product, an Establishment License Application
("ELA") must be filed and the FDA must inspect and license the manufacturing
facilities for each product. Product sales may commence only when both PLA and
ELA are approved. For
11
<PAGE> 12
a new, non-biological drug product, a New Drug Application ("NDA") must be
submitted to the FDA instead of a PLA.
In certain instances in which a treatment for a rare disease or condition
is concerned, the manufacturer may request the FDA to grant the drug product
Orphan Drug status for a particular use. In such event, the developer of the
drug may request grants from the government to defray the costs of certain
expenses related to the clinical testing of such drug and be entitled to
marketing exclusivity and certain tax credits. The Company or its licensees
may seek Orphan Drug designation in the future for proposed products. If these
products are the first such products approved, the Company or its licensees may
be entitled to seven year marketing exclusivity for such products once
regulatory approval has been obtained. The seven year period of exclusivity
applies only to the particular drug for the rare disease or condition for which
the FDA has designated the product an Orphan Drug. Therefore, another
manufacturer could obtain approval of the same drug for an indication other
than the Company's or could seek Orphan Drug status for a different drug for
the same indication.
Sales of medical devices and biological and pharmaceutical products
outside the United States are subject to foreign regulatory requirements that
vary widely from country to country. Whether or not FDA approval has been
obtained, approval of a product or a device by a comparable regulatory
authority of a foreign country must generally be obtained prior to the
commencement of marketing in that country. Although the time required to
obtain such approval may be longer or shorter than that required for FDA
approval, the FDA approval process generally takes longer than foreign
regulatory reviews.
The Company is also subject to regulation by the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency ("EPA")
and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. The Company
believes that it is in compliance with regulations regarding the disposal of
radioactive and chemical waste. The Company voluntarily complies with NIH
guidelines regarding research involving recombinant DNA molecules. Such
guidelines, among other things, restrict or prohibit certain recombinant DNA
experiments and establish levels of biological and physical containment that
must be met for various types of research.
The Company either alone or in conjunction with its collaborators have
filed INDs for Campylobacter jejuni and Helicobacter pylori vaccines. The
applications were accepted by the FDA. As noted, the Company has entered into,
and anticipates that it may in the future enter into, joint ventures, licensing
or similar collaborative arrangements with one or more companies that will
assume the costs and responsibility for clinical testing and for FDA and
comparable foreign regulatory approval of any product which the Company may
have in development. See "Strategy for Commercial Development." To the extent
that the
12
<PAGE> 13
Company is unable to enter into such arrangements or to raise substantial
additional capital, it may not have the resources to complete the regulatory
approval process for such products.
PATENTS AND OTHER RIGHTS
The Company has four issued U.S. patents and eight issued foreign
patents. Currently there are ten pending patent applications in the United
States, with twenty-eight corresponding international patent applications. Two
of the issued patents and one of the U.S. patent applications, and the
corresponding foreign patent applications, are co-owned with other entities.
The majority of the patent applications relate to the Company's ART and NST.
Collectively, the applications include composition claims for enhanced
bacteria, receptors and their corresponding adhesins or toxins and method of
use claims for the use of these compositions for vaccines and other
antimicrobial products.
The Company holds licenses for exclusive rights to patents and related
technologies covering VeroTest and certain H. pylori products. The Company has
made initial payments to the licensors and is obligated to timely pay certain
royalties or these licenses may be converted to non-exclusive licenses. In
addition, royalty payments must be made if the Company markets products or
services incorporating the licensed technologies.
There can be no assurance that the Company's pending patent applications
will result in issued patents, that any of its issued patents will afford
protection against a competitor, or that any patents issued or licensed to the
Company could not be challenged, invalidated or circumvented by others.
Further, the patent position worldwide of biotechnology firms generally is
highly uncertain, involving complex legal and factual questions. Since patent
applications in the United States are maintained in secrecy until patents
issue, and since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months or even
years, the Company cannot be certain that others have not filed patent
applications directed toward inventions covered by its pending patent
applications or that it was the first to file patent applications on such
inventions. There can also be no assurance that any application of the
Company's technologies will not infringe patents or proprietary rights of
others or that licenses that might be required for the Company's processes or
products would be available on reasonable terms. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any patent owned or licensed by the Company or, if
instituted, that such challenges will not be successful or that the Company
will have the financial resources to defend against any such challenge. The
extent to which the Company or its licensees may be required to obtain licenses
under other proprietary rights, the cost and availability of such licenses are
unknown. Patent litigation is becoming more widespread in the biotechnology
industry. There can be no assurance that others could not bring legal actions
against the Company or its licensees for patent infringement. If the Company
or its licensees becomes involved in such litigation, it could consume a
substantial portion of the Company's
13
<PAGE> 14
resources. The Company also may lack the financial resources to defend its
patents against infringements by others.
The Company believes that obtaining foreign patents may be more difficult
than obtaining domestic patents because of differences in patent laws. In
addition, foreign patents, if obtained, may not provide the level of protection
provided by domestic patents.
The Company's success depends, in large part, on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of third parties. If patents do not issue from present or
future patent applications, the Company will likely be subject to greater
competition. The Company also relies upon unpatented proprietary technology,
and in the future may determine in some cases that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. In such circumstances, no assurance can be made that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to such proprietary technologies or
disclose such technologies or that the Company or its licensees can
meaningfully protect its rights in such unpatented proprietary technologies.
The Company requires each of its employees, consultants, and advisors to
execute a confidentiality agreement upon the commencement of an employment or
consulting relationship with the Company. The employee agreements generally
provide that all inventions conceived by the individual and all confidential or
proprietary technology, including information and materials, developed or made
known to the individual during the term of the relationship shall be the
exclusive property of the Company and shall be kept confidential and not
disclosed to third parties except under specified circumstances. The terms of
agreements with consultants and advisors vary, as they relate to the ownership
of inventions, depending primarily upon the policies of the academic and other
institutions with which the consultants and advisors are associated. The
Company has entered into non-disclosure agreements which are intended to
protect its confidential information delivered to third parties for research or
other purposes. There can be no assurance that these agreements will provide
meaningful protection of the Company's confidential or proprietary technology
in the case of unauthorized use or disclosure. Even if others do not gain
unauthorized access to the Company's confidential or proprietary technology,
there can be no assurance that others will not independently develop
substantially equivalent proprietary technology. In addition, to the extent
that strategic partners or consultants apply technological information
developed independently by them or others to Company projects or apply Company
technology to other projects, disputes may arise as to the ownership of
proprietary rights to such technology.
COMPETITION
Competition in the biotechnology and pharmaceutical industry is intense.
While the Company is only aware of a limited number of companies that are
pursuing the development of new bacterial vaccines and antimicrobial products,
competition from other
14
<PAGE> 15
biotechnology and pharmaceutical companies for the development of products for
prevention and/or treatment of the same infectious diseases targeted by the
Company is intense and expected to increase. Many of the Company's competitors
have substantially greater financial resources and larger research and
development staffs than the Company, as well as substantially greater
experience in developing products, in obtaining regulatory approvals, and in
manufacturing and marketing pharmaceutical products than the Company.
Competition with these companies involves not only product development, but
also acquisition of products and technologies from universities and other
research institutions. The Company also competes with universities and other
institutions in the development of products, technologies and processes.
Competitors have developed, or may be in the process of developing technologies
that are, or in the future may be, the basis for competitive products. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective or affordable than
those being developed by the Company and its licensees. In addition, one or
more of the Company's competitors may achieve product commercialization or
patent protection earlier than the Company.
To the extent the Company has exclusively licensed out applications of
the technology to address potential alternatives for treatment of certain
infectious diseases, such alternatives are no longer available to the Company,
thereby impacting the Company's ability to compete in the market for certain
therapies for infectious diseases.
The Company expects products approved for sale to compete primarily on
the basis of product efficacy, safety, reliability, and patent position.
Certain of the infectious diseases that the Company has chosen to target for
its research and development efforts are currently being treated with therapies
that have varying degrees of success. Accordingly, the success of the Company
will be dependent upon the acceptance of a developed product by the medical
community as a preferable method of treatment which in turn will depend upon
the marketing and education efforts made by or on behalf of the Company. In
addition, the first pharmaceutical product to reach the market in a therapeutic
or preventive area is often at a significant competitive advantage relative to
later entrants to the market. The Company's competitive position also will
depend on its ability to attract and retain qualified scientific and other
personnel, develop effective proprietary products, obtain patent protection and
have its licensees be successful at implementing production and marketing
plans.
BACKGROUND
In March 1988, BioCarb Inc., the Company's predecessor, was established
as a wholly-owned subsidiary of BioCarb AB, a Swedish biotechnology company. In
August 1991, the Company was acquired by a then officer in a management buy-out
and began doing business as MicroCarb Inc. Subsequent to the management
buy-out, the Company has been operating as a development stage enterprise. In
1996, the Company changed its name to Antex Biologics Inc.
15
<PAGE> 16
EMPLOYEES
At December 31, 1996, the Company had 20 full-time employees, including
sixteen research and development personnel. Of these employees, ten hold Ph.D.
degrees. None of the employees is represented by a labor union. The Company
considers its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 15,000 square feet of office and
laboratory space in Gaithersburg, Maryland, pursuant to a lease expiring in
January 1999. The lease provides for current annual rent of approximately
$257,000, subject to specified annual increases. In addition, the lease
provides for excess utility usage and administrative services of approximately
$108,000 per year. The physical plant is fully equipped as a state-of-the-art
biotechnology research facility. The Company believes that these facilities
will be sufficient for the Company's planned activities for approximately the
next twelve months, with the exception of the need for a small animal facility
and pilot plant. The Company currently contracts for these needed services
from such existing facilities.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The common stock, par value $.01, of the Company ("Common Stock") traded
on the NASDAQ Small-Cap Market until January 11, 1995 at which time it was
deleted. The Common Stock currently trades on the OTC Bulletin Board under its
symbol ANTX. The range of high and low closing bid prices for the Common Stock
for the years ended
16
<PAGE> 17
December 31, 1995 and 1996 as reported by NASDAQ is presented below. Such
quotations reflect interdealer prices, without retail mark-up, mark-down, or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995
----
1st Quarter 7/8 1/2
2nd Quarter 3 5/8
3rd Quarter 1-1/4 1/2
4th Quarter 5/8 1/8
1996
----
1st Quarter 23/32 1/4
2nd Quarter 1-15/16 11/32
3rd Quarter 1-7/16 13/16
4th Quarter 1-1/16 17/32
</TABLE>
As of January 31, 1997, there were approximately 150 holders of record of
the Common Stock.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
anticipate that any cash dividends will be paid for the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company commenced operations in August 1991. In December 1992, the
Company became a public company through an initial public offering of Units
consisting of common stock and redeemable warrants. In April 1995, the Company
completed a private placement of units consisting of common stock and Class B
warrants. On May 7, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline"), effective March 1, 1996, which established a corporate
joint venture, MicroCarb Human Vaccines Inc.("MCHV"), to develop and
commercialize human bacterial vaccines utilizing the Company's proprietary
technologies (see Note 6 to the financial statements). Subsequent to the
completion of the
17
<PAGE> 18
SmithKline transaction, Class B warrantholders exercised all their warrants
received in the private placement (see Note 8 to the financial statements).
The strategic collaboration with SmithKline is consistent with one aspect
of the Company's overall strategy which, since its inception, has been the
establishment of strategic partnerships and to focus on researching
technologies with the goal of developing products for identifying, preventing
and treating infectious diseases. The Company is operating as a development
stage enterprise.
RESULTS OF OPERATIONS
Revenues for 1996 include the recognition of human bacterial vaccine
research and development support of $1,655,802, reimbursable expenses incurred
of $241,649 and a milestone payment to MCHV of $150,000, pursuant to the
provisions of the definitive agreements with SmithKline, and the payment
received of $1,669,752 from the sale of an equity interest in MCHV to
SmithKline. The Company also earned $109,908 from Small Business Innovation
Research grants in 1996. Revenue for 1995 consisted of a $150,000 scheduled
milestone from Pasteur Merieux Connaught.
Research and development expenses in 1996 increased 21% in comparison to
1995 due to increased efforts and expenditures for additional personnel
resulting directly from the substantial increase in activities attributable to
the strategic alliance with SmithKline.
General and administrative expenses in 1996 decreased 12.2% in comparison
to the comparable periods in 1995. The decrease is due primarily to a decrease
in premiums for directors' and officers' liability insurance, the nonrecurring
expense incurred in 1995 to establish an additional investment banking
relationship, and a reduction in general legal fees. These decreases were
offset in part by an increase in executive officers' compensation, which had
been frozen for the period November 1994 until May 1996 as stipulated in the
terms of the private placement, and the hiring of a Vice President for
Corporate Development.
The increase in interest income in 1996 reflects the improved cash
position of the Company.
The decrease in interest expense is due to the continuing paydown on the
existing obligation for the sale/leaseback agreement.
The Company anticipates that its research and development expenses
related to human bacterial vaccines will continue to be substantial for the
foreseeable future and anticipates that sufficient funding will be provided
through the alliance entered into with SmithKline. To fund other research and
development activities and general and administrative expenses, the Company
will be required to rely on its current assets and future financings.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company funded its research and
development activities principally with the proceeds from private placements of
debt and equity securities. Through such placements, the Company raised
$2,074,000 during 1992.
As a result of the Company's initial public offering in December
1992/January 1993, the Company raised $8,280,000 in gross proceeds. Costs
directly related to the offering, including underwriting discounts and
commissions, totalled approximately $1,530,000. In August 1993, the Company
entered into a sale and leaseback agreement covering substantially all of the
Company's then-existing fixed assets, yielding net proceeds to the Company of
$2,164,792.
As the result of a private placement completed in April 1995, the Company
raised $3,525,000 in gross proceeds. Related offering costs and costs
associated with the initial registration of the securities for resale were
approximately $815,000.
In connection with the entry into the joint venture with SmithKline, the
Company received $3,000,000 from the sale to SmithKline of a 26.25% equity
interest in MCHV, and $2,400,000, representing the first year's funding for
research and development of human bacterial vaccines. In addition, the Company
is reimbursed for expenses that it incurs in connection with the agreed upon
production of lots of vaccines for clinical trials, the conduct of agreed upon
clinical trials, and the agreed upon prosecution and maintenance of the
Company's patents and patent applications.
As a result of exercises and following a notice of redemption by the
Company, all of the Company's outstanding Class B warrants were exercised in
1996, resulting in gross proceeds of $5,072,000. Fees associated with the
exercise of the warrants were approximately $215,000.
During 1997, MCHV will continue to assess to which human bacterial
vaccine research projects resources will be allocated. The Company currently
plans to utilize a portion of its available resources to pursue research and
development activities with the goal of researching drugs and evaluating
non-human vaccine applications.
For 1997, the Company currently anticipates that it will increase its
total personnel by a minimum of five from its 1996 year end total of 20.
As a development stage company, the Company's operating activities have
been limited primarily to research and development involving its proprietary
technologies, and accordingly, have generated limited revenues. The Company is
currently scheduled to receive approximately $2,600,000 in 1997 in research and
development payments from SmithKline covering the period March 1, 1997 to
February 28, 1998. Additionally, the costs
19
<PAGE> 20
in 1997 associated with the conduct of a Phase I human clinical trial for
Helicobacter pylori, the costs of the Company's production of vaccine lots, and
the costs associated with the Company's patents and patent applications are
reimbursable under the terms of the strategic alliance agreement. SmithKline's
first option to increase its ownership in MCHV, at a cost of $1,000,000,
expires on October 1, 1997. Research currently being performed by the Company
under a Phase II Small Business Innovation Research grant from the National
Institutes of Health pertaining to the Company's vaccine for Chlamydia
trachomatis, is anticipated to generate approximately $315,000 in payments in
1997. The Company is also scheduled to receive a milestone payment from
Pasteur Merieux Connaught of $150,000 in 1997.
In order to fully fund its operations over the longer term, the Company
will continue to seek additional financing. The Company has no lines of
credit. In seeking additional funding, the Company is examining a range of
possible transactions, including: additional strategic alliances; the exercise
of the unit purchase option issued to the Placement Agent in connection with
the private placement; possible increases in research and development funding
by SmithKline; the exercise by SmithKline of its second option to increase its
equity in MCHV; and the exercise by SmithKline of its warrant to the extent
that it becomes exercisable. In the case of the unit purchase option,
exercises will only occur when the market price of the common stock sustains a
level such that their exercise is economically justified. Additional public
offerings and private placements, and the filing of additional applications for
Small Business Innovation Research grants are also possible sources of funds.
However, there is no assurance that additional funds will be available from
these or any other sources or, if available, as to the terms on which such
funds can be obtained.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party by the
United States Environmental Protection Agency ("EPA") for a site cleanup in
Denver, Colorado, where the Company sent hazardous materials through a
contractor for disposal. The EPA contacted approximately 800 potentially
responsible parties requesting additional information and listing manifests
which evidence shipments of each individual company's waste to the site. Due
to the number of parties involved, the multiplicity of possible solutions, the
evolving technology and the years of remedial activity required, the Company is
unable to assess and quantify the extent of its total responsibility at the
site. The liability for future remediation costs has been evaluated.
Management believes that any ultimate liability will not materially affect the
financial statements of the Company.
20
<PAGE> 21
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Antex Biologics Inc.
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996 and the period August 3, 1991
(inception) to December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Stockholders' Equity (Deficit) for the period
August 3, 1991 (inception) to December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-26
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 and the period August 3, 1991
(inception) to December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-28
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-40
</TABLE>
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Antex Biologics Inc.
We have audited the accompanying consolidated balance sheets of Antex
Biologics Inc. and its subsidiary (a development stage enterprise) as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of the Company for the period from August 3, 1991 (inception) to
December 31, 1992. The financial statements for the period August 3, 1991
(inception) to December 31, 1992 were audited by other auditors, whose report,
dated February 28, 1993, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Antex
Biologics Inc. and its subsidiary as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Rockville, Maryland
February 7, 1997
22
<PAGE> 23
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 903,951 $6,918,836
Restricted cash - 300,000
Accounts and other receivables 144,466 95,668
Prepaid expenses and deposits 183,383 247,717
---------- ---------
Total current assets 1,231,800 7,562,221
Property and equipment, net 952,742 537,113
Restricted cash 300,000 -
Prepaid expenses - 151,667
Deferred compensation trust 161,450 191,189
--------- ---------
$2,645,992 $8,442,190
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 198,512 $ 272,119
Deferred research and development revenue - 744,198
Deferred option payment 250,000 -
Deferred gain on sale and leaseback 524,794 349,857
Obligation under capitalized lease 601,689 451,412
--------- ---------
Total current liabilities 1,574,995 1,817,586
Deferred gain on sale and leaseback 349,857 -
Obligation under capitalized lease 451,412 -
Deferred compensation 161,450 191,189
Excess of fair value over cost of net assets acquired, net
of accumulated amortization of $124,708 and $152,944 157,645 129,409
Other 68,166 45,219
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 65,000,000 shares
authorized; 12,326,619 and 22,479,679 shares
issued and outstanding 123,266 224,797
Additional paid-in capital 12,013,062 17,752,416
Deficit accumulated during the development stage (12,253,861) (11,718,426)
---------- ----------
Total stockholders' equity (deficit) (117,533) 6,258,787
--------- ---------
$2,645,992 $8,442,190
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
--------------------- TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
Revenues $ 153,425 $ 3,827,111 $ 4,699,186
---------- ----------- -----------
Expenses:
Research and development 1,780,834 2,154,047 9,399,635
General and administrative 1,425,101 1,251,556 6,954,869
--------- --------- ---------
Total expenses 3,205,935 3,405,603 16,354,504
--------- --------- ----------
Income (loss) from operations (3,052,510) 421,508 (11,655,318)
Other income (expense):
Interest income 118,938 228,966 635,126
Interest expense (197,487) (115,039) (698,234)
----------- ------------ -----------
Net income (loss) $(3,131,059) $ 535,435 $(11,718,426)
============ =========== ============
Net income (loss) per share $(.32) $.03
====== ====
Shares and common share
equivalents used in per share
calculations 9,646,846 35,687,731
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------------------------------------ ADDITIONAL
PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization ($.20
per share). . . . . . . . . . . . . . . . . - $ - 390,830 $ 3,908 $ 74,093
Net loss . . . . . . . . . . . . . . . . . . - - - - -
------------------------------------------------------------------------------
Balance at December 31, 1991 . . . . . . . . - - 390,830 3,908 74,093
Sale of common stock for cash,
January 1992 ($4.61 per share). . . . . . . - - 43,430 435 199,565
Sale of common stock for cash,
February 1992 ($6.90 per share) . . . . . . - - 115,801 1,158 798,842
Issuance of common stock for services,
March 1992 to July 1992 ($2.00 per share) . - - - - 383,014
Conversion of notes payable into preferred
stock, September 1992 ($4.48 per share) . . 113,700 1,137 - - 507,972
Sale of preferred stock for cash, September
1992 ($4.48 per share) . . . . . . . . . . 89,328 893 - - 399,296
Issuance of preferred stock upon exercise
of warrants, September 1992
($1.92 per share) . . . . . . . . . . . . . 46,900 469 - - 89,531
Issuance of common stock for cash
($1.00 per share) and services ($1.00
per share), October 1992 . . . . . . . . . - - 75,000 750 149,250
Conversion of preferred stock into common
stock, December 1992 . . . . . . . . . . . (249,928) (2,499) 249,928 2,499 -
Sale of common stock and warrants for cash,
December 1992 ($4.84 per unit,
net of offering costs of $1,396,893
or $1.16 per unit) . . . . . . . . . . . . - - 1,200,000 12,000 5,791,227
Net loss . . . . . . . . . . . . . . . . . . - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1992 . . . . . . . . - - 2,074,989 20,750 8,392,790
Sale of common stock and warrants for cash,
January 1993 ($5.27 per
unit, net of offering costs of $131,723
or $.73 per unit) . . . . . . . . . . . . - - 180,000 1,800 946,477
Compensation and consulting expense in
connection with options granted . . . . . . - - - - 64,011
Net loss . . . . . . . . . . . . . . . . . . - - - - -
------------------------------------------------------------------------------
Balance at December 31, 1993 . . . . . . . . - - 2,254,989 22,550 9,403,278
Net loss . . . . . . . . . . . . . . . . . . - - - - -
------------------------------------------------------------------------------
Balance at December 31, 1994 . . . . . . . . - - 2,254,989 22,550 9,403,278
Sale of common stock and warrants for cash,
March and April 1995 ($39,972 per unit, net
of offering costs of $706,971 or $10,028
per unit) . . . . . . . . . . . . . . . . . - - 10,071,630 100,716 2,717,314
Required registration of common stock and
warrants, October 1995 ($1,525 per unit). . - - - - (107,530)
Net loss . . . . . . . . . . . . . . . . . . - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1995 . . . . . . . . - - 12,326,619 123,266 12,013,062
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
------------------------------------
<S> <C> <C>
Initial capitalization ($.20
per share). . . . . . . . . . . . . . . . . $ - $ 78,001
Net loss . . . . . . . . . . . . . . . . . . (941,145) (941,145)
------------------------------------
Balance at December 31, 1991 . . . . . . . . (941,145) (863,144)
Sale of common stock for cash,
January 1992 ($4.61 per share). . . . . . . - 200,000
Sale of common stock for cash,
February 1992 ($6.90 per share) . . . . . . - 800,000
Issuance of common stock for services,
March 1992 to July 1992 ($2.00 per share) . - 383,014
Conversion of notes payable into preferred
stock, September 1992 ($4.48 per share) . . - 509,109
Sale of preferred stock for cash, September
1992 ($4.48 per share) . . . . . . . . . . - 400,189
Issuance of preferred stock upon exercise
of warrants, September 1992
($1.92 per share) . . . . . . . . . . . . . - 90,000
Issuance of common stock for cash
($1.00 per share) and services ($1.00
per share), October 1992 . . . . . . . . . - 150,000
Conversion of preferred stock into common
stock, December 1992 . . . . . . . . . . . - -
Sale of common stock and warrants for cash,
December 1992 ($4.84 per unit,
net of offering costs of $1,396,893
or $1.16 per unit) . . . . . . . . . . . . - 5,803,227
Net loss . . . . . . . . . . . . . . . . . . (2,415,723) (2,415,723)
------------------------------------
Balance at December 31, 1992 . . . . . . . . (3,356,868) 5,056,672
Sale of common stock and warrants for cash,
January 1993 ($5.27 per
unit, net of offering costs of $131,723
or $.73 per unit) . . . . . . . . . . . . - 948,277
Compensation and consulting expense in
connection with options granted . . . . . . - 64,011
Net loss . . . . . . . . . . . . . . . . . . (2,725,902) (2,725,902)
------------------------------------
Balance at December 31, 1993 . . . . . . . . (6,082,770) 3,343,058
Net loss . . . . . . . . . . . . . . . . . . (3,040,032) (3,040,032)
------------------------------------
Balance at December 31, 1994 . . . . . . . . (9,122,802) 303,026
Sale of common stock and warrants for cash,
March and April 1995 ($39,972 per unit, net
of offering costs of $706,971 or $10,028
per unit) . . . . . . . . . . . . . . . . . - 2,818,030
Required registration of common stock and
warrants, October 1995 ($1,525 per unit). . - (107,530)
Net loss . . . . . . . . . . . . . . . . . . (3,131,059) (3,131,059)
------------------------------------
Balance at December 31, 1995 . . . . . . . . (12,253,861) (117,533)
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
For the Period August 3, 1991 (inception) to December 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------------------------------------- ADDITIONAL
PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of exchange option, May 1996
($.37 per share, net of related costs
of $351,082) . . . . . . . . . . . . . - $ - - $ - $ 979,166
Issuance of common stock upon exercise
of Class B Warrants and stock options,
May - August 1996,
($.50 per share, net of related
costs of $214,811) . . . . . . . . . . - - 10,153,060 101,531 4,760,188
Net income . . . . . . . . . . . . . . . - - - - -
-------------------------------------------------------------------------
Balance at December 31, 1996 . . . . . . - $ - 22,479,679 $224,797 $17,752,416
=========================================================================
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
--------------------------------------
<S> <C> <C>
Issuance of exchange option, May 1996
($.37 per share, net of related costs
of $351,082) . . . . . . . . . . . . . $ - $ 979,166
Issuance of common stock upon exercise
of Class B Warrants and stock options,
May - August 1996,
($.50 per share, net of related
costs of $214,811) . . . . . . . . . . - 4,861,719
Net income . . . . . . . . . . . . . . . 535,435 535,435
--------------------------------------
Balance at December 31, 1996 . . . . . . $(11,718,426) $6,258,787
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
---------------------- TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(3,131,059) $ 535,435 $(11,718,426)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization of
property and equipment, net of
amortization of deferred gain on
sale/leaseback 29,330 47,334 116,177
Amortization of deferred credits (53,808) (51,183) (288,153)
Expense recorded on issuance of
common stock and vesting of options - - 531,134
Changes in operating assets
and liabilities:
Accounts and other receivables 172,589 48,798 (95,668)
Prepaid expenses and deposits (44,027) (216,001) (283,142)
Accounts payable and accrued
expenses (55,777) 73,607 (160,461)
Deferred research and development - 744,198 744,198
Deferred option payment 250,000 (250,000) -
Due from BioCarb AB - - 420,448
----------- ----------- ------------
Net cash provided by (used in)
operating activities (2,832,752) 932,188 (10,733,893)
----------- ----------- ------------
INVESTING ACTIVITIES
Purchase of property and equipment (33,377) (156,499) (303,433)
Increase in restricted cash - - (300,000)
----------- ----------- ------------
Net cash used in investing activities (33,377) (156,499) (603,433)
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(Continued)
27
<PAGE> 28
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
---------------------- TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sales of common stock
and warrants and the exchange option $2,903,066 $ 979,166 $11,516,170
Net proceeds from exercise of warrants
and stock options - 4,861,719 4,861,719
Proceeds from sale and leaseback
agreement - - 2,164,792
Principal repayments on sale and
leaseback agreement (521,888) (601,689) (1,713,380)
Proceeds from issuance of notes payable - - 500,000
Proceeds from sale of preferred stock - - 400,189
Proceeds from exercise of warrants - - 90,000
----------- ---------- ----------
Net cash provided by financing activities 2,381,178 5,239,196 17,819,490
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (484,951) 6,014,885 6,482,164
Cash and cash equivalents at
beginning of period 1,388,902 903,951 436,672
--------- ---------- ----------
Cash and cash equivalents at
end of period $ 903,951 $6,918,836 $6,918,836
=========== ========== ==========
Supplemental cash flows disclosures:
Notes payable and accrued interest
converted to preferred stock $ - $ - $ 509,109
=========== ========== ==========
Sale and leaseback of property and
equipment $ - $ - $2,099,175
=========== ========== ==========
Deferred compensation $ 34,590 $ 29,739 $ 191,189
=========== ========== ==========
Interest paid $ 197,487 $ 115,039 $ 689,125
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1. BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
dedicated to the development and production of clinical technologies and
therapeutic products to prevent and treat infectious diseases and related
disorders. With respect to its human bacterial vaccine research and
development, the Company currently has a strategic alliance with SmithKline
Beecham and technology license agreements with Pasteur Merieux Connaught and
the United States Navy.
The Company was incorporated in March 1988 as BioCarb Inc., a wholly
owned subsidiary of BioCarb AB, a Swedish biotechnology company. On August 3,
1991, the Company was acquired by a then officer at a cost of $78,001 in a
business combination accounted for as a purchase, and began doing business as
MicroCarb Inc. Since the fair market value of the assets acquired less
liabilities assumed exceeded the purchase price, such excess was applied first
to reduce to zero the value of non-current assets (which had a net book value
to BioCarb Inc. of $2,321,001). The remaining excess of $282,353 was recorded
as the excess of fair value over cost of net assets acquired.
As of December 31, 1996, the Company's research and products were not
sufficiently developed to enable the Company to generate significant revenues
on an ongoing basis. As a result, beginning August 3, 1991 and through the
present, the Company is considered to be in the development stage.
In September 1996, the Company changed its name from MicroCarb Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The financial statements include the accounts of Antex Biologics Inc. and
its 73.75% owned subsidiary, MicroCarb Human Vaccines Inc., incorporated in
April 1996. All intercompany transactions have been eliminated.
BASIS OF ACCOUNTING
The Company is complying with Statement of Financial Accounting Standards
No. 7, which prescribes requirements in reporting for development stage
enterprises.
CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in a
29
<PAGE> 30
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
money market fund with a major bank. This fund invests in securities of the
U.S. Government. The Company has not had any losses on its investments.
PROPERTY AND EQUIPMENT
Property and equipment acquired are stated at cost and depreciated on a
straight-line basis over estimated useful lives of five years. Equipment under
capital lease is amortized on a straight-line basis over the term of the lease,
48 months. When assets are retired or sold, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or loss is
reflected in operations. Expenditures for maintenance, repairs and minor
renewals are charged to operations.
EXCESS OF FAIR VALUE OVER COST OF NET ASSETS ACQUIRED
The excess of fair value over cost of net assets acquired is being
amortized over a period of ten years, using the straight-line method, and is
included in general and administrative costs on the statements of operations.
The amounts of $28,236, $28,236, and $152,944 have been reflected as
contra-expenses for the years ended December 31, 1995 and 1996, and for the
period August 3, 1991 (inception) to December 31, 1996, respectively.
REVENUE RECOGNITION
Cash payments received in advance of performing contracted research and
development services are recorded as deferred revenue until the services are
performed.
Revenue equal to expenses incurred by the Company which are directly
reimbursable pursuant to the provisions of the strategic alliance is recognized
when the related expenses are incurred.
Milestone payments are recognized as revenue when earned.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce net deferred tax assets to the amount expected to be
30
<PAGE> 31
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Net income per share calculations are based on the weighted average
number of shares of common stock outstanding, assuming conversion of dilutive
common stock equivalent shares from common stock options and warrants using the
modified treasury stock method. Primary and fully diluted per share amounts
are the same.
Net loss per share calculations are based upon the weighted average
number of shares of common stock outstanding or deemed outstanding.
Escrowed shares have been excluded from the computations of earnings per
share.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation. SFAS 123 allows the Company to account for its
stock-based compensation plans based upon either a fair value method or under
the intrinsic value method, as prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
elected the intrinsic value method, however SFAS 123 requires certain other
disclosures regarding the impact which the fair value method would have had on
the results of the Company's operations (See Note 9). Since the Company
elected to adopt SFAS 123 through disclosure only, such adoption had no impact
on the Company's financial position or results of operations.
USE OF 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 financial statements to
conform to the 1996 financial statement presentation.
31
<PAGE> 32
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------- -----------
<S> <C> <C>
Research and development equipment $ 81,317 $ 237,816
Equipment under capital lease 2,164,792 2,164,792
--------- ---------
2,246,109 2,402,608
Accumulated amortization and depreciation (1,293,367) (1,865,495)
----------- ----------
$ 952,742 $ 537,113
=========== ==========
</TABLE>
In August 1993, the Company entered into a $2,164,792 sale and leaseback
agreement covering substantially all of the Company's existing research and
development equipment, furniture and fixtures, and leasehold improvements. As
a result of the management buy-out that occurred on August 3, 1991,
substantially all the fixed assets involved in this agreement had been
previously reflected for financial reporting purposes at a carrying value of
$1. Other research and development equipment subsequently acquired, and with a
carrying value of $65,616, was included in the agreement.
The sale and leaseback is for a period of forty-eight (48) months
expiring August 1997 and provides for monthly payments of principal and
interest of $59,497 at an interest rate of 14.99%. Provisions of the agreement
provide for the payment of $1 at the end of the term to reacquire the assets,
and the opportunity to prepay the indebtedness. The Company is required to
maintain cash of $500,000 during the term of the agreement, subject to
adjustments. This requirement has been satisfied in part by providing the
lessor with a $300,000 irrevocable letter of credit that is collateralized by a
$300,000 certificate of deposit.
For financial reporting purposes, the Company capitalized the equipment
and recorded a deferred gain of $2,099,175. The capitalized equipment
and deferred gain are being amortized on a straight-line basis over the
48-month period, with the net effect reflected in operating expenses in the
statements of operations.
Equipment under capital lease consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Research and development equipment $1,782,792 $1,782,792
Office furniture and equipment 82,000 82,000
Leasehold improvements 300,000 300,000
---------- ----------
2,164,792 2,164,792
</TABLE>
32
<PAGE> 33
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Accumulated amortization (1,262,800) (1,803,998)
------------- ------------
$ 901,992 $ 360,794
------------- ============
</TABLE>
As of December 31, 1996, the future minimum payments under this lease
were $475,976, with a present value of $451,412.
4. INCOME TAXES
Significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
generated $ 5,208,100 $ 4,424,400
Research and development tax credit
carryforwards 39,000 64,000
Other deferred tax assets 256,300 482,200
---------- ---------
5,503,400 4,970,600
Valuation allowance (5,503,400) (4,970,600)
---------- ----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
Management has provided a full valuation allowance against total deferred
tax assets as of the balance sheet dates because the Company's ability to
generate sufficient future taxable income is uncertain.
For the year ended December 31, 1996, the Company utilized $2,279,000 of
net operating loss carryforwards to offset current taxes payable. As of
December 31, 1996, the Company had net operating loss carryforwards of
approximately $11,456,000 for federal and state tax reporting purposes which
will substantially expire in years 2006 to 2011. Due to certain changes in
ownership, the Company's ability to utilize tax net operating loss
carryforwards prior to April 1995 is limited.
5. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATION
The Company leases research facilities and office space pursuant to a
noncancelable operating lease expiring in January 1999. The lease provides for
fees for excess utility usage
33
<PAGE> 34
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
and administrative services and scheduled increases in rental payments. Rent
expense was approximately $217,000, $224,000 and $1,118,000 for the years ended
December 31, 1995 and 1996, and the period August 3, 1991 (inception) to
December 31, 1996, respectively. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
<S> <C>
1997 $ 257,000
1998 265,000
1999 22,000
----------
$ 544,000
==========
</TABLE>
LICENSES
The Company has an exclusive license to a U.S. patent and pending foreign
patent applications covering the Company's VeroTest(TM) product. The licensor
may convert the license to a non-exclusive license since the Company failed to
pay certain royalty levels by November 1996. The Company is currently in
discussions with the licensor to amend the royalty provisions.
In addition, the Company has two licenses for exclusive rights for issued
and pending patent applications that are co-owned. Under both, if the Company
fails to pay certain royalty levels for certain products by 1997 or 2000, as
the case may be, the licensor may convert the licenses to non-exclusive
licenses.
Royalties are expensed as incurred.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party by the
United States Environmental Protection Agency ("EPA") for a site cleanup in
Denver, Colorado, where the Company sent hazardous materials for disposal. The
EPA has identified approximately 800 potentially responsible parties requesting
additional information and listing manifests which evidence shipments of each
individual company's waste to the site. Due to the number of parties involved,
the multiplicity of possible solutions, the evolving technology and the years
of remedial activity required, the Company is unable to assess and quantify the
extent of its total responsibility at the site. The liability for future
remediation costs has been evaluated. Management believes that any ultimate
liability will not materially affect the financial statements of the Company.
34
<PAGE> 35
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
6. STRATEGIC ALLIANCE
On May 7, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline"), effective March 1, 1996, which established a corporate
joint venture, MicroCarb Human Vaccines Inc. ("MCHV"), to develop and
commercialize human bacterial vaccines utilizing the Company's proprietary
technologies. The agreements provide for the following: a payment of
$3,000,000 to the Company in connection with SmithKline's acquisition of a
26.25% equity interest in MCHV; a payment of $2,400,000 to the Company to fund
research and development for the first year; additional committed research and
development funding through February 28, 1998 with SmithKline having the option
to fund future years; two separate options granted to SmithKline expiring
October 1, 1997 and 1998, respectively, to acquire from the Company additional
equity interests in MCHV; an exchange option granted by the Company to
SmithKline enabling SmithKline to convert its equity interest in MCHV for up to
4,793,685 shares of the Company's common stock, under specified conditions; and
a warrant granted by the Company to SmithKline enabling SmithKline to acquire
up to 7,682,637 shares of the Company's common stock, under specified
conditions, and only to the extent that stipulated options and warrants
previously granted and outstanding as of the date of the establishment of the
strategic alliance are exercised. The agreements also provide for SmithKline
to make milestone payments and pay royalties to MCHV; and for SmithKline to
reimburse the Company for expenses the Company incurs for agreed upon
production lots of vaccines for clinical trials, the conduct of agreed upon
clinical trials, and agreed upon prosecution and maintenance of the Company's
patents and patent applications. As further stipulated in the agreements,
SmithKline will be responsible for conducting additional clinical trials,
manufacturing, and sales and distribution.
With respect to the $3,000,000 the Company received for the equity
interest purchase, $1,330,248, representing the portion applicable to the
exchange option granted by the Company, has been reflected as additional
paid-in capital. Legal fees of approximately $351,000 incurred in connection
with the strategic alliance have been offset against the additional paid-in
capital. The remaining balance of $1,669,752, representing the portion
applicable to the sale of the equity interest in MCHV by the Company, has been
reflected in 1996 operating revenues.
In addition, the Company received payments totalling $2,400,000
representing the first year's research and development funding. Revenue has
been recognized for the period March 1, 1996 through December 31, 1996 to the
extent of actual expenses incurred. Amounts unearned at December 31, 1996 have
been deferred.
A milestone payment to MCHV and additional expenses incurred that qualify
as reimbursables due from SmithKline pursuant to the provisions of the
agreements, have been recognized as revenue.
35
<PAGE> 36
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
7. TECHNOLOGY LICENSE AGREEMENTS
In December 1994, the Company entered into a technology license agreement
with Pasteur Merieux Connaught , whereby the Company granted an exclusive
license to develop, produce and market any product using the Company's
Haemophilus influenzae nontypeable adhesion protein in all countries other than
those of the Asia-Pacific region, as defined. The Company earned a license fee
in 1994 and is entitled to milestone payments based on the licensee's
performance or the passage of time. In December 1995, the Company recognized
revenue attributable to a scheduled $150,000 milestone payment, and received
payment in January 1996. Upon commercialization, the licensee is obligated to
pay a guaranteed minimum annual royalty to the Company on sales of any product
incorporating the Company's technology. The licensee commenced a Phase I human
clinical trial in February 1997.
In August 1994, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the United States Navy, whereby the
Company granted Government Purpose License Rights to its Campylobacter vaccine
technology. In exchange for the rights granted, the United States Navy agreed
to conduct and fund the costs involved in Phase I, II and III human clinical
trials for the vaccine, subject to the availability of required funds. The
Company retained all commercial rights to develop, produce and market any
product involving the Campylobacter technology. Either party may terminate the
CRADA upon thirty days written notice. A Phase I human clinical trial of the
vaccine candidate was successfully completed in 1996. A second Phase I human
clinical of the vaccine candidate with an adjuvant was successfully completed
in January 1997.
8. CAPITAL TRANSACTIONS
INITIAL PUBLIC OFFERING
In December 1992, the Company closed an initial public offering of
1,200,000 units at $6.00 per unit, each unit consisting of one share of the
Company's common stock and one warrant to purchase one share of the Company's
common stock at $7.50 per share, expiring December 17, 1997. In January 1993,
the Company sold an additional 180,000 units at $6.00 per unit. In connection
with the offering, the Company issued, to the investment banker who offered the
units, an option to purchase up to 120,000 units at $8.40 per unit. The option
is exercisable during the period December 17, 1995 through December 17, 1997.
PRIVATE PLACEMENT
On April 18, 1995, the Company completed a private placement resulting in
gross proceeds to the Company of $3,525,000 before related offering and
registration costs of approximately $815,000. Pursuant to the terms of the
private placement, the Company issued
36
<PAGE> 37
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
70.5 units, each unit consisting of 142,860 shares of common stock and an equal
number of Class B warrants. Each Class B warrant entitled the holder thereof
to purchase one share of common stock at an exercise price of $0.50 per share.
The Class B warrants were exercised in their entirety in 1996 resulting in
gross proceeds to the Company of approximately $5,072,000 before related costs
of approximately $215,000.
In connection with the private placement, the Company issued to the
Placement Agent a unit purchase option granting the Placement Agent the option
to purchase 24.67 units from the Company at a purchase price of $50,000 per
unit. Each warrant comprising the Placement Agent's units has the same terms
and conditions as did a Class B warrant, except that it is not subject to
redemption by the Company. The unit purchase option is exercisable for a
two-year period commencing on March 24, 1998.
ANTI-DILUTION
In accordance with the anti-dilution provisions thereof, the exercise
price and the number of shares of common stock issuable upon exercise of the
Company's redeemable warrants issued in connection with the Company's initial
public offering have been adjusted as a consequence of the private placement.
Similar adjustments have been made to the terms of the unit purchase option
granted to the investment banker at the time of the initial public offering.
COMMON STOCK
As of December 31, 1996, common stock reserved for future issuance
includes the following:
<TABLE>
<S> <C>
Common Stock Warrants:
SmithKline 7,682,637
Placement Agent's option 3,524,357
Initial public offering 1,950,000
Common Stock Options:
Stock option plans 5,990,000
Exchange option 4,793,685
Placement Agent's option 3,524,356
Investment banker's option 152,400
----------
Total 27,617,435
==========
</TABLE>
37
<PAGE> 38
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1992 DIRECTORS' STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan, as amended May 1996, provides for the
grant of options to purchase up to an aggregate of 1,200,000 shares of the
Company's common stock to nonemployee directors. Under the Directors' Plan,
upon initial election to the Board, a director is granted an option to purchase
the number of shares of common stock equal to $20,000 ($10,000 if elected on or
after the six-month anniversary of the most recent annual shareholders meeting)
divided by the greater of the market price of the common stock on the date of
grant or $0.50. At the time of reelection to serve or upon continuing to hold
office for the following year, a director is granted an additional option to
purchase the number of shares of common stock equal to $20,000 divided by the
greater of the market price of the common stock on the date of the grant or
$0.50. For directors who have served for at least three years, this basic
annual grant is supplemented every third year by an additional grant of an
option to purchase a number of shares of common stock equal to 150% of the
number of shares covered by the basic grant. Vesting occurs quarterly in four
equal installments over a period of one year following the date of grant.
Options granted under the Directors' Plan have a term of five years.
1992 STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the "Plan").
The Plan, as amended June 1995, provides for the grant of options to purchase
up to an aggregate of 4,800,000 shares of the Company's common stock. The Plan
provides for the issuance of incentive stock options ("ISOs") to employees and
non-qualified stock options ("NQSOs") to employees and others. The exercise
price of ISOs must be at least equal to the fair market value of the Company's
common stock on the date of grant. Under the Plan, ISOs and NQSOs may have a
term of up to ten years.
STOCK OPTIONS OUTSTANDING
Stock options outstanding under these plans are as follows:
<TABLE>
<CAPTION>
DIRECTORS' PLAN 1992 PLAN
--------------- ---------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
December 31, 1994 22,500 $3.75 to $6.00 455,011 $1.00 to $6.00
Granted 22,500 $1.00 1,810,000 $0.50
</TABLE>
38
<PAGE> 39
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C> <C>
Expired - (35,781) $0.50 to $2.75
------- ---------
December 31, 1995 45,000 2,229,230
Granted 66,300 $1.81 1,495,000 $0.37 to $0.87
Expired - (14,219) $0.50 to $6.00
Exercised - (10,000) $0.50
------- ----------
December 31, 1996 111,300 3,700,011
======= ==========
Exercisable, December 31, 1996
Exercise Price
$0.37 - 656,874
$0.50 - 1,676,375
$0.56 to $1.00 22,500 65,219
$1.81 33,150 -
$2.00 to $6.00 22,500 367,720
------ ---------
78,150 2,766,188
====== =========
</TABLE>
On January 1, 1997, 250,000 outstanding options with an exercise price of
$0.56 vested.
9. STOCK-BASED COMPENSATION DISCLOSURE
The Company has adopted the disclosure-only provisions of SFAS 123 for
its stock options plans. The Plan provides for the issuance of stock options
that generally vest over a 4 year period and have a maximum term of 10 years.
The Directors' Plan provides for the issuance of stock options that vest over a
one year period and have a maximum term of 5 years. Had compensation cost for
the Company's stock option plans been determined on the fair value at the grant
date for awards in 1995 and 1996, consistent with the provisions of SFAS 123,
the Company's net income (loss) would have been (decreased) increased to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income (loss) -- as reported $(3,131,059) $ 535,435
SFAS 123 pro forma adjustment (675,000) (570,000)
----------- ------------
Net loss -- pro forma $(3,806,059) $ (34,565)
=========== ============
Net income (loss) per share, as reported $(0.32) $0.03
====== =====
Net loss per share, pro forma $(0.39) $ -
====== =====
</TABLE>
39
<PAGE> 40
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Expected life (years) 9.94 9.94
Interest rate 7.49% 6.30%
Volatility 177.6% 177.6%
Dividend yield 0% 0%
</TABLE>
The fair values at date of grant ranged from $0.37 to $1.81 per option
and in each case was equal to the market value of the Company's common stock at
the date of grant. The weighted average exercise price is $0.51 and $0.56 per
option for 1995 and 1996, respectively, and the weighted average remaining
contractual life of options outstanding is 8.1 years and 9.26 years for 1995
and 1996, respectively. The weighted average fair value of the options is
$0.50 and $0.55 per option for 1995 and 1996, respectively. The expense
related to the value ascribed to the stock options is recognized over the
vesting period of 1 to 4 years.
10. 401(k) PLAN AND EXECUTIVE COMPENSATION BENEFITS
The Company has a 401(k) Plan which covers all employees who have
completed six months of service and are at least 21 years of age. Each
eligible employee may contribute up to 10% of their salary, subject to certain
annual limits. The Company does not match employee contributions.
As part of a deferred compensation plan adopted in 1993, the Company has
established a "Rabbi Trust". The Trust holds the assets of the deferred
compensation plan; which could be available to creditors in the event of a
liquidation. Accordingly, an asset and a corresponding liability have been
recorded for financial reporting purposes resulting from $125,000 of
compensation deferred by an officer prior to 1995 and capital appreciation
thereon.
In 1993, the Company entered into Split Dollar Agreements with two
officers whereby the Company pays the premiums on split dollar life insurance
policies held by these individuals. Under the terms of the agreements, the
officers are required to reimburse the Company for these premiums. However,
since it is possible that the Company may waive this reimbursement, no asset
for the premiums has been recorded. The Company paid approximately $124,000
and $90,800 in premium payments in 1995 and 1996, respectively.
40
<PAGE> 41
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the identification of directors and executive
officers is contained under the captions "Election of Director" and "Executive
Officers" in the Company's proxy statement for the 1997 Annual Meeting of the
Stockholders and is incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to executive compensation is contained under the
caption "Executive Compensation" in the Company's proxy statement for the 1997
Annual Meeting of the Stockholders and is incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain beneficial
owners and management is contained under the caption "Voting Securities and
Principal Stockholders" in the Company's proxy statement for the 1997 Annual
Meeting of the Stockholders and is incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
41
<PAGE> 42
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation (1)
3.2 Certificate of Merger relating to merger of BioCarb Inc. with and into the Registrant as
filed with the Delaware Secretary of State on September 21, 1992 (1)
3.3 Certificate of Amendment to Certificate of Incorporation (7)
3.4 Certificate of Ownership and Merger Merging Virgo Biologicals Inc. Into MicroCarb Inc., dated
August 16, 1996 (effecting the change in the corporate name from MicroCarb Inc. to Antex
Biologics Inc.)
3.5 ByLaws, as amended (3)
4.1 Form of Common Stock Certificate (8)
4.2 Form of Redeemable Warrant Agreement (including form of specimen warrant certificate) (3)
*10.1 Amended and Restated Stock Option Plan, as amended (7)
*10.2 1992 Directors' Stock Option Plan, as amended (10)
*10.3 Employment Agreement dated as of January 1, 1996 by and between the Company and V. M.
Esposito (9)
*10.4 Employment Agreement dated as of May 1, 1995 by and between the Company and Gregory C.
Zakarian (8)
*10.5 Employment agreement effective as of September 30, 1996 by and between the Company and
Theresa M. Smith (12)
10.6 Form of Confidentiality Agreement by and between the Company and its employees (1)
10.7 Form of Inventions Disclosure Agreement by and between the Company and its employees (1)
10.8 Form of Non-disclosure and Invention Assignment Agreement by and between the Company and its
employees (1)
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
10.9 Patent License Agreement dated as of May 15, 1992 by and between the Company and HSC Research
and Development Limited Partnership (1)
10.10 Patent License Agreement dated as of May 15, 1992 by and between the Company and HSC Research
and Development Limited Partnership (1)
10.11 Patent and Technology License Agreement dated as of November 21, 1990 by and between BioCarb
Inc. and HSC Research Development Corporation (1)
10.12 Form of Technology License Agreement dated as of October 26, 1992 by and between the Company
and GalaGen Inc. (1)
10.13 Lease dated January 13, 1989 by and between Crown Pointe Center Venture and BioCarb Inc. with
Assignment of Lease dated September 13, 1990 (1)
10.14 Stock Purchase Agreement dated as of July 17, 1991 by and between BioCarb AB and Howard C.
Krivan, Ph.D. (2)
10.15 Form of Unit Purchase Option with Underwriter (3)
10.16 Sale and Leaseback Agreement dated as of August 13, 1993 by and between the Registrant and
Aberlyn Capital Management Limited Partnership for a total of $2,164,792 (4)
10.17 Form of Letter Agreement by and between the Company and members of Company's Vaccine Advisory
Board (5)
10.18 Form of Private Placement Unit Purchase Option (8)
10.19 MicroCarb Human Vaccines Inc. Stockholders Agreement dated May 6, 1996, effective March 1,
1996, by and between the Company, SmithKline Beecham Biologicals Manufacturing s.a., and
MicroCarb Human Vaccines Inc. (6)
10.20 Stock Purchase Agreement dated May 6, 1996, effective March 1, 1996, by and between MicroCarb
Human Vaccines Inc., the Company and SmithKline Beecham Biologicals Manufacturing s.a.
(Certain confidential information omitted) (6)
10.21 SKB Transitory License Agreement dated May 6, 1996, effective March 1, 1996, by and between
the Company and SmithKline Beecham Biologicals Manufacturing s.a. (Certain confidential
information omitted) (6)
10.22 MicroCarb Vaccines License Agreement dated May 6, 1996, effective March 1, 1996, by and
between MicroCarb Human Vaccines Inc. and the Company (Certain confidential information
omitted) (6)
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
10.23 Assignment of Transitory License Agreement and Restatement of Rights and Obligations Under
the Vaccines License Agreement dated May 6, 1996, effective March 1, 1996, by and between
SmithKline Beecham Biologicals Manufacturing s.a., MicroCarb Human Vaccines Inc. and the
Company (6)
10.24 Research and Development, Research Support and License Agreement dated May 6, 1996, effective
March 1, 1996, by and between MicroCarb Human Vaccines Inc., the Company and SmithKline
Beecham Corporation (Certain confidential information omitted) (6)
10.25 Exchange Option Agreement dated May 6, 1996, effective March 1, 1996, by and between
SmithKline Beecham Biologicals Manufacturing s.a., the Company and MicroCarb Human Vaccines
Inc. (6)
10.26 Warrant to Purchase Common Stock of the Company dated May 6, 1996, effective March 1, 1996,
issued to SmithKline Beecham Biologicals Manufacturing s.a. (Certain confidential information
omitted) (6)
10.27 Registration Rights Agreement dated May 6, 1996, effective March 1, 1996, by and between the
Company and SmithKline Beecham Biologicals Manufacturing s.a. (6)
11.1 Statements Re: Computation of Per Share Income (Loss) (12)
23.1 Consent of Coopers & Lybrand L.L.P. (12)
</TABLE>
* Management plan or compensatory plan or arrangement
- ------------------------------------------------------------------------------
(1) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-1 (Reg No. 33-53774) filed on October 27, 1992.
(2) Incorporated by reference to an exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-1 filed on December 2, 1992.
(3) Incorporated by reference to an exhibit to Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed on December 15,
1992.
(4) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended September 30, 1993 filed on November 12, 1993.
(5) Incorporated by reference to an exhibit to Form 10-KSB for the year
ended December 31, 1993 filed on March 29, 1994.
(6) Incorporated by reference to an exhibit to Form 8-K filed on May 22,
1996.
44
<PAGE> 45
(7) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-8 (Registration No. 33-94692) filed on July 18,
1995.
(8) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form SB-2 (Registration No. 33-96168) filed on August 24,
1995.
(9) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended March 31, 1996 filed on May 20, 1996.
(10) Incorporated by reference to an exhibit to the 1996 Proxy Statement
and Notice of Annual Meeting to Stockholders filed on April 12, 1996,
under cover of a Schedule 14A.
(11) Incorporated by reference to an exhibit to Form 8-K filed on
September 9, 1996.
(12) Filed herewith.
- ------------------------------------------------------------------------------
REPORTS ON FORM 8-K
None
45
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANTEX BIOLOGICS INC.
Date: February 20, 1997 By: /s/V.M. Esposito
-------------------------------------------
V.M. Esposito, President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 20, 1997 By: /s/Gregory C. Zakarian
-------------------------------------------
Gregory C. Zakarian, Treasurer and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: February 20, 1997 By: /s/V.M. Esposito
-------------------------------------------
V. M. Esposito, Director
Date: February 20, 1997 By: /s/Bruce E. Elmblad
-------------------------------------------
Bruce E. Elmblad, Director
Date: February 20, 1997 By: /s/Donald G. Stark
-------------------------------------------
Donald G. Stark, Director
46
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------
<S> <C>
10.5 Employment agreement effective as of September 30, 1996 by and
between the Company and Theresa M. Smith
11.1 Statement Re: Computation of Per Share Income (Loss)
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>
47
<PAGE> 1
EXHIBIT 10.5
August 9, 1996
Theresa M. Smith, Esq.
15308 Walker Branch Court
Laurel, Maryland 20707
Dear Terri,
We are pleased to extend to you an offer to join MicroCarb as Vice President,
Corporate Development. As an officer and member of the executive management
team, you will participate extensively in the overall management of the
Company. Your primary responsibilities will be in three areas: legal,
licensing and corporate communications. Specifically, this will involve
administering the intellectual property program, interacting with general
counsel, evaluation of product and technology opportunities,
in-licensing/out-licensing transactions and corporate communications.
Your beginning annual salary will be $120,000, paid semi-monthly. You will
also be eligible to participate in the Company's incentive bonus program. In
addition, you will be granted stock options for 200,000 shares of MicroCarb
common stock. The vesting of the options will be 25% vested on the one-year
anniversary of your employment and the remaining 75% will vest quarterly over
three years with all options vested on the fourth anniversary.
You will be eligible to participate in the Company's insurance program which
includes life, medical, dental, accidental death and long-term disability. The
premiums are totally paid by the Company. You will be allowed four weeks (20
days) paid vacation. In addition, the Company currently observes eight paid
holidays.
You will be required to enter into the Company's standard confidentiality and
non-compete agreements. In the event your employment is terminated by the
Company without cause for any reason other than a "change of control", you will
receive a three month notice of termination, or in lieu of such notice, an
amount equal to three months' salary. If your termination is related to a
"change of control", then the notice or payment will be one year (12 months).
<PAGE> 2
Theresa M. Smith
August 9, 1996
Page 2 of 2
This offer of employment for the position of Vice President, Corporate
Development, will expire on August 16, 1996 and is contingent upon the
satisfactory completion of the checking of your references and the commencement
of employment no later than October 1, 1996.
Sincerely,
MicroCarb Inc.
/s/V. M. Esposito
V. M. Esposito, Ph.D.
Chairman and CEO
Acknowledgment
Please indicate your acceptance of the terms and conditions set forth by
signing and returning the enclosed copy of this letter.
By: /s/Theresa M. Smith
--------------------------
Date: August 15, 1996
-----------------------------
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Net income (loss) $(3,131,059) $ 535,435
Reduction of interest expense - 115,039
Interest income - 391,385
----------- -----------
Net income (loss) applicable to common stock
and common stock equivalents $(3,131,059) $ 1,041,859
=========== ===========
Weighted average shares of common stock
outstanding 9,938,509 17,037,203
Escrowed shares (291,663) (291,663)
Weighted average effect of common stock
equivalents - 18,942,191
----------- -----------
Net shares of common stock and common stock
equivalents used in net income (loss) per share 9,646,846 35,687,731
=========== ===========
Primary net income (loss) per share $(.32) $.03
====== ====
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Antex Biologics Inc. on Form SB-2 (Registration No. 33-96168) and Form S-8
(Registration No. 33-94692) of our report dated February 7, 1997 on our audits
of the consolidated financial statements of Antex Biologics Inc. as of December
31, 1995 and 1996, and for the years ended December 31, 1995 and 1996, which
report is included in this Annual Report on Form 10-KSB.
Coopers & Lybrand L.L.P.
Rockville, Maryland
Feburary 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,218,836
<SECURITIES> 0
<RECEIVABLES> 95,668
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,562,221
<PP&E> 2,402,608
<DEPRECIATION> (1,865,495)
<TOTAL-ASSETS> 8,442,190
<CURRENT-LIABILITIES> 1,817,586
<BONDS> 0
0
0
<COMMON> 224,797
<OTHER-SE> 6,033,990
<TOTAL-LIABILITY-AND-EQUITY> 8,442,190
<SALES> 0
<TOTAL-REVENUES> 3,827,111
<CGS> 0
<TOTAL-COSTS> 2,154,047
<OTHER-EXPENSES> 1,251,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,039
<INCOME-PRETAX> 535,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 535,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535,435
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
