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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
For the fiscal year ended DECEMBER 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from ______________ to ___________________
Commission file number 0-20988
ANTEX BIOLOGICS 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)
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, 1997 were
$4,755,712.
As of FEBRUARY 27, 1998, 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 $28,313,661.
At FEBRUARY 27, 1998, there were 22,480,304 shares of Common Stock of
the Issuer outstanding.
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 1998
Annual Meeting of Stockholders and is incorporated by reference in Part III
hereof.
Transitional Small Business Disclosure Format Yes ( ) No (X)
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TABLE OF CONTENTS
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Item Page
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PART I
1. Description of Business 4
2. Description of Property 18
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders 18
PART II
5. Market for Common Equity and Related Stockholder Matters 19
6. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
7. Financial Statements 24
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 43
10. Executive Compensation 43
11. Security Ownership of Certain Beneficial Owners and
Management 43
12. Certain Relationships and Related Transactions 43
PART IV
13. Exhibits and Reports on Form 8-K 43
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This Annual Report on Form 10-KSB contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein that are not statements of
historical fact, including without limitation, the statements under "Item 1.
Description of Business" and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and located elsewhere herein
regarding industry prospects and the Company's results of operations or
financial position, may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. Such forward-looking
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statements represent management's current expectations and are inherently
uncertain. A number of important factors including those discussed below under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" could cause actual results to differ materially from
those indicated by forward-looking statements made herein and presented
elsewhere by management from time to time. These factors include, but are not
limited to: (i) the Company's ability to successfully complete product research
and development, including preclinical and clinical studies and
commercialization; (ii) the Company's ability to obtain required governmental
approvals; (iii) the Company's ability to attract and/or maintain
manufacturing, sales, distribution and marketing partners; and (iv) the
Company's ability to develop and commercialize its products before its
competitors. Investors are warned that actual results may differ from
management's expectations.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
Antex Biologics Inc. ("Antex" or the "Company") is a biopharmaceutical
company committed to improving human health by developing new products to
prevent and treat infectious diseases and related disorders. The Company
concentrates its efforts in the discovery and research of technologies for the
development of products for mucosal infections. The Company's focus has been
the development of vaccines for respiratory, gastrointestinal and urogenital
bacterial diseases. At its inception in August 1991, the Company was focused
on researching a proprietary platform ART (TM) (Adhesin-Receptor Technology)
for vaccine development. In 1993, the Company broadened its technology base by
developing its second platform technology called NST (TM) (Nutriment Signal
Transduction). The combination of these two platform technologies provides the
tools and reagents to develop new products to prevent, treat and diagnose
infectious diseases and their related disorders.
BUSINESS
TECHNOLOGY OVERVIEW
General
Proteins and nucleic acids, two groups of naturally occurring molecules,
and their respective roles in the development and treatment of diseases, have
been the subject of numerous studies by 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 more frequently. 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 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
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the shape and integrity of cells and to serve as a barrier between
extracellular and intracellular environments. However, discoveries by the
Company's scientists and collaborators have revealed that certain lipids (i.e.,
glycolipids and phospholipids) 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 a proprietary platform
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
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 means of preventing disease and death from infectious microbes has
been immunization by vaccination. 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 these foreign agents
(antigens), it produces an immune response through a substance called
antibodies, specific proteins that recognize and react with the particular
antigen. The presence of the particular antigen on the cell surface of the
microbe elicits the 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 (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 some vaccines
targeted to a single strain of the microbe may be limited. The Company believes
its proprietary ART may aid in circumventing the problems
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posed by strain diversity and antigen variations within strains. The Company
has discovered that 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. In effect, the adhesions 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 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 genera of microbes or microbial toxins. Once the
receptor is identified, the Company then uses it as a probe to identify and
purify the corresponding adhesin for further analysis and vaccine development.
Monoclonal or polyclonal antibodies and DNA probes can be used to identify the
gene responsible for the adhesin. Sufficient quantities of the protein can be
produced for preclinical and clinical testing either by isolating the "native"
protein from the original microbe or by producing a "recombinant" protein in
another microbe from a genetic clone of the protein.
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. NST is the regulation of cell growth through
the stimulation or suppression of cellular activities by substances or
conditions that nourish/promote or inhibit growth. For upregulation, the
application of NST includes the use of physiologically logical signals to
permit growth and stimulate the production of clinically relevant microbial
antigens. These physiological signals are the growth components and other
conditions in the body, such as temperature and oxygen content, used by the
microbes to grow. By identifying these growth components and conditions, Antex
can duplicate in the laboratory the specific environment found in the body
(host).
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.
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.
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ENTERIC DISORDERS
Peptic Ulcers and Stomach Cancers
Discovered in 1983, Helicobacter ("H.") pylori is now recognized as the
predominant cause of ulcers. Scientists estimate that this spiral-shaped
bacterium leads to 90 percent of duodenal ulcers and 80 percent of gastric
ulcers. This organism is present in all parts of the world. The prevalence of
infection increases with age, with greater than 90 percent of people by age 20
in developing countries and 50-60 percent of people over 60 in developed
countries infected with this bacteria. The CDC estimates that two-thirds of
the world's population is infected with H. pylori, including about 25 million
Americans. More recently, this bacteria has been associated with stomach
cancer. No single agent therapy has been found to wipe out this infection, and
antibiotic resistance is increasing.
The Company is engaged in ongoing efforts aimed at developing a vaccine
for H. pylori. 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 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 is being 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 for use in humans have been licensed to
SmithKline (See "Strategy for Commercial Development.") through a joint
venture, MicroCarb Human Vaccines Inc. ("MCHV"), for further development and
possible commercialization. The Company may enter into other collaborations
regarding these and other potential products for uses other than as human
vaccines. (See "Strategy for Commercial Development.")
Diarrheal and Contaminated Food and Water Disorders
Currently, in the U.S. the leading cause of contaminated food-borne
illness, including severe diarrhea and gastritis, is Campylobacter jejuni
("Campylobacter"). The Centers for Disease Control and Prevention ("CDC")
reports that four million Campylobacter infections occur in the U.S. each year.
International public health officials estimate that Campylobacter annually
causes 400 to 500 million cases of diarrhea worldwide. Seemingly mild,
diarrheal diseases are responsible for 200 to 800 deaths a year in the U.S. and
more in other
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countries. Using NST technology, the Company has produced Campylobacter
bacteria that are antigenically enhanced compared to conventionally grown
Campylobacter.
In 1994, the Company entered into a Cooperative Research and Development
Agreement ("CRADA") with the United States Navy to clinically test the
Company's vaccine to prevent diarrhea caused by enteropathogenic Campylobacter
(See "Strategy for Commercial Development."). Two successful Phase I clinical
trials have been completed and a Phase II trial is ongoing. The first trial
completed was a Phase I clinical study which demonstrated the safety and
immunogenicity of the inactivated Campylobacter whole cell vaccine preparation.
The second Phase I clinical study demonstrated the safety and immunogenicity of
a vaccine preparation consisting of the inactivated Campylobacter whole cells
in combination with a mucosal adjuvant.
Shigella is another leading cause of diarrheal disease worldwide with
over 1 billion cases reported worldwide. 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. A Shigella vaccine is in preclinical testing
that may provide efficacy against this diarrheal disease.
These potential vaccine products for use in humans have been licensed to
SmithKline through MCHV for further development and possible commercialization.
The Company may enter into other collaborations regarding these and other
potential products for uses other than as human vaccines. See "Strategy for
Commercial Development."
RESPIRATORY DISEASES
Otitis Media
Middle ear infections, known as otitis media, are the most frequent
reason children visit doctors, and the most common cause of hearing loss in
children. Eighty percent of all children will have at least one episode of
otitis media and over $2 billion is spent annually for the care of otitis media
in the U.S. Otitis media is caused primarily by bacterial infections. Two of
these bacteria are Haemophilus influenzae (nontypeable) and Moraxella ("M.")
catarrhalis. The current treatment of choice for otitis media is antibiotic
therapy. However, because of the increase in the incidence of antibiotic
resistant strains of these bacteria and the costs associated with the treatment
of this disease, the Company believes that an otitis media vaccine would be a
preferable alternative for addressing this disease.
The Pittsburgh Otitis Media Research Center estimates that H. influenzae
nontypeable is present in over 25% of otitis media infections. The Company has
identified an adhesin, Hin47, of H. influenzae and has successfully cloned the
gene for production of the recombinant adhesin. This adhesin is extremely
conserved in H. influenzae. The
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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 Hin47 protein. See "Strategy for Commercial Development". The
Company continues to collaborate with PMC in evaluation of this technology and
has received the first and second milestone payments according to the
agreement.
In addition, the Company continues to identify other novel proteins from
H. influenzae using both NST and ART technologies. The Company has also
identified novel outer membrane proteins from Moraxella catarrhalis, another
primary cause of otitis media. The Company is producing two proprietary outer
membrane proteins for potential subunit vaccines, which are at the preclinical
development stage.
The H. influenzae Hin47 vaccine preparation for use in humans, in the
territory of Asia Pacific, and the M. catarrhalis vaccine preparations for use
in humans have been licensed to SmithKline through MCHV for further development
and possible commercialization. The Company may enter into other
collaborations regarding the Moraxella catarrhalis proteins and other potential
products for uses other than as human vaccines. See "Strategy for Commercial
Development."
Pneumonia and Meningitis
Pneumonia is the fifth leading cause of death in the U.S., with
approximately 2.5 million cases occurring in the U.S. annually. H. influenzae
nontypeable and M. catarrhalis are causative agents for acute pneumonia in
adults, particularly the elderly. The Company believes that the technology
utilized to develop vaccines for H. influenzae nontypeable and M. catarrhalis
described in "Respiratory Diseases - Otitis Media" above may have application
against acute pneumonia.
Bacterial meningitis is a rapidly evolving upper respiratory tract
infection where onset of early symptoms is very fast (0 to 4 days) and
complications can be serious, including brain damage and a high incidence of
death (greater than 15% even with antibiotic therapy). Three of the most common
infectious agents include H. influenzae (Type B and nontypeable), M.
catarrhalis and Neisseria ("N.") meningitidis. N. 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 currently available is one comprising
bacterial capsular polysaccharides which 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 may avoid the drawbacks of the vaccine currently
being used.
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These potential vaccine products for use in humans have been licensed to
SmithKline through MCHV for further development and possible commercialization.
The Company may enter into other collaborations regarding these and other
potential products for uses other than as human vaccines. See "Strategy for
Commercial Development."
UROGENITAL DISEASES
In the U.S., almost 12 million cases of sexually transmitted urogenital
diseases occur annually. By age 21, approximately 1 out of every 5 young
people has required treatment for a sexually transmitted disease. The most
prevalent sexually transmitted diseases in the world are caused by a bacteria
called Chlamydia ("C.") trachomatis. Millions of people suffer from
cervicitis, pelvic inflammatory disease, sterility, ectopic pregnancies and
symptomatic urethritis caused by C. trachomatis. In the U.S. during 1995,
477,638 new cases were reported to the CDC, more than any other infectious
disease. The CDC estimates there are more than 3.5 million additional cases
undiagnosed and unreported in the U.S. each year.
Globally, the World Health Organization ("WHO") estimates 89 million new
cases of urogenital diseases caused by C. trachomatis emerge each year.
Because C. trachomatis also causes trachoma, the world's most common form of
preventable blindness, the WHO estimates Chlamydia is responsible for at least
15 percent of the world's blindness.
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 outer membrane protein from C. trachomatis and is
completing the cloning of the protein's gene. The Company is conducting
preclinical animal testing.
In August 1996, based on the successful completion of a Phase I Small
Business Innovation Research grant ("SBIR"), the Company was awarded a $600,000
Phase II SBIR from the National Institutes of Health ("NIH") to further develop
this antigen as a potential subunit vaccine. This potential vaccine product
for use in humans has been licensed to SmithKline through MCHV for further
development and possible commercialization. The Company may enter into other
collaborations regarding these and other potential products for uses other than
as human vaccines. See "Strategy for Commercial Development."
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 and H. pylori whole cell vaccines for clinical trial
purposes and for the Company's M. catarrhalis subunit vaccine. The pilot
plant was established and operates in compliance with the FDA's Good
Manufacturing Practices. See "Government Regulation." The Company
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anticipates that it will produce pilot and clinical trial lots of its other
proposed vaccines in this pilot facility.
STRATEGY FOR COMMERCIAL DEVELOPMENT
All of the Company's proposed products are in research, preclinical or
clinical development. The Campylobacter vaccine is currently in a Phase II
clinical trial, with two Phase I clinical trials successfully completed. A
vaccine for H. pylori is currently in a Phase I clinical trial. 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." The process from research to marketing could require significant
expenditures over a number of years.
In December 1994, the Company entered into a technology license agreement
with PMC, whereby the Company granted an exclusive license to develop, produce
and market any product using the Company's H. influenzae nontypeable Hin47
protein in all countries other than those in the Asia-Pacific region. Under
the license agreement, PMC must 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 termination date, at which time
the licensed technology reverts to the Company. The Company earned a license
fee of $250,000 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 and the second milestone payment
of $150,000 in December 1997. Additionally, upon commercialization, the
licensee is obligated to pay a minimum annual royalty to the Company on sales
of any product incorporating the Company's technology. The licensee completed
a Phase IA clinical trial in adults in the first quarter of 1997 and commenced
a Phase IB clinical trial in children in the third quarter of 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; payments totalling $2,400,000
and $2,600,000 to the Company to fund research and development for the first
year and second year, 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
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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. On October 1, 1997,
SmithKline's first option to acquire from the Company an additional equity
interest in MCHV expired unexercised. SmithKline has committed to fund
research and development for the third fiscal year, ending February 28, 1999,
in the amount of approximately $3,000,000. Effective November 1, 1997, in
accordance with the provisions of the SmithKline warrant, the maximum number of
warrants exercisable was reduced to 5,761,978.
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 a
Phase II trial is ongoing. 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., 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, reagents, and vaccine products other than for use in humans, in
exchange for 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. In addition, the Company may seek license
arrangements when appropriate for the use of its technology for therapeutic
products.
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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 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 and processing of necessary applications,
are expensive, time-consuming and often take several years to complete. There
is no assurance that the FDA will act favorably in making such reviews. The
Company or its licensees may encounter significant difficulties or costs in
their efforts to obtain FDA approvals which could delay or preclude the Company
or its licensees from marketing any 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 problems occur following initial marketing, such as, compliance with
regulatory standards is not maintained. 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")
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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.
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 this 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 these 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 biological and pharmaceutical products and medical devices
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.
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
its biological, 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 and H. pylori vaccines. The applications were
accepted by the FDA. 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 Company is
unable to enter into such arrangements or to raise additional capital, it may
not have the resources to complete the regulatory approval process for such
products.
14
<PAGE> 15
PATENTS AND OTHER RIGHTS
The Company has forty-four allowed or issued U.S. and international
patents. Currently there are ten pending patent applications in the United
States, with 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, method of use claims for the use of
these compositions, for vaccines and for other antimicrobial products.
The Company holds licenses for exclusive rights to patents and related
technologies covering VeroTest(R) 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 the 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 resources. The Company also may lack the
financial resources to defend its patents against infringements by others.
15
<PAGE> 16
The Company believes that obtaining foreign patents may be more difficult
than obtaining domestic patents because of differences in U.S. and foreign
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 term of
ownership of inventions by consultants and advisors varies 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 biotechnology and pharmaceutical companies for the
development of products for prevention and/or treatment of the same infectious
diseases targeted by the Company is
16
<PAGE> 17
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 to other parties
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.
17
<PAGE> 18
EMPLOYEES
At December 31, 1997, the Company had 30 full-time employees and contract
personnel, of which twenty-six were in research and development. Of these
personnel, fifteen 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
$265,000, with specified annual increases. In addition, the lease provides for
excess utility usage and administrative services of approximately $111,000 per
year. The physical plant is fully equipped as a state-of-the-art biotechnology
research facility. The Company is currently in negotiations to extend its
lease and to increase its total space to approximately 25,000 square feet. The
Company believes that these expanded facilities will be sufficient for the
Company's planned activities for at least the next twelve months, with the
exception of the need for a small animal facility and pilot plant. The Company
currently contracts for these services from existing facilities and intends to
continue to do so through the expiration of the current lease.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE> 19
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 is quoted 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 December 31, 1996 and 1997 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>
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
1997
----
1st Quarter 1 17/32
2nd Quarter 13/16 17/32
3rd Quarter 1-1/4 9/16
4th Quarter 1-19/32 23/32
</TABLE>
As of February 27, 1998, 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 in the foreseeable future.
19
<PAGE> 20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The Company commenced operations in August 1991.
Effective March 1, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals
Manufacturing s.a. ("SmithKline"), establishing 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).
The strategic alliance with SmithKline is consistent with one aspect of
the Company's overall strategy which, since its inception, has been to
establish strategic partnerships and to focus on researching technologies with
the goal of developing new products to prevent and treat infectious diseases
and their related disorders. The Company is operating as a development stage
enterprise.
RESULTS OF OPERATIONS
Revenues for 1997 totalled $4,755,712 consisting of human bacterial
vaccine research and development support of $2,820,612 and reimbursable
expenses incurred of $1,275,726 pursuant to the strategic alliance with
SmithKline, $509,374 from Small Business Innovation Research grants, and a
$150,000 milestone payment from Pasteur Merieux Connaught.
Revenues for 1996 totalled $3,827,111 consisting of $1,669,752 from the
sale of the equity interest in the joint venture to SmithKline, human bacterial
vaccine research and development support of $1,655,802, reimbursable expenses
incurred of $241,649, a milestone payment to MCHV of $150,000, and grant
revenue of $109,908.
Research and development expenses in 1997 increased 79.2% to $3,859,116
in comparison to $2,154,047 in 1996 due to increased efforts and expenditures
for additional personnel resulting directly from the increase in activities
attributable to the strategic alliance with SmithKline, and to the production
of vaccine materials and the costs incurred in the conducting of clinical
trials.
General and administrative expenses in 1997 increased 31.3% to $1,643,189
in comparison to $1,251,556 in 1996. The increase was attributable primarily
to the fees incurred in connection with overseas patent application filings,
such fees being reimbursable to the Company pursuant to the provisions of the
strategic alliance with SmithKline, and to increases in legal fees and public
relations activities. These increases were offset in part by the decrease in
bonuses awarded to executive officers in 1997.
20
<PAGE> 21
The increase in interest income for 1997 of $85,074 reflects the improved
cash position of the Company in comparison to 1996.
In February 1997, the Company paid off the remaining balance of the
obligation arising from the sale/leaseback agreement, thereby eliminating the
related future interest payments.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Company's strategic alliance with SmithKline, the
Company received $2,600,000 of funding for research and development of human
bacterial vaccines in 1997. In addition, the Company is reimbursed by
SmithKline on an ongoing basis for expenses that the Company incurs in
connection with the agreed upon production of vaccine material 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.
MCHV continues to assess to which human bacterial vaccine research
projects resources will be allocated. 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
substantial funding will be provided through the strategic alliance with
SmithKline. The Company also plans to utilize a portion of its available
resources to pursue other research and development activities in the field of
therapeutics. To fund these research and development activities and general
and administrative expenses, the Company will be required to rely on its
current assets and future financings.
For 1998, the Company currently anticipates that it will increase its
total employees and contract personnel by approximately three from a 1997 year
end total of 30.
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
scheduled to receive approximately $3,000,000 in 1998 in research and
development payments from SmithKline covering the period March 1, 1998 to
February 28, 1999. Additionally, the costs incurred by the Company associated
with the conduct of an ongoing Phase I clinical trial for Helicobacter pylori
and agreed upon clinical trials for Campylobacter jejuni, the agreed upon
production of vaccine material, and the agreed upon prosecution of the
Company's patents and patent applications are reimbursable by SmithKline.
SmithKline's second option to increase its ownership in MCHV, at a cost of
$1,000,000, expires on October 1, 1998. 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, and which expires in 1998, is anticipated to generate
approximately $160,000 in payments. The Company is also scheduled to receive a
milestone payment from Pasteur Merieux Connaught of $500,000 in December 1998.
21
<PAGE> 22
With respect to the Company's negotiations to extend its facility lease
and expand its existing space, financing for the expansion and any related
renovations would be provided by the landlord. It is anticipated that any
funds required in excess of the amount provided by the landlord will be
obtained through equipment financing and/or by utilizing the current assets of
the Company.
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 continues to examine 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 1995 private placement; possible increases in research and
development funding by SmithKline; and the exercise by SmithKline of its
warrant to the extent that it becomes exercisable. 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, that the terms on which such funds
can be obtained will be acceptable to the Company.
ENVIRONMENTAL MATTERS
The Company has been identified as one of approximately 800 potentially
responsible parties by the United States Environmental Protection Agency
("EPA") for a site cleanup in Denver, Colorado, where the Company sent
hazardous materials for disposal. Under the provisions of a proposed
settlement developed by independent mediators, the Company's share of the total
cleanup costs has been calculated to be less than $6,500.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards
which become effective for reporting periods beginning after December 15, 1997.
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, requires additional disclosures with respect to certain
changes in assets and liabilities that previously were not required to be
reported as results of operations for the period. The Company will begin
making the additional disclosures required by SFAS 130 in the first quarter of
1998. SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, requires financial and descriptive information with respect to
"operating segments" of an entity based on the way management disaggregates the
entity for making internal operating decisions. The Company will begin making
the disclosures required by SFAS 131 with financial statements for the year
ending December 31, 1998.
22
<PAGE> 23
YEAR 2000 DISCLOSURE
The Company has analyzed its computer systems and related applications to
assess the expected impact of the Year 2000 date recognition issue on these
systems and applications. Management does not anticipate that the costs
associated with the Year 2000 issue will have a material adverse affect on the
financial condition or results of operations of the Company.
23
<PAGE> 24
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Antex Biologics Inc.
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Balance Sheets as of December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997 and the period August 3, 1991
(inception) to December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Stockholders' Equity (Deficit) for the period
August 3, 1991 (inception) to December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-29
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997 and the period August 3, 1991
(inception) to December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-42
</TABLE>
24
<PAGE> 25
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, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended and for the period January 1, 1993 to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Antex
Biologics Inc. and its subsidiary as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for the years
then ended and for the period January 1, 1993 to December 31, 1997 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
McLean, Virginia
February 27, 1998
25
<PAGE> 26
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,918,836 $5,697,156
Restricted cash 300,000 -
Accounts and other receivables 95,668 712,906
Prepaid expenses and deposits 247,717 272,917
---------- ---------
Total current assets 7,562,221 6,682,979
Property and equipment, net 537,113 446,861
Prepaid expenses 151,667 -
Deferred compensation trust 191,189 229,405
--------- ---------
$8,442,190 $7,359,245
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 272,119 $ 531,345
Deferred research and development revenue 744,198 554,152
Deferred gain on sale and leaseback 349,857 -
Obligation under capitalized lease 451,412 -
--------- -----------
Total current liabilities 1,817,586 1,085,497
Deferred gain on equipment - 106,983
Deferred compensation 191,189 229,405
Excess of fair value over cost of net assets acquired, net
of accumulated amortization of $152,944 and $181,180 129,409 101,173
Other 45,219 19,647
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 95,000,000 shares
authorized; 22,479,679 and 22,480,304 shares
issued and outstanding 224,797 224,803
Additional paid-in capital 17,752,416 17,752,839
Deficit accumulated during the development stage (11,718,426) (12,161,102)
---------- ----------
Total stockholders' equity 6,258,787 5,816,540
---------- ----------
$8,442,190 $7,359,245
========== ==========
</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 OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AUGUST 3, 1991
--------------------- (INCEPTION)
TO
1996 1997 DECEMBER 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Revenues $3,827,111 $ 4,755,712 $ 9,454,898
---------- ----------- -----------
Expenses:
Research and development 2,154,047 3,859,116 13,258,751
General and administrative 1,251,556 1,643,189 8,598,058
--------- --------- ---------
Total expenses 3,405,603 5,502,305 21,856,809
--------- --------- ----------
Income (loss) from operations 421,508 (746,593) (12,401,911)
Other income (expense):
Interest income 228,966 314,040 949,166
Interest expense (115,039) (10,123) (708,357)
----------- ----------- -----------
Net income (loss) $ 535,435 $ (442,676) $(12,161,102)
============ =========== ============
Earnings (loss) per share:
Basic $0.03 $(0.02)
===== =======
Diluted $0.02 $(0.02)
===== =======
Weighted average shares
outstanding:
Basic 16,745,540 22,188,172
========== ==========
Diluted 26,100,006 22,188,172
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1997
<TABLE>
<S> <C>
Initial capitalization ($.20 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of common stock for cash, January 1992 ($4.61 per share) . . . . . . . . . . . . . . . . . . . . . . .
Sale of common stock for cash, February 1992 ($6.90 per share) . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for services, March 1992 to July 1992 ($2.00 per share) . . . . . . . . . . . . .
Conversion of notes payable into preferred stock, September 1992 ($4.48 per share) . . . . . . . . . . . .
Sale of preferred stock for cash, September 1992 ($4.48 per share) . . . . . . . . . . . . . . . . . . . .
Issuance of preferred stock upon exercise of warrants, September 1992
($1.92 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for cash ($1.00 per share) and services ($1.00
per share), October 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . .
Compensation and consulting expense in connection with options granted . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Required registration of common stock and warrants, October 1995 ($1,525 per unit) . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
- -------------------------------------------------------------- ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $ - 390,830 $ 3,908 $ 74,093 $ - $ 78,001
- - - - - (941,145) (941,145)
- ---------------------------------------------------------------------------------------------------------------------------
- - 390,830 3,908 74,093 (941,145) (863,144)
- - 43,430 435 199,565 - 200,000
- - 115,801 1,158 798,842 - 800,000
- - - - 383,014 - 383,014
113,700 1,137 - - 507,972 - 509,109
89,328 893 - - 399,296 - 400,189
46,900 469 - - 89,531 - 90,000
- - 75,000 750 149,250 - 150,000
(249,928) (2,499) 249,928 2,499 - - -
- - 1,200,000 12,000 5,791,227 - 5,803,227
- - - - - (2,415,723) (2,415,723)
- ---------------------------------------------------------------------------------------------------------------------------
- - 2,074,989 20,750 8,392,790 (3,356,868) 5,056,672
- - 180,000 1,800 946,477 - 948,277
- - - - 64,011 - 64,011
- - - - - (2,725,902) (2,725,902)
- ---------------------------------------------------------------------------------------------------------------------------
- - 2,254,989 22,550 9,403,278 (6,082,770) 3,343,058
- - - - - (3,040,032) (3,040,032)
- ---------------------------------------------------------------------------------------------------------------------------
- - 2,254,989 22,550 9,403,278 (9,122,802) 303,026
- - 10,071,630 100,716 2,717,314 - 2,818,030
- - - - (107,530) - (107,530)
- - - - - (3,131,059) (3,131,059)
- ---------------------------------------------------------------------------------------------------------------------------
- - 12,326,619 123,266 12,013,062 (12,253,861) (117,533)
</TABLE>
28
<PAGE> 30
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>
<S> <C>
Issuance of exchange option, May 1996 ($.37 per share, net of related costs of $351,082) . . . . . . . . .
Issuance of common stock upon exercise of Class B Warrants and stock options, May - August 1996,
($.50 per share, net of related costs of $214,811) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock upon excise of stock options, October 1997 . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 31
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
- ------------------------------------------------------------ ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $ - - $ - $ 979,166 $ - $ 979,166
- - 10,153,060 101,531 4,760,188 - 4,861,719
- - - - - 535,435 535,435
- --------------------------------------------------------------------------------------------------------------------
- - 22,479,679 224,797 17,752,416 (11,718,426) 6,258,787
- - 625 6 423 - 429
- - - - - (442,676) (442,676)
- --------------------------------------------------------------------------------------------------------------------
- $ - 22,480,304 $224,803 $17,752,839 $(12,161,102) $5,816,540
====================================================================================================================
</TABLE>
29
<PAGE> 32
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AUGUST 3, 1991
---------------------- (INCEPTION)
TO
1996 1997 DECEMBER 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 535,435 $ (442,676) $(12,161,102)
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 and equipment 47,334 80,688 196,865
Amortization of deferred credits (51,183) (53,807) (341,960)
Expense recorded on issuance of
common stock and vesting of options - - 531,134
Changes in operating assets
and liabilities:
Accounts and other receivables 48,798 (617,238) (712,906)
Prepaid expenses and deposits (216,001) 126,467 (156,675)
Accounts payable and accrued
expenses 73,607 259,226 98,765
Deferred research and development 744,198 (220,612) 523,586
Deferred option payment (250,000) - -
Due from affiliate - - 420,448
----------- ----------- -------------
Net cash provided by (used in)
operating activities 932,188 (867,952) (11,601,845)
----------- ----------- -------------
INVESTING ACTIVITIES
Purchase of property and equipment (156,499) (202,745) (506,178)
Decrease in restricted cash - 300,000 -
----------- ----------- -------------
Net cash provided by (used in)
investing activities (156,499) 97,255 (506,178)
----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(Continued)
30
<PAGE> 33
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AUGUST 3, 1991
----------------------- (INCEPTION)
TO
1996 1997 DECEMBER 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sales of common stock
and warrants and the exchange option $ 979,166 $ - $11,516,170
Net proceeds from exercise of warrants
and stock options 4,861,719 429 4,862,148
Proceeds from sale and leaseback
agreement - - 2,164,792
Principal repayments on sale and
leaseback agreement (601,689) (451,412) (2,164,792)
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 (used in)
financing activities 5,239,196 (450,983) 17,368,507
---------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents 6,014,885 (1,221,680) 5,260,484
Cash and cash equivalents at
beginning of period 903,951 6,918,836 436,672
---------- ---------- ----------
Cash and cash equivalents at
end of period $6,918,836 $5,697,156 $5,697,156
========== ========== ==========
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
========== ========== ==========
Capitalized equipment $ - $ 152,832 $ 152,832
========== ========== ==========
Deferred compensation $ 29,739 $ 38,216 $ 229,405
========== ========== ==========
Interest paid $ 115,039 $ 10,123 $ 699,248
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 34
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1. BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
committed to improving health by developing new 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.
Since inception, the Company's revenues have been generated solely in
support of its research and development activities and as of December 31, 1997,
the Company's research and products are not sufficiently developed to enable
the Company to generate sufficient revenues on an ongoing basis. As a result,
the Company is considered to be in the development stage.
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.
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 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 cash equivalents.
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. 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 resulting from
the acquisition of the Company on August 3, 1991 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
32
<PAGE> 35
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
operations. The amounts of $28,236, $28,236, and $181,180 have been reflected
as contra-expenses for the years ended December 31, 1996 and 1997, and for the
period August 3, 1991 (inception) to December 31, 1997, 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
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
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), Earnings per Share. Basic earnings per share is computed
by dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
after giving effect to all dilutive potential common shares that were
outstanding during the period. The Company did not have any dilutive potential
common shares during the year ended December 31, 1997. Net income (loss) as
reported is available to common shareholders and was not adjusted for the
computation of basic or diluted earnings per share. Earnings per share for the
year ended December 31, 1996 has been restated to conform to SFAS 128.
33
<PAGE> 36
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
The following table reconciles the weighted average number of common
shares outstanding during each year for basic earnings per share with the
comparable amount for diluted earnings per share.
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Weighted average shares outstanding 17,037,203 22,479,835
Escrowed shares (291,663) (291,663)
----------- -----------
Weighted average shares outstanding -
basic 16,745,540 22,188,172
Dilutive potential common shares 9,354,466 -
---------- ----------
Weighted average shares outstanding -
diluted 26,100,006 22,188,172
========== ==========
</TABLE>
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards
which become effective for reporting periods beginning after December 15, 1997.
SFAS 130, Reporting Comprehensive Income, requires additional disclosures with
respect to certain changes in assets and liabilities that previously were not
required to be reported as results of operations for the period. The Company
will begin making the additional disclosures required by SFAS 130 in the first
quarter of 1998. SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, requires financial and descriptive information with
respect to "operating segments" of an entity based on the way management
disaggregates the entity for making internal operating decisions. The Company
will begin making the disclosures required by SFAS 131 with financial
statements for the year ending December 31, 1998.
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.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
34
<PAGE> 37
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---------- -----------
<S> <C> <C>
Research and development equipment $ 1,996,028 $ 2,319,304
Office equipment 88,737 93,709
Leasehold improvements 317,843 320,772
Construction in progress - 24,400
---------- -----------
2,402,608 2,758,185
Accumulated amortization and depreciation (1,865,495) (2,311,324)
----------- ------------
$ 537,113 $ 446,861
========== ===========
</TABLE>
In August 1993, the Company entered into a $2,164,792 sale and leaseback
agreement covering substantially all of the Company's then existing research
and development equipment, furniture and fixtures, and leasehold improvements.
Effective February 28, 1997, the Company prepaid the remaining outstanding
principal balance and reacquired the related assets for $1.
4. INCOME TAXES
Significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
generated $ 4,424,400 $ 4,589,700
Research and development tax credit
carryforwards 226,100 226,100
Other deferred tax assets 482,200 431,400
---------- ---------
5,132,700 5,247,200
Valuation allowance (5,132,700) (5,247,200)
---------- ----------
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.
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $11,884,000 for federal and state tax reporting purposes which
will expire in years 2006
35
<PAGE> 38
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
to 2012. Due to certain changes in ownership, the Company's ability to utilize
tax net operating loss carryforwards arising 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 and administrative services and scheduled
increases in rental payments. Rent expense was approximately $224,000,
$232,000 and $1,350,000 for the years ended December 31, 1996 and 1997, and the
period August 3, 1991 (inception) to December 31, 1997, respectively. Future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
<S> <C>
1998 $ 265,000
1999 22,000
----------
$ 287,000
==========
</TABLE>
The Company is currently in negotiations to extend its lease and to
increase its total space to approximately 25,000 square feet.
LICENSES
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 1998 or 2001, 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 one of approximately 800 potentially
responsible parties by the United States Environmental Protection Agency
("EPA") for a site cleanup in Denver, Colorado, where the Company sent
hazardous materials for disposal. Under the provisions of a proposed
settlement developed by independent mediators, the Company's share of the total
cleanup costs has been calculated to be less than $6,500.
36
<PAGE> 39
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; payments totalling $2,400,000 and $2,600,000 to
the Company to fund research and development for the first and second years,
respectively, 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 in 1996 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, net of related legal fees.
The first option to acquire an additional equity interest in MCHV expired
on October 1, 1997. Effective November 1, 1997, in accordance with the
provisions of the SmithKline warrant, the maximum number of warrants
exercisable was reduced to 5,761,978.
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 Hin47 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. Two such milestone payments
have
37
<PAGE> 40
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
subsequently been earned. 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 successfully completed a
Phase IA clinical trial in 1997, and a second Phase IB clinical trial is
ongoing.
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 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 clinical trial of the vaccine
candidate was successfully completed in 1996. A second Phase I clinical trial
of the vaccine candidate with an adjuvant was successfully completed in January
1997. A Phase II clinical trial is ongoing.
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. In January 1993, the Company sold an
additional 180,000 units at $6.00 per unit. On December 17, 1997, the warrants
related to these units expired.
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. This option expired on December 17, 1997.
PRIVATE PLACEMENT
In April 1995, the Company completed a private placement resulting in
gross proceeds to the Company of $3,525,000. Pursuant to the terms of the
private placement, the Company issued 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.
38
<PAGE> 41
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
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.
COMMON STOCK
As of December 31, 1997, common stock reserved for future issuance
includes the following:
<TABLE>
<S> <C>
Common Stock Warrants:
SmithKline 5,761,978
Placement Agent's option 3,524,357
Common Stock Options:
Stock option plans 9,189,375
Exchange option 4,793,685
Placement Agent's option 3,524,356
---------
Total 26,793,751
==========
</TABLE>
9. STOCK OPTION PLANS
1992 DIRECTORS' STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan, as amended, provides for the grant of
options to purchase up to an aggregate of 1,700,000 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.
39
<PAGE> 42
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1992 STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the "Plan").
The Plan, as amended, provides for the grant of options to purchase up to an
aggregate of 7,500,000 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 PLAN
--------------- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
December 31, 1995 45,000 $3.28 2,229,230 $1.41
Granted 66,300 $1.81 1,495,000 $0.50
Expired - (14,219) $4.44
Exercised - (10,000) $0.50
------- ----------
December 31, 1996 111,300 $2.40 3,700,011 $1.03
Granted 101,052 $0.59 456,000 $0.84
Expired (10,000) $6.00 (22,875) $0.68
Exercised - (625) $0.69
------- ----------
December 31, 1997 202,352 $1.32 4,132,511 $1.01
======= =========
</TABLE>
The range of exercise prices for options outstanding as of December 31,
1997 was $0.59 to $6.00 and $0.37 to $6.00 for the Directors' Plan and the
Plan, respectively. Additional information regarding options outstanding and
exercisable as of December 31, 1997 is as follows:
40
<PAGE> 43
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OUTSTANDING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE SHARES PRICE SHARES PRICE
- -------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
$0.37 to $0.56 3,050,000 $0.48 2,724,581 $0.47
$0.59 to $0.87 497,052 $0.74 135,338 $0.74
$0.97 to $1.81 398,811 $1.12 148,811 $1.36
$2.00 to $4.00 46,000 $2.79 43,188 $2.69
$6.00 343,000 $6.00 343,000 $6.00
-------- --------
4,334,863 $1.02 3,394,918 $1.11
========= =========
</TABLE>
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 four year period and have a maximum term of ten
years. The Directors' Plan provides for the issuance of stock options that
vest over a one year period and have a maximum term of five years. Had
compensation cost for the Company's stock option plans been determined on the
fair value at the grant date for awards in 1996 and 1997, consistent with the
provisions of SFAS 123, the Company's net income (loss) would have been
adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net income (loss) -- as reported $ 535,435 $ (442,676)
SFAS 123 pro forma adjustment (1,029,201) (340,892)
------------ -----------
Net loss -- pro forma $ (493,766) $ (783,568)
============ ===========
Earnings (loss) per share - basic,
as reported $0.03 $(0.02)
==== ======
Earnings (loss) per share - diluted,
as reported $0.02 $(0.02)
==== ======
Earnings (loss) per share - basic
and diluted, proforma $(0.03) $(0.04)
====== ======
</TABLE>
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:
41
<PAGE> 44
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Expected life (years) 9.94 9.09
Interest rate 6.30% 6.86%
Volatility 177.6% 166.7%
Dividend yield 0% 0%
</TABLE>
The weighted average remaining contractual life of options outstanding is
9.26 years and 7.78 years for 1996 and 1997, respectively. The weighted
average fair value of the options is $0.55 and $0.78 per option for 1996 and
1997, respectively. The expense related to the value ascribed to the stock
options is recognized over the vesting period of one to four 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 potentially contribute up to 15% 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 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 $90,800 and
$88,900 in premium payments in 1996 and 1997, respectively.
42
<PAGE> 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information with respect to the identification of directors and executive
officers is contained under the captions "Election of Directors" and "Executive
Officers" in the Company's proxy statement for the 1998 Annual Meeting of the
Stockholders and is incorporated herein 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 1998
Annual Meeting of the Stockholders and is incorporated herein 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 1998 Annual
Meeting of the Stockholders and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
43
<PAGE> 46
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.) (11)
3.5 ByLaws, as amended (3)
4.1 Form of Common Stock Certificate (3)
4.2 Form of Redeemable Warrant Agreement (including form of specimen warrant certificate) (8)
*10.1 Amended and Restated Stock Option Plan, as amended (10)
*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 October 1, 1997 by and between the Company and Theresa
M. Stevens (Smith) (12)
*10.6 Employment agreement effective as of December 8, 1997 by and between the Company and Larry R.
Ellingsworth (13)
10.7 Form of Confidentiality Agreement by and between the Company and its employees (1)
10.8 Form of Inventions Disclosure Agreement by and between the Company and its employees (1)
</TABLE>
44
<PAGE> 47
<TABLE>
<S> <C>
10.9 Form of Non-disclosure and Invention Assignment Agreement by and between the Company and its
employees (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 License Agreement dated as of May 15, 1992 by and between the Company and HSC Research
and Development Limited Partnership (1)
10.12 Patent and Technology License Agreement dated as of November 21, 1990 by and between BioCarb
Inc. and HSC Research Development Corporation (1)
10.13 Form of Technology License Agreement dated as of October 26, 1992 by and between the Company
and GalaGen Inc. (1)
10.14 Lease dated January 13, 1989 by and between Crown Pointe Center Venture and BioCarb Inc. with
Assignment of Lease dated September 13, 1990 (1)
10.15 Stock Purchase Agreement dated as of July 17, 1991 by and between BioCarb AB and Howard C.
Krivan, Ph.D. (2)
10.16 Form of Unit Purchase Option with Underwriter (3)
10.17 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)
10.18 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>
45
<PAGE> 48
<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)
23.1 Consent of Coopers & Lybrand L.L.P. (13)
27.1 Financial Data Schedule (13)
</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.
46
<PAGE> 49
(7) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended March 31, 1997 filed on May 14, 1997.
(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 Form S-8 (Registration
No. 333-32377) filed on July 30, 1997.
(11) Incorporated by reference to an exhibit to Form 8-K filed on
September 9, 1996.
(12) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended September 30, 1997 filed on November 6, 1997.
(13) Filed herewith.
- --------------------------------------------------------------------------------
REPORTS ON FORM 8-K
None
47
<PAGE> 50
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: March 19, 1998 By: /s/V.M. Esposito
----------------------------------------------
V.M. Esposito, President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 19, 1998 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: March 19, 1998 By: /s/V.M. Esposito
----------------------------------------------
V. M. Esposito, Director
Date: March 19, 1998 By: /s/Charles J. Coulter
----------------------------------------------
Charles J. Coulter, Director
Date: March 19, 1998 By: /s/Bruce E. Elmblad
----------------------------------------------
Bruce E. Elmblad, Director
Date: March 19, 1998 By: /s/Donald G. Stark
----------------------------------------------
Donald G. Stark, Director
48
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------
<S> <C>
10.6 Employment agreement effective as of December 8, 1997 by and
between the Company and Larry R. Ellingsworth
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>
49
<PAGE> 1
Exhibit 10.6
December 1, 1997
Larry Ellingsworth, Ph.D.
2700 Turf Valley
Ellicott City, Maryland 21204
Dear Larry,
We are pleased to extend to you an offer to join Antex Biologics as Vice
President, Research and Development. As an officer and member of the executive
management team, you will participate extensively in the overall management of
the Company. Your primary responsibility will be the administration,
management and leadership of Antex's research and development activities.
Your beginning annual salary will be $145,000, 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 250,000 shares of Antex 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
the next 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 and long-term disability. 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
invention agreements, copies of which are enclosed. In the event your
employment is terminated by the Company without cause for any reason after your
initial six months of employment, you will receive a three month notice of
termination, or in lieu of such notice, an amount equal to three months'
salary.
This offer of employment for the position of Vice President, Research and
Development, will expire on December 5, 1997 and is contingent upon
commencement of employment no later than January 1, 1998.
Sincerely,
Antex Biologics Inc.
/s/V. M. Esposito
V. M. Esposito, Ph.D.
Chairman and Chief Executive Officer
50
<PAGE> 2
Acknowledgement
Please indicate your acceptance of the terms and conditions set forth by
signing and returning the enclosed copy of this letter.
By: /s/Larry R. Ellingsworth
------------------------------
Date: December 5, 1997
-------------------------------
51
<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. 333-26353) and Form S-8
(Registration No. 333-32377) of our report dated February 27, 1998 on our
audits of the consolidated financial statements of Antex Biologics Inc. as of
December 31, 1996 and 1997, and for the years then ended and for the period
January 1, 1993 to December 31, 1997, which report is included in this Annual
Report on Form 10-KSB.
Coopers & Lybrand L.L.P.
McLean, Virginia
March 19, 1998
52
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,697,156
<SECURITIES> 0
<RECEIVABLES> 712,906
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,682,979
<PP&E> 2,758,185
<DEPRECIATION> 2,311,324
<TOTAL-ASSETS> 7,359,245
<CURRENT-LIABILITIES> 1,085,497
<BONDS> 0
0
0
<COMMON> 224,803
<OTHER-SE> 5,591,737
<TOTAL-LIABILITY-AND-EQUITY> 7,359,245
<SALES> 0
<TOTAL-REVENUES> 4,755,712
<CGS> 0
<TOTAL-COSTS> 5,502,305
<OTHER-EXPENSES> (314,040)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,123
<INCOME-PRETAX> (442,676)
<INCOME-TAX> 0
<INCOME-CONTINUING> (442,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,676)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
