<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(MARK ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999, or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________.
COMMISSION FILE NO.: 0-25978
THERAPEUTIC ANTIBODIES INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1212485
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
1207 17TH AVENUE SOUTH, SUITE 103
NASHVILLE, TENNESSEE 37212
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(Address of Principal Executive Offices) (Zip Code)
(615) 327-1027
- --------------------------------------------------------------------------------
(Registrant's Telephone Number,
Including Area Code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES [x] NO [ ]
As of May 17, 1999, 52,057,219 shares of the registrant's
Common Stock were outstanding.
<PAGE> 2
List of Items Amended
PART I
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Item Page
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<S> <C>
1. Financial Statements 2
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 6
3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II
6. Exhibits and Report on Form 8-K 13
</TABLE>
Text of Amendments
Explanatory Note:
Each of the above listed Items is hereby amended by deleting the Item
in its entirety and replacing it with the Items included herein.
The purpose of the amendment is to make certain changes to the
Financial Statements (Item 1), the Management's Discussion and Analysis of
Financial Condition and Results of Operations (Item 2) and the Quantitative and
Qualitative Disclosures About Market Risk (Item 3) in Part I of the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999 of Therapeutic
Antibodies Inc. (the "company") that was filed on May 17, 1999 (the "Original
Filing"). A restated financial data schedule, solely for the use of the
Securities and Exchange Commission ("SEC"), is also filed with this amendment.
The amendment is being made to reflect certain comments received by the
company from the SEC. The SEC requested that the company amend the Original
Filing to, among other things, (i) separately quantify and discuss product
revenues and contract revenues for all periods; (ii) provide descriptions of the
impact of Financial Accounting Standards Board Statements of Position Nos. 98-1
and 98-5 on the company's accounting methods; (iii) revise the company's
discussion of its exposure to fluctuations in interest rates and foreign
currency rates; and (iv) revise its Statements of Operations to separately
present non-operating revenues and expenses below operating revenues and
expenses.
Any items in the Original Filing not expressly changed hereby shall be
as set forth in the Original Filing. All information contained in this amendment
and the Original Filing is subject to updating and supplementing as provided in
the company's periodic reports filed with the SEC subsequent to the date of such
reports.
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
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Page
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Condensed Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998..................................3
Condensed Consolidated Statements of Operations -- Three months ended March 31, 1999
and 1998..............................................................................................4
Condensed Consolidated Statements of Cash Flows -- Three months ended March 31, 1999 and 1998..................5
Notes to Condensed Consolidated Financial Statements...........................................................6
</TABLE>
2
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THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,497,279 $ 7,760,328
Restricted cash 136,170 419,168
Trade receivables 70,724 67,677
Value added tax receivable 294,485 326,849
Inventories 306,859 287,802
Other current assets 581,671 712,370
------------ ------------
Total current assets 4,887,188 9,574,194
Property and equipment, net 10,927,311 11,074,766
Patent and trademark costs, net 695,311 678,306
Other assets, net 81,400 94,236
------------ ------------
Total assets $ 16,591,210 $ 21,421,502
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,473,290 $ 1,755,098
Accrued interest 91,475 122,486
Current portion of notes payable 1,570,228 2,159,428
------------ ------------
Total current liabilities 3,134,993 4,037,012
Notes payable, net of current portion 4,715,579 4,744,216
Deferred revenue 325,133 342,363
Other liabilities -- 275,477
------------ ------------
Total liabilities 8,175,705 9,399,068
------------ ------------
Stockholders' equity:
Common stock - par value $.001 per share; 59,000,000 shares authorized,
52,057,219 issued and outstanding 52,057 52,057
Additional paid-in capital 87,086,104 87,074,215
Deficit accumulated during the development stage
(1984-1999) (78,680,016) (75,301,311)
Other comprehensive income (loss) (42,640) 197,473
------------ ------------
Total stockholders' equity 8,415,505 12,022,434
------------ ------------
Total liabilities and stockholders' equity $ 16,591,210 $ 21,421,502
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE FOR THE CUMULATIVE
THREE MONTHS ENDED DEVELOPMENT STAGE FROM
MARCH 31, AUGUST 10, 1984
------------------------------ (INCEPTION) THROUGH
1999 1998 MARCH 31, 1999
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<S> <C> <C> <C>
Operating revenues:
Sales revenue $ -- $ 64,600 $ 1,664,868
Contract revenue 64,688 25,091 1,917,897
Licensing revenue -- 143,925 3,900,380
Grant income 10,210 10,287 784,217
Value-added tax and insurance recoveries -- -- 577,170
Other 6,931 8,214 307,819
------------ ------------ ------------
81,829 252,117 9,152,351
------------ ------------ ------------
Operating expenses:
Cost of sales revenue -- 9,679 630,443
Cost of contract revenue 35,155 9,325 390,628
Research and development 2,374,625 2,565,670 55,780,300
General and administrative 317,679 981,129 17,311,513
Marketing and distribution 88,155 135,936 2,612,114
Depreciation and amortization 415,800 373,968 7,489,421
Other -- -- 345,310
------------ ------------ ------------
3,231,414 4,075,707 84,559,729
------------ ------------ ------------
Operating loss (3,149,585) (3,823,590) (75,407,378)
Interest income 64,314 86,849 2,226,362
Interest expense (133,635) (212,884) (5,169,766)
Foreign currency gains -- 46,476 1,785,984
Foreign currency losses (159,799) -- (1,313,621)
Debt conversion expense -- -- (801,597)
------------ ------------ ------------
Net loss (3,378,705) (3,903,149) (78,680,016)
============ ============ ============
Redeemable preferred stock dividends -- -- (32,877)
------------ ------------ ------------
Net loss applicable to common shareholders (3,378,705) (3,903,149) (78,712,893)
Other comprehensive income (loss), before and after tax:
Change in equity due to foreign currency
translation adjustments (240,113) 84,650 (42,640)
------------ ------------ ------------
Total comprehensive loss $ (3,618,818) $ (3,818,499) $(78,755,533)
Basic and diluted net loss per share $ (0.06) $ (0.16)
============ ============
Weighted average shares used in computing basic
and diluted net loss per share 52,057,219 23,252,825
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE CUMULATIVE
THREE MONTHS ENDED DEVELOPMENT STAGE FROM
MARCH 31, AUGUST 10, 1984
----------------------------- (INCEPTION) THROUGH
1999 1998 MARCH 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss $(3,378,705) $(3,903,149) $(78,680,016)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 415,800 373,968 7,489,421
Disposal of property and equipment -- -- 1,206,566
Foreign currency (gain) loss 159,799 (46,476) (472,363)
Warrant expense -- -- 486,913
Stock-based compensation expense 11,889 27,186 722,417
Debt conversion expense -- -- 801,597
Changes in:
Restricted cash 282,998 -- (136,170)
Trade receivable 18,683 412,803 (135,322)
Inventories (19,056) 19,234 (192,685)
Other current assets 119,735 91,512 (589,527)
Accounts payable and accrued expenses (266,771) (72,889) 1,620,432
Accrued interest (32,623) (14,641) 830,351
Deferred revenue (10,208) 23,548 818
Other (271,027) -- (281,639)
----------- ----------- ------------
Net cash used in operating activities (2,969,486) (3,088,904) (67,329,207)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (408,686) (133,701) (15,682,036)
Patent and trademark costs (27,189) (15,651) (787,843)
Purchase of short-term investments -- -- (13,933,294)
Maturity of short-term investments -- 1,497,240 13,933,294
Other -- -- 69,750
----------- ----------- ------------
Net cash provided by (used in) investing activities (435,875) 1,347,888 (16,400,129)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable -- -- 20,450,244
Payments on notes payable (653,824) (306,487) (10,177,718)
Proceeds from line of credit -- -- 3,371,278
Payments on line of credit -- (43,836) (3,371,278)
Proceeds from convertible debt, net -- -- 9,655,000
Payments on convertible debt -- -- (4,320,325)
Proceeds from issuance of stock, net -- -- 71,719,109
Proceeds from issuance of warrants -- -- 65,000
Other -- -- (149,467)
----------- ----------- ------------
Net cash (used in) provided by financing activities (653,824) (350,323) 87,241,843
----------- ----------- ------------
Effect of exchange rate changes on cash and cash
equivalents (203,864) (21,246) (15,228)
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents (4,263,049) (2,112,585) 3,497,279
----------- ----------- ------------
Cash and cash equivalents, beginning of period 7,760,328 4,915,077 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 3,497,279 $ 2,802,492 $ 3,497,279
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 7
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements are
unaudited, but include all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of the
results for such periods.
The unaudited interim consolidated financial statements should be read in
conjunction with the audited December 31, 1998 consolidated financial statements
of Therapeutic Antibodies Inc. (the "Company"). The December 31, 1998 condensed
consolidated balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the full year ending December 31, 1999.
NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP) No. 98-1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No.
98-5 "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The
Company has adopted SOP No. 98-1 and SOP No. 98-5 in the first quarter of 1999
as required. However, the adoption has not had a significant impact on the
Company's financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
In general, SFAS No. 133 requires that all derivatives be recognized as either
assets or liabilities in the balance sheet at their fair value, and sets forth
the manner in which gains or losses thereon are to be recorded. The treatment of
such gains and losses is dependent upon the type of exposure, if any, for which
the derivative is designated as a hedge. This statement is effective for periods
beginning after June 15, 1999. Management is currently assessing the impact of
adopting SFAS No. 133, but does not anticipate a significant impact on the
Company's financial position or results of operations.
NOTE 3 - BASIC AND DILUTED EARNINGS PER COMMON SHARE
The basic and diluted loss per common share calculation was based on Statement
of Financial Accounting Standards No. 128, "Earnings per Share."
The calculations are based upon the weighted average number of shares of common
stock outstanding during each period as disclosed in the consolidated statements
of operations and comprehensive loss. Common equivalent shares from stock
options, warrants and other dilutive securities totaling 3,944,641 at March 31,
1999, and 2,779,334 at March 31, 1998 are excluded from the computations as
their effect is antidilutive.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Therapeutic Antibodies Inc. (the "Company") should be
read in conjunction with the condensed consolidated financial statements and
notes thereto. Statements made in this Quarterly Report on Form 10-Q which are
not historical fact are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
are necessarily estimates reflecting the Company's best judgment based on
current information and involve a number of risks and uncertainties, and there
can be no assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by the Company include those but are not limited to, changes in the
regulation of the pharmaceutical industry or in pharmaceutical product testing
or approval standards, both in the United States and internationally,
competitive pressures on the pharmaceutical industry and the Company's response
thereto, the results of clinical tests of the Company's products currently in
development, the receipt of FDA and other regulatory approvals of the Company's
products, the ability of the Company's competitors to develop and manufacture
products that compete with the Company's products, the Company's ability to
appropriately address the Year 2000 issue, general conditions in the economy and
capital markets, and other factors which may be identified from time to time in
the Company's Securities and Exchange Commission filings and other public
announcements. These and other factors are described in more detail in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Business Risks," which factors are incorporated by
reference herein.
GENERAL
Since its inception, the Company has been in the development stage,
devoting its efforts and resources to drug discovery and development programs
relating to the development of highly purified, polyclonal antibodies for the
treatment of disease. The Company's revenues have been primarily derived from
licensing agreements with corporate partners, contract agreements, product
sales, grant income, and interest income. The Company has incurred net losses
each year since its inception and the Company expects to continue to incur
operating losses during at least the next year due to continued spending on
research, product development and the requirements for process development,
preclinical and clinical testing, regulatory affairs, initial manufacturing
activities and administration. To fund these activities, the Company will
continue to evaluate opportunities to raise further funding which will be
required to carry out the current business plan.
The Company conducts its operations from its headquarters in the United
States and through subsidiaries located in the United Kingdom and Australia.
RECENT DEVELOPMENTS
In April 1999, the Company received the results of its Phase IIb
clinical study of its CytoTAb(TM) product for use in the treatment of severe
sepsis syndrome. The results of the 81-patient study revealed statistically
significant improvements in important clinical outcomes, including reductions in
the amount of time that patients spent on assisted ventilation and in intensive
care units. The Company is seeking a pharmaceutical partner to enable further
development of CytoTAb(TM) for this and other indications.
7
<PAGE> 9
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
The Company's operating revenues for the first quarter of 1999
decreased by 68% to $82,000 from $252,000 for the same period in 1998. No
licensing revenue was earned during the quarter ended March 31, 1999 compared to
$144,000 earned during the first quarter of 1998. There was no revenue from
product sales during the three months ended March 31, 1999 compared to $65,000
during the same period in 1998. The anticipated first quarter 1999 sales of
ViperaTAb(R) were delayed to the second quarter of 1999 pending approval of the
facilities inspection which was received in April 1999. Contract revenue for the
first quarter of 1999 increased by 158% to $65,000 from $25,000 in the first
quarter of 1998 due to an increase in the number of sheep managed by the Company
under contractual arrangements with third parties in the Untied Kingdom.
Total operating expenses for the quarter ended March 31, 1999 decreased
by 21% to $3,231,000 from $4,076,000 for the same period in 1998 due to the
Company's cost cutting measures, particularly in the areas of research and
development and general and administrative expenses. Research and development
expenses during the same periods decreased by 7% to $2,375,000 from $2,566,000
due to discontinuation of certain research and clinical projects the Company
determined were less likely to result in near-term commercial success.
General and administrative expenses for the quarter ended March 31,
1999 decreased by 68% to $318,000 from $981,000 for the quarter ended March 31,
1998. This decrease reflects the Company's efforts to reduce costs and downsize
the corporate structure.
Marketing and distribution expenses decreased for the three months
ended March 31, 1999 by 35% to $88,000 from $136,000 for the three months ended
March 31, 1998. The decrease reflects the fact that there were no product
distribution charges in the three months ended March 31, 1999 because the
Company made no sales of ViperaTAb(R) in the first quarter of 1999.
Additionally, savings were achieved in consulting and travel for the first three
months of 1999. Marketing and distribution expenses exceeded sales and contract
revenues for the three months ended March 31, 1999 and for the three months
ended March 31, 1998 primarily due to the fact that many of the Company's
products are still in the development stage and not yet providing revenue. In
the meantime, the Company is currently incurring business development
expenditures in pursuit of collaborative partners for product licensing
agreements which is included in marketing and distribution expenses.
Depreciation and amortization expense for the quarter ended March 31,
1999 increased by 11% to $416,000 from $374,000 for the quarter ended March 31,
1998, as a result of added capital expenditures since March 31, 1998.
Interest income during the first quarter of 1999 was $64,000, a
decrease of 26% from $87,000 in the first quarter of 1998 reflecting the
investment of cash reserves in more liquid, and consequently lower yielding,
instruments in 1999.
Interest expense in the three months ending March 31, 1999, decreased
by 37% to $134,000 from $213,000 in the three months ending March 31, 1998 as a
result of the Company's reduction of debt obligations from $8,267,000 at March
31, 1998 to $6,286,000 at March 31, 1999.
There was a $46,000 foreign currency gain during the three months ended
March 31, 1998 compared to a foreign currency loss of $160,000 during the same
period in 1999.
The Company's net loss for the quarter ended March 31, 1999, was
$3,379,000 compared to a net loss of $3,903,000 for the quarter ended March 31,
1998.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has been in the development stage,
devoting its efforts and resources to drug discovery and development programs.
Capital resources have been used for the establishment and expansion of
production facilities, for product research and development activities, for
clinical testing and to meet the Company's overall increased working capital
requirements. Management does not expect revenues from product sales to be a
significant source of funding until additional products receive regulatory
approval. Although the Company anticipates the launch of its CroTAb(R) antivenom
product following FDA approval in 1999, revenues from sales of CroTAb(R) are not
expected to be significant in 1999. Future capital requirements will depend on
numerous factors including, but not limited to, the progress of the Company's
research programs and clinical trials, the development of regulatory
submissions, the receipt of FDA approval of CroTAb(R), the commercial viability
of the Company's products, the ability to attract collaborative partners with
sales, distribution and marketing capabilities, and the terms of any new
licensing arrangements.
At March 31, 1999, the Company had cash and cash equivalents totaling
$3,633,000. The Company must raise additional financing by mid-1999 to fund
operations. The Company is currently pursuing several financing alternatives and
is engaged in late stage discussions with a strategic partner that may lead to a
business combination on a share exchange basis at a value that approximates the
current market value of the Company. The Company has also entered into
discussions with third parties relating to sales of additional debt or equity
securities, the disposal of certain non-core investments and additional product
licensing or collaboration arrangements. There can be no assurance that the
Company will obtain the required financing and, if none of these financing
alternatives are successfully implemented, the Company will not have sufficient
funds to continue operations. The Company believes that in the absence of
additional financing, it will have to take action to protect the Company from
its creditors through formal insolvency proceedings, or pursue alternative
courses of action which may result in there being negligible remaining
shareholder value.
The Company's net cash used in operating activities during the three
months ended March 31, 1999, totaled $2,969,000, a decrease of 4% from the three
months ended March 31, 1998. Capital expenditures increased 206% to $409,000 in
the first three months of 1999 from $134,000 in the first three months of 1998
due to the purchase of replacement purification equipment for CroTAb(R). The
Company anticipates that total capital expenditures for 1999 will be
approximately $1,900,000. During the remainder of 1999, the Company intends to
replace certain equipment at its production facilities in Wales and Australia to
attain greater efficiencies in the production process as well as continue needed
upkeep of existing equipment.
On April 30, 1999, the Company repaid the outstanding balance of an
$800,000 term loan, plus accrued interest, to Equitas, L.P. The loan bore
interest at an annual rate of 11.5%.
During 1998, the Company received milestone payments of $1,500,000
under the Altana Agreement as a result of the FDA's acceptance of the Company's
product license application and establishment license application for CroTAb(R).
The Company is entitled to receive additional payments under the agreement based
on achievement of certain milestones relating to CroTAb(R) and the Company's
DigiTAb(R) and TriTAb(R) products. The Company anticipates receiving additional
payments under the agreement of $2,000,000 in 1999 based on FDA approval of
CroTAb(R) and progression of the DigiTAb(R) and TriTAb(R) regulatory filings
with the FDA.
In May 1998, the Company entered into an agreement with G. D. Searle &
Co. ("Searle") for the identification, development and commercialization of a
new antibody based drug designed to titrate the effects of Searle's new
xemilofiban and orbofiban anticoagulent products. Searle anticipated that it
would pay the Company up to $8,000,000 over the term of the agreement for
research and development and product supplies based on achieving certain
milestones. The Company received its first milestone payment of $1,000,000 upon
execution of the agreement in May 1998. In January 1999, however, Searle made
the decision to cease development of its xemilofiban and orbofiban projects and
exercised its right to terminate its agreement with the Company.
9
<PAGE> 11
On November 9, 1998, the Company completed a $19,500,000 capital
refinancing involving the issuance of 28,690,561 new shares of the Company's
common stock on the London Stock Exchange at $.68 per share. The refinancing
included the private placement of 21,300,000 shares of common stock for cash and
the conversion of all outstanding shares of the Company's Series A Convertible
Redeemable Preferred Stock and $2,900,000 of principal and interest on the
Company's 15% Subordinary Promissory Notes (the "1998 Notes") and certain other
loan notes into a total of 7,390,561 shares of the Company's common stock. Of
the approximately $12,600,000 in cash raised in the private placement, net of
expenses, $1,730,000 was used to repay the outstanding balance of principal and
interest on the 1998 Notes. The remaining proceeds were and continue to be used
to fund the ongoing development of the Company's products.
In April 1998, the Company received a loan of $162,000 from the
Department of Primary Industries and Resources of the South Australian
Government to be used for the construction of transportable buildings at the
Company's Australian facility. Principal on the loan is payable in 20 equal
semi-annual installments, together with interest accrued thereon, beginning
October 1998 through April 2008. The interest rate on the loan is currently 6.5%
annually and is variable at the discretion of the Minister for Primary
Industries.
In June 1998, the Company received the final installment on a loan from
the Department of Industry and Trade of the South Australian Government. In
April 1996, the Department of Industry and Trade agreed to loan the Company up
to $62,000 based upon the number of local citizens employed by the Company
through April 1998. At March 31, 1999, the Company had borrowed a total of
$50,000. This loan does not bear interest and becomes due in full on April 29,
2006.
YEAR 2000 READINESS
General
The Company utilizes management information systems and software
technology that may be affected by Year 2000 issues. During 1998, the Company
implemented a plan called the Y2K project to ensure that its systems would be
Year 2000 compliant. The Y2K project is addressing the issue of programmable
logic controllers and computer programs being able to distinguish between dates
in the 20th century and dates in the 21st century. The Y2K project is expected
to make all of the Company's business systems Year 2000 compliant, or they will
be retired.
Y2K Project
The Company's Y2K project is divided into five phases. The project
phases are:
- Phase 1: compile an inventory of all equipment;
- Phase 2: assign priorities to the equipment identified as
being at risk for Year 2000;
- Phase 3: assess the Year 2000 compliance of items identified
as being significant to the operational activities of the
Company;
- Phase 4: repair or replace material items that are determined
not to be Year 2000 compliant; and
- Phase 5: test and validate material items. A task force has
been established to carry out these tasks which includes
subgroups at each of the Company's four locations, Nashville,
USA; Adelaide, Australia; London, UK; and Llandysul, UK.
As of March 31, 1999, the Company had completed the inventory and
priority assignment phases (phases 1 and 2) for each location.
10
<PAGE> 12
The assessment of Year 2000 compliance (phase 3) includes the
identification and prioritization of critical external suppliers. The Company
will undertake a detailed evaluation of critical suppliers by communicating with
them about their commitment, plans and progress in addressing their Year 2000
issues. Detailed plans for this evaluation of material items and suppliers are
in place and have been initiated. The assessment of critical suppliers was
approximately 50% complete at the end of the first quarter of 1999. Phase 3 is
due for completion by mid-1999.
Phase 4, the repair and replacement of equipment and application
software that is not Year 2000 compliant, includes conversion, where available
from the supplier, or replacement. The testing phase will be undertaken as the
hardware and software is converted or replaced.
During 1998, the Y2K task force determined that the accounting software
used in Australia is not Year 2000 compliant. The software vendor released an
upgrade during the first quarter of 1999 that is Year 2000 compliant. This
upgrade will be installed at the Company's Australian facilities during the
third quarter of 1999. In addition, the Company has identified a possible risk
to Year 2000 compliance posed by some of the program logic controllers or
embedded systems controlling the air handling units at each of the production
sites in Wales and Australia. The extent of this risk and the optimal solution
are currently being researched. The task force has also determined that the
sheep planning aid software that is used in Australia is non-compliant. The
software will require major code modification to achieve compliance with a cost
estimated to be $7,200.
All phases of the Y2K project are expected to be complete before the
end of 1999. The phases are concurrent rather than consecutive; therefore, more
than one phase may be in progress at the same time.
Costs
The total estimated cost associated with the required modifications to
become Year 2000 compliant is not expected to be material to the Company's
financial position. The total capital cost is estimated to be no more than
$150,000. This figure may vary depending on the cost of the replacements needed
after completion of the assessment phase of the Y2K project. The total operating
cost incurred to date attributable to staff time and effort devoted to the Y2K
project to date is $60,000. The estimated future operating cost of completing
the project is $60,000.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of normal business activities or operations. Due
to the inherent uncertainty when dealing with the Year 2000 issues, and from the
uncertainty of the Year 2000 readiness of suppliers, the Company is unable at
this time to determine whether or not any Year 2000 failures will have a
material effect on the Company, its operations or its financial condition. This
Year 2000 project is expected to significantly reduce the level of uncertainty
about any Year 2000 problem posed to the Company by its compliance, or by the
compliance of its material suppliers. The Company believes that with the
implementation and completion of its Year 2000 project as scheduled the
possibility of significant interruptions of normal operations should be minimal.
11
<PAGE> 13
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." In general,
SFAS No. 133 requires that all derivatives be recognized as either assets or
liabilities in the balance sheet at their fair value, and sets forth the manner
in which gains or losses thereon are to be recorded. The treatment of such gains
and losses is dependent upon the type of exposure, if any, for which the
derivative is designated as a hedge. This statement is effective for periods
beginning after June 15, 1999. Management is currently assessing the impact of
adopting SFAS No. 133, but does not anticipate a significant impact on the
Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates and interest rates. The Company's operations consist of
manufacturing and sales activities in foreign countries exposing the Company to
the effects of changes in foreign currency rates. The Company has exposure to
changes in interest rates on certain floating rate debt instruments. The Company
does not currently purchase derivative instruments or engage in hedging
activities to mitigate the risks of fluctuations in foreign currency exchange
rates or interest rates.
The value of market risk sensitive financial instruments is subject to
change as a result of movements in market rates and prices. For purposes of
specific risk analysis, the Company uses sensitivity analysis to determine the
impact that market risk exposures may have on the Company's debt and other
financial instruments.
The Company is exposed to foreign currency gains or losses from the
translation of U.S. dollars into other foreign currencies and from sales and
purchases transactions with certain customers and suppliers in foreign
countries. For these transactions, currency exchange rates are agreed upon prior
to the time of the actual transfer of cash. The Company realizes a transaction
gain or loss based upon the actual currency exchange rate at the time the
transaction is completed and records these gains and losses in operations. To
reduce exposure to these fluctuations, the Company maintains cash balances in
its primary foreign currencies. Historically, the primary net foreign currency
market exposures have related to British pounds and Australian dollars. At
March 31, 1999, the Company held cash balances of $537,000 denominated in
British pounds and $194,000 denominated in Australian dollars.
As of March 31, 1999, a hypothetical 10 percent weakening in the
levels of foreign currency exchange rates against the U.S. dollar with all other
variables held constant would result in a decrease in the Company's results of
operations and the fair market value of its financial instruments of $72,000,
as compared to a decrease of $527,000 as of December 31, 1998. Actual results
may differ.
A hypothetical 10 percent movement in interest rates affecting the
Company's floating rate debt instruments would have an immaterial effect on the
Company's results of operations.
12
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
This Item has been amended for the sole purpose of listing the following amended
exhibits to the Original Filing:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
27.1 - Restated Financial Data Schedule (SEC use only)
</TABLE>
13
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1999 /s/ Andrew J. Heath, M.D., Ph.D.
------------------------------------------
Andrew J. Heath, M.D., Ph.D.
Chief Executive Officer (Interim Principal
Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,633,449
<SECURITIES> 0
<RECEIVABLES> 365,209
<ALLOWANCES> 0
<INVENTORY> 306,859
<CURRENT-ASSETS> 4,887,188
<PP&E> 17,813,967
<DEPRECIATION> 6,886,656
<TOTAL-ASSETS> 16,591,210
<CURRENT-LIABILITIES> 3,134,993
<BONDS> 4,715,579
0
0
<COMMON> 52,057
<OTHER-SE> 8,363,448
<TOTAL-LIABILITY-AND-EQUITY> 16,591,210
<SALES> 0
<TOTAL-REVENUES> 81,829
<CGS> 0
<TOTAL-COSTS> 3,231,414
<OTHER-EXPENSES> (159,799)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,635
<INCOME-PRETAX> (3,378,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,378,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,378,705)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
