SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Fee Required)
For the year ended December 31, 19971998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______ to _______
Commission File Number 0-19041
AMERICAN BIOGENETIC SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2655906
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1375 Akron Street, Copiague New York 11726
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(Address of principal executive offices) (Zip Code)
516-789-2600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of the close of business on March 13, 1998,19, 1999, there were outstanding
19,616,86936,018,841 shares of the registrant's Class A Common Stock and 1,725,5003,000,000 shares
of its Class B Common Stock. The approximate aggregate market value (based upon
the closing price on The Nasdaq Stock Market sMarket's National Market) of shares held
by non-affiliates of the registrant as of March 13, 199819, 1999 was $32,809,000.$43,583,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 19981999
Annual Meeting of Stockholders are incorporated by reference into Part III of
this report.
Cover Page 1
PART I
Item 1. Business
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General
American Biogenetic Sciences, Inc. ( ABS("ABS" or the Company "Company") is engaged
in the researchresearching, developing and development ofmarketing cardiovascular and neurobiology
products for commercial development. The Company conducts research and development atcommenced selling its own research facilities and
through its Global Scientific Networkproducts
during the last quarter of 1997.
Certain ABS products are designed to be used for in the U.S., Europe, China,
Israel and Russia. In February 1997, the Company moved its research
and development facilities to Boston, Massachusetts. The Company's
enabling technology is a patented antigen-free mouse colony which
allows the generation of highly specific monoclonal antibodies thatvivo, while others
are difficult to obtain from conventional systems. The Company has
utilized this technology to supply antibodiesdesigned for its innovative in vitro, and indiagnostic procedures. In vivo diagnostic products.
Overprocedures
are those in which proteins or compounds are injected directly into the last few yearsbody or
bloodstream to assess abnormal reactions or conditions. During in vitro
procedures, blood, urine or other bodily fluid or tissue is extracted from the
Company has directed its efforts
primarily toward the development of cardiovascular and neurobiology
products, which has led to the development of the Company's Thrombus
Precursor Protein (TpP ) test, an assay for the risk assessment of
thrombosisbody and the monitoring of anticoagulant therapy, anddiagnostic tests are performed in a test tube or other laboratory
equipment.
ABS' main products are:
o Functional Intact Fibrinogen (FiF )diagnostic test, referred to as
the FiF(TM) test. This is an assay to measurein vitro diagnostic test which
measures the levels of fibrinogen in blood, as wellblood. Fibrinogen is a
protein used in the blood-clotting process.
o Thrombus Precursor Protein diagnostic test, referred to as the
Company s patented specific
monoclonal antibody MH1, with radioisotope, for use asTpP(TM) test. This is an in vivo
agent.vitro diagnostic test used to
assess the risk of blood clots in the veins or arteries. This
test is also used to monitor the performance of anti-clotting
therapy or drugs used in the prevention of blood clots.
o In June 1996,vitro diagnostics products that focus on the infectious
diseases and auto-immune disease markets to determine the
status of such diseases as human herpes and lupus
o Mouse serum used in diagnostic tests of other manufacturers.
The latter two products are manufactured by Stellar Bio Systems, Inc.
("Stellar"), all of the issued and outstanding capital stock of which was
acquired by the Company filedon April 23, 1998. Stellar is a manufacturer and
distributor of in vitro diagnostic products and research reagents. Reagents are
individual components of diagnostic products, such as antibodies, calibrators
and serum used in the biotechnology industry. The purchase price was $120,000 in
cash and $700,000 in Class A Common Stock (398,406 shares were issued), plus
future contingent payments of $650,000 in Class A Common Stock to be paid over
three years based upon future sales levels of Stellar, with the United States FoodClass A Common
Stock to be valued at its market value on the acquisition agreement anniversary
dates. Stellar's in vitro diagnostic products focus on the infectious disease
and Drug Administration (FDA) for 510(k) pre-market clearance (see
Government Regulationauto-immune disease markets. Stellar markets a complete line of products to
determine the immune status of numerous human herpes viruses. In addition,
auto-immune diseases, such as lupus, are detected using Stellar's products.
Stellar is also the largest domestic provider of mouse serum, a blood component
that lacks blood cells and which is used in diagnostic tests by major in vitro
diagnostic product manufacturers for a discussionvariety of the 510(k) process) for
its TpP test, clearance for which was received from the FDA in
October 1996, to aid in the risk assessment of thrombosis (blood clot
formation) and the monitoring of anticoagulant therapy. In January
1997, the Company filed a 510(k) pre-market notification with the FDA
to market its FiF test, clearance for which was received from the FDA
in June 1997. The Company initiated its marketing efforts for TpP
and FiF by exhibiting and presentation of its products at the MEDICA
'97 trade show held in Dusseldorf, Germany in November 1997. As a
result of this effort, the Company made initial sale of TpP kits in
1997 and has subsequesntly made sales of TpP kits to European and
Japanese distributors.purposes.
2
ABS was incorporated in Delaware in September 1983. The Company's
principal executive offices are located at 1375 Akron Street, Copiague, New York
11726 and its telephone number is 516-789-
2600.516-789-2600.
Forward Looking Statements
In order to keep investors informed of the Company sABS' future plans and
objectives, this Report (and other reports and statements issued by the Company
and its officers from time to time) contains certain statements concerning the
Company sCompany's future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be forward-looking statements "forward-looking statements". The
Company sCompany's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995 which provides a safe harbor"safe harbor" for forward-lookingforward-
looking statements to encourage companies to provide prospective information so
long as those statements are accompanied by meaningful cautionary statements
identifying important factors that
Page 2
could cause actual results to differ
materially from those discussed in the statement. The Company believes it is in
the best interests of investors to take advantage of the safe harbor"safe harbor"
provisions of that Act. Such forward-looking statements are subject to a number
of known and unknown risks and uncertainties that, in addition to general
economic and business conditions (both in the United States and in the overseas
markets where the CompanyABS also intends to distribute products), could cause the
Company sCompany's anticipated results, performance and achievements to differ materially
from those described or implied in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
the
Company sABS' ability to complete products under development and to maintain superior
technological capability, foresee changes and identify, develop and
commercialize innovative and competitive products (see Products"Products in DevelopmentDevelopment"
below), obtain widespread acceptance of its products by the medical community,
including the reliability, safety and effectiveness of such products (see
"Marketing and Sales" below), meet competition (see Competition"Competition" below), comply
with various governmental regulations related to the Company sCompany's products and
obtain government clearance to market its products (see Government Regulation"Government Regulation"
below), successfully expand its manufacturing capability (see Manufacturing"Manufacturing"
below), attract and retain technologically qualified personnel (see Personnel"Personnel"
below), and generate cash flows and obtain collaborative or other arrangements
with pharmaceutical companies or obtain other financing to support its product
development testing and marketing operations and growth (see Management s"Management's
Discussion and Analysis of Financial Condition and Results of OperationsOperations" in
Item 7 of this Report).
Global Scientific NetworkNetwork(R)
ABS' operations are comprised of a portfolio of interrelated programs
and projects seeking a high level of synergism between ABS'
managementprojects. In order to promote and its scientific entities. This synergistic relationship
has led to the formation of the Company s Global Scientific Network
for promoting and facilitatingfacilitate collaborative scientific research leading
to product development.development, the Company has formed the Global Scientific Network.
This network brings together interactive teams of scientists from manyvarious
disciplines in a joint effort to expedite the research, development and
commercialization of ABS'ABS's diagnostic and therapeutic products. This resource
offers ABS'the Company's management a first look atan opportunity to review and evaluate new
technologies available in addition to a network of certain scientific leaders
who offer advice and direction. To facilitate the identification and screening
of new technologies, ABSthe Company has scientific coordinators in St. Petersburg,
Russia; and Beijing, China; and Jerusalem,
Israel.China. These activities are coordinated from ABS'the Company's
office in Dublin, Ireland.
ABS3
The Company is currently collaborating with leading medical and
scientific institutions worldwide including University College Dublin, Ireland;
University of Hanover, Germany; William Harvey Research Institute, London,
England; and Research Center for Medical Genetics,
Russian Academy of Medical Sciences, Moscow, Russia.
The Company, underEngland.
Through its Global Scientific Network, ABS has entered into various
agreements which generally grant the Company an exclusive license to the results
of the research. Pursuant to these agreements, the Company is paying certain
research expenses and the costs of filing and processing patent applications in
the United States and other countries, and is to pay the inventors or the
university a Page 3
royalty, which is typically 5% of net product sales. The term of
each agreement, generally, is the duration of any patents that may be granted
with a minimum term of 10 years. See "-- Agreements for Neuroscience Programs."
The Antigen-Free Mouse Colony -- Monoclonal Antibodies
ABS' enabling technology is a patented antigen-free (AF) mouse colony
which allows the generation of highly specific monoclonal antibodies that are
difficult to obtain from conventional systems. The Company utilizes this
technology to supply antibodies for its in vitro and in vivo diagnostic
products. The proprietary AF mouse colony is maintained in a germ-free
environment and fed a chemically defined and ultrafiltered diet. When the
antigen-free mice are challenged with a foreign entity, there is a large immune
response that eventually results in the proliferation of a large number of
specific monoclonal antibody secreting cells. The AF mouse colony is covered
under the Company's U.S.ABS' United States Patent No. 5,223,410, entitled Method"Method for Production
of Antibodies Utilizing an Antigen-Free Animal Animal", and U.S.United States Patent No.
5,721,122, entitled "Method Comprising Immunization of Antigen-Free MiceMice." In
addition, United States Patent No. 5,837,540, entitled "Method of Producing
Fibrin-Specific Antibodies Using Soluble Fibrin Polymers as an Immunogen" has
been issued and extends the method of producing antibodies to include a
hybridoma cell line. This gives the Company greater flexibility in producing its
TpP-related antibodies.
Stellar
Stellar manufactures in vitro immunodiagnostic assays utilizing an
immunofluorescent antibody assay format for infectious diseases and autoimmune
conditions. These assays determine the presence of: human herpes simplex virus
1, human herpes simplex virus 2, Epstein-Barr virus, cytomegalovirus, varicella
zoster virus, respiratory syncytial virus, human herpes virus 6, human herpes
virus 7, human parvovirus B-19, measles virus, rubella virus, adenovirus, mumps
virus, antinuclear bodies Hep-2, anti-nuclear bodies KB, anti- mitochondrial
bodies, and anti-native DNA bodies. Stellar is also a supplier of high quality,
domestic mouse serum. Stellar's mouse serum is used as an assay component by in
vitro diagnostic assay manufacturers. Stellar also provides contract services
for the development, process scale up, manufacture and purification of
monoclonal and polyclonal antibodies.
Medical Background For Cardiovascular Products
Two of ABS' main products, its FiF and TpP tests, assist doctors in
diagnosing and treating blood clots lodged in the legs and the lungs, known as
thrombosis, a condition which can be fatal. Thrombosis is also associated with
other medical conditions, like heart attacks, strokes and complications during
pregnancies. ABS is pursuing the application of its tests in these areas with
additional clinical testing. The Company has also developed patented antibodies,
45J and MH1, which are used in its TpP(TM) and FiF(TM) tests.
4
Several epidemiological studies have revealed a significant causal
relationship between high fibrinogen levels and coronary artery disease (CAD).
These studies suggestIt is widely accepted that events leading to CAD are caused as much by
biochemical processes in the coagulation (blood-clotting) system as by the
metabolism of cholesterol. One of theThe most important landmark trials,trial to show a causal
relationship between high fibrinogen and CAD is the Framingham epidemiology
study (1985) conducted at the Institute for Prevention of Cardiovascular Disease
at the Deaconess Hospital, Harvard Medical School,School. That study concluded that
elevated levels of fibrinogen exceeded"exceeded that of all risk factors except elevated
systolic blood pressure pressure".
Studies supportOther studies indicate that individuals with elevated levels of
fibrinogen are predisposed to thrombosis. On the other hand, diminished levels
may result in hemorrhage. Thus, reagents that can be used to measure fibrinogen
can play a vital role in determining the appropriate level of thrombolytic
therapy, as well as determine an individual's risk of CAD.
The CompanyABS has developed, through its AF mouse colony, monoclonal antibodies
that react specifically with both fibrinogen and fibrin.
Some of the most hazardous sites for inappropriate blood clot formation
include the coronary arteries where a blood clot can lead to myocardial
infarction (heart attack); the arteries leading to the brain, where a blood clot
can cause stroke; and the veins of the legs which can lead to a pulmonary
embolism.
Thrombi (blood clots) that form in the bloodstream consist of two major
parts: a cellular component made up of platelets, and a meshwork of fibrin
fibers whichthat cements the platelets into an insoluble mass which has the
mechanical strength to withstand the pressure of blood in the circulation. The
fibrin component is insoluble and is derived from a blood protein, fibrinogen,
that is manufactured in the liver. When thrombin, an enzyme produced in response
to injury of a blood
Page 4
vessel, is present in blood, it converts soluble fibrinogen
to fibrin at the site of vascular injury.
Just as the generation of thrombin is the seminal event in fibrin
formation, the generation of plasmin plays the major role in fragmentation of
the fibrin meshwork, a process known as fibrinolysis. Like thrombin, plasmin
does not ordinarily circulate in plasma but is derived from the circulating
protein plasminogen when the fibrinolytic system is activated.
In addition to causing fragmentation of fibrin, plasmin also attacks
fibrinogen and institutes changes in its structure that prevent its
polymerization to fibrin. In extreme cases fibrinogenolysis, e.g., dissolution
of fibrinogen, can lead to bleeding caused by lack of clottable fibrinogen.
Fragmentation of fibrin leads to the production of soluble fibrin
degradation products that circulate in plasma and are generally elevated in
patients following a thrombotic event. Since all these products are proteins, it
is possible to produce antibodies that can react specifically with individual
fibrin degradation products.
5
Products inDeveloped and Under Development
In Vitro Diagnostic Tests Based on Monoclonal Antibody 45J
The Company inIn February 1992, ABS obtained U.S.United States Patent No. 5,091,512 for a
monoclonal antibody, designated 45J, that recognizes (crossreacts with) fibrinogen andfibrinogen. This antibody
is intended to be used as an in vitro diagnostic tool for assessing accurate measurement ofmeasuring fibrinogen
in blood.
The 45J antibody recognizes a structural epitope on the
fibrinogen molecule that is destroyed when plasmin converts fibrinogen
to its degradation products. As a result, the antibody does not
cross-react with plasmin-generated degradation products, nor does it
recognize the major degradation products of cross-linked fibrin, e.g.,
D-dimer.
OnIn January 24, 1992, the Company entered into an agreement with Yamanouchi
Pharmaceutical Co., Ltd. ( Yamanouchi ("Yamanouchi") of Japan granting Yamanouchi the
exclusive right to manufacture, use and sell in Japan and Taiwan diagnostic test
kits which utilize 45J. Pursuant to the
license agreement, Yamanouchi madeThe Company received an initial payment to the Company
of $1,000,000, and is to pay a 10% royalty$900,000 (net
of net sales, if any, made
in Japan and Taiwan. In accordance with the provisions of the
agreement, Yamanouchi withheld $100,000 of this payment to make
withholding tax payments under the laws of Japan on behalf of the
Company, resulting in a net remittance to the Company of $900,000.
Additionally, theJapanese taxes). The license agreement requires Yamanouchi to purchase its
45J requirements from the Company.ABS. The agreement is for a period of fifteen years,
provided that if any of the Company's patent rights for 45J have not yet expired
at the end of that period, the agreement will continue until such expiration.
Yamanouchi and the Company have
also agreed not to disclose confidential information that one party
may reveal to the other for a period of five years from the date of
the disclosure. The Company has filed a patent application in Japan relating to 45J. To date,
Yamanouchi is required to use its best efforts to
obtain all required governmental approvals, authorizations and
Page 5
consents and is to bear the expense of generating clinical data and
other information required to obtain said approvals, authorizations
and consentshas not made any sales of the agreement, its terms and any product distribution.
Cadkit : The first version of the fibrinogen test system
developeddiagnostic tests covered by the Company, a manual latex agglutination kit, is a
qualitative test that can be used for initial screening of a person's
blood to determine if fibrinogen levels are within the normal range.
The test is intended to be quick and inexpensive. Another intended
use is to monitor fibrinogen levels during thrombolytic therapy.
Studies have shown that specific fibrinogen levels after therapy have
a high correlation with therapeutic success or failure. If the level
is above the desired range, therapy is unlikely to be successful and,
if fibrinogen falls below the desired range, bleeding problems are
likely to occur.this
agreement. The Company received a 510(k) clearance fromdoes not have any further obligations and could terminate
the FDA to commence
commercial marketing of the manual latex agglutination in vitro
diagnostic test. See Government Regulation. The Company has,
however, elected to proceed instead with the development of aagreement.
Functional Intact Fibrinogen Assay (FiF (FiF(TM)) a quantitative version of
the test.
Functional Intact Fibrinogen Assay (FiF ): The quantitative
version of the test developed by the Company is intended to be used on
automated or non-automated instruments.: This test, is an
immunoprecipitation assay, known as
Functional Intact Fibrinogen (FiF ),(FiF(TM)), has been cleared by the Federal Drug
Administration (the "FDA"), and is intended to provide a direct and accurate
quantitative measurement of the amount of fibrinogen present in plasma. In May
1996, a research group of the Framingham Heart Study reported that the FiFFiF(TM)
test to beis an accurate method of detecting elevated fibrinogen levels, a risk
factor for cardiovascular disease. Furthermore, the findings demonstrated that
the fibrinogen levels measured by the FiFFiF(TM) test waswere correlated with the
prevalence of cardiovascular disease both by itself and when adjusted for age,
weight, smoking and diabetes. In
January 1997, theThe Company filed a 510(k) pre-market notification with
the FDA to markethas been marketing the FiF test clearance for which was received in June 1997.
Fibrinogen concentration ina
manual format kit since late 1997 and continues to seek corporate partners to
include the blood is currently estimated by
functionalFiF test on automated equipment. Traditional clotting assays. Thrombin,tests are an
enzyme that convertsindirect measure of fibrinogen, to fibrin, is added to a sample of blood and the fibrinogen
concentration is estimated by the amount of time that passes
before a clot is formed. The current clotting tests are an indirect measure of
fibrinogenformed, which can be influenced by the presence of degradation
products of fibrin/fibrinogen. FiF on the other hand is a direct measure of
fibrinogen that is not adversely influenced by these products.
Diagnostic and Therapeutic Products Based on Monoclonal Antibody MH1
In June 1992, the CompanyABS obtained U.S.United States Patent No. 5,120,834 for a
monoclonal antibody (designated MH1) that is specific tospecifically identifies fibrin and
does not react to fibrinogen or fibrin degradation products. This
property sets it apart from all other fibrin specific antibodies known
to the Company. Since an interactive epitope is located only on the
Page 6
fibrin molecule and is not found on the degradation products of fibrin
resulting from the fibrinolytic process, the Company believes that
these circulating degradation products will not interfere with the
performance of MH1 as an imaging agent, as a carrier of a thrombolytic
agent to a blood clot, or the ability of the antibody to inhibit clot
formation. This is especially important since levels of
fibrin degradation products become extremely elevated during clot development as
well as thrombolytic (clot dissolving) therapy. This property sets it apart from
all other fibrin specific antibodies known to the Company. The Company is using
MH1 for its TpP assay and is seeking to use MH1 in fourthree potential products described below:
MH1 as an Imaging Agent: The Company has labeled a Fab' fragment
of its MH1 with a radioisotope for use as an in vivo imaging agent to
show the size and location of blood clots in pre-clinical animal
studies and clinical human studies which generates an image with the
resolution required for commercial use. The product is intended to
permit the rapid imaging of blood clots in the lungs, a condition
known as pulmonary embolism (PE); and the detection of blood clots in
the legs (a clinical condition known as deep vein thrombosis (DVT)).
Traditional methods for detecting a thrombus in the circulatory
system have consisted of angiography, venography, duplex doppler and
monitoring radiolabeled blood clot components, derived from a human
donor, injected into the circulatory system and then absorbed by the
clot. These procedures are costly, often may lack sensitivity and
some can pose potential risks to the patient. The large quantity of
dye required in angiography and venography may cause kidney problems
and may irritate the walls of blood vessels. Also, in angiography a
catheter is used for delivery of the dye into the arterial system
which adds further to the risk of the patient. In contrast, only a
minimum quantity of the Company's radiolabeled MH1 need be used, and
since the antibody is not derived from man, there is no risk of human
blood-borne disease. However, whenever a foreign substance is
introduced into the human body, there is the risk of an immune
reaction and cases of reactions to mouse-derived antibody have been
reported.
The primary protein component of a thrombus is fibrin, and an
antibody that can differentiate fibrin from its plasma precursor,
fibrinogen, can be used when appropriately labeled with a
radioisotope, to image the site and extent of an occlusion and to
carry thrombolytic reagents to the site.
In March 1993, the Company was cleared by the FDA, under an
Investigational New Drug (IND) application, to begin Phase I human
clinical testing of MH1 in imaging blood clots for PE and DVT, thus
becoming the Company's first product to be evaluated in humans. In
January 1995, the Company completed Phase I testing for PE and DVT.
The final Phase I report was submitted to the FDA in October 1995.
Currently, the Company is compiling all necessary information
regarding Phase I/II clinical trials for MH1 imaging and will submit a
final report in 1998. The Company at the same time is seeking
corporate partners to collaborate, license and conduct full Phase II
and Phase III trials.products.
Thrombus Precursor Protein (TpP ):(TpP(TM)): The TpP testTpP(TM) is an enzyme immunoassaytest
which uses ABS' monoclonal antibodies MH1 and 45J. TpP measures soluble fibrin
polymers in blood to indicate active blood clot formation (thrombosis) in
individuals with possible myocardial infarction (MI) heart attack and other
clinical conditions precipitated by clot Page 7
formation such as deep vein thrombosis
(DVT). blood clots in the leg. Approximately 10 million people in the U.S.United
States present with chest pain each year at emergency rooms. However, as much as
80% of these individuals do not have a heart attack and may be suffering from
some
6
less serious conditions. An early warning test that establishes those patients
that are not having a heart attack will eliminate expensive diagnostic
procedures and unnecessary hospital admissions. Furthermore, the early
identification of those patients who are forming life threatening blood clots or
suffering from a heart attack would permit earlier use of thrombolytics (clotclot dissolving drugs)drugs
or anticoagulants.
Current biochemical tests for acute myocardial infarction (AMI) measure
cardiac muscle proteins which leak out as a result of dying heart muscle.
Examples of muscle cell proteins used to confirm MI include, creatine kinase
(CK), creatine kinase MB isoform (CKMB), lactate dehydrogenase (LD), troponin
and myoglobin. This release of cardiac specific proteins only occurs 4-6 hours
after the onset of clinical symptoms; therefore, there is a clinical need for an
earlier warning of MI. The detection of blood clot formation early in the
clinical event should facilitate proper identification and treatment of MI
patients with life saving, clot dissolving drugs. TpP relies on the measurement
of soluble fibrin polymers which are produced and circulate freely when a clot
starts to form, even before the onset of clinical symptoms, and is elevated when
the patient first begins to experience chest pain.
In addition, thereThere are 12 million surgical procedures performed each year in the
U.S.United States alone which put patients at risk of forming a blood clot. TpP
provides a means to measure intravascular coagulation (fibrin formation) in
post-operative patients to determine the risk of deep vein thrombosis and its
clinical sequelae, pulmonary embolism. As described in the TpP product insert, solubleSoluble fibrin polymers have been
identified by electrophoretic techniques in the plasma of patients with
different clinical conditions including myocardial
information (MI)MI and deep vein thrombosis (DVT).DVT. Elevated soluble fibrin
levels, as determined by ELISA (Enzyme Linked ImmunoSorbent Assay), a laboratory
format of an immuno- diagnostic test, have also been reported in other clinical
conditions where intravascular fibrin formation has been indicated, includedincluding
disseminated intravascular coagulation (DIC); and patients undergoing surgical
procedures who are experiencing thrombotic complications. It has also been
demonstrated that TpP levels are significantly lower in patients who are
undergoing invasive surgical procedures (e.g. PTCA) and have been adequately
anticoagulated. Additional studies are underway. The Company's TpP test is also expected to offer physicians a
screening tool to monitor patients post-operatively for blood clot formation and
to effect therapeutic intervention if required and monitor their response to
anticoagulant therapy. A study using the Company's TpP test to monitor patients
post-operatively for the formation of DVT was conducted at Johns Hopkins School of Medicine and at the
University of Perugia, Italy.Italy in 1997. These studies showed that TpP was elevated
post operatively.
In September 1995, the CompanyABS obtained U.S.United States Patent No. 5,453,359 for
the use of this test to measure intravascular fibrin polymer formation in
patients with symptoms indicating a blood clotting event. In December 1998, ABS
obtained a United States patent which applies to the TpP test kit itself and
extends the Company's claims regarding the antibodies used to recognize the
presence of TpP in blood. The new patent claims the use of any antibody that
recognizes or binds to the epitope, an antibody binding site on the TpP protein,
that is recognized by MH-1 or 45J.
In October 1995, the CompanyABS entered into a license and collaboration agreement
with F. Hoffmann-La Roche, Ltd. ("Hoffman-La Roche") for the co-development and
marketing of the Company's TpP assaytest for the detection of active thrombosis
(blood clot formation). The agreement grants Hoffmann-La Roche a worldwide
license to market Page 8
the TpP test in a latex based particle agglutination format.
Under the agreement, ABS hasthe Company received certain, and is to receive additional,a $60,000 non-refundable development
paymentspayment to adapt the TpP test in the latex based particle agglutination format
to Hoffmann-La Roche's automated diagnostic systems. ABSThe Company is also to
receive milestone payments upon achievement of certain commercialization goals.
The TpP test is to be manufactured by ABSthe Company for use on Hoffmann-La Roche's
instruments. The
CompanyABS is to receive a
7
percentage of Hoffmann-La Roche's net selling price for the Company's
manufacturing of the TpP test plus a 5% royalty on net sales made by Hoffmann-La
Roche. Under the agreement, the TpP test is also to be sold by ABS and
Hoffmann-La Roche to other diagnostic companies using similar particle
agglutination technology. On these sales, gross profit is to be shared equally
between the Company and Hoffmann-La Roche. To date, ABS has not received any
milestone or royalty payments.
In December 1995, ABS entered into a license agreement with Abbott
Laboratories ("Abbott") for the marketing of the Company's TpP assay. The
license agreement grants Abbott a worldwide license to market the TpP test for
Abbott's immunoassay formats. ABS hasThe Company received a $100,000 non-refundable
up-front payment and is to receive non-refundable up-front and milestone payments upon achievement of
certain development and commercialization goals. The Company is to receive a 5%
royalty on net sales made by Abbott. In addition, the reagent for the TpP test
is to be manufactured by ABSthe Company for use by Abbott. In June 1996, the Company filed a 510(k) pre-market notification
with the FDA to market the TpP test.To date, ABS has not
received any milestone or royalty payments.
In October 1996, the CompanyABS received 510(k) clearance from the FDA to market
the TpP test to aid in the risk assessment of thrombosis (blood clot formation)
and the monitoring of anticoagulant therapy. The Company began to market TpP in
late 1997 through independent distributors.
In September 1996, the Company entered1998, ABS put additional effort into an agreement with
Gull Laboratories for the manufacture and distributionclinical evaluation of TpP with
the goal to characterize the most promising applications, and demonstrate the
advantages of TpP over competitor products. Dr. Yale Arkel was appointed as the
Company's Coordinator of Clinical Development for TpP. Dr. Arkel, director of
the Blood Disorder Center for Hemostasis and Thrombosis at Overlook Hospital in
a
microtiter plate format. UnderSummit, New Jersey, maintains his current clinical and research duties and acts
as an outside consultant to the agreement, Gull will develop,
manufacture and market the TpP test for use with Gull s DUET
instrument.Company.
In addition, ABS is to sell antibodies and proprietary reagents to
Gull, and will receive certain payments on Gull sales. ABS may also
sell the products of the alliance directly or through its own
distributors.
The Company and Gull also entered into a joint venture agreement
to develop a TpP test to detect the early onset of blood clot
formation in renal dialysis patients. Under the agreement, Gull is to
develop with ABS a TpP test in a format suitable for the thrombus
detection in dialysis patients. Gull is to manufacture the products
of the venture and ABS will supply the critical reagents.
The Company initiated its marketing efforts for TpP and FiF by
exhibiting and presentation of its products at the MEDICA '97 trade
show held in Dusseldorf, Germany in November 1997. As a result of
this effort, the Company made initial sale of TpP kits in 1997 and has
subsequesntly made sales of TpP kits to European and Japanese
distributors.
In addition, the Company intends to develop, either itself or in
conjunction with outside sources,developing a hand-held, disposable, point-of-
Page 9
carepoint-of-care
device which will measure TpP levels in blood, either
qualitatively, semi-quantitatively or quantitatively.plasma. An initial prototype of a
portable, hand-held device for obtaining semi-quantitative test results has been
produced and the Company plans to submit a 510(k) to the FDA for marketing
approval of the point-of-care TpP test in 1999. The Company believes that the
more user-friendly and rapid point-of- care format will greatly enhance the
market opportunity for the TpP test. The Company intends to seek outside sources
for the manufacture of its point-of-
care device.point-of-care device and corporate partners to market
this product.
MH1 as an Imaging Agent: ABS has labeled an antibody fragment of its
MH1 antibody that contains the binding site for fibrin with a radioisotope for
use as an in vivo imaging agent to show the size and location of blood clots in
pre-clinical animal studies and clinical human studies which generates an image
with the resolution required for commercial use. The product is intended to
permit the rapid imaging of blood clots in the lungs, a condition known as
pulmonary embolism (PE); and the detection of blood clots in the legs (a
clinical condition known as deep vein thrombosis (DVT)). The primary protein
component of a thrombus is fibrin, and an antibody that can differentiate fibrin
from its plasma precursor, fibrinogen, can be used when appropriately labeled
with a radioisotope, to image the site and extent of an occlusion and to carry
thrombolytic reagents to the site.
Traditional methods for detecting a thrombus in the circulatory system
have consisted of angiography, venography, duplex doppler and monitoring radio
labeled blood clot components, derived from a human donor, injected into the
circulatory system and then absorbed by the clot. These procedures are costly,
often may lack sensitivity and some can pose potential risks to the patient. The
large quantity of dye required in angiography and venography may cause kidney
problems and may irritate the walls of blood vessels. Also,
8
in angiography a catheter is used for delivery of the dye into the arterial
system which adds further to the risk of the patient. In contrast, only a
minimum quantity of ABS' radio labeled MH1 need be used, and since the antibody
is not derived from man, there is no risk of human blood-borne disease. However,
whenever a foreign substance is introduced into the human body, there is the
risk of an immune reaction and cases of reactions to mouse-derived antibody have
been reported.
In March 1993, ABS was cleared by the FDA, under an Investigational New
Drug (IND) application, to begin Phase I human clinical testing of MH1 in
imaging blood clots for PE and DVT, thus becoming the Company's first product to
be evaluated in humans. In January 1995, ABS completed Phase I testing for PE
and DVT. The final Phase I report was submitted to the FDA in October 1995. The
Company has compiled all necessary information regarding the Phase I/II clinical
trials for MH1 imaging that were subsequently conducted and submitted a final
report to the FDA in 1998. ABS is seeking corporate partners to fund,
collaborate, license and to conduct full Phase II and Phase III trials and
market the product.
MH1 as a Delivery Vehicle for Thrombolytic Therapy: ABSThe Company is
seeking to develop a product using MH1 as a delivery-vehicle for known
thrombolytics.thrombolytics (drugs that dissolve blood clots). Tests by the Company have
demonstrated the ability to link MH1 to a known thrombolytic agent to form a
potent, fibrin specific, therapeutic agent which, in animals, has demonstrated
superior clot dissolving properties. In February 1997, the CompanyMarch 1998, ABS obtained United States
Patent No. 5,723,126 for this clinical application.
MH1 as an Antithrombotic: The Company is also investigating the utility
of MH1 as an antithrombotic agent (potential product to prevent clot formation)
for the interference and/or inhibition of excess fibrin deposition in surgical
procedures such as angioplasty. In January 1996, the CompanyABS obtained U.S.United States
Patent No. 5,487,892 for this clinical application.
There can be no assurance that the Company sCompany's products in development
will prove to be commercially viable, that any of the products will receive
regulatory clearance or clearance for particular indications, or that the CompanyABS will
successfully market any products or achieve significant revenues or profitable
operations. The Company is seeking to enter into additional collaborative,
licensing, distribution, and/or co-marketing arrangements with third parties to
expedite the commercialization of its products. However, there can be no
assurance that the CompanyABS will be able to enter into any such additional arrangements
or, if it does, that any such arrangements will be on terms that will be
favorable to the Company.ABS.
Neurobiology Program
The goal of this longer term program is to develop fine chemical
compounds for the treatment of epilepsy, migraine and mania and to treat and
halt the progression of neurodegenerative diseases such as Alzheimer's,
Parkinson's, Amyotrophic Lateral Sclerosis (ALS),neuropathy, trauma and forstroke. Most of the treatment of patients suffering from stroke.
Diagnostic
ABS has exclusive worldwide rightsapplications developed
to U.S. Patent No. 5,492,812
issueddate, have been developed in February 1996 covering a non-invasive blood test to detect
Alzheimer's disease.conjunction with scientists in the Company's
Global Scientific Network.
Therapeutics
The blood test detects tau-peptide fragments,
which are released into the blood by degenerating neurons in Alzheimer's
disease sufferers. Because little tau-peptide is found in
normal blood, the Company, believes that the blood test will be a test
specific to Alzheimer's disease. The Company's U.S. Patent is available
for licensing and the Company is not actively commercializing this product.
Therapeutics
ABS, in collaboration with the National University of Ireland,
Dublin, University of Hanover, Germany, University of Notre Dame, United States
and fellow researchers within the Company's Global Scientific Network, has
identified chemical compounds for the potential treatment of neurodegenerative
diseases.
Page 109
The Company has filed two United States provisional patent applications
relating to small molecules which may be useful for enhancing memory - ABS 300
series. This technology has resulted from the collaboration of scientists at the
National University of Ireland, Dublin and the University of Notre Dame.
The ABS 200 series of compounds are putative neuroprotectants designed
to treat and halt the progression of neurodegenerative diseases. The compounds
have been evaluated in cells where they exhibit nerve growth factor (NGF)-like
activity. The ABS 200 series of compounds can penetrate the blood-brain barrier,
unlike NGF, which requires specific development of a delivery system. A lead
compound, ABS 205, has been identified which can induce the expression of a
protein known as neural cell adhesion molecule (NCAM) in vitro. NCAM is involved
in memory, neurodevelopment and other neuroplastic events. ABS 205 can also
enhance NCAM function in the rat hippocampus an areaand cortex, areas known to be
involved in memory acquisition.formation. Moreover, ABS 205 protects against chemical
induced amnesia (memory loss) in animals. The Company has received patent protectionUnited States
Patent No. 5,672,746 relating to this technology. ABS has recently filed a
reissue application for this patent. An interference in the United States forPatent
and Trademark Office was declared regarding this series.
Thetechnology. See "Proprietary
Technology, Patents and Trade Secrets".
Epilepsy
ABS 401 compound has undergone preliminary evaluation in vivo
and has demonstrated protection against chemically induced amnesia, and can
help prevent age-associated loss of memory in animals.
Epilepsy
The Company is developing a series of anticonvulsant compounds which are relatedthat relate to
valproate, which is currently used for the treatment of epilepsy.epilepsy, migraine and
mania. In pre-clinical trials in Germany, onethe Company's lead compound, ABS-103,
has been shown to potently control seizure activity without sedative action and the induction ofor
birth defects commonly associated with other anticonvulsants. The Company has
filedisolated the R-isomer (R-103) ABS-103. Isomers can be described as mirror images
of the same compound. R-103 is an enantiomer, which is a specific type of
isomer. ABS scientists were able to isolate the R (right) isomer from the S
(left) to produce R-103. The value of isolating R-103 lies in its superior
safety and efficacy profile. Scientists have recently discovered that for patent
protection inmany
drugs one of the isomers is responsible for the therapeutic effects and that the
other isomer may be inactive or cause unwanted side effect. R-103 is the
preferred chemical entity for commercial development. ABS has received United
States Patent No. 5,786,380 relating to the use of ABS- 103 as an
anticonvulsant. Patents have been obtained in Europe and other countries.additional applications
relating to this technology are pending.
Agreements for Neuroscience Programs
The CompanyABS has entered into various agreements, primarily with universities and/or
individual scientists under the Company's Global Scientific Network, which
generally grant the Company an exclusive license to the results of the research
for use in various neuroscience applications, which may include compounds and
antibodies. In general, the agreements are for a term equal to the duration of
any patents that may be granted with a minimum term of 10 years. In exchange for
a license, the CompanyABS is to pay certain research expenses and the costs of filing and
processing patent applications in the United States and any other countries that
the CompanyABS may select. Pursuant to these agreements, the CompanyABS is also to pay the inventors
or the university a royalty, typically 5% of net product sales. The Company is
seeking to commercialize the products under development by entering into
collaborative arrangements, licensing agreements and/or through research
development partners.
ABS has also entered into development agreements with the National
Institutes of Health (NIH) for some of its neurobiology products, including an
agreement with the NIH (epilepsy branch) in 1998 to evaluate ABS-103 and R-103.
Results of these evaluations are expected to be available in mid 1999. In
10
addition, ABS received Phase I Small Business Innovation Research (SBIR) grant
funding from the NIH to further evaluate the effect of ABS-205 on learning and
memory.
There can be no assurance that the Company s NeurobiologyCompany's neurobiology products will
prove to be commercially viable, or that the CompanyABS will successfully market the
products or achieve significant revenues or profitable operations or enter into
any arrangements with third parties for development of the Neurobiologyneurobiology
products, or if it does, that any such arrangements will be on terms that will
be favorable to the Company.
Page 11
Hepatitis A Vaccine
In March 1994, the Company was issued U.S. Patent No. 5,294,548
for its recombinant Hepatitis A virus vaccine. Hepatitis A is an
inflammatory process of the liver caused by a virus that is spread by
fecal-oral contact. It is highly contagious and is more common in
children and young adults. Hepatitis A is a source of concern in day
care centers, the armed forces and other organizations populated by
young people who are working, living and playing in close proximity to
one another. In developed countries there is a surprisingly high
percentage of non-immune individuals. In underdeveloped countries
children are exposed to the virus at an early age and thus acquire
lifetime immunity. However, as standards of hygiene improve in
developing countries, there is less exposure and, therefore, less
immunity developed resulting in a greater need for the vaccine.
The Company, in collaboration with researchers at the University
of Iowa, demonstrated the ability to produce neutralizing antibodies
to several of its recombinant viral vaccine candidates. The research
focus involved the production of non-infectious Hepatitis A empty
capsids, in both the vaccinia and the baculovirus expression systems.
The Company has conducted a test of its recombinant Hepatitis A virus
vaccine in primates in collaboration with an independent third party.
After one inoculation, the primates exhibited a level of anti-
Hepatitis A antibodies indicative of a protective immune response. The
Company is presently seeking licenses for its U.S. Patent, and is not
actively commercializing this product.
There can be no assurance that the Company s Hepatitis A Vaccine
product will prove to be commercially viable, or that the Company will
successfully market this product or achieve significant revenues or
profitable operations or enter into any arrangements with third
parties for development of the vaccine, or if it does, that any such
arrangements will be on terms that will be favorable to the Company.ABS.
Various Other Agreements
As part of its development stage activities, the Company,ABS, in the ordinary
course of business, enters into various agreements that provide for the
expenditure by the Company of funds for research and development activities.
These agreements typically provide for the payment of royalties (typically 2% to
8% of net sales) by the CompanyABS if any products are successfully developed and marketed
as a result of the work being performed under the agreement. Reference is made
to Notes 3 and 6Note 10 of the Notes to Consolidated Financial Statements for a discussion of
various arrangements which the Company has entered into for collaborative
research and development projects (including arrangements for the use of space
and services) and technology license arrangements for the development and
prospective manufacturing and sale of products being developed.
Marketing and Sales
BecauseDuring fiscal year 1998, the Company had one customer account for 34%
of the Company's revenue, another customer accounted for 17%, while a third
customer accounted for 10% of the Company's revenues. The Company does not
believe that the loss of any of these customers would have a material adverse
effect on the Company.
The Company anticipates that commercial sales of its in vitro test kits
will be directed to hospitals, laboratories, clinical laboratories and
physicians in large group medical practices. The Company believes that sales to
hospitals and clinical laboratories will be dependent on general acceptance by
physicians using direct fibrinogen level measurement as part of routine and
special blood analyses.
Because ABS lacks the necessary financial resources, it intends to rely
on collaborative arrangements with pharmaceutical firms to conduct and fund the
major portion of the human clinical
Page 12
trials that are necessary to obtain
regulatory approval for any in vivo products it may develop. The Company also
intends to rely on these firms to market and sell the products exclusively,
especially during the first few years of the collaboration. The Company expects that most
of these collaborations will be based on licenses to sell in specific
countries. While each
arrangement may vary, the Company intends to require payment to itpayments of a royalty based
on sales of the product, with an amount to be paid up front"up front" upon entering into
the arrangement. The licenseeCompany continues to seek arrangements with large
pharmaceutical companies to market its products. In the event ABS is unable to
enter into other arrangements or, if the arrangements which it has entered into
or may also be requiredenter into in the future are not successful, the Company will likely seek
to obtain all ormarket such products, through distributors, which would require ABS to
develop a part of its
product requirements from the Company.marketing program to support sales. The Company expectshas begun marketing
through distributors its TpP diagnostic kit which requires, among other things,
the Company to retain
rightspay the expenses of developing promotional literature and aides,
hiring sales support personnel and completing studies to enter the market, sellingsupport clinical use of
the product under its own label,
possibly after an exclusive sales period granted to the licensee.which will aid distributors in selling ABS's in vitro diagnostic
tests. Independent distributors that ABS uses also market similar products.
11
There can be no assurance that any such marketing arrangements that will be
entered into or, that if entered into, they will be on terms similar to those
discussed above or on terms that will be favorable to the Company. If no
arrangements are entered into, the CompanyABS will require substantial alternative
financing in order to initiate
commercial marketing of any in vivo products that it may successfully
develop.market its products. There can be no assurance that any
such financing arrangements will be available to the Company or, if available
to, it will be available on terms acceptable or favorable to the Company.
Sales of ABS' proposed products on a commercial basis will be
substantially dependent on widespread acceptance by the medical community. The
use of any products that the Company may develop for in vivo diagnosis and therapy will
require educating the medical community as to their reliability, safety and
effectiveness. Currently used in
vivo products employ non-specific X-ray imaged dyes for diagnosis and
thrombolytics for therapy. Commercial sales of any in vivo products
developed by the Company will be dependent on general acceptance by
physicians. The Company, and aany pharmaceutical company with which it may
collaborate, may use several approaches to obtain the general acceptance in the
medical community of the Company's proposed products. Such promotional
approaches may include: publicizing existing studies; offering the products to
current practitioners and researchers who are leaders in their fields for their
use and publication of their findings; conducting comparative studies with
competitive products and methodologies and publishing the results of the
studies; and sponsoring professional symposia and seminars.
The personnel and financial resources of the Company are not sufficient
to permit the Company to alone gain the acceptance of the medical community for
the Company'sABS' proposed in vivo pharmaceutical products or vaccines. Accordingly, the
Company may be required to collaborate with one or more pharmaceutical
companies, which will provide the necessary financing and expertise to obtain
the acceptance of the medical community of the Company'sABS' proposed in vivo products. Such
arrangements are likely to entail, among other things, the sharing of revenue or
profits with such companies.
Sales of the Company's proposed products on a commercial basis
will be substantially dependent on widespread acceptance by the
medical community. Widespread acceptance of the Company's will
require educating the medical community as to the benefits and
reliability, safety and effectiveness of such products. The Company
anticipates that commercial sales of its in vitro test kits will be
directed to hospitals, laboratories, clinical laboratories and
physicians in large group medical practices. The Company believes
that sales to hospitals and clinical laboratories will be dependent on
general acceptance by physicians using direct fibrinogen level
measurement as part of routine and special blood analyses. There can be no assurance that any of the Company sCompany's products will be
accepted in the medical community, and the CompanyABS is unable to estimate whether
Page 13
it will
be able to, and if so the length of time it would take to, gain such acceptance.
Competition
The Company continuesbiotechnology industry is characterized by rapid technological
advances, evolving industry standards and technological obsolescence.
ABS has numerous competitors, none of whom is believed to seek arrangements with large
pharmaceutical companiesbe dominant,
and it is likely that others may enter the field. Competitors may develop
products which may render ABS' products obsolete or which have advantages ABS'
products, such as greater accuracy and precision or greater acceptance by the
medical community. ABS' inability to meet and surpass its competitors'
technological advances, could have a material adverse effect on the Company's
business, financial condition and results of operations. Competing products may
also get through the regulatory approval process sooner than ABS' products,
enabling those competitors to market its products. Intheir products earlier than ABS can.
Usually, the event the
Company is unable to enter into other arrangements or if the
arrangements which it has entered into or may enter into in the future
are not successful, the Company would likely seekfirst person to market sucha product has a significant marketplace
advantage. In addition, other products through independent distributors which would requirenow in use, presently undergoing the
Company to develop a marketing program to support sales. The Company
has begun marketing through distributors its TpP diagnostic kit which
will require, among other things, to pay the expenses of developing
promotional literature and aides, hiring sales representatives and
completing studies to support clinical use of the product which will
aid distributors in selling the Company s in vitro diagnostic tests.
Any independent distributors that the Companyregulatory approval process, or under development by others, may use would in all
likelihood also market competitive products. There can be no
assurance that the Company will be able to enter into arrangements for
the distribution of any in vitroperform similar
functions as our existing products on satisfactory terms.
Competition
Many new companies and research and development units of
established companies have entered the biotechnology field. These
companies, both public and private, include several well-known
pharmaceutical and chemical companies. Many of these companies, in
addition to universities and research institutions, have the capacity
to conduct substantial research activities in these areas, and have
substantially greater resources, research and development staffs and
facilities than the Company, greater name recognition and established
sales, marketing and distribution networks.or those under development.
12
Proprietary Technology, Patents and Trade Secrets
The Company'sABS' policy is to seek patent protection for its proposed products,
whether resulting from its own research and development activities or any
development and licensing arrangements that the Company may enterenters into. The CompanyABS has
twobeen issued United States Patents, Nos. 4,870,023 and 5,041,379, which will
expire 2006 and 2008, respectively; one United States Patent, No. 5,294,548,
relating to the Hepatitis A vaccine, filed jointly with the University of Iowa,
which will expire 2011. In addition, the CompanyABS has been issued United States Patent,
Nos. 5,091,512 and 5,120,834, each of which will expire in 2009, covering
monoclonal antibodies specific for fibrinogen and monoclonal antibodies specific
for fibrin respectively. The CompanyABS has also been issued a United States Patent No.
5,223,410, which will expire in 2010, covering the use of its AF mouse colony to
generate monoclonal antibodies. The CompanyABS has also been issued United States Patent
No. 5,721,122 which expires in 2015, covering a method of obtaining primed
lymphocytes collected from immunized antigen-free mice. The CompanyABS has further been
issued United States Patent No. 5,453,359, which will expire in 2012, covering
an immunoassay for soluble fibrin using theThe Company's proprietary
fibrin-
specificfibrin-specific monoclonal antibody as a method of detecting a thrombotic event,
such as myocardial infarction. The CompanyABS has also been issued United States Patent No.
5,487,892, which will expire in 2014, covering use of the Company's proprietary
fibrin-specific monoclonal Page 14
antibody as an antithrombotic agent. The CompanyABS has further
been issued United States Patent No. 5,723,126, which will expire in 2015,
covering the use of the Company's propriety fibrin-specific monoclonal antibody
in conjunction with a thrombolytic reagent for the treatment of thrombosis. ABS
has been issued United States Patent No. 5,837,540, which will expire in 2016,
covering a method of producing fibrin-specific antibody. ABS has also been
issued United States Patent No. 5,843,690, which will expire in 2015, covering a
method and an assay kit for the in vitro detection of the presence or amount of
soluble fibrin polymers in a sample from a subject. ABS has also been issued
United States Patent No. 5,871,737, which will expire in 2008, covering a
fibrin-specific monoclonal antibody. Additional patent applications are pending
covering alternative embodiments of the Company's proprietary fibrin-specific
monoclonal antibody, as well as improved methods of raising fibrin-
specificfibrin-specific
monoclonal antibodies and of using the soluble fibrin immunoassay. The CompanyABS has
twenty-two counterpart applications (including designated countries under patent
treaties) covering monoclonal antibodies specific for fibrinogen, monoclonal
antibodies specific for fibrin, methods for use of the Company's proprietary
fibrin-specific monoclonal antibody in a soluble fibrin assay, and as an
antithrombotic agent, and the use of the AF mouse colony to generate monoclonal
antibodies. The CompanyABS presently has issued three patents in Australia covering
monoclonal antibodies specific for fibrinogen, monoclonal antibodies specific
for fibrin, methods for localizing a blood clot in a patient, an immunoassay for
determining fibrin levels in a patient's blood, and use of the AM mouse colony
to generate monoclonal antibodies. The Company has exclusive worldwide rights in
technology relating to certain methods and compositions for treating epilepsy.
ABS has the exclusive license for United States Patent applications toNo. 5,786,380, which will
expire in 2015, covering a method of reducing seizure activity in an individual
by administering an anti-epileptic compound that contains 2-n-propyl-4-hexynoic
acid. Patents protect this technology
have been filed on behalf of the Company in the United
States and the European Patent Office. A patent has been issued from theThe European Patent Office which has been activated in
16 European states. The
Companycountries. ABS has filed additional patent applications in the
United States and other foreign jurisdictions to further protect this
technology. The Company also has exclusive worldwide rights in technology
related to certain novel neurotrophic methods and compositions. United States
Patent No. 5,672,746 issued September 30, 1997 and a second application has been
allowed.1997. Foreign applications to protect
this technology worldwide are pending. The CompanyABS is the worldwide exclusive licensee
of United States Patent No. 5,492,812, issued to Trinity College (Dublin,
Ireland), which will expire in 2013, covering a method for diagnosing
Alzheimer's disease, and a corresponding pending European patent application.
13
Ono Pharmaceutical, Ltd., ("Ono"), has filed third party observations
in ABS' patent applications relating to its neurotrophic compounds in the Japan,
and Australian patent offices as well as the European Patent Office. ABS has
filed a reissue application of its United States Patent No. 5,672,746 to provide
the United States Patent and Trademark Office an opportunity to examine this
patent in light of the issues raised by Ono. On November 30, 1998, the United
States Patent and Trademark declared an interference between an application of
Ono and one of the Company's applications related to its 5,672,746 patent to
determine the priority of invention of commonly claimed subject matter. As a
result of the interference, a determination will be made as to whether ABS or
Ono was the first to invent the invention within the scope of the interference
and therefore entitled to a patent, based on information not presently available
to ABS. Because interferences are interparty disputes, the cost of conducting
the interference may be substantial, whether or not the Company prevails.
There can be no assurance that any of the claims in pending or future
applications will issue as patents, that any issued patents will provide the CompanyABS
with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent issued to the CompanyABS
or, if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and prevent infringement can be substantial.
Furthermore, there can be no assurance that others have not independently
developed or will not develop similar technologies or will not develop
distinctively patentable technology duplicating the Company's technology or that
they will not design around the patentable aspects of the Company's technology.
While obtaining patents is deemed important by the Company,ABS, patents are not considered
essential to the success of its business. However, if patents do not issue from
present or future patent applications, the CompanyABS may be subject to greater
competition. Moreover, unpatented technology could be independently developed by
others who would then be free to use the technology in competition with
unpatented technology of the Company.ABS.
With respect to certain aspects of its technology, the CompanyABS currently relies
upon, and intends to continue to rely upon, trade secrets, unpatented
proprietary know-how and continuing technological innovation to protect its
potential commercial position. Relationships between the CompanyABS and its scientific
consultants and collaborators may provide access to the Company's know-how,
although, Page 15
in general, the CompanyABS has entered into confidentiality agreements with the
parties involved. Similarly, the Company'sABS' employees and consultants have entered into
agreements with the Company which require that they forebear from disclosing
confidential information of the CompanyABS and to assign to the Company all rights in any
inventions made while in the Company'sABS' engagement relating to Company activities.
However, all members of the Company' Scientific Advisory Committee may be
employed by or have consulting agreements with third parties, the business of
which may conflict or compete with ABS, and any inventions discovered by such
individuals as part of their agreement with third parties, will not become the
property of ABS. There can be no assurance that trade secrets will be developed
and maintained, or that secrecy obligations will be honored, or that others will
not independently develop similar or superior technology. To the extent that
consultants, employees, collaborators or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the ownership of such information which may not be
resolved in favor of the Company. All members of the Company's ScientificABS. See "Scientific Advisory Committee are employed by or have consulting agreements with third
parties, the business of which may conflict or compete with the
Company, and any inventions discovered by such individuals will not
become the property of the Company. See Management - Scientific
Advisory Committee .Committee."
14
Trademarks
The CompanyABS owns trademarks registered with the United States Patent and
Trademark Office for the names Global Scientific NetworkNetwork(R) and Cadkit Cadkit(R).
Federally registered trademarks have a perpetual life, as long as they are
renewed on a timely basis, subject to the rights of third parties to seek
cancellation of the marks. The CompanyABS has filed other trademark applications, including
for TpPTpP(TM) and FiF FiF(TM), may claim common law trade name rights as to other
potential products, and anticipates filing additional trademark applications in
the future. The CompanyABS does not believe that any of its trademarks (or applied for
trademarks) is material to its business.
Government Regulation
The Company'sABS' present and proposed activities are subject to government
regulation in the United States and any other countries in which the Company may
choose to market its proposed products or conduct product development, research
or manufacturing. The CompanyABS has not determined those countries, other than the United
States, where it will seek regulatory approvals to market its proposed products.
The following is a discussion of the processes required in order to obtain FDA
approval for marketing a product, which are different for the three types of
products being developed by the
Company:ABS: monoclonal antibodies for in vitro use,
monoclonal antibodies for in vivo use and vaccines.drugs to test neurological diseases.
In Vitro Diagnostic Products
For some in vitro diagnostic products, a process known as a 510(k) review"510(k)
review" is available to enable the manufacturer to demonstrate that the proposed
product is substantially equivalent"substantially equivalent" to another product that was in commercial
distribution in the United States before May 28, 1976 or is lawfully marketed
under a 510(k) (a predicate device )."predicate device"). When a 510(k) review is used, a sponsor
is required to submit a pre-market notification to the FDA. In February
1991, the Company submitted a pre-market notification as required
under Section 510(k) for its Cadkit in vitro diagnostic product, and
in April 1991, received notice from the FDA that the FDA had
Page 17
determined that the device was substantially equivalent (granted
510(k) clearance ). The CompanyABS cannot proceed
with commercial sales of such products for diagnostic use in the United States
until it receives 510(k) clearance from the FDA. In the event that the FDA
requests additional information for the pre-market notification, this could
result in multiple cycles of submissions, each potentially involving additional
review periods until 510(k) clearance is granted or FDA determines that the
device is not substantially equivalent.
The FDA has statutory authority to also require clinical data to
support a pre-market notification. In October 1996, the Company
received 510(k) clearance from the FDA to market the TpP test as an
aid in the risk assessment of thrombosis (blood clot formation) and
the monitoring of anticoagulant therapy and plans to submit additional
per-market notifications to obtain clearance to market the test for
additional specific indications.
In June 1997 the Company received 510(k) clearance from the FDA
to market its patented Functional Intact Fibrinogen (FiF ) test for
the quantitative determination of fibrinogen in human plasma.
Fibrinogen is the protein component that forms fibrin which in turn
builds blood clots. The Company's FiF test provides a rapid and
direct quantitative measurement of coagulable levels of fibrin protein
in plasma. The Company plans to submit additional in vitro diagnostic
tests in the future.
In cases where the Company'sABS' product is determined by the FDA not to be
substantially equivalent"substantially equivalent" to the predicate device, an approved pre-market
approval application ( PMA ),("PMA"), which involves a lengthier and more burdensome
process, will be required before commercial distribution is permitted. There can
be no assurance that any present or future in vitro test the CompanyABS develops will be
determined to be substantially equivalent by the FDA or receive PMA approval by
the FDA in a timely manner or at all. A PMA may be required for some or all the
Company's future proposed in vitro products.
The FDA invariably requires clinical data for a PMA and, although the
FDA may grant 510(k) clearance without supporting clinical data, such data may
be required by the FDA. The CompanyABS expects that it will submit clinical data in at
least some of its anticipated 510(k) notices. If clinical studies are necessary, the FDA may require the
Company to obtain an investigational device exemption ( IDE ). An IDE
restricts the sale of an investigational device to a limited number of
investigators, for the purpose of performing studies toThe Clinical data must be submitted
to the FDAgathered
in a Pre-Market Notification or a PMA. The amount that can
be charged for use of an investigational device in a clinical study is
limited to recovery of costs until a 510(k) notification is cleared or
PMA approval is granted by the FDA. Accordingly, no significant
economic return can be expected during the study of investigational
devices.
Diagnostic products may be exempt from IDE requirements if they
satisfy four criteria. The exemption applies only to tests that in
addition to having certain investigational use labeling statements,
are not invasive, do not require invasive sampling procedures that
present significant risk to the patient, do not introduce energy (such
as X-rays) into a subject, and are not used as diagnostics without a
confirmatory diagnosis by a medically established diagnostic product
or procedure. Certain diagnostic products under development by the
Company may not meet the requirements for this exemption. For
instance, energy may be introduced into test subjects by certain
Page 17
imaging procedures. Although there can be no assurances, the Company
believes that the clinical investigation of its in vitro diagnostic
products are exempt from the IDE regulation. Such products may still
be subjected to informed consent and institutional review board
requirements.accordance with FDA's regulations.
Medical devices may be exported before receiving 510(k) clearance an IDE or
PMA approval under certain conditions. To export
a device subject to 510(k) clearance the device must meet the
specifications of the foreign purchaser, not be in conflict with the
laws of the importing country, not be sold or offered for sale in
domestic commerce and be properly labeled. Other restrictions also
apply to devices that must go through the PMA process. Once cleared for marketing in the United
States, a diagnostic device must comply with certain regulatory requirements,
such as good manufacturing practices (also known as the Quality System
15
Regulation), medical device reporting, and restrictions on advertising and
promotion. The failure to comply can lead to FDA enforcement actions.
The European Union is developinghas developed a structure for the regulation of in
vitro diagnostic devices. The CompanyABS believes that there are no material regulatory
impediments to the sale of its in vitro diagnostic tests presently under
development in North Africa and the Middle East.
Monoclonal Antibodies for In Vivo Use and Vaccines
Any products intended for in vivo use, including vaccines, will be
subject to regulation by the FDA. The products produced, depending on their
characteristics, may be classified as biologics"biologics" or Products regulated under
the Public Health Service Act (the PHS"PHS" Act) and the Federal Food, Drug, and
Cosmetic Act (the FDCA "FDCA") or may be classified as non-biologic drugs regulated
only under the FDCA. Development of a pharmaceutical product for use in humans
under either statute is a multistep process. First, laboratory animal testing
establishes probable safety and parameters of use of the experimental product
for testing in humans and suggests potential efficacy with respect to a given
disease. Once the general investigative plan and protocols for specific human
studies are developed, an investigational new drug ( IND ("IND") application is
submitted to the FDA. FDA regulations do not,
by their terms, require FDA approval of an IND. Rather, they allow a
clinical investigation to commence if the FDA does not notify the
sponsor to the contrary within 30 days of receiptclearance of the IND. As a
practical matter, however, FDA approvalIND is typically necessaryrequired before a company would commence clinical investigations. That approval may
come within 30 days of IND submission but may involve substantial
delays if the FDA places the IND on clinical hold and requests
additional information.study can
begin.
In general the initial phase of clinical testing (Phase I) is conducted
to evaluate the pharmacological actions and side effects of the experimental
product in humans and, possibly, to gain early evidence of possible
effectiveness. Phase I studies evaluate the safety of the drug. A demonstration
of therapeutic benefit is not required in order to complete such trials
successfully. If acceptable product safety is demonstrated, then Phase II trials
may be initiated. Phase II trials are designed to evaluate the effectiveness of
the product in the treatment of a given disease and, often are well-
controlled,well-controlled,
closely monitored studies in a relatively small number of patients. Routes,
dosages and schedules of administration may also be studied. If Phase II trials
are successfully completed, Phase III trials may be commenced. Phase III trials
are expanded, controlled trials which are intended to gather additional
information about
Page 18
safety and effectiveness in order to evaluate the overall
risk/benefit relationship of the product and provide the evidence of safety and
effectiveness necessary for product approval. Although this is the standard drug
testing pattern, different approaches are often used, such as combining Phases I
and II.
It is not possible to estimate the time in which Phase I, II and III
studies will be completed with respect to a given product, although the time
period to complete all the testing can be as long asexceed five to ten years. Following the
successful completion of clinical trials, the clinical evidence that has been
accumulated is submitted to the FDA as part of a marketing application There can be no
assurance that the FDA will approve marketing applications for any of
the products developed by the Company in a timely manner, or at all.
In March 1993, the FDA cleared the Company to begin Phase I human
clinical testing for its patented fibrin specific monoclonal antibody
MH1. In January 1995, the Company completed Phase I studies of MH1
for imaging deep vein thrombosis (DVT) and pulmonary embolism (PE) and
initiated Phase I/II clinical trials for PE. Data on the clinical
trials was submitted as a final report on Phase I to the FDA.
The FDA also has extensive regulations concerning good
manufacturing practices. The Company's compliance with good
manufacturing practice, and its ability to assure the potency, purity
and quality of the drugs and biologics manufactured, must be
documented in the applications submitted for the products, and
manufacturing facilities will be subject to pre-approval and other
inspections by the FDA and other government agencies. The Company hasapplication.
ABS completed its agreement with Verax Corporation ( Verax ),("Verax"), which
manufactured the MH1 monoclonal antibody for the Phase I human trials. The Company has contractedABS is
party to an agreement with Creative BioMolecules Inc. ( Creative ),("Creative"), a bioprocess
technology company which succeeded Verax, to manufacture a sufficient quantity
of the Company's in vivo monoclonal antibody to enable the Company to conduct
human trials for Phase II, at a total cost of approximately $250,000.
Approval of the application is necessary before a company may market
the product. The approval process can be very lengthy and depends upon the FDA's
review of the application and the time required to provide satisfactory answers
or additional clinical data when requested. With any given product, there is no
16
assurance that an application will be approved in a timely manner, or at all.
Failure to obtain such approvals would prevent the CompanyABS from commercializing its
products and would have a material adverse effect on the Company's business.
The FDA also has extensive regulations concerning good manufacturing
practices. ABS' compliance with good manufacturing practice, and its ability to
assure the potency, purity and quality of the drugs and biologics manufactured,
must be documented in the applications submitted for the products, and
manufacturing facilities will be subject to pre-approval and other inspections
by the FDA and other government agencies.
Continued compliance with current good manufacturing practices is
required to market both biologic and non-biologic drug products once they are
approved. Failure to comply with the good manufacturing practice regulations, or
to comply with other applicable legal requirements, can lead to seizure of
violative products, injunctive actions, other enforcement actions, and potential
criminal and civil liability on the part of a Company and of the officers and
employees of a Company.
Page 19
Furthermore, the process of seeking and obtaining FDA approval for a
new product generally requires substantial funding. The CompanyABS anticipates that, in
most instances where it develops a product, the Company will seek to enter into
a joint venture or similar arrangement with an established chemical or
pharmaceutical company that will help conduct the required preclinical studies
and clinical trials and bear a substantial portion of the expense of obtaining
FDA approval.
In addition to complying with FDA regulations, the CompanyABS and the facilities
used by it are also required to comply with federal and state environmental,
occupational health and other applicable regulations. The CompanyABS believes that its
facilities comply with such regulations.
Manufacturing
While the Company is presently producingABS has produced a limited quantity of monoclonal antibodies for
testing and evaluation of its in vitro products, there can be no assurances that
the CompanyABS will be able to either finance or meet FDA regulations for good
manufacturing practices required in order to convert and operate such facility
for commercial production of such products. The CompanyABS does not intend to establish its
own manufacturing operations for its in vivo products unless and until, in the
opinion of management of the Company,ABS, the size and scope of its business and its
financial resources so warrant. It is the Company sCompany's intention to seek additional
third parties to manufacture its in vivo monoclonal antibody for commercial
production or enter into a joint venture or license agreement with a partner who
will be responsible for future manufacturing. Each joint venture partner or
contract manufacturer participating in the manufacturing process of the
Company sCompany's monoclonal antibody must comply with FDA regulations and provide
documentation to support that part of the manufacturing process in which it is
involved. The company is
currently contractingABS has contracted with four different GMP manufacturers for the
production of antibodies and the TpPTpP(TM) and FiFFiF(TM) kits. With the acquisition
of Stellar and management's plan to consolidate its facilities in Boston, MA
into Stellar's facilities in Columbia, MD, the Company intends that the
manufacture and assembly of TpP(TM) and FiF(TM) kits will be performed in house.
Stellar's facility meets GMP regulations.
There is no assurance that third parties in the future will be able to
manufacture sufficient quantities of the Company sCompany's in vivo monoclonal antibody
necessary to obtain full FDA clearance, that the FDA will
17
accept the Company sCompany's manufacturing arrangements, or find the facilities in GMP
compliance, or that these commercial manufacturing arrangements can be obtained
on acceptable terms.
Product Liability
The testing, marketing, manufacture and sale of pharmaceutical products
entails a risk of product and other liability claims by consumers and others.
Additionally, the Company'sABS' monoclonal antibodies are generated from an antigen free
mouse colony and instances of the human immune system negatively reacting to
mouse derived antibodies have been reported. Product and other liability claims
may be asserted by physicians, laboratories, hospitals or patients relying upon
the results of the Company's proposedABS' diagnostic tests.tests (MH1 imaging). Product liability claims may
be asserted by physicians, laboratories, hospitals or patients relying upon the
results of the Company sCompany's diagnostic tests.tests (TpP, FiF and Stellar products).
Claims may also be asserted against the
CompanyABS by end users of the Company sCompany's products,
including persons who may be treated with any in vivo diagnostic or
therapeutics.
Page 20
Certain distributors of pharmaceutical products require minimum product
liability insurance coverage as a condition precedent to purchasing or accepting
products for distribution. Failure to satisfy such insurance requirements could
impede the ability of the CompanyABS to achieve broad distribution of its proposed
products, which would have a material adverse effect upon the business and
financial condition of the Company.
The CompanyABS.
ABS has obtained product liability insurance covering theits TpP and FiF
products. Although the CompanyABS will attempt to obtain product liability insurance prior
to the marketing of any of its other proposed products, there is no assurance
that the CompanyABS will be able to obtain such insurance. Also, there can be no assurance
that any insurance obtained (including its existing policies) can be maintained
or if obtained, that such insurance can be acquired or maintained at a reasonable cost or
will be sufficient to cover all possible liabilities. In the event of a
successful suit against the
Company,ABS, lack or insufficiency of insurance coverage could
have a material adverse effect on the Company.ABS.
Scientific Advisory Committee
The CompanyABS has a Scientific Advisory Committee (the Committee)"Committee") comprised of
scientists and physicians active in the fields of microbiology, immunology and
molecular biology and in cardiovascular disease, hepatic disease and drug
development. These scientists serve as consultantsadvisors to the Company. Members of the
Committee generally make themselves available on an informal basis for
consultations with the Company.ABS. Members of the Committee are selected by the Company's
management.
Members of the Committee review the feasibility of the Company's
proposed research and development programs, the progress of programs undertaken
and assist in establishing both the scientific goals of the
CompanyABS and the priorities
of its product development. All members of the Company'sCompany' Scientific Advisory
Committee may be employed by or have consulting agreements with third parties,
the business of which may conflict or compete with the Company,ABS, and any inventions
discovered by such individuals as part of their agreement with third parties,
will not become the property of the Company.ABS. These individuals are not required to
devote any, and expected to devote only a small portion, of their time to the Company,ABS,
and are not expected to actively participate in the development of the Company's
technology. It is possible regulations or policies now in effect or adopted in
the future might limit the ability of the scientific advisors to continue their
relationship with the Company.ABS. Members of the Scientific Advisory Committee were used on
an informal basis for consultations in 1997.1998.
18
Payments to the members, exclusive of expenses, is $1,000 per meeting attended.
Members of the Advisory Committee have been granted ten year options to purchase
from 5,000 to 15,000 shares of Common Stock from the Company, an aggregate of
203,000 shares held by members of the Committee (in addition to options held by
Dr. Born in his capacity as a non-employee director of the Company), at exercise
prices ranging from $1.94 per share to $7.75 per share.share, as of December 31, 1998.
The 1997 annual compensation1998 payments to for the advisors for informal meetings and other
consultations as a group was approximately $87,000.$115,000. Certain members of the
Committee are associated with institutions with which the CompanyABS has undertaken or may
in the future engage in collaborative research efforts. Arrangements with such
institutions may result in one or more members of the Committee receiving
royalties or other compensation from such institution or the CompanyABS if such member
works as a scientist in the collaborative effort.
The members of the Committee have no general fiduciary duties to the Company,ABS,
have entered into limited confidentiality agreements and
Page 21
may, in their
discretion, engage in activities which are competitive with those engaged in by
the Company. The members of the Committee as of March 13,19, 1998 are:
Giancarlo Agnelli, M.D., is Associate Professor of Internal Medicine at
the University of Perugia, Italy, where he received his medical education. Prior
to appointment to his present post he was a research fellow and clinical fellow
in the Department of Pathology and Department of Medicine at McMaster
University, Hamilton, Ontario, Canada. He continues as an associate member of
the Hamilton Civic Hospital Research Center at McMaster University. Dr. AgnelliHe is
a
memberco-chairman of the editorial board or a manuscript reviewer for such
journals as Haemostasis, Blood, Diabetologia, ThrombosisSub-Committee on Control of Anti- coagulation of the
Scientific and Haemostasis, andStandardization Committee of the International Society on
Thrombosis Research. He has presented lectures at more than 200 international
and national meetings and is the author or co-author of more than 200 scientific
articles.
Denian Ba, M.D., is presently Academician, The Chinese Academy of
Engineering; President of the Chinese Academy of Medical Sciences & Peking Union
Medical College; Chairman, Chinese Society of Immunology; Vice Chairman, Chinese
Medical Association. Dr. Ba was engaged in research on Cancer Immunology as
Associate Chief, Chief, Department of Immunology at the Institute of Cancer
Research in Harbin Medical University, and Deputy Director, Director at the
Institute of Cancer Research in Harbin Medical University. Dr. Ba received his
M.D. from the Department of Medicine of Harbin Medical University, received his
Master of Science of Biochemistry from Beijing Medical University and received
his Ph.D. from the School of Medicine of Hokkaido University, Japan.
Konrad T. Beyreuther, Ph.D., is presently professor of Molecular
Biology and Head of Laboratory for Molecular Neuropathology at the Center of
Molecular Biology, University of Heidelberg, Federal Republic of Germany. His
primary research deals with genetics and molecular biology of Alzheimer's
disease and related dementia disorders. He earned his doctorate at the Max-Plank
Institute for Biochemistry Munich, University Munich, Germany.
Gustav Victor Rudolf Born, M.D., D. Phil., F.R.S., is presently
Research Director of The William Harvey Research Institute at St. Bartholomew's
Hospital Medical College, London, England, and Emeritus Professor of
Pharmacology in the University of London. Among Professor Born's distinctions,
appointments and activities are: Fellowship and Royal Medal of the Royal
Society; Foundation President of the British Society for Thrombosis and
Haemostasis; Corresponding Member of the Belgian Royal Academy of Medicine;
Professor of the Foundation de France, Paris; Robert Pfleger, Paul Morawitz and
Alexander-von-HumbolstAlexander-von- Humbolst Prizes; Honorary Life Member of the New York Academy of
Sciences; Medical Advisor of the
19
Heineman Medical Research Center, Charlotte, North Carolina; Co-Director for
Centre for Thrombosis and Loyola Research, Perugia, Italy; Honorary Doctorates from eight
universities including Brown.Brown and Loyola. Dr. Born is also a director of the
Company.
Francis J. Castellino, Ph.D., is Dean of the College of Science, and
Kleiderer-Pezold Professor of Biochemistry at the University of Notre Dame. He
earned a doctorate in biochemistry at the University of Iowa, and was a
postdoctoral fellow at Duke University Medical Center. He maintains a research
program studying blood coagulation and fibrinolysis.
Page 22
Jeffrey Ginsberg, M.D., is a hematologist with research training in
clinical and laboratory aspects of thrombosis. His current research interests
include the clinical development of novel antithrombotic agents, the diagnosis
and management of thrombosis during pregnancy, the prevention and treatment of
the post-phlebiticpost- phlebitic syndrome, the investigation of the clinical complications of
antiphospholipid antibodies, and the diagnosis of venous thrombosis and
pulmonary embolism. He is currently the principal investigator of a number of
clinical trials relative to thrombosis. He is the Director of the
Thromboembolism Unit at Chedoke-McMasterChedoke- McMaster Hospitals and a Research ScholarCareer Investigator of
the Heart and Stroke Foundation of Canada.Ontario.
Lawrence Grossman, Ph.D., is University Distinguished Service Professor
of Biochemistry at the Johns Hopkins University School of Hygiene and Public
Health, Baltimore, Maryland. He is consultant to Applied DNA Systems, Inc. He
earned a Ph.D. degree from the University of Southern California, and
subsequently trained and worked thereafter at Johns Hopkins University and
Brandeis University. His expertise are in DNA repair, molecular basis of
mutagenesis and molecular biology in general.
Thomas W. Meade, CBE, DM, FRCP, FRS, is presently Director of the
Medical Research Council Epidemiology and Medical Care Unit, Wolfson Institute
of Preventive Medicine, St. Bartholomew's and the Royal London Hospital School
of Medicine and Dentistry, London, England. Additional appointments include:
Professor of Epidemiology University of London, Hon. Consultant in Epidemiology,
Northwick Park and St. Mark's NHS Trust, Hon. Consultant in Epidemiology, The
Royal Hospitals NHS Trust. Hon. Director British Heart Foundation Cardiovascular
Epidemiology Research Group. He is: Doctor of Medicine, Fellow of the Royal
College of Physicians and Fellow of the Royal Society.
Daniel M. Michaelson, Ph.D., is presently Professor of Neurobiology,
Department of Neurobiochemistry, Tel Aviv University, Tel Aviv, Israel. He
earned a Ph.D. in Biophysics from the University of California, Berkley.Berkeley. Among
Professor Michaelson sMichaelson's distinctions, appointments and activities are: Membership
of the International Society of Neurochemistry, International Society for
Developmental Neuroscience, International Brain Research Organization, the New
York Academy of Sciences, Israel Society of Neurosciences, Israel Biochemical
Society and the Israel Society for Pharmacology and Physiology. He is a member
of the Scientific Advisory Board of the Alzheimer Foundation, a board member of the Israel Society for
Neuroscience, and a board member
of Ramot - University Authority for Applied Research and Industrial Development
Ltd.
Peter Victorovich Morozov, M.D., Ph.D., is Professor of Psychiatry at
the Russian State Medical University, Moscow. He has served as the Secretary of
the International Section of the National Scientific Society of Psychiatrists
and is currently secretary of the Russian Section of French-Russian Society of
Psychiatrists. Dr. Morozov's primary area of research is psychopharmacology,
problems of classification and diagnosis, post-traumatic stress disorders. Dr.
Morozov graduated from Pirogov II Medical School and received his doctorate from
the Institute of Psychiatry AMS USSR.
Page 2320
Gerald P. Murphy, M.D., before joining The Pacific Northwest Research
Foundation in 1993 was with the American Cancer Society as the Chief Medical
Officer since 1988, served as the Associate Director and Director of the Roswell
Park Memorial Institute, Cancer Research and Treatment Center, Buffalo, New
York, from 1968 to 1985. Dr. Murphy was Professor of Urology and in charge of
the Urologic Cancer Research Laboratory at the State University of New York at
Buffalo from 1985 to June 1988. Dr. Murphy was National American Cancer Society
President for 1983 & 1984. Dr. Murphy received his B.Sc. degree (Summa Cum
Laude) from Seattle University and a M.D. degree from the University of
Washington.
Alfred Nisonoff, Ph.D., is Professor of Biology (Emeritus) at the
Rosenstiel Research Center, Brandeis University, Waltham, Massachusetts. He
earned a doctorate in chemistry from Johns Hopkins University, Baltimore,
Maryland and was a postdoctoral fellow at the Johns Hopkins Medical School. Dr.
Nisonoff is on the Scientific Advisory Committee of the Roswell Park Cancer
Institute, Buffalo, New York.York and was employed by ABS from November 1996 to
November 1997 as Research and Development Executive. His expertise is in the
field of immunology and idiotypic antibodies. He was also Executive Secretary
for the Task Force on Immunology, National Institute of Allergy and Infectious
Diseases (1998). Member, U.S.United States National Academy of Sciences; Former
President, American Association of Immunologists; Member, American Academy of
Avis and Sciences; Foreign Correspondent; Belgian Academy of Medicine.
Rem V. Petrov, M.D., is currently Vice-President of Russian Academy of
Sciences, Moscow, Russia and chief of the Immunology Department of the Institute
of Bioorganic Chemistry of the Academy. His main scientific interests are in
fields of Immunogenetics (genetical control of Immune response, interactions of
syngeneic and nonsyngeneic cells) and Immunobiotechnology (artificial immunogens
and vaccines, immunopharmacology-myelopeptides and other natural
immunodulators).
Craig M. Pratt, M.D., currently is a Professor of Medicine, Section of
Cardiology, Department of Internal Medicine, Baylor College of Medicine,
Houston, Texas. Dr. Pratt is currently Director of the Coronary Care Unit and
Non-invasive Laboratories at The Methodist Hospital. Nationally, Dr. Pratt is
Chairman of the Cardiovascular and Renal Drugs Advisory Board to the Food and
Drug Administration. Dr. Pratt also serves on the Program Planning Committee for
the Annual Meeting, American College of Cardiology.
John H. Proctor, Ph.D., wasFellow and formerly Secretary General of the
World Academy of Art and Science from 1986-1997, and Past President and Life
Fellow of the Washington Academy of Sciences in Washington, D.C., and a
corresponding member of the Spanish Royal Academy of Pharmacy.Sciences. He has
facilitated national and international technology transfer, organizational
development and productivity improvement projects for over thirty years. Dr.
Proctor has written three books and has published sixty-threeseventy- three technical
papers.
Ciaran M. Regan, Ph.D., D.Sc. is presently Statutory Lecturer inAssociate Professor
Pharmacology at University College, Dublin, Ireland. Dr. Regan received his
B.Sc. and Ph.D., both in Zoology, from University College, Dublin. He is a past Postdoctoral
Fellow, Department of Biochemistry, University of Nijmegen, The Netherlands and
past Scientific Officer of Medical Research Council, Institute of Neurology,
London. Dr. Regan has numerous publications.
Page 2421
Jacob Szmuszkovicz, Ph.D., is a Professor of Chemistry at the
University of Notre Dame, Notre Dame, Indiana. He earned a doctorate in
Chemistry from the Hebrew University, Jerusalem. He served as a Member of Staff
at the Weizmann Institute before joining the Upjohn Company where he held the
position of a Distinguished Scientist in the CNS (Central Nervous System) Unit
from 1954 to 1985. Dr. Szmuszkovicz is co-inventor on over 100 patents. He has
served as a Member of the Executive Committee of the Organic Division of the ACS
(American Chemical Society).
Personnel
As of March 13, 1998, the Company12, 1999, ABS had 3134 full time employees and 49 part-time
employees. Of the full-time employees 1516 are research and development personnel,
including 7 Ph.D.s, and the remaining are executive and administrative
personnel.
TheABS' President and Chief OperatingExecutive Officer, Executive Vice President
and Senior Vice President Business Development are parties to employment
agreements with the Company ending December 31, 1999, September 30, 2001 and
November 30, 2001, respectively. They also are parties to agreements with the CompanyABS to
keep corporate information with regard to the business of the Company
confidential during and subsequent to their employment with the Company.ABS.
None of ABS' employees are represented by a labor organization. ABS
believes its relationship with its employees is satisfactory. The Company believes its personnel relations are satisfactory.has
standardized procedures for recruiting, interviewing and reference checking
prospective personnel.
Item 2. Properties
The Company- - ------ ----------
ABS leases 7,700 square feet of space from Boston University in Boston,
Massachusetts which houses all of the Company sABS's research and development activities for
an annual base rent of $275,000 for a three year term ending December 31, 1999.1999,
of which a portion may be paid in shares of Class A Common Stock and warrants.
See Item 5 of this Report. The Company alsois negotiating an early termination of
this lease and intends to consolidate its research and development activities at
Stellar's facility.
ABS' subsidiary, Stellar has a lease covering 5,20016,000 square feet in
South
Bend, Indiana,Columbia, Maryland, with an annual base rent of $52,200$136,000 and terms ending March
31, 2000. The facility is closed and the Company is in the
process of subleasing the facility.
The Company has an2001.
ABS leases office leasespace in Copiague, New York (6,000 square feet) under
a lease expiring July 19981999 (with an annual base rent of $30,000), which it
intends to renew, and in Dublin, Ireland under a short-term office and facilities arrangement.
Item 3. Legal Proceedings
- - ------ -----------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted- - ------ ---------------------------------------------------
At a Special Meeting of Stockholders of the Company held on November
11, 1998, stockholders of ABS authorized an Amendment to the Company's Restated
Certificate of Incorporation in order to permit
22
the Company to effect, at any time prior to June 30, 1999 without further
stockholder approval, a stock combination (reverse split) pursuant to which the
Company's outstanding shares of Class A Common Stock and Class B Common Stock
would be exchanged for new shares of Class A Common Stock and Class B Common
Stock, respectively, in an exchange ratio to be approved by the Board of
Directors, ranging from one newly issued share for each four outstanding shares
to one newly issued share for each eight outstanding shares by vote of
security holders during33,637,605 shares in favor and 3,096,323 shares against, with 139,256 shares
abstaining. As a result of the fourth quarterCompany's repurchase of fiscal 1997.
Page 25
all remaining outstanding
5% Convertible Debentures, the second proposal scheduled for consideration at
such stockholders meeting (to approve the issuance of more than 4,000,000 shares
of Class A Common Stock upon conversion of such debentures) became moot and was
not considered by stockholders.
PART II
Item 5. Market for Registrant's Common Stock and Related Security
- - ------ ---------------------------------------------------------
Holder Matters
The Company's--------------
ABS' Class A Common Stock ( ("Common Stock Stock") is traded on the Nasdaq
National Market tier of the Nasdaq Stock Market under the trading symbol MABXA.
The following table sets forth the high and low closing bid prices for the
Company's Common Stock for the periods indicated, as reported by Nasdaq, without
retail mark-ups, mark-downs or commissions.
Fiscal Years
- - ------------
High Low
1998 ---- ---
- - ----
First Quarter $2 3/8 $ 1 17/32
Second Quarter 2 31/32
Third Quarter 1 3/16 13/32
Fourth Quarter 1 23/32 5/32
1997
- - ----
First Quarter $6 $3$ 3 3/8
Second Quarter 3 15/16 2 1/8
Third Quarter 3 15/16 2 15/16
Fourth Quarter 3 3/4 1 1/2
1996
First Quarter 6 7/8 2 7/16
Second Quarter 8 1/8 5
Third Quarter 6 1/8 4 3/16
Fourth Quarter 6 1/16 423
There were approximately 679694 holders of record of Common Stock as of
March 13, 199819, 1999 (exclusive of stockholders whose shares are held in street name
by brokers, depositories and other institutional firms).
The CompanyABS has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying dividends for the foreseeable future.
Page 26In connection with its Boston, Massachusetts lease agreement, ABS may,
at its option, pay a portion of the annual lease obligation with Class A Common
Stock (the "Issued Shares") plus a warrant (the "Warrant") to purchase shares of
Class A Common Stock (the "Warrant Shares"). The number of Issued Shares are
computed using the average market price of ABS' Class A Common Stock during the
ten days prior to issuance. The Warrant Shares are to be exercisable at a price
equal to the closing price of the underlying Class A Common Stock on the date
the Warrant is issued and for a period of four years from the date of issuance.
Pursuant to the lease agreement, on November 30, 1998, ABS issued 31,250 shares
of Class A Common Stock and a Warrant to purchase 31,250 shares of Class A
Common Stock at an exercise price of $1.03 per share. The purchaser agreed to
acquire the Issued Shares, the Warrant and the Warrant Shares for investment and
not with a view to the distribution of such securities. In connection therewith,
ABS has granted the purchaser certain rights to cause the Warrant Shares to be
registered under the Act at the Company's expense. ABS believes that the
exemption from registration afforded by Section 4(2) of the Act is applicable to
the issuance of such securities.
24
Item 6. Selected Financial Data
- - ------ -----------------------
The following selected financial data for the periods indicated have
been derived from the consolidated financial statements of the Company audited
by Arthur Andersen LLP, independent public accountants. This information should
be read in conjunction with the related financial statements and notes thereto
and management's discussion and analysis of financial conditions and results of
operations included elsewhere in this report.
For the Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
1993
----- ----- ----- ----- --------- ---- ---- ---- ----
Operating Results
Revenues:
Sales $1,197,000 $150,000 - - -
Royalties/License Fees- - - $100,000 -
-
Collaborative Agreements 9,000- $9,000 $54,000 $27,000 -
-
Net Loss ($7,548,000) ($7,147,000) ($7,700,000) ($5,607,000) ($7,431,000)
($6,521,000)
Net Loss Per Share
Basic and Diluted ($0.35).29) ($0.45).35) ($0.39).45) ($0.52).39) ($0.46).52)
Weighted Average Shares 20,223,000 17,209,000 14,455,000 14,399,000 14,327,00025,740,000 20,223,000 17,209,000 14,455,000 14,399,000
As Ofof December 31,
------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
Balance Sheet 1998 1997 1996 1995 1994
1993
----- ----- ----- ----- -----
Balance Sheet- - ------------- ---- ---- ---- ---- ----
Working Capital $6,961,000$2,947,000 $4,761,000 $13,697,000 $9,485,000 $7,055,000
$14,489,000
Total Assets $6,514,000 $9,388,000 $16,473,000 $12,521,000 $8,964,000
$16,636,000
Long-Term Debt $2,208,000$56,000 $8,000 $10,319,000 $7,865,000 -
-
Total Liabilities $918,000 $2,705,000 $10,931,000 $8,376,000 $408,000
$846,000
Accumulated Deficit ($49,415,000)56,963,000) ($42,268,000)49,415,000) ($34,568,000)42,268,000) ($28,961,000)34,568,000) ($21,530,000)28,961,000)
The CompanyABS has not paid any cash dividends on its Common Stock since its inception.
Page 2725
Item 7. Management's Discussion and Analysis of Financial Condition
- - ------ --------------------------------------------------------------
and Results of Operations
-------------------------
The following discussion and analysis provides information which ABS'
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
appearing elsewhere herein.
Liquidity and Capital Resources
The Company,ABS, a development stage company incorporated in September 1983, a development
stage company, has
launched two commercial products ( TpP TpP(TM), the
Company'sABS' Thrombus Precursor Protein
diagnostic test, and FiF FiF(TM), the Company'sABS' Functional Intact Fibrinogen diagnostic test),
in the fourth quarter of 1997 although it1997. Although to date has not yet derived any significant
revenues from the sale of these products. On April 23, 1998, the Company
acquired Stellar Bio Systems, Inc. ("Stellar") a manufacturer and distributor of
in vitro diagnostic products and research reagents. Reagents are individual
components of diagnostic products, such as antibodies, calibrators and serum
used in the biotechnology industry. The purchase price was $120,000 in cash and
$700,000 in Class A Common Stock (398,406 shares were issued), plus future
contingent payments of $650,000 in Class A Common Stock to be paid over three
years based upon future sales levels of Stellar, with the Class A Common Stock
to be valued at its market value on the acquisition agreement anniversary dates.
The Company has funded its research and development activities to date
principally from (i) the sale of Common Stock issued in an initial public
offering, (ii) the exercise of the Class A and Class B Warrants issued in the Company'sABS'
initial public offering, the(iii) private placementplacements of $8.5 million 8% Convertible Debentures and
$9.0 million 7% Convertible Debentures,Class A Common Stock, (iv) the exercise of stock options, (v) capital
contributions to the CompanyABS by theit's Chairman of the Board, a $900,000 net(vi) initial license fee
paymentpayments and, (vii) the income on funds invested in bank deposits, U.S.United States
Treasury bills and notes and other high grade liquid investments.
The CompanyABS expects to continue to incur substantial expenditures in research
and product development in the neurobiology program and in the development and
commercialization of a point of care format for TpP TpP(TM), as well as in the FDA
approval process relating to Phase I/II human clinical testing of its MH1 imaging product
and additional 510(k) filings for TpP TpP(TM), FiF(TM)and
FiF .Stellar's products.
As of December 31, 1997, the Company31,1998, ABS had working capital of $6,961,000,$2,947,000, compared
to $13,697,000$4,761,000 at December 31, 1996. The
Company's31,1997. ABS' management believes that current working
capital along with the projected receipt of licensing fees and/or financing or
other contingency plans, will be sufficient to fund its liquidity needsplanned activities
through 1998.the first quarter of 2000. Currently, product development plans of ABS
include licensing TpP(TM) and the Company include
marketing TpP and FiF , entering into distribution,
collaborative, licensing and co-marketing arrangements withneurobiology compound ABS 103, to large
pharmaceutical companies to provide additional funding and clinical expertise,
to perform additional testing necessary to obtain regulatory approvals, to
provide manufacturing expertise and to market the Company'sABS' products. Without such
collaborative,
licensing or co-marketing arrangements, additional sources of funding will be
required to finance ABS.
The Company's cash and cash equivalents decreased by $4,074,000 to
$3,047,000 during fiscal year 1998, primarily because cash used in operations
($5,181,000) and investing activities ($389,000) exceeded net proceeds from
financing activities ($1,496,000). Net cash of $5,181,000 was used in operations
to fund the
Company.26
Company's cash loss from operations of $5,288,000 (net of non cash expenses of
$497,000 for depreciation and amortization, $306,000 incurred in connection with
the issuance of stock and warrants, $317,000 for debt discount amortization and
a $1,140,000 loss related to the repurchase of the Company's 5% Convertible
Debentures). Cash of $107,000 was provided by changes in operating assets
primarily as a result of an increase in accounts payable and accrued expenses
($265,000), partially offset by higher accounts receivable ($69,000) and
inventory ($91,000) due the increased operations. Cash used in investing
activities was for purchase of equipment ($41,000), the acquisition of Stellar
Bio Systems ($119,000) and capitalized patent costs ($229,000). Financing
activities provided $1,496,000. In May 1998, the Company raised $3.7 million
(net of issuance costs) from the issuance of 5% Convertible Debentures. The
debentures were convertible into Class A Common Stock at a discount to the
market price. The Company's stock price subsequently decreased to $.16 on
October 23, 1998, when the Company raised an additional $2.7 million in a
private placement of Class A Common Stock at $.25 per share (a premium over the
market). The proceeds of this private placement, plus an additional $1.1
million, was used to repurchase the outstanding debentures in order to reduce
the level of potential dilution of the Common Stock.
At December 31, 1997, the Company1998, ABS had net operating loss carryforwards of
approximately $47,710,000$55,045,000 for income tax purposes. The net operating loss
carryforwards will expire in varying amounts through 2012.2013. In addition, the CompanyABS has
approximately $975,000$1,150,000 of available research and development tax credits to
offset future taxes. These credits expire in 2011.through 2012. In accordance with
Statement of Financial Accounting Standards No. 109 Accounting"Accounting for Income
Taxes, the Company" ABS has recorded a valuation allowance of $56,195,000 to fully reserve
for the deferred tax benefit attributable to its net operating loss and tax
credit carryforwards due to the uncertainty as to their ultimate realizability.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of a corporation of greater than 50 percentage points within
a three-year period places an annual limitation on the corporation's ability to
utilize its existing net operating loss carryforwards, investment tax and
research and Page 28
development credit carryforwards (collectively tax attributes)"tax attributes").
Such a change in ownership was deemed to have occurred in connection with the Company'sABS'
1990 initial public offering at which time the Company'sABS' tax attributes amounted to
approximately $4.9 million. The annual limitation of the utilization of such tax
attributes is approximately $560,000. To the extent the annual limitation is not
utilized, it may be carried forward for utilization in future years. At December
31, 1997, the Company1998, ABS has approximately $4,272,000$4,830,000 of the $4.9 million of net operating
losses that are no longer subject to this limitation.
Results of Operations
Since its inception, the Company's primary activities have
consisted of research and development, acquiring laboratory
equipment, developing and improving proprietary rights, preparing
and filing patent applications, preparing and filing FDA
applications, monitoring clinical trials, negotiating license
agreements and hiring and training personnel with respect to the
development of its proposed products.
The CompanyABS has not generated any significant revenues from the sale of any
products. Revenues from inception through December 31, 19971998 of $1,452,000$2,649,000 are
attributable to nonrefundable initial license fees and collaborative research
agreements, and
initial sale of TpP insince the fourth quarter of 1997.1997, sales of TpP and FiF and, since
April 1998, sales of Stellar products. As a result of the Company'sABS' substantial start-up
expenses and minimal revenues, the CompanyABS had an accumulated deficit of $49,415,000$56,963,000 as
of December 31, 1997. The Company's1998. ABS' research and development expenses are anticipated to
be substantial for the foreseeable future and the CompanyABS expects to continue to incur
significant operating losses.
The CompanyABS initiated its marketing efforts for TpP and FiF by exhibiting and presentation of its products atin the MEDICA
'97 trade show held in Dusseldorf, Germanymicrotiter
plate format, in November 1997. As
a result of this effort, the CompanyABS made initial salesales of TpP kits in 1997 and
has subsequesntly madecontinued sales of TpP kits to European, Japanese and JapaneseUnited States
distributors. The Company'sABS' efforts in 19981999 will be to selldirected toward increasing sales of
TpP and FiF in the U.S., addEIA
27
format by adding distributors, in Europe and Asia, begin marketing and
sellingcompleting the FiF diagnostic kit and enter into collaborative
agreements to developdevelopment of the point of care
formats(POC) format of TpP, entering into license agreements for the POC TpP and the
neuro compound, ABS 103, continuing clinical studies with TpP for additional
indications and expanding Stellar's product base through FDA 510K filings and
product acquisitions. ABS has licenses for TpP with Abbott and Roche in the
automated instrument format and a license for 45J with Yamanouchi. ABS does not
have any performance obligations under these agreements. In order to market the
product, the licensees will be required to file for the appropriate governmental
clearances. ABS has a sufficient quantity of antibodies to initially supply
these licensees. Management believes that the POC format will increase the
commercial potential of the TpP test and encourage the licensees to complete the
commercialization process under these agreements.
Comparison of Years Ended December 31, 1998 and 1997
ABS' net loss was $7,548,000 for the year ended December 31, 1998
compared to $7,147,000 for the year ended December 31, 1997. The increase was
primarily the result of an extraordinary charge for the early retirement of
debentures of $1,140,000 discussed above. The loss before the extraordinary
charge decreased by $739,000. This decrease is due to Stellar operations
(included from April 23, 1998), continued sales of TpP and FiF and reduced
research and development costs offset, in part, by increased selling, general
and administrative and the facility consolidation costs.
Sales during 1998 of $1,197,000 include sales of Stellar products since
the date of acquisition in late April 1998 and sales of TpP and FiF. TpP sales
were comparable to the 1997 sales of $150,000. Stellar product sales increased
over 1997 (prior to its acquisition and accordingly, prior to the inclusion of
it's results in the Company's consolidated results of operations).
To broaden
its product portfolio,Cost of sales increased by $433,000 during the twelve months ended
December 31, 1998 compared to the twelve months ended December 31, 1997 due
primarily to increased sales. Cost of sales as a percentage of sales was 38.8%
in 1998 and 21.3% in 1997. The percentage increase was due to Stellar products
having a higher cost, plus an increase in the cost of TpP and FiF kits.
Research and development costs decreased $1,081,000 from $3,242,000 to
$2,161,000 in the 1998 period. The decrease its manufacturingwas primarily due to the absence of
costs incurred during the first six months of 1997 relating to the relocation of
ABS' research laboratories from South Bend, Indiana to Boston, Massachusetts.
The cost of relocation included severance, relocation and expand its distribution channels,moving costs as well
as duplicate facility costs. The decrease was also attributable to a reduction
in personnel (FDA filing related) and consulting costs offset, in part, by
increases in the Company intendscost of TpP clinical studies and the TpP point of care
development costs.
Selling, general and administrative expenses increased by $765,000 from
$3,667,000 in the 1997 period to make
acquisitions.$4,432,000 in the 1998 period, primarily as a
result of the inclusion of Stellar, selling expenses relating to the marketing
and promotion of TpP and increased personnel cost relating to marketing of TpP
and business development.
Facility consolidation cost of $252,000 includes severance costs, lease
termination expenses and a write-down of leasehold improvements. In order to
conserve resources and operate more efficiently with less duplication,
management decided to close the nuerobiology area,Boston facility and consolidate the Company intendsresearch and
development and antigen free mouse colony at the Stellar facilities in Columbia,
Maryland. The process of closing the Boston facility is expected to continue focused researchbe completed
in the first half of its compounds1999.
28
Interest expense was $301,000 lower in appropriate models1998 than in 1997 due to a lower
average amount of neurodegeneration. Coincidentdebentures being outstanding during the year, with these efforts, the Company
intendsthose being
outstanding bearing a lower average interest rate.
Interest income, net, was $230,000 lower in 1998 than in 1997 due to
seek corporate partnership agreements.lower average cash balances.
Comparison of Years Ended December 31, 1997 and 1996
The Company'sABS' net loss was $7,147,000 for the year ended December 31, 1997
compared to $7,700,000 for the year ended December 31, 1996. The decrease of
$553,000 was primarily due to a decrease in interest expense of $1,035,000 and
increase in cost and expenses of $598,000 and product revenue of $150,000.
Revenue in fiscal year 1997 was primarily from the sale of TpPTpP(TM) diagnostic
kits.
Page 29
Research and development expenses increased $539,000 from $2,703,000 in
the 1996 fiscal year to $3,242,000 in the 1997 fiscal year as a result of
relocating the Company'sABS' research laboratories from South Bend, Indiana to Boston
Massachusetts (including( including severance, relocation and moving costs), increased
rent costs offset in part by a reduction in payments for research /
collaborative projects.
General and administrative expenses increased $27,000 from $3,640,000
in the 1996 period to $3,667,000 in the 1997 period as a result of increased
personnel increasedas to investor relations and travel and meeting costs relating to the
launch of the TpP, offset by a reduction in consulting costs.costs, primarily relating
to investor and public relations.
Interest expenses decreased by $1,035,000 from $1,950,000 in the 1996
period to $915,000 in the 1997 period, as a result of $1,351,000 amortization of
debt discount and $431,000 of debt issuance costs included in the 1996 period as
compared to $492,000 amortization of debt discount included in the 1997 period.
During fiscal year 1997, $8,600,000 of Convertible Debentures plus $161,000 of
accrual interest were converted into 2,995,006 shares of Class A Common Stock.
ComparisonYear 2000
State of Years Ended December 31, 1996 and 1995Readiness: The Company s net loss was $7,700,000 for the year ended
December 31, 1996 compared to $5,607,000 for the year ended
December 31, 1995. The increase of $2,093,000 wasYear 2000 problem is the result of some
computer programs being written using two-digits rather than four to define the
non-cash amortization ($1,351,000)applicable year. Therefore, it is possible that programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in a system failure or miscalculation.
ABS has been assessing the impact of debt discount relatingthe Year 2000 issue on its information
systems. ABS uses software developed and supported by third parties for various
applications, including financial reporting, sales, purchasing and inventory,
which will require upgrade.
In addition, ABS may face some risk to the 7% Convertible Debentures issuedextent that suppliers of
products and others with whom ABS has a material business relationship will not
be Year 2000 compliant. Accordingly, ABS has initiated formal communications
with significant suppliers and third parties in September 1996, non-
cash amortization of $285,000 relatingorder to the accounting for warrants issued for certain consulting
agreements and increases in public and stockholder communication
costs.
Research and development costs decreased by $270,000 in 1996
as a result of reduced research personnel, travel costs and
consulting services offset by increases in clinical costs and FDA
filing costs.
General and administrative costs increased by $762,000 in
1996 primarily due to increases in public and stockholder
communication costs, additional personnel relating to licensing
efforts, increased travel and meeting costs and professional
service costs.
Interest expense increased $1,725,000 due to the issuance of
$8.5 million 8% Convertible Debentures in late October 1995, and
$9.0 million 7% Convertible Debentures in September 1996. Of the
$1,950,000 interest expense in 1996, $1,351,000 related to the
amortization of debt discount and $431,000 related to
amortization of debt issuance costs. The interest on the 8%
Convertible Debentures is included with the principal amount to
determine the number of shares issued at conversion. During
1996, $6,050,000 of principal amount plus $166,000 interest on
the 8% Debentures was converted into 2,269,755 shares of Class A
Common Stock. Interest on the 7% Convertible Debentures is paid
in cash at the end of each quarter, while conversions during a
calendar quarter include accrued but unpaid interest. During
1996, no conversions occurred relating to the 7% Convertible
Debentures. During January and February 1997, $3,630,000 of
Convertible Debentures plus $31,000 of accrued interest were
converted into 1,155,410 shares of Class A Common Stock. The
Page 30
amount of interest expense in 1997 will depend upon the extent to
which the debentures are converted.
Investment income, net, increased by $203,000 in 1996
primarily dueABS may be vulnerable to the increased average balancesfailure of these suppliers and third parties
to remediate their own Year 2000 issues. ABS will review and evaluate the
responses it receives and periodically monitor the progress of these suppliers
and third parties in addressing their own Year 2000 issues. However, ABS is not
dependent upon any one supplier and believes that it could readily replace
non-compliant suppliers, should that become necessary.
29
ABS has reviewed its non-information technology systems to determine
the extent of any changes that may be necessary and currently believes that
minimal changes are necessary for Year 2000 compliance.
Costs: The estimated cost of the Year 2000 project is approximately
$50,000. This cost estimate may change as ABS progresses in its Year 2000
project, obtains additional information and conducts further testing.
Risks: ABS is not aware, at this time, of any Year 2000 non-compliance
that will not be cured by the Year 2000 and that will materially affect ABS.
However some risks that ABS faces include: the failure of internal information
systems, a slow down in receipt of manufactured product and in customers'
ability to make payments.
Contingency Plans: As an additional precaution, ABS is in the process
of developing contingency plans to mitigate the possible disruption in business
operations that could result. These plans, which are dependent in large part on
the responses ABS receives from third parties with whom ABS has a business
relationship, are expected to be completed during the first half of 1999. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
Item 7 a. Quantitative and Qualitative Disclosures about Market Risk
- - -------- ----------------------------------------------------------
The Company's available cash equivalents and marketable securities during 1996. The Companyis invested in U.S.highly liquid investments
(primarily United States Treasury Bills and NotesBills) which have a maturity, at the time of
purchase, of less than three months. ABS does not have operations subject to
risks of foreign currency fluctuations, nor does it use derivative financial
instruments in its operations. ABS does not have exposure to market risks
associated with an average
maturity of five months during 1996.changes in interest rates as it has no variable interest rate
debt outstanding. ABS does not believe it has any other material exposure to
market risks associated with interest rates.
Item 8. Financial Statements and Supplementary Data
- - ------ --------------------------------------------
The response to this item is submitted in a separate section of this
report, startsstarting on page F-1.
30
Item 9. Disagreements on Accounting and Financial Disclosure
- - ------ ----------------------------------------------------
Not applicable.
PART III
--------
The information called for by Part III (Items 10, 11, 12 and 13 of Form
10-K) is incorporated herein by reference to such information which will be
contained in the Company'sABS' Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 with respect to the Company's
1998ABS' 1999 Annual Meeting of
Stockholders.
Page 31
PART IV
-------
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
- - ------- ------------------------------------------------------
(a) 1. and 2. Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the CompanyABS are annexed
hereto immediately following the signature page of this Report.
Page
----
Index to Consolidated Financial Statements F - 1-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-21F-26
Information required by schedules called for under Regulation S-X is
either not applicable or the information required therein is included in the
consolidated financial statements or notes thereto.
Page 3231
3.
Exhibits
Exhibit No. Description
- - ---------- -----------
3.1 Restated Certificate of Incorporation of the Company,ABS, as filed with
the Secretary of State of Delaware on July 30, 1996.
Incorporated herein by reference to Exhibit 4.01 to the Company'sABS'
Registration Statement on Form S-8, File No. 333-09473.
3.2 Amended and Restated By-Laws of the Company.ABS. Incorporated herein by
reference to Exhibit 4.02 to the Company'sABS' Registration Statement on
Form S-8, File No. 333-09473.
4.1(a) Form of the Company'sABS' 8% Convertible Debentures due October 13, 1998.
Incorporated herein by reference to Exhibit 4.1 to the Company'sABS'
Current Report on Form 8-K dated October 12, 1995 (date of
earliest event reported), File No. 0-
19041.0-19041.
4.1(b) Form of the Company sCompany's 7% Convertible Debentures due September
30, 1998. Incorporated herein by reference to Exhibit 4.01 to
the Company sCompany's Current Report on Form 8-K dated September 30,
1996 (date of earliest event reported), File No. 0-19041.
4.1(c)(1) Form of ABS' 5% Convertible Debentures due May 20, 2001 (the
"5% Debentures"). Incorporated herein by reference to Exhibit
4.1 to ABS' Current Report on Form 8-K dated May 20, 1998
(date of earliest event reported), File No. 0-19041.
4.1(c)(2) Form of Securities Subscription Agreement between ABS and each
of the purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.1 to ABS' Current Report on Form 8-K
dated May 20, 1998 (date of earliest event reported), File No.
0-19041.
4.1(c)(3) Registration Rights Agreement between ABS and each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.2 to ABS' Current Report on Form 8-K
dated May 20, 1998 (date of earliest event reported), File No.
0-19041.
4.1(c)(4) Form of ABS' Series WA Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.3(a) to ABS' Current Report on Form
8-K dated May 20, 1998 (date of earliest event reported), File
No. 0-19041.
4.1(c)(5) Form of ABS' Series WB Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.3(b) to ABS' Current Report on Form
8-K dated May 20, 1998 (date of earliest event reported), File
No. 0-19041.
4.1(c)(6) Form of ABS' Series WC Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 4.1 to ABS' Current Report on Form 8-K
dated May 20, 1998 (date of earliest event reported), File No.
0-19041.
4.1(d) Form of Purchase and Investment Agreement executed by the
Company and several investors on October 27, 1998.
Incorporated by reference to Exhibit 99 to the Company's
Registration Statement on Form S-3, file number 333-69735,
filed with the Commission on December 24, 1998.
32
4.1(e)* Form of Warrant issued to several individuals under the
Company's Financial Advisory Agreement with M.H. Meyerson &
Co., Inc., dated as of August 13, 1998 and schedule of holders
thereof.
10.1(a)+ Employment Agreement dated October 1, 1996 between the
CompanyABS and
Ellena M. Byrne. Incorporated herein by reference to Exhibit
10.1(b) to the Company sABS's Form 10-K/A dated April 30, 1997, File No.
0-19041.
10.1(b)+* Employment Agreement dated December 16, 1996November 3, 1998 between the
CompanyABS and
Dr. Stephen H. Ip. Incorporated herein by
reference to ExhibitMr. John S. North.
10.1(c) to the Company s Form 10-K/A
dated April 30, 1997, File No. 0-19041.
10.1(c)+* Employment Agreement dated November 12, 1997 between the
CompanyABS and
Dr. Emer Leahy. Incorporated by reference to Exhibit 10.1(c)
to ABS' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 0-19041).
10.2(a)+ The Company'sABS' Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 28.1 to the Company'sABS' Registration Statement on
Form S-8, File No. 33-51240.
10.2(b)+ The Company'sABS' 1993 Non-Employee Director Stock Option Plan.
Incorporated herein by reference to Exhibit 99.01 to the
Company'sABS'
Registration Statement on Form S-8, File No. 33-
65416.33-65416.
10.2(c)+ The Company sCompany's 1996 Stock Option Plan. Incorporated herein by
reference to Exhibit A to the Company sCompany's Proxy Statement dated
April 29, 1996 used in connection with the Company s
Page 33
Company's 1996
Annual Meeting of Stockholders, File No. 0-19041.
10.3 Exclusive License Agreement dated January 24, 1992 between the CompanyABS
and Yamanouchi Pharmaceutical Co., Ltd. Incorporated herein by
reference to Exhibit 10.29 to the
Company'sABS' Current Report on Form 8-K
dated January 24, 1992 (date of earliest event reported), File
No. 0-19041.0- 19041.
10.4 Warrant dated October 25, 1995 issued to Swartz Investments,
Inc. Incorporated herein by reference to Exhibit 10.13 to the Company'sABS'
Current Report on Form 8-K dated October 12, 1995 (date of
earliest event reported), File No. 0-19041.
21* List of SubsidiariesSubsidiaries.
24* Consent of Independent Public AccountantsAccountants.
27* Financial Data Schedule.
- - --------------------------------------------------------------------------------
* Filed herewith. All other exhibits are incorporated by
reference to the document following the description thereof.
+ Management contract or compensatory plan.
(b) Reports on Form 8-K
None
Page 3433
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN BIOGENETIC SCIENCES, INC.
(Registrant)
March 23, 199825, 1999
- - -------------------------------
(Date) By /s/ Josef C. Schoell
(Date)----------------------------------
Josef C. Schoell
Vice President, Finance
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
March 23, 19981999 /s/ Alfred J. Roach
-------------- ---------------------------------------
(Date) Alfred J. Roach, Chairman of the
Board of Directors
and Chief
Executive Officer and Director
March 23, 199825, 1999 /s/ Josef C. Schoell
-------------- ---------------------------------------
(Date) Josef C. Schoell
Vice President, Finance
(Principal FinancialMarch 25, 1999 /s/ John S. North
-------------- ---------------------------------------
(Date) John S. North
President and Accounting Officer)
March 23, 1998 /s/ Stephan H. Ip
(Date) Stephan H. Ip, President,
Chief OperatingExecutive Officer
and
Director
Page 3534
Signatures
----------
March 23, 199825, 1999 /s/ Timothy J. Roach
-------------- ---------------------------------------
(Date) Timothy J. Roach, Secretary,
Treasurer, and Director
March 23, 199825, 1999 /s/ Ellena M. Byrne
-------------- ---------------------------------------
(Date) Ellena M. Byrne, Executive
Vice President and Director
March 23, 199825, 1999 /s/ Joseph C. Hogan
-------------- ---------------------------------------
(Date) Joseph C. Hogan, Director
March 23, 199825, 1999 /s/ William G. Sharwell
-------------- ---------------------------------------
(Date) William G. Sharwell, Director
March 23, 199825, 1999 /s/ Gustav Victor Rudolf Born
-------------- ---------------------------------------
(Date) Gustav Victor Rudolf Born, Director
Page 36March 25, 1999 /s/ Glenna M. Crooks
-------------- ---------------------------------------
(Date) Glenna M. Crooks, Director
35
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-21F-26
Information required by schedules called for under Regulation S-X is
either not applicable or the information required therein is included in the
consolidated financial statements or notes thereto.
Page
F - 1
Report of Independent Public Accountants
To American Biogenetic Sciences, Inc.:
We have audited the accompanying consolidated balance sheets of
American Biogenetic Sciences, Inc. (a Delaware corporation in the development
stage) and subsidiarysubsidiaries as of December 31, 19971998 and 1996,1997, and the related
consolidated statements of operations, stockholders' equity and cash flows and stockholders' equity for
each of the three years in the period ended December 31, 19971998 and for the period
from inception (September 1, 1983) to December 31, 1997.1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 financial position of American Biogenetic
Sciences, Inc. and subsidiarysubsidiaries as of December 31, 19971998 and 1996,1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 19971998 and for the period from inception to December
31, 19971998 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Melville, New York
February 18, 1998
PageMarch 22, 1999
F - 2
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)(a development stage company)
CONSOLIDATED BALANCE SHEETS December 31,
December 31,----------------------------------------
Assets 1998 1997
1996
------------ ---------------------------- --------------
Current Assets:
Current Assets:
Cash and cash equivalents $3,047,000 $7,121,000
$10,760,000
Marketable securitiesAccounts receivable 177,000 -
3,021,000
Inventory $296,000 -545,000 296,000
Other current assets $41,000 528,000
------------ ------------40,000 41,000
---------------------------------------
Total current assets 3,809,000 7,458,000
14,309,000
------------ ---------------------------------------------------
Fixed assets, at cost, net of accumulated
depreciation and amortization of $1,481,000
and $1,183,000, respectively631,000 511,000 591,000
Patent costs, net of accumulated amortization
of $390,000 and $292,000, and $212,000,
respectively 1,468,000 1,337,000 983,000
Debt issuance costs, net of accumulated amortization
of $0 and $520,000, and $370,000,
respectively - 59,000
569,000Intangible assets, net 580,000 -
Other assets 26,000 23,000
21,000
------------ ---------------------------------------------------
$6,514,000 $9,388,000
$16,473,000
============ ============---------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $797,000 $494,000 $609,000
Current portion of capital lease obligation 8,000 3,000
3,000
------------ ------------Current portion of notes payable 57,000 -
7% convertible debentures - 1,350,000
8% convertible debentures - 850,000
---------------------------------------
Total current liabilities 497,000 612,000
------------ ------------862,000 2,697,000
---------------------------------------
Long Term Liabilities:
7% convertible debentures, net of unamortized
debt discount of $0 and $492,000, respectively 1,350,000 8,508,000
8% convertible debentures 850,000 1,800,000Notes Payable, less current portion 56,000 -
Long-term portion of capital lease obligation - 8,000
11,000
------------ ---------------------------------------------------
Total liabilities 918,000 2,705,000
10,931,000
------------ ---------------------------------------------------
Commitments (Notes 1,3,5,1, 5, 8 and 6)10)
Stockholders' Equity:
Class A common stock, par value $.001 per share;
50,000,000 shares authorized; 19,341,61735,559,556 and 16,270,99419,341,617
shares issued and outstanding, respectively 36,000 19,000 16,000
Class B common stock, par value $.001 per share;
3,000,000 shares authorized; 1,725,5003,000,000 and 1,375,5001,725,500
shares issued and outstanding, respectivelrespectively 3,000 2,000 1,000
Additional paid-in capital 62,520,000 56,077,000 47,793,000
Deficit accumulated during the development stage (56,963,000) (49,415,000)
(42,268,000)
------------ ---------------------------------------------------
Total stockholders' equity 5,596,000 6,683,000
5,542,000
------------ ---------------------------------------------------
$6,514,000 $9,388,000
$16,473,000
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
Page F - 3---------------------------------------
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS For the Period
From Inception
(September 1,
Year Ended December 31, (September 1,
------------------------------------------ 1983) Through
------------------------------------------------------------- December 31,
1998 1997 1996 1995 1997
------------ ------------ -------------- --------------1998
---------------- --------------- --------------------- ------------------
Revenues:
Sales $1,197,000 $150,000 $ - $ - $150,000$1,347,000
Royalties / license fees - - 100,000- 1,000,000
Collaborative agreements - 9,000 54,000 27,000 302,000
------------ ------------ -------------- ------------------------------------------------------------------------------------------------
1,197,000 159,000 54,000 127,000 1,452,0002,649,000
Costs and expenses:
Cost of sales 465,000 32,000 - - 32,000497,000
Research and development 2,161,000 3,242,000 2,703,000 2,973,000 26,645,000
General28,806,000
Selling, general and administrative 4,432,000 3,667,000 3,640,000 2,878,000 24,661,000
------------ ------------ -------------- --------------29,093,000
Facility consolidation cost 252,000 - - 252,000
----------------------------------------------------------------------------------
Loss from operations (6,113,000) (6,782,000) (6,289,000) (5,724,000) (49,886,000)
------------ ------------ -------------- --------------(55,999,000)
----------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (614,000) (915,000) (1,950,000) (225,000) (3,742,000)(4,356,000)
Net gain on sale of fixed assets - 1,000 - 6,000 7,000
Investment income, (loss), net 319,000 549,000 539,000 336,000 4,206,000
------------ ------------ -------------- --------------4,525,000
----------------------------------------------------------------------------------
Loss before extraordinary charge (6,408,000) (7,147,000) (7,700,000) (55,823,000)
Extraordinary charge for early
retirement of debentures, net (1,140,000) - - (1,140,000)
----------------------------------------------------------------------------------
Net loss ($7,548,000) ($7,147,000) ($7,700,000) ($5,607,000) ($49,415,000)
============ ============ ============== ==============56,963,000)
----------------------------------------------------------------------------------
Per Share Information (Note 2):
NetBasic and Diluted loss per common share
BasicLoss before extraordinary charge ($0.25) ($0.35) ($0.45)
-------------------------------------------------------------
Extraordinary charge for early
retirement of debentures, net ($0.39)
============ ============ ==============
Diluted0.04) - -
-------------------------------------------------------------
Net loss ($0.29) ($0.35) ($0.45)
($0.39)
============ ============ ==============-------------------------------------------------------------
Common shares used in computing
per share amounts:
Basic and Diluted 25,740,000 20,223,000 17,209,000
14,455,000
============ ============ ==============
Diluted 20,223,000 17,209,000 14,455,000
============ ============ ==============-------------------------------------------------------------
The accompanying notes are an integral part
of these consolidated statements.
Page
F - 4
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Period
From Inception
(September 1,
1983)
Year Ended December 31, 1983)Through
------------------------------------------ Through December 31,
1998 1997 1996 1995 19971998
----------- ------------ ----------- ------------ -------------- --------------
Cash Flows From Operating Activities:
Net income (loss) ($7,548,000) ($7,147,000) ($7,700,000) ($5,607,000) ($49,415,000)56,963,000)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 497,000 531,000 541,000 392,000 2,225,0002,722,000
Net (gain) loss on sale of fixed assets - (1,000) - (6,000) (7,000)
Net (gain) loss on sale of marketable securities - - - (217,000)
Other non-cash expenses accrued primarily for stocks and warranwarrants 306,000 299,000 285,000 122,000 1,736,0002,042,000
Amortization of debt discount included in interest expense 317,000 492,000 1,351,000 2,160,000
Extraordinary loss on repurchase of debt 1,140,000 - 1,843,000- 1,140,000
Write-off of patent costs - - - 93,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (69,000) - - (69,000)
(Increase) decrease in inventory (91,000) (296,000) - - (296,000)(387,000)
(Increase) decrease in other current assets 1,000 487,000 (365,000) 41,000 (41,000)(40,000)
(Increase) decrease in other assets 1,000 (2,000) 2,000 (5,000) 72,00073,000
Increase (decrease) in accounts payable and accrued expenses 265,000 46,000 267,000 108,000 711,000976,000
Increase in interest payable to stockholder - - - 112,000
------------ ------------ -------------- ------------------------------------------------------------------------
Net cash used in operating activities (5,181,000) (5,591,000) (5,619,000) (4,955,000) (43,184,000)
------------ ------------ -------------- --------------(48,365,000)
----------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (41,000) (222,000) (158,000) (41,000) (2,002,000)(2,043,000)
Proceeds from sale of fixed assets - 2,000 - 16,000 18,000
Payments for patent costs and other assets (229,000) (434,000) (275,000) (257,000) (1,699,000)(1,928,000)
Business acquisition, net of stock issued and cash acquired (119,000) - - (119,000)
Proceeds from maturity and sale of marketable securities - 5,817,000 11,098,000 6,705,000 67,549,000
Purchases of marketable securities - (2,796,000) (9,722,000) (5,872,000) (67,332,000)
------------ ------------ -------------- ------------------------------------------------------------------------
Net cash provided by (used in) investing activities (389,000) 2,367,000 943,000 551,000 (3,466,000)
------------ ------------ -------------- --------------(3,855,000)
----------------------------------------------------------
Cash Flows From Financing Activities:
Payments to debentureholders (1,000,000) (1,246,000) - - (1,246,000)(2,246,000)
Proceeds from issuance of common stock, net 3,182,000 834,000 1,439,000 23,000 36,302,00039,484,000
Proceeds from issuance of 5% convertible debentures, net 3,727,000 - - 3,727,000
Proceeds from issuance of 7% convertible debentures, net - - 8,565,000 - 8,565,000
Proceeds from issuance of 8% convertible debentures, net - - 7,790,000- 7,790,000
Principal payments under capital lease obligation and notes payable (61,000) (3,000) (4,000) (2,000) (9,000)(70,000)
Redemption of 8% convertible debentures (500,000) - - (500,000)
Repurchase of 5% convertible debentures (3,852,000) - - (3,852,000)
Capital contributions from chairman - - - 1,000,000
Increase in loans payable to stockholder / affiliates - - - 2,669,000
Repayment of loans payable to stockholder and/ affiliates
(remainder contributed to capital by the stockholder) - - - (1,300,000)
------------ ------------ -------------- -------------------------------------------------------------------------
Net cash provided by (used in) provided by financing activities 1,496,000 (415,000) 10,000,000 7,811,000 53,771,000
------------ ------------ -------------- --------------55,267,000
----------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (4,074,000) (3,639,000) 5,324,000 3,407,000 7,121,0003,047,000
Cash and Cash Equivalents at Beginning of Period 7,121,000 10,760,000 5,436,000 2,029,000 -
------------ ------------ -------------- -------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $3,047,000 $7,121,000 $10,760,000 $5,436,000 $7,121,000
============ ============ ============== ==============$3,047,000
----------------------------------------------------------
Supplemental Disclosure of Non-cash Activities:
Capital expendituresexpenditure made under capital lease obligation - - - $20,000
$20,000
============ ============ ============== ==============----------------------------------------------------------
Convertible Debenturesdebentures converted into 4,851,618, 2,995,006,
2,269,755 354,204 and 5,618,96510,470,853 shares of Common Stock, respectively $1,447,000 $7,155,000 $5,485,000 $571,000 $13,211,000
============ ============ ============== ==============$14,658,000
----------------------------------------------------------
Warrants issued to debentureholders and placement agents $63,000 - $45,000 $480,000 $525,000
============ ============ ============== ==============
The accompanying notes are an integral part of these consolidated statements.
Page F - 5
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A Class B
Per Common Stock Common Stock
Share --------------------------- ------------------------
Amount Shares Dollars Shares Dollars
------- ------------ ------------- ----------- -----------
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - - $ -
Sale of common stock to chairman for cash .33 78,000 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1983 78,000 - - -
Sale of common stock to chairman for cash .33 193,500 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1984 271,500 - - -
Sale of common stock to chairman for cash .33 276,700 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1985 548,200 1,000 - -
Sale of common stock to chairman for cash .33 404,820 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1986 953,020 1,000 - -
Sale of common stock to chairman for cash .33 48,048 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1987 1,001,068 1,000 - -
Exchange of common stock for Class B stock (1,001,068) (1,000) 1,001,068 1,000
Sale of Class B stock to chairman for cash .33 - - 1,998,932 2,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1988 - - 3,000,000 3,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1989 - - 3,000,000 3,000$588,000
----------------------------------------------------------
Conversion of loans payablestockholder loan to stockholder into
additional paid-in capital - - - -
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses) 2.00 3,450,000 3,000 - -
Conversion of Class B stock into
Class A stock 668,500 1,000 (668,500) (1,000)
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000
------------ ------------- ----------- -----------
CONTINUED
Page F - 6$1,481,000
----------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
F - 5
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000
Exercise of Class A Warrants (net of $203,000
in underwriting expenses) for cash 3.00 3,449,955 3,000 - -
Exercise of Class B Warrants for cash 4.50 79,071 - - -
Conversion of Class B stock
into Class A stock 850,000 1,000 (850,000) (1,000)
Exercise of stock options 2.00 417,750 1,000 - -
Expense for warrants issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1991 8,915,276 9,000 1,481,500 1,000
Exercise of Class B Warrants (net of $701,000
in underwriting expenses) for cash 4.50 3,370,884 3,000 - -
Conversion of Class B stock
into Class A stock 106,000 - (106,000) -
Exercise of stock options 2.49 348,300 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1992 12,740,460 13,000 1,375,500 1,000
Sale of common stock to Medeva PLC. 7.50 200,000 - - -
Exercise of stock options 2.00 32,700 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1993 12,973,160 13,000 1,375,500 1,000
Exercise of stock options 2.16 91,250 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1994 13,064,410 13,000 1,375,500 1,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 1.85 354,204 - - -
Exercise of stock options 1.82 12,750 - - -
Expense for warrants/options issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
------------ ------------- ----------- -----------
CONTINUED
Page F - 7
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 2.74 2,269,755 2,000 - -
Exercise of stock options 2.53 569,875 1,000 - -
Expense for warrants/options issued - - - -
Discount on 7% convertible debentures - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 30, 1996 16,270,994 16,000 1,375,500 1,000
------------ ------------- ----------- -----------
Conversion of 7% and 8% Convertible Debentures
into Class A Common Stock 2.93 2,995,006 3,000 - -
Sale of Class B stock for cash 2.23 - - 350,000 1,000
Exercise of stock options 2.00 27,500 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 3.12 48,117 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1997 19,341,617 $19,000 1,725,500 $2,000
============ ============= =========== ===========
See notes to unaudited consolidated financial statements
Page F - 8
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Class A Class B Accumulated
Per Common Stock Common Stock Additional During the
Share Paid-in Development
Amount Shares Dollars Shares Dollars Capital Stage Total
------------------------------- --------- ---------- --------- ----------- ------------- ------------------
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983)$ - $ - - $ - $ - $ - $ -
1983)
Sale of common stock to chairman for cash .33 78,000 - - - 26,000 - 26,000
Net (loss) for the period - - - - - (25,000) (25,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1983 78,000 - - - 26,000 (25,000) 1,000
--------------------------------------------------------------------------------
Sale of common stock to chairman for cash .33 193,500 - - - 65,000 - 65,000
Net (loss) for the period - - - - - (242,000) (242,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1984 271,500 - - - 91,000 (267,000) (176,000)
---------------------------------------------------------------------------------
Sale of common stock to chairman for cash .33 276,700 - - - 92,000 - 92,000
Net (loss) for the period - - - - - (305,000) (305,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1985 548,200 1,000 - - 183,000 (572,000) (388,000)
--------------------------------------------------------------------------------
Sale of common stock to chairman for cash .33 404,820 - - - 134,000 - 134,000
Net (loss) for the period - - - - - (433,000) (433,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1986 953,020 1,000 - - 317,000 (1,005,000) (687,000)
---------------------------------------------------------------------------------
Sale of common stock to chairman for cash .33 48,048 - - - 16,000 - 16,000
Net (loss) for the period - - - - - (730,000) (730,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1987 1,001,068 1,000 - - 333,000 (1,735,000) (1,401,000)
---------------------------------------------------------------------------------
Exchange of common stock for Class B stock (1,001,068) (1,000) 1,001,068 1,000 - - -
Sale of Class B stock to chairman for cash .33 - - 1,998,932 2,000 664,000 - 666,000
Net (loss) for the period - - - - - (1,031,000) (1,031,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1988 - - 3,000,000 3,000 997,000 (2,766,000) (1,766,000)
---------------------------------------------------------------------------------
Net (loss) for the period - - - - - (1,522,000) (1,522,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1989 - - 3,000,000 3,000 997,000 (4,288,000) (3,288,000)
---------------------------------------------------------------------------------
Conversion of loans payable to stockholder into
additional paid-in capital - - - - 1,481,000 - 1,481,000
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses)underwrit 2.00 3,450,000 3,000 - - 5,699,000 - 5,702,000
expenses)
Conversion of Class B stock into
Class A stock 668,500 1,000 (668,500) (1,000) - - -
Net (loss) for the period - - - - - (2,100,000) (2,100,000)
------------ ------------- --------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000 $8,177,000 ($6,388,000) $1,795,000
------------ ----------------------------------------------------------------------------------------------
CONTINUED
F - 6
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Class A Class B Accumulated
Per Common Stock Common Stock Additional During the
Share Paid-in Development
Amount Shares Dollars Shares Dollars Capital Stage Total
-------- -------------- ------- -------- ------- --------- ----------- CONTINUED
Page F - 6 (column continuation)
---------
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000 $8,177,000 ($6,388,000) $1,795,000
Exercise of Class A Warrants (net of
$203,000
in underwriting expenses) for cash 3.00 3,449,955 3,000 - - 10,143,000 - 10,146,000
Exercise of Class B Warrants for cash 4.50 79,071 - - - 356,000 - 356,000
Conversion of Class B stock
into Class A stock 850,000 1,000 (850,000)(1,000) - - -
Exercise of stock options 2.00 417,750 1,000 - - 835,000 - 836,000
Expense for warrants issued - - - - 900,000 - 900,000
Net (loss) for the period - - - - - (4,605,000) (4,605,000)
------------ ------------- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 8,915,276 9,000 1,481,500 1,000 20,411,000 (10,993,000) 9,428,000
--------------------------------------------------------------------------------
Exercise of Class B Warrants (net of
$701,000
in underwriting expenses) for cash 4.50 3,370,884 3,000 - - 14,465,000 - 14,468,000
Conversion of Class B stock
into Class A stock 106,000 - (106,000) - - - -
Exercise of stock options 2.49 348,300 1,000 - - 865,000 - 866,000
Net (loss) for the period - - - - - (4,016,000) (4,016,000)
------------ ------------- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 12,740,460 13,000 1,375,500 1,000 35,741,000 (15,009,000) 20,746,000
--------------------------------------------------------------------------------
Sale of common stock to Medeva PLC. 7.50 200,000 - - - 1,500,000 - 1,500,000
Exercise of stock options 2.00 32,700 - - - 65,000 - 65,000
Net (loss) for the period - - - - - (6,521,000) (6,521,000)
------------ ------------- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 12,973,160 13,000 1,375,500 1,000 37,306,000 (21,530,000) 15,790,000
--------------------------------------------------------------------------------
Exercise of stock options 2.16 91,250 - - - 197,000 - 197,000
Net (loss) for the period - - - - - (7,431,000) (7,431,000)
------------ ------------- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 13,064,410 13,000 1,375,500 1,000 37,503,000 (28,961,000) 8,556,000
--------------------------------------------------------------------------------
Conversion of 8% Convertible Debenturesconvertible debentures
into
Class A Common Stock 1.85 354,204 - - - 571,000 - 571,000
Exercise of stock options 1.82 12,750 - - - 23,000 - 23,000
Expense for warrants/options issued - - - - 602,000 - 602,000
Net (loss) for the period - - - - - (5,607,000) (5,607,000)
------------ ------------- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000 $38,699,000 ($34,568,000) $4,145,000
--------------------------------------------------------------------------------
CONTINUED
F - 7
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Class A Class B Accumulated
Per Common Stock Common Stock Additional During the
Share Paid-in Development
Amount Shares Dollars Shares Dollars Capital Stage Total
-------- ------------ ------------- -----------
CONTINUED
Page F - 7 (column continuation)
-------- --------- ------- ------------ -------------- --------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000 $38,699,000 ($34,568,000) $4,145,000
Conversion of 8% Convertible Debenturesconvertible debentures
into
Class A Common Stock 2.74 2,269,755 2,000 - - 5,483,000 - 5,485,000
Exercise of stock options 2.53 569,875 1,000 - - 1,438,000 - 1,439,000
Expense for warrants/options issued - - - - 330,000 - 330,000
Discount on 7% convertible debentures - - - - 1,843,000 - 1,843,000
Net (loss) for the period - - - - - (7,700,000) (7,700,000)
------------ ------------- ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 16,270,994 16,000 1,375,500 1,000 47,793,000 (42,268,000) 5,542,000
------------ ------------- ---------------------------------------------------------------------------------------------
Conversion of 7% and 8% Convertible Debenturesconvertible
debentures into
Class A Common Stock 2.93 2,995,006 3,000 - - 7,152,000 - 7,155,000
Sale of Class B stock for cashCommon Stock to 2.23 - - 350,000 1,000 778,000 - 779,000
Chairman for cash
Exercise of stock options 2.00 27,500 - - - 55,000 - 55,000
Expense for warrants issued - - - - 149,000 - 149,000
Class A Common Stock issued 3.12 48,117 - - - 150,000 - 150,000
Net (loss) for the period - - - - - (7,147,000) (7,147,000)
------------ ------------- ----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $56,077,00019,341,617 19,000 1,725,500 2,000 56,077,000 (49,415,000) 6,683,000
-----------------------------------------------------------------------------------
Conversion of 5%, 7% and 8% convertible
debentures
into Class A Common Stock 0.32 4,851,618 5,000 - - 1,442,000 - 1,447,000
Sale of Class B Common Stock to 0.37 - - 1,274,500 1,000 465,000 - 466,000
Chairman for cash
Exercise of stock options 1.75 4,000 - - - 7,000 - 7,000
Expense for warrants issued - - - - 205,000 - 205,000
Class A Common Stock issued 1.06 163,915 - - - 174,000 - 174,000
Class A Common Stock issued for Stellar 1.76 398,406 1,000 699,000 - 700,000
Class A Common Stock issued for Private 0.25 10,800,000 11,000 - - 2,689,000 - 2,700,000
Placement
Discount on 5% convertible debentures - - - - 762,000 - 762,000
Net (loss) for the period - - - - - (7,548,000) (7,548,000)
-----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 35,559,556 $36,000 3,000,000 $3,000 $62,520,000 ($49,415,000) $6,683,000
============ ============= ===========
See notes to unaudited consolidated financial statements
CONTINUED
Page F - 8 (column continuation)56,963,000) $5,596,000
-----------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
F-8
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Consolidated Financial Statements
1. Business and Development Stage Risks:
American Biogenetic Sciences, Inc. (together with its subsidiary,subsidiaries
(Note 2), the "Company" or "ABS") was incorporated in Delaware on September 1,
1983. The Company was formed to engage in the research, development and
production of bio-pharmaceutical products. As a development stage company, the
Company has not materially commenced its principal operations. Most of its
efforts have been devoted to research and development, acquiring equipment,
recruiting and training personnel, and financial planning. The Company's
research efforts have been focused on the development of products to diagnose,
prevent and treat diseases in humans.
The Company has insignificanthad limited product sales to date and has had limited
revenues from collaborative and licensing agreements (Note 6)10). Since its
inception, the Company has been dependent upon the receipt of capital investment
or other financing to fund its continuing research and commercialization
activities. The Company expects to incur substantial expenditures in research
and product development and the Food and Drug Administration approval process
relating to Phase
I and Phase II human clinical studies of its MH1 imaging product
and processing 510(k) applications for its TpP and other diagnostic test.tests.
Currently product development plans of the Company include entering into
collaborative, licensing and co-marketingco- marketing arrangements with large
pharmaceutical companies to provide additional funding and clinical expertise to
perform tests necessary to obtain regulatory approvals, provide manufacturing
expertise and market the Company's products. Without such collaborative,
licensing or co-marketing arrangements, additional sources of funding will be
required to finance the Company. In addition to the normal risks associated with
a business engaged in research and development of new products, there can be no
assurance that the Company's research and development will be successfully
completed, that any products developed will obtain the necessary U.S. regulatory
approvals (principally from the FDA), that any approved product will be a
commercial success, that adequate product liability insurance can be obtained or
that sufficient capital will be available when required to permit the Company to
realize its plans. In addition, the Company operates in an environment of rapid
changes in technology and in an industry which has many competitors who have far
more resources available to them than does the Company. Further, the Company is
dependent upon the services of several employees and advisors.
While losses from development stage activities are expected to continue
in 1998,1999, management believes that its liquidity and capital resources at
December 31, 1997 are adequate1998 along with the projected receipt of licensing fees and/or
additional financing or other contingency plans will be sufficient to fund its
planned activities through 1998.
Pagethe first quarter of 2000.
F - 9-9
2. Summary of Significant Accounting Policies:
Principles of Consolidation
During 1989, the Company formed a subsidiary, American Biogenetic
Sciences (Ireland), Ltd., which is 99% owned by the Company and, to fulfill
legal requirements, 1% owned by an officer of the Company. On April 23, 1998 the
Company acquired all of the capital stock of Stellar Bio Systems, Inc.
("Stellar") (Note 5). The financial statements reflect the accounts of the
Company and this subsidiary since formation.these subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash Equivalents
Cash equivalents include highly liquid securitiesinvestments which have an
original maturity of less than three months from date of purchase.
Marketable Securities
Marketable securities consistThe Company follows the provisions of short-term U.S. Government
obligations, which have an original maturity of greater than 3
months.
In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This Statement requires the classification of debt and
equity securities based on whether the securities will be held to maturity, are
considered trading securities or are available for sale. Classification within
these categories may require the securities to be reported at their fair market
value with unrealized gains and losses included either in current earnings or
reported as a separate component of stockholders' equity, depending on the
ultimate classification.
The Company adopted the provisionsConcentration of this Statement effective January 1, 1995.Credit Risk
As of December 31, 1998, the Company had four customers whose balances
exceeded 10% of the accounts receivable balance. These customers accounted for
22%, 21%, 18% and 11% of the accounts receivable balance.
During fiscal year 1998, one customer accounted for 34% of the
Company's revenues, another customer accounted for 17% while a third customer
accounted for 10% of the Company's revenues. There were no customers in fiscal
years 1997 and 1996 all debt securities have been classified as held to maturity.
These investments were stated at cost which approximated market.
Interest is accrued as earned.that exceeded 10% of revenues.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or
market.
CostF - 10
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long- Lived Assets to Be Disposed Of," ABS periodically
reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the fair value of
the assets measured by the future net cash flows (on an undiscounted basis)
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized would be measured by the amount by
which the carrying amount of the assets exceeds the underlying fair value of the
assets. ABS has performed a review of its long-lived assets and has determined
generally, on a first-in, first-out basis.
Fixed Assetsthat no impairment of the respective carrying values has occurred as of December
31, 1998.
Depreciation and Amortization
Depreciation and amortization of fixed assets are recorded onis generally provided for by the
straight-line method over the estimated useful lifelives of the assets or life of the lease, whichever is shorter, generally 5
years.
Page F - 10
assets.
Patent Costs
Costs of certain patent applications are capitalized. Upon issuance of
a patent, such costs are charged to operations over the estimated period of
benefit or 17 years, whichever is shorter, on the straight-line method. Costs of
unsuccessful patent applications or discontinued projects are charged to
expense.
Deferred Financing Costs
Deferred financing costs, which werecost incurred by the Company in connection with the
issuance of convertible debentures (Note 4 -
Long Term Debt) are7) were capitalized and charged to
operations as additional interest expense over the life of the related debt.
Upon the conversion of the underlying debt, any unamortized deferred financing costs
are charged to paid-in capital.
Intangible Assets
Intangible assets include goodwill and intellectual know how relating
to the acquisition of Stellar. Intangible assets are being amortized over a
10-year period.
Fair Value of Financial Instruments
The Company accounts for the fair value of its financial instruments in
accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." The carrying value of all financial instruments reflected in the
accompanying balance sheets approximated fair value at December 31, 1998 and
December 31, 1997, respectively.
F - 11
Revenue Recognition
Revenue on product sales is recognized at the time the products are
shipped to customers. Revenue from royalties and license fees are recognized
when earned, provided that no significant performance obligations remain.
Research and Development Income and Expenses
Revenues from collaborative agreements are recognized as the Company
performs research activities under the terms of each agreement.agreement provided that no
further performance obligations remain. Research and development costs are
charged to expense in the year incurred.
Stock-Based Compensation
Effective January 1, 1995, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
SFAS No. 123 encourages entities to adopt a fair value based method of
accounting for stock compensation plans. However, SFAS No. 123 also permits the
Company to continue to measure compensation costs under pre-existing accounting
pronouncements. If the fair value based method of accounting is not adopted,
SFAS No. 123 requires pro forma dislosuresdisclosures of net (loss) and net (loss) per
common share in the notes to consolidated financial statements. The Company has
elected to provide the necessary pro forma disclosures (Note 5)8).
Net Loss Per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic net loss per common share ("Basic EPS") is computed
by dividing net loss by the weighted average number of common shares
outstanding. Diluted net loss per common share ("Diluted EPS") is computed by
dividing net loss by the weighted average number of common shares and dilutive
potential common shares then outstanding. SFAS No. 128 requires the presentation
of both Basic EPS and Diluted EPS on the face of the consolidated statements of
operations. The impact of the adoption of this statement was not material to all
previously reported EPS amounts. Diluted EPS for 1995,1998, 1997 and 1996 and 1997 is the same
as Basic EPS because the inclusion of stock options and convertible debentures
outstanding would be anti-dilutive. PageFor the purposes of the calculation of both
basic and diluted EPS, Class A and Class B Common Stock have been treated as one
F - 1112
class. The following equity instruments were not included in the diluted net
loss per share calculation as their effect would be antidilutive:
December 31,
1998 1997 1996
---- ---- ----
Stock Options - Exercisable 3,279,334 3,018,543 2,546,750
Conversion of Convertible Debentures - 1,160,000 1,249,000
Exercise of Warrants 709,445 445,216 397,099
-------------- -------------- -----------
Total Shares 3,988,779 4,623,759 4,192,849
============== ============== ===========
Reclassifications
Certain reclassifications of prior period balances have been made to
conform with the current year presentation.
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. Inventory
Inventory consists of the following:
December 31,
---------------------------
1998 1997
----- -----
Raw Materials $339,000 $236,000
Work in Progress 91,000 --
Finished Goods 115,000 60,000
---------- ---------
$545,000 $296,000
========== =========
4. Fixed Assets
The following table lists fixedFixed assets by category:
December 31,
------------------------
1997 1996
----- -----
Laboratory equipment $1,241,000 $1,097,000
Office equipment, furniture and vehicles 521,000 462,000
Leasehold improvements 230,000 215,000
------------------------
1,992,000 1,774,000
Accumulated depreciation and amortization 1,481,000 1,183,000
------------------------
$511,000 $591,000
========================
3. Agreements with Boston University; Agreement withconsists of the University of Notre Dame; Employment Agreements; Scientific
Advisory Board Agreements:
Boston University Agreementsfollowing:
December 31,
-------------------------------
1998 1997
---- ----
Laboratory equipment $1,261,000 $1,241,000
Office equipment, furniture and vehicles 554,000 521,000
Leasehold improvements 534,000 230,000
------------- ------------
2,349,000 1,992,000
Accumulated depreciation and amortization (1,718,000) (1,481,000)
------------- ------------
$ 631,000 $ 511,000
============= ============
F - 13
5. Acquisition
On December 1, 1996,April 23, 1998, the Company entered into a Sublease
Agreement and, effective January 1, 1997, an Agreement for Services
with Boston University. These two agreements provide for the
Company's use of approximately 7,700 square feet of space for
laboratories and for its antigen-free technology at a total annual
payment of $275,000. The agreements have an initial term of three
years.
University of Notre Dame Agreement
On December 1, 1983, the Company entered into a five year
agreement with the University of Notre Dame ("Notre Dame
Agreement") which was amended and extended on November 15, 1988 to
cover the period from that date until November 30, 1993, at which
time it was terminated. As of December 1, 1993, the Company
entered into a lease with Notre Dame ("Notre Dame Lease") for
substantially the same premises occupied by the Company under the
Notre Dame Agreement for a term ending August 31, 1995. Notre Dame
extended the rental of a portion of the space through August 31,
1996. In February 1996, the Company entered into a lease in South
Bend, Indiana for approximately 5,200 square feet with an annual
Page F - 12
base rent of $52,200. This lease commenced on April 1, 1996 and is
a five-year lease with three one year renewal options after the
initial five year period. In September 1996, the Company entered
into a second lease in South Bend, Indiana for approximately 3,000
square feet with an annual base rent of $30,400. This lease is a
three year lease. In 1997, the Company moved its research and
development activites from South Bend , Indiana to Boston,
Massachusetts. The Company closed both facilities and subleased
the 3,000 square foot facility and is in the process of subleasing
the 5,200 square foot facility.
Under the Notre Dame Agreement, the Company was required to
pay Notre Dame for the direct and indirect payroll cost of
substantiallyacquired all of the Company's researchcapital stock of
Stellar, a manufacturer of immunodiagnostic kits and development
personnel, purchasesreagents. The purchase
price was $120,000 in cash and $700,000 in Class A Common Stock (398,406 shares
were issued) plus future contingent payments of laboratory supplies, items$650,000 in Class A Common Stock
to be paid over three years based upon future sales levels of equipment or
other costs associatedStellar with the
research projects.Class A Common stock to be valued at its market value on the anniversary dates.
The Notre Dame
Agreement and Notre Dame Lease provided the Company with use of a
research building and use of certain on site equipment as well as
access to other university assets and facilities.
Notre Dame has granted the Company all rights, title and
interest in and to any inventions, patents and patent applicationsAcquisition was accounted for research projects funded by the Company. Inventorspurchase method. Results of any
processes or technology which receive Company supportoperations
have assigned
his or her interestbeen included in the product, patent or patent applications
to the Company. The Company incurred costs under the Notre Dame
Agreement of approximately $0, $14,000 and $35,000 during the
years ended December 31, 1997, 1996, and 1995, respectively, and
$6,150,000 for the period from inception (September 1, 1983)
through December 31, 1997.
The Company has agreed to pay Notre Dame a royalty of 5% of
the net income the Company achieves from sales of products
resulting from Company-sponsored research activities at Notre Dame.
Royalty payments shall continue for a ten-year period fromCompany's consolidated financial statements since the
date of the first commercial sale of a product, regardlessacquisition. The excess of the continuationaggregate purchase price over the fair
value of net assets acquired of $621,000 has been allocated to intangible assets
(intellectual know-how of $100,000 and goodwill of $521,000) and is being
amortized over a 10-year period. Any additional future payments required under
the contingent earnout provisions of the Notre Dame Agreement.
Employment Agreements
The Presidentpurchase agreement will be accounted
for as additional goodwill and Chief Operating Officer, Executive Vice President, and
Senior Vice President Business Development, are parties to employment
agreements withwill be amortized over the Company ending December 31, 1999, September 30, 2001 and
November 30, 2001, respectively. The aggregate annual minimum compensation
under these agreementsremaining life of the
goodwill. Accumulated amortization of intangible assets was $41,000 as of
December 31, 1997 was approximately $410,000.
They also are parties to agreements with the Company to keep corporate
information with regard to the business1998.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued liabilities consist of the Company confidential duringfollowing:
December 31,
1998 1997
---- ----
Accounts Payable $355,000 $216,000
Accrued Interest - 149,000
Professional Fees 110,0000 70,000
Payroll and subsequent to their employment with the Company.
Scientific Advisory Committee Agreements
The Company has entered into advisory board agreements with
certain research scientists with respect to specific projects in
which the Company has an interest. The 1997 annual compensation
for the advisors as a group was approximately $87,000. Generally,
members of the Company's Scientific Advisory Committee are employed
Page F - 13
by or have consulting agreements with third parties, the businesses
of which may conflict or compete with the Company and any
inventions discovered by such individuals will not become the
property of the Company.
4.Related Expenses 85,000 59,000
Facility Consolidation Reserve 247,000 --
------------ ------------
$797,000 $494,000
============ ============
7. Long Term Debt:
On October 26, 1995, the Company completed an $8,500,000 private
placement of 8% Convertible Debentures. The outstanding
Debentures are payabledue on October 13, 1998 and accruewhich accrued
interest, payable at maturity, at a rate of 8% per annum. Each holder of
Debentures iswas entitled to convert the aggregate principal amount and accrued
interest of the Debentures through October 13, 1998 at an exercise price equal
to the lesser of the closing bid price of the Company's Common Stock on October
13, 1995 ($3.375) or 85% of the average closing bid price of the Company's
Common Stock for the five trading days prior to the conversion date. The Company
hashad the right to demand conversion of the Debentures and any accrued interest on
or after April 13, 1997. The Company also hashad the right to redeem Debentures
submitted for conversion for an amount determined under a formula related to the
F - 14
market price of the shares which would otherwise be issued upon conversion. In
conjunction with this offering, the Company incurred both cash and noncash
issuance costs totaling $1,190,000. These issuance costs are beinghave been amortized on
a straight line basis as a component of interest expense over the term of the
Debentures.Debentures which approximated the effective interest rate method. Upon the
conversion of the Debentures, the related unamortized deferred financing costs
arewere charged to paid-in capital. As compensation to the placement agent of the
Debentures, the Company paid the placement agent an 8% commission and issued
warrants entitling the placement agent to purchase 201,481 shares of Common
Stock at an exercise price of $4.05 per share at any time until October 23,
2000. The estimated noncashfair value of thesethe warrants as determined using an option-pricing model
of $480,000 has beenwas recorded as additional paid-in capital, while their cost has beenand included in the
$1,190,000 total issuance costs described above. As of December 31, 1998, these
debentures have been fully converted or redeemed.
On September 30, 1996, the Company completed a $9,000,000 private
placement of 7% Convertible Debentures due September 30, 1998. Interest on the
Debentures iswas payable quarterly at the rate of 7% per annum. The Debentures
(together with any accrued interest) arewere convertible to the extent of 25% of
the principal amount thereof commencing on December 23, 1996, with an additional
25% of the principal amount of the Debentures becoming convertible on each of
the 30th, 60th and 90th days thereafter, at a conversion price equal to 83% of
the average of the closing prices of the Company's Class A Common Stock for the
five consecutive trading days ending on the trading day immediately preceding
the conversion date of the Debentures (the "Current Market Price"); provided,
however, that in no event maycould the conversion price be less than $3.00 per
share (the "Minimum Conversion Price") nor greater than $8.00 per share (the
"Maximum Conversion Price"). In the event that, but for the Minimum Conversion
Price, the number of shares that would have been issued iswas greater than the
number of shares actually issued, the holder converting such Debenture shallwas also be
entitled to receive cash in an amount equal to such difference multiplied by the
Current Market Price. In the event any Debenture remainsremained outstanding at its
maturity date, the Company hashad the option to either convert such Debenture into
shares of Class A Common Stock on the same basis as the Debenture holder could
have
Page F - 14
converted such Debenture or pay the outstanding principal amount thereof,
plus any accrued interest thereon, in cash. In conjunction with this offering,
the Company incurred both cash and noncash issuance costs totaling $480,000.
These issuance costs are
beingwere amortized on a straight-line basis as a component of
interest expense over the term of the Debentures.Debentures which approximated the
effective interest rate method. Upon the conversion of the Debentures, the
related unamortized deferred financing costs arewere charged to paid-in-capital. As
compensation to the placement agent, of the Debentures, the Company paid the placement agent a 4%
commission and issued to brokers affiliated with the placement agent warrants
entitling them to purchase an aggregate of 15,618 shares of Common Stock at an
exercise price of $5.76 per share at any time until September 30, 1998. The estimated noncashfair
value of thesethe warrants as determined using an option-pricing model of $45,000,
has
beenwas recorded as additional paid-in capital, while their cost isand included in the $480,000 of
total issuance costs related to these Debentures. In addition, the Company
recorded additional paid inpaid-in capital and debt discount of $1,843,000 to reflect
the dollarintrinsic value of the market price conversion discount (17%) related to
these Debentures. The debt discount was amortized on a straight-line basis which
approximated the effective interest
F - 15
method, and charged to interest expense from October 1, 1996 through March 23,
1997, the period during which the Debentures becomebecame 100% convertible. In 1996,
$1,351,000 of this debt discount was amortized and charged to interest expense
and the balance of $492,000 was amortized in 1997. 5.As of December 31, 1998 these
debentures have been fully converted.
On May 20, 1998, the Company completed a private placement to three
accredited investors of an aggregate of $4,000,000 of 5% Convertible Debentures
due May 20, 2001, and three series of Warrants to purchase up to an aggregate of
261,288 shares of the Company's Class A Common Stock. The Debentures became
convertible to the extent of 25% of the principal amount thereof commencing on
September 17, 1998, with an additional 25% of the principal amount of the
Debentures becoming first convertible on each of October 17, 1998, November 16,
1998 and December 16, 1998 (subject to potential acceleration in certain
instances) at a conversion price equal to 87% (if converted before November 17,
1998), 86% (if converted between November 17, 1998 and February 14, 1999), 85%
(if converted between February 15, 1999 and May 20, 1999) or 84% (if converted
after May 20, 1999), respectively, of the average of the closing bid prices of
the Company's Class A Common Stock for the five consecutive trading days
immediately preceding the date of conversion of the Debentures; provided,
however, that in no event may the conversion price be greater than $1.9375 per
share, which was 125% of such average price over the five consecutive trading
days prior to the consummation of the transaction. Interest on the Debentures
was payable only on maturity, conversion, redemption or when other payment was
made on the Debentures in cash or, if registered for resale under the Securities
Act of 1933, as amended, in shares of the Company's Class A Common Stock valued
at the applicable Debenture conversion price. In the event the Company would be
required to issue more than 4,000,000 shares of its Class A Common Stock upon
conversion of all of the Debentures, the Company had the option of: (i) issuing
additional shares of Common Stock if stockholder approval had been obtained or
if stockholder approval was not required in order to comply with applicable
rules of the market upon which its Class A Common Stock is traded or (ii) paying
cash to the holder in an amount equal to the principal amount of Debentures
being converted plus an amount equal to the number of shares of Class A Common
Stock that would be otherwise issuable upon conversion of the Debentures
multiplied by the difference between the highest sales price of the Company's
Common Stock on the date of conversion and the applicable Debenture conversion
price. These debentures were repurchased on November 11, 1998 (see below).
The Company also issued to the investors warrants in series entitling
the investors to purchase, at an exercise price of $1.9141 per share, an
aggregate of 261,228 shares of the Company's Class A Common Stock at any time to
and including May 19, 2002. These warrants were canceled on November 11, 1998
(see below).
In conjunction with this offering, the Company incurred both cash and
noncash issuance costs totaling $525,000. These issuance costs were amortized on
a straight-line basis as a component of interest expense through November 11,
1998. Upon conversion of the Debentures, the related unamortized deferred
financing costs were charged to paid-in capital. The fair value of the warrants
F - 16
as determined using an option-pricing model of $252,000, was recorded as
additional paid-in capital and included in the $525,000 total issuance costs
related to these Debentures. In addition, the Company recorded additional
paid-in capital and debt discount of $762,000 to reflect the intrinsic value of
the maximum market price conversion discount (16%) related to these Debentures.
The debt discount was amortized and charged to interest expense from May 20,
1998 through November 11, 1998. The unamortized issuance costs and debt discount
were included in the extraordinary charge for early extinguishment discussed
below.
On November 11, 1998, the Company repurchased the then outstanding
principal amount of the debentures, of $3,248,000 plus accrued interest thereon
of $79,000 and a $525,000 premium for a total of $3,852,000. As a result of the
repurchase the Company has recorded a one-time extraordinary charge to earnings
of $1,140,000 which represents the loss on early extinguishment.
For each of the aforementioned debt instruments and warrants the fair
value of each was estimated on the date of the agreement using an option-pricing
model with the following assumptions: dividend yield of 0%; expected volatility
of 135% in 1998 and 84% in 1995 and 1996; risk-free interest rate of range 5.7%
to 6.5% and expected lives of 2 to 5 years dependent on the life of the
instrument.
8. Stockholders' Equity:
Description of Class A and Class B Common Stock
Holders of Class A Common Stock and Class B Common Stock have equal
rights to receive dividends, equal rights upon liquidation, vote as one class on
all matters requiring stockholder approval, have no preemptive rights, are not
redeemable and do not have cumulative voting rights; however, holders of Class A
Common Stock have one vote for each share held while holders of the Class B
Common Stock have ten votes for each share held on all matters to be voted on by
the stockholders. All Class B Common Stock is owned by the Chairman of the Board
and may be converted into Class A Common Stock on a share for shareshare-for-share basis at the
option of the holder and generally are automatically converted in the event of
sale or, with certain exceptions, transfer.
Initial Public Offering
In May and June 1990, the Company completed an initial public offering
of 1,150,000 units of its equity securities. Each unit consisted of three shares
of Class A Common Stock and three redeemable Class A Warrants. As a result of
this offering, the Company received approximately $5,702,000 of proceeds, net of
underwriting and other expenses. Each holder of a Class A Warrant was entitled
to purchase one share of Class A Common Stock and one Class B Warrant at an
exercise price of $3.00 at any time until five years from the date of the public
offering. Each holder of a Class B Warrant was entitled to purchase one share of
F - 17
Class A Common Stock at an exercise price of $4.50 at any time after exercise of
the Class A Warrants and until May 1995.
Page F - 15
During 1991, 3,449,955 Class A Warrants
and 79,071 Class B Warrants were exercised yielding net proceeds to the Company
of approximately $10,502,000 (after expenses of approximately $203,000). During
1992, 3,370,884 Class B Warrants were exercised for $14,468,000 (net of
approximately $701,000 of expenses). At December 31, 19971998 and December 31, 1996,1997,
there were no outstanding Class A and Class B Warrants.
Private Placement
On October 27, 1998, the Company entered into an agreement to issue an
aggregate of 10,800,000 shares of its Class A Common Stock to a group of
accredited investors at a price of $.25 per share, a price above the market
price of the Company's Class A Common Stock at the time. Of such shares,
4,000,000 shares were purchased by Alfred J. Roach, the Company's Chairman of
the Board of Directors and Chief Executive Officer, for an aggregate price of
$1,000,000. The Company has agreed to register the shares issued in the private
placement under the Securities Act of 1933, as amended, within six months after
the issuance of the shares. The proceeds from this private placement were used
to repurchase the 5% Convertible Debentures (see Note 7).
Stock Option Plans
The Company's 1986 Stock Option Plan (the "1986 Plan") provided for the
grant of incentive stock options and/or non-qualified options until July 1997 of
up to an aggregate of 4,450,000 shares of Class A Common Stock to employees,
officers and consultants of the CompanyCompany. Options were granted at exercise prices
not less than the fair market value at the date of grant and for a term not to
exceed ten years from the date of grant; except that an incentive stock option
granted under the 1986 Plan to a stockholder owning more than 10% of the
outstanding Common Stock of the Company could not exceedhave a term which exceeded
five years nor have an exercise price of less than 110% of the fair market value
of the Class A Common Stock on the date of the grant. The outstanding options
have a vesting period ranging two years to four years ratably from the date of
grant.
F-18
Changes in outstanding options and options available for grant under
the 1986 Plan, expressed in number of shares, are as follows:
For the Years Ended
-------------------------------------------------------------
December 31, 1997 December 31, 1996
---------------------------- ----------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
----------- -------------- ----------- --------------
Options outstanding,
beginning of year 2,979,500 $4.07 3,540,750 $3.74
Granted - - 126,000 $4.35
Exercised (27,500) $2.01 (552,375) $2.49
Cancelled (78,375) $3.86 (134,875) $1.93
Options outstanding,
end of year 2,873,625 $4.10 2,979,500 $4.07
Options exercisable,
end of year 2,737,125 $4.13 2,516,750 $4.26
Options available
for grant, end
of year - -
Page F - 16
For the Years Ended
December 31, 1998 December 31, 1997
---------------------------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
Options outstanding,
beginning of year 2,873,625 $4.10 2,979,500 $4.07
Granted -- -- -- --
Exercised (4,000) $1.75 (27,500) $2.01
Canceled (79,125) $3.74 (78,375) $3.86
Options outstanding,
end of year 2,790,500 $4.11 2,873,625 $4.10
Options exercisable,
end of year 2,730,750 $4.13 2,737,125 $4.13
Options available
for grant, end
of year -- --
The Company's 1993 Non-Employee Director Stock Option Plan (the "1993
Plan") provides for the issuance of stock options for up to 500,000 shares of
Class A Common Stock to outside directors of the Company. Options to purchase
10,000 shares of Class A Common Stock are automatically granted immediately
following each Annual Meeting of the Company to purchase 10,000
shares of Class A Common Stock to each outside director elected at
the Annual Meeting. The option exercise price is 100% of the fair market value
of the Class A Common Stock on the date of grant and the option may be exercised
during a period of five years from the date of grant at the rate of 25% each
year on a cumulative basis, commencing one year from the date of grant.
F - 19
Changes in outstanding options and options available for grant under
the 1993 Plan, expressed in number of shares, are as follows:
For the Years Ended
-------------------------------------------------------------
December 31, 1997 December 31, 1996
---------------------------- ----------------------------For the Years Ended
December 31, 1998 December 31, 1997
-----------------------------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
----------- -------------- ----------- --------------
Options outstanding,
beginning of year 80,000 $4.25 90,000 $3.42
Granted 30,000 $3.50 20,000 $6.75
Exercised - - (12,500) $3.38
Cancelled - - (17,500) $3.13
Options outstanding,
end of year 110,000 $4.05 80,000 $4.25
Granted 30,000 $1.00 30,000 $3.50
Exercised -- -- -- --
Canceled/Expired (20,000) $4.13 -- --
Options outstanding,
end of year 120,000 $3.27 110,000 $4.05
Options exercisable,
end of year 52,500 $3.86 50,000 $3.89 30,000 $3.65
Options available
for grant, end
of year 367,500 377,500 407,500
The Company's 1996 Stock Option Plan, as amended (the "1996 Plan"),
which replaced the 1986 plan, provides for the issuance of incentive stock
options and/or non-qualified options to purchase up to an aggregate of 1,000,0002,000,000
shares of Class A Common Stock to employees, officers and consultants of the
Company. Options may be granted at exercise prices not less than the fair market
value at the date of grant and may be exercisable for a period not to exceed ten
years from the date of grant; except that the term of an incentive stock option
granted under the 1996 plan to a stockholder owning more than 10% of the
outstanding Common Stock of the Company Page F - 17
must not exceed five years nor have an
exercise price of less than 110% of the fair market value of the Class A Common
Stock on the date of the grant. The majority of options outstanding are
exercisable 25% each year on a cumulative basis, commencing one year from the
date of grant.
F - 20
Changes in outstanding options and options available for grant under
the 1996 Plan, expressed in number of shares, are as follows:
For the Years Ended
-------------------------------------------------------------
December 31, 1997 December 31, 1996
---------------------------- ----------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
----------- -------------- ----------- --------------
For the Years Ended
December 31, 1998 December 31, 1997
--------------------------------------------------
Shares Weighted Avg. Shares Weighted Avg.
Under Option Under Option
Option Price Option Price
Options outstanding,
beginning of year 821,000 $3.35 80,000 $4.94
Granted 741,500 $.58 917,000 $3.34
Exercised -- -- - -
Canceled (74,750) $2.95 (176,000) $4.02
Options outstanding,
beginning of year 80,000 $4.94 - -
Granted 917,000 $3.34 155,000 $4.86
Exercised - - - -
Cancelled (176,000) $4.02 (75,000) $4.78
Options outstanding,
end of year 821,000 $3.35 80,000 $4.94
Options exercisable,
end of year 231,418 $3.46 - -
Options available
for grant,
end of year 1,487,750 $1.99 821,000 $3.35
Options exercisable,
end of year 496,084 $3.41 231,418 $3.46
Options available
for grant, end 512,250 179,000 920,000
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting StandardsSFAS No. 123,
"Accounting for Stock-BasedStock- Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for options granted in 1998, 1997, and
1996 with the provisions of SFAS No. 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below:
1998 1997 1996
- -----------------------------------------------------------------------------------
Net loss - as reported ($7,147,000) ($7,700,000)
Net loss - pro forma ($7,522,000) ($8,075,000)
Net loss per share - as reported ($0.35) ($0.45)
Net loss per share - pro forma ($0.37) ($0.47)
- -----------------------------------------------------------------------------------
Page F
- 18
- --------------------------------------------------------------------------------
Net loss - as reported ($7,548,000) ($7,147,000) ($7,700,000)
Net loss - pro forma ($8,243,000) ($7,522,000) ($8,075,000)
Basic and diluted loss per share -
as reported ($.29) ($.35) ($.45)
Basic and diluted loss per share - ($.32) ($.37) ($.47)
pro forma
- - --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricingoption- pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996:
F - 21
dividend yield of 0%; expected volatility of 135% in 1998 and 84%; in 1997 and
1996; risk-free interest rate of range 5.4%4.4% to 7.0% and expected lives of seven
years.
The weighted average fair value of all three option plans for options
granted were $.50, $2.10 and $3.77 in 1998, 1997 and 1996, respectively. The
following table sets forth additional SFAS No. 123 disclosure information as to
options outstanding for all three plans at December 31, 1997:
Weighted Average
Shares Exercisable Exercise Weighted Average Remaining
Outstanding Shares Price Range Exercise Price Contractual Life
- ---------------------------------------------------------------------------------
834,750 717,500 $1.50 - $2.25 $1.90 6.0
573,750 198,875 $2.38 - $3.50 $3.24 8.8
1,926,750 1,671,543 $3.63 - $5.38 $4.61 5.1
468,375 429,625 $5.50 - $7.75 $5.63 4.5
1,000 1,000 $10.00 $10.00 4.2
- ------------------------------
3,804,625 3,018,543
1998:
Shares Exercisable Exercise Weighted Average Weighed Average
Outstanding Shares Price Range Exercise Price Remaining
Contractual Life
425,000 -- $ .25 - $ .28 $ -- 8.7
162,500 -- $ .53 - $ .66 $ -- 9.8
90,000 7,500 $1.00 - $1.50 $ 1.50 7.5
901,250 733,000 $1.52- $2.25 $ 1.89 5.5
504,000 372,250 $2.38 - $3.50 $ 3.34 7.1
1,852,250 1,726,834 $3.63 - $5.38 $ 4.66 4.1
462,250 438,750 $5.50 - $7.75 $ 5.61 3.3
1,000 1,000 $10.00 $10.00 3.2
- - ----------- ----------
4,398,250 3,279,334
Other Options Granted
The Company entered into a consulting agreement with an unaffiliated
third party to assist in the strategic planning and implementation of the
Company's licensing, collaborative and co-marketing plans, which expired
February 29, 1996. Pursuant to the agreement, the Company granted an option to
purchase 50,000 shares of Class A Common Stock on or before February 28, 2000 at
$2.25 per share. The Company also granted performance options to purchase 50,000
shares of Class A Common Stock at $2.25 for licensing or collaborative agreement
entered into which met certain criteria. These options are exercisable for five
years from the date of grant.
The Company has recorded a noncash charge of $122,000 in
1996 relating to options for 100,000 shares granted.
The Company has granted an investor relations consultant a warrant to
purchase 50,000 shares of Class A Common Stock on or before November 14, 2000 at
$3.50 per share pursuant to an agreement dated November 27, 1995. The Company has recorded a
noncash charge of $254,000 ratably over the life of the agreement
relating to these warrants.
The Company entered into an agreement with an unaffiliated third party
dated October 6, 1995 to assist with the marketing of the Company's products and
intellectual property, which agreement has expired. Pursuant to this agreement,
the Company granted performance options to purchase 25,000 shares of Class A
Common Stock and issued 5,000 shares for services rendered under the agreement.
Options were granted for 12,500 shares at $3.00 per share and 12,500 shares at
$5.50. These options are exercisable for five years from the date of grant.
PageThe Company entered into an agreement with an unaffiliated third party
to render financial consulting advice, dated August 13, 1998 and amended on
October 1, 1998. Pursuant to this agreement, the Company granted performance
options to purchase up to 400,000 shares of Class A Common Stock. Options were
F - 1922
6.granted for 150,000 shares at $.75 per share, 150,000 shares at $1.00 per share
and 100,000 shares at $1.50 per share. The options are exercisable for four
years from the agreement date. The fair value of these options as determined
using an option-pricing model was $124,000 which is being recorded as a noncash
charge over the vesting/service period of the options. The following assumptions
were used for this fair value computation: dividend yield of 0%, volatility of
135%, risk-free interest rate of 4.26% and expected lives of 4 years. The 1998
charge was $43,000.
The Company performed a valuation of the aforementioned options and
warrants using an option- pricing model at the date of grant and recorded a
charge to operations over the related service period.
9. Federal Income Taxes:
At December 31, 1998, the Company had net operating loss carry forwards
of approximately $55,045,000 for income tax purposes. The net operating loss
carry forwards will expire in varying amounts through 2013. In addition, the
Company has approximately $1,150,000 of available research and development tax
credits to offset future taxes. These credits expire through 2012. In accordance
with Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," the Company has recorded a valuation allowance of $56,195,000 to fully
reserve for the deferred tax benefit attributable to its net operating loss and
tax credit carryforwards due to the uncertainty as to their ultimate
realizability.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of a corporation of greater than 50 percentage points within
a three-year period places an annual limitation on the corporation's ability to
utilize its existing net operating loss carry forwards, investment tax and
research and development credit carry forwards (collectively "tax attributes").
Such a change in ownership was deemed to have occurred in connection with the
Company's 1990 initial public offering at which time the Company's tax
attributes amounted to approximately $4.9 million. The annual limitation of the
utilization of such tax attributes is approximately $560,000. To the extent the
annual limitation is not utilized, it may be carried forward for utilization in
future years. At December 31, 1998, the Company has approximately $4,830,000 of
the $4.9 million of net operating losses that are no longer subject to this
limitation.
10. Various Other Agreements:Agreements
Agreements with Boston University
On December 1, 1996, the Company entered into a Sublease Agreement and,
effective January 1, 1997, an Agreement for Services with Boston University.
These two agreements provide for the Company's use of approximately 7,700 square
feet of space for laboratories and for its antigen-free technology at a total
annual payment of $275,000. The agreements have an initial term of three years.
In connection with this lease agreement, the Company may, at its option, pay a
portion of the annual lease obligation with Class A Common Stock plus a warrant
to purchase shares of Class A Common Stock. The number of shares are computed
using the average market price of the Company's Class A Common Stock during the
ten days prior to issuance. The warrant shares are to be exercisable at a price
equal to the closing price of the underlying Class A Common Stock on the date
the warrant is issued and for a period of four years from the date of issuance.
During 1997, the Company issued 48,117 shares of Class A Common Stock and
warrants to purchase 48,117 shares of Class A Common Stock with the exercise
price ranging from $2.13 to $4.75. During 1998, the Company issued 129,847
shares of Class A Common Stock and warrants to purchase
F - 23
129,847 shares of Class A Common Stock with the exercise price ranging from $.63
to $2.19. The fair value of the warrants were calculated using an option-pricing
model at the date of issue and recorded a charge to operations of $99,000 in
1998 and $93,000 in 1997. In the fourth quarter of 1998, the Company implemented
a consolidation of its research and development facilities. The Boston
facilities will be closed in the first half of 1999 and consolidated at the
Stellar facilities in Baltimore, Maryland. In 1998, the Company has recorded a
reserve for consolidating facilities of $252,000. This reserve includes
severance costs, lease termination, and the write-down of leasehold
improvements.
University of Notre Dame Agreement
On December 1, 1983, the Company entered into a lease agreement with
the University of Notre Dame ("Notre Dame Agreement") which was amended and
extended until November 30, 1993, at which time it was terminated. On December
1, 1993, the Company entered into a lease with Notre Dame ("Notre Dame Lease")
for substantially the same premises occupied by the Company under the Notre Dame
Agreement for a term ending August 31, 1995. Notre Dame extended the rental of a
portion of the space through August 31, 1996. In February 1996, the Company
entered into a lease in South Bend, Indiana for approximately 5,200 square feet
with an annual base rent of $52,200. This lease commenced on April 1, 1996 and
was a five-year lease with three one-year renewal options after the initial
five-year period. In September 1996, the Company entered into a second lease in
South Bend, Indiana for approximately 3,000 square feet with an annual base rent
of $30,400. This lease is a three year lease. In 1997, the Company moved its
research and development activities from South Bend, Indiana to Boston,
Massachusetts. The Company closed both facilities and has terminated both
leases.
Under the Notre Dame Agreement, the Company was required to pay Notre
Dame for the direct and indirect payroll cost of substantially all of the
Company's research and development personnel, purchases of laboratory supplies,
items of equipment or other costs associated with the research projects.
Notre Dame has granted the Company all rights, title and interest in
and to any inventions, patents and patent applications for research projects
funded by the Company. Inventors of any processes or technology which receive
Company support have assigned his or her interest in the product, patent or
patent applications to the Company. The Company incurred costs under the Notre
Dame Agreement of approximately $0, $0 and $14,000 during the years ended
December 31, 1998, 1997, and 1996, respectively, and $6,150,000 for the period
from inception (September 1, 1983) through December 31, 1998.
The Company has agreed to pay Notre Dame a royalty of 5% of the net
income the Company achieves from sales of products resulting from
Company-sponsored research activities at Notre Dame. Royalty payments shall
continue for a ten-year period from the date of the first commercial sale of a
product, regardless of the continuation of the Notre Dame Agreement.
Employment Agreements
The President and Chief Executive Officer, Executive Vice-President and
Senior Vice President Business Development are parties to employment agreements
with the Company ending November 15, 2001, September 30, 2001 and November 30,
2001, respectively. The aggregate annual minimum compensation under these
agreements as of December 31, 1998 was approximately $500,000. They also are
parties to
F - 24
confidentiality agreements with the Company during and subsequent to their
employment with the Company.
Scientific Advisory Committee Agreements
The Company has entered into advisory board agreements with certain
research scientists with respect to specific projects in which the Company has
an interest. The 1998 payment to the advisors for informal meetings and other
consultations as a group was approximately $115,000. Generally, members of the
Company's Scientific Advisory Committee are employed by or have consulting
agreements with third parties, the businesses of which may conflict or compete
with the Company and any inventions discovered by such individuals will not
become the property of the Company.
As part of its development stage activities, the Company enters into
various agreements that provide for the expenditure of funds for research and
development activities and typically provide for the payment of royalties
(between 2% to 8% of net sales) by the Company if any products are successfully
developed and marketed as a result of the work being performed under the
agreement. The following is a summary of significant agreements the Company has
entered into:
License Agreements
On January 24, 1992, the Company entered into an exclusive, 15 year
license agreement with Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), a
Japanese pharmaceutical company. Under this agreement, Yamanouchi may
manufacture, use or market diagnostic assays that contain the Company's
monoclonal antibody, 45-J, in Japan and Taiwan. Yamanouchi has paid a
non-refundable, initial sign-up payment to the Company of $1,000,000. In accordance with
the provisions$900,000 (net of
the agreement, Yamanouchi withheld $100,000 of
this payment to make withholding tax payments under the laws of
Japan on behalf of the Company, resulting in a net remittance of
$900,000.Japanese taxes). The agreement provides that Yamanouchi is to pay the Company a
fixed percentage over the Company's manufacturing costs of the 45-J antibody
supplied to Yamanouchi. On an ongoing basis, Yamanouchi is to pay the Company
royalties at the rate of 10% of all net sales of diagnostic assays sold by
Yamanouchi or its affiliates during each calendar year of the agreement term.
Additionally, Yamanouchi is to pay the Company 50% of any initial fees,
royalties or other consideration received with respect to any sublicense granted
by Yamanouchi. No payments have beenTo date, Yamanouchi has not made by
Yamanouchi to the Company since the initial sign-up payment.any sales.
On December 10, 1992, the Company entered into an agreement (as
amended) with University College Dublin, Ireland granting the Company an
exclusive license for drugs/compounds to halt the onset and/or progression of
neurodegenerative diseases, in general, and Alzheimer's Disease, in particular.
The agreement's term is the duration of any patents that may be granted to the
university with a minimum of 10 years. Pursuant to the agreement, the Company is
to pay the university a royalty of 5% of net income relating to product sales.
The Company expensed $5,000 in 1998, $12,000 in 1997 and $62,000 in 1996 and $150,000 in 1995 for
certain research expenses, supplies and equipment under this agreement.
On August 10, 1993, the Company entered into a five-year collaboration
agreement with the Free University of Berlin to develop therapeutic compounds.
The Company also acquired a series of anticonvulsant compounds. Pursuant to the
agreement, the Company is to pay a royalty of 5% of the net product sales. The
agreement lasts the life of the patent or a minimum of 10 years. The Company
expensed $103,000 in 1998, $116,000 in 1997 and $117,000 in both 1996 and
1995 for research
expenses and supplies under this agreement.
OnF - 25
In October 12, 1995, the CompanyABS entered into a license and collaboration agreement
with F.Hoffmann-LaF. Hoffmann-La Roche, Ltd. ("Hoffmann-LaHoffman-La Roche") for the co-development and
marketing of the Company's Page F - 20
Thrombus Precursor Protein (TpP )TpP test for the detection of active thrombosis
(blood clot formation). The agreement grants Hoffmann-La Roche a worldwide
license to market the TpP test in a latex based particle agglutination format.
Under the agreement, the Company has received certain, and is to receive additional,a $60,000 non-refundable development
paymentspayment, to adapt the TpP test in the latex based particle agglutination format
to Hoffmann-La Roche's automated diagnostic systems. The Company is also to
receive non-refundable
milestone payments upon achievement of certain commercialization goals.
The TpP test is to be manufactured by the Company for use on Hoffmann-La Roche's
instruments. The CompanyABS is to receive a percentage of Hoffmann-La Roche's net selling
price for the Company's manufacturing of the TpP test plus a 5% royalty on net
sales made by Hoffmann-La Roche. Under the agreement, the TpP test is also to be
sold by the CompanyABS and Hoffmann-La Roche to other diagnostic companies using similar
particle agglutination technology. On these sales, gross profit is to be shared
equally between the Company and Hoffmann-La Roche. OnTo date, ABS has not received
any milestone or royalty payments.
In December 13, 1995, the CompanyABS entered into a license agreement with Abbott
Laboratories Inc. ("Abbott") for the marketing of the Company's Thrombus Precursor Protein (TpP )
immunoassay. ThisTpP assay. The
license agreement grants Abbott a worldwide license to market the TpP test for
Abbott's immunoassay formats. The Company hasreceived a $100,000 non-refundable
up-front payment and is to receive non-refundable up-front and milestone payments upon achievement of
certain development and commercialization goals. The Company is to receive a 5%
royalty on net sales made by Abbott. In addition, the reagent for the TpP test
is to be manufactured by the Company for use by Abbott. 7. Federal Income Taxes:
AtTo date, ABS has not
received any milestone or royalty payments.
F - 26
Commission File No. 0-19041
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1998
AMERICAN BIOGENETIC SCIENCES, INC.
Exhibit
Number Document
- - ------- --------
3.1 Restated Certificate of Incorporation of ABS, as filed
with the Secretary of State of Delaware on July 30, 1996.
Incorporated herein by reference to Exhibit 4.01 to ABS'
Registration Statement on Form S-8, File No. 333-09473.
3.2 Amended and Restated By-Laws of ABS. Incorporated herein
by reference to Exhibit 4.02 to ABS' Registration
Statement on Form S-8, File No. 333-09473.
4.1(a) Form of ABS' 8% Convertible Debentures due October 13,
1998. Incorporated herein by reference to Exhibit 4.1 to
ABS' Current Report on Form 8-K dated October 12, 1995
(date of earliest event reported), File No. 0-19041.
4.1(b) Form of the Company's 7% Convertible Debentures due
September 30, 1998. Incorporated herein by reference to
Exhibit 4.01 to the Company's Current Report on Form 8-K
dated September 30, 1996 (date of earliest event
reported), File No. 0-19041.
4.1(c)(1) Form of ABS' 5% Convertible Debentures due May 20, 2001
(the "5% Debentures"). Incorporated herein by reference
to Exhibit 4.1 to ABS' Current Report on Form 8-K dated
May 20, 1998 (date of earliest event reported), File No.
0-19041.
4.1(c)(2) Form of Securities Subscription Agreement between ABS and
each of the purchasers of the 5% Debentures. Incorporated
herein by reference to Exhibit 99.1 to ABS' Current
Report on Form 8-K dated May 20, 1998 (date of earliest
event reported), File No. 0-19041.
4.1(c)(3) Registration Rights Agreement between ABS and each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.2 to ABS' Current Report on Form
8-K dated May 20, 1998 (date of earliest event reported),
File No. 0-19041.
4.1(c)(4) Form of ABS' Series WA Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.3(a) to ABS' Current Report on
Form 8-K dated May 20, 1998 (date of earliest event
reported), File No. 0-19041.
4.1(c)(5) Form of ABS' Series WB Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 99.3(b) to ABS' Current Report on
Form.
4.1(c)(6) Form of ABS' Series WC Warrant issued to each of the
purchasers of the 5% Debentures. Incorporated herein by
reference to Exhibit 4.1 to ABS' Current Report on Form
8-K dated May 20, 1998 (date of earliest event reported),
File No. 0-19041.
4.1(d) Form of Purchase and Investment Agreement executed by the
Company and several investors on October 27, 1998.
Incorporated by reference to Exhibit 99 to the Company's
Registration Statement on Form S-3, file number
333-69735, filed with the Commission on December 24,
1998.
4.1(e)* Form of Warrant issued to several individuals under the
Company's Financial Advisory Agreement with M.H. Meyerson
& Co., Inc., dated as of August 13, 1998 and schedule of
holders thereof.
10.1(a) + Employment Agreement dated October 1, 1996 between ABS
and Ellena M. Byrne. Incorporated herein by reference to
Exhibit 10.1(b) to ABS's Form 10-K/A dated April 30,
1997, File No. 0-19041.
10.1(b)+ Employment Agreement dated November 12, 1997 between ABS
and Dr. Emer Leahy. Incorporated by reference to Exhibit
10.1(c) to ABS' Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 the Company had net operating loss
carryforwards of approximately $47,710,000 for income tax purposes.(File No. 0-19041).
10.1(c) +* Employment Agreement dated November 3, 1998 between ABS
and Mr. John S. North.
10.2(a) + ABS' Stock Option Plan, as amended. Incorporated herein
by reference to Exhibit 28.1 to ABS' Registration
Statement on Form S-8, File No. 33-51240.
10.2(b) + ABS' 1993 Non-Employee Director Stock Option Plan.
Incorporated herein by reference to Exhibit 99.01 to ABS'
Registration Statement on Form S-8, File No. 33-65416.
10.2(c) + The net operating loss carryforwards will expire in varying
amounts through 2012. In addition, the Company has approximately
$975,000 of available research and development tax creditsCompany's 1996 Stock Option Plan. Incorporated herein
by reference to offset future taxes. These credits expire in 2011. In accordance
with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," the Company has recorded a valuation
allowance to fully reserve for the deferred tax benefit
attributable to its net operating loss and tax credit carryforwards
dueExhibit A to the uncertainty as to their ultimate realizability.
In accordance with certain provisions of the Tax Reform Act
of 1986, a change in ownership of a corporation of greater than 50
percentage points within a three-year period places an annual
limitation on the corporation's ability to utilize its existing net
operating loss carryforwards, investment tax and research and
development credit carryforwards (collectively "tax attributes").
Such a change in ownership was deemed to have occurredCompany's Proxy
Statement dated April 29, 1996 used in connection with
the Company's 1990 initial public offering at which
time1996 Annual Meeting of Stockholders, File
No. 0-19041.
10.3 Exclusive License Agreement dated January 24, 1992
between ABS and Yamanouchi Pharmaceutical Co., Ltd.
Incorporated herein by reference to Exhibit 10.29 to ABS'
Current Report on Form 8-K dated January 24, 1992 (date
of earliest event reported), File No. 0-19041.
10.4 Warrant dated October 25, 1995 issued to Swartz
Investments, Inc. Incorporated herein by reference to
Exhibit 10.13 to ABS' Current Report on Form 8-K dated
October 12, 1995 (date of earliest event reported), File
No. 0-19041.
21* List of Subsidiaries.
24* Consent of Independent Public Accountants.
27* Financial Data Schedule.
- - --------------------------------------------------------------------------------
* Filed herewith. All other exhibits are incorporated by
reference to the Company's tax attributes amounted to approximately $4.9
million. The annual limitation ofdocument following the utilization of such tax
attributes is approximately $560,000. To the extent the annual
limitation is not utilized, it may be carried forward for
utilization in future years. At December 31, 1997, the Company has
approximately $4,272,000 of the $4.9 million of net operating
losses that are no longer subject to this limitation.
Page F - 21
description
thereof.
+ Management contract or compensatory plan.