EXHIBIT NO. 99.2
[ALTAREX LOGO]
ALTAREX CORP.
INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE & NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2001
ALTAREX CORP.
610 LINCOLN STREET
WALTHAM, MA 02451
CONTACT: SONDRA HENRICHON
DIRECTOR, INVESTOR RELATIONS AND CORPORATE COMMUNICATIONS
PHONE: 781-672-0138
FAX NUMBER: 781-672-0142
TOLL FREE: 888-801-6665
www.altarex.com
---------------
info@altarex.com
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Page 1 of 12
[ALTAREX LOGO]
ALTAREX CORP.
INTERIM REPORT TO SHAREHOLDERS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001
Third Quarter Highlights
The third quarter of 2001 was marked by important progress for AltaRex,
particularly in the area of clinical development of the Company's lead product,
OvaRex(R) MAb for the potential treatment of advanced ovarian cancer. Interim
and final results reported from OvaRex(R) trials further validate and support
the Company's novel approach of utilizing foreign antibodies that activate the
immune system as cancer therapeutics. Especially encouraging were early
clinical findings from a concurrent OvaRex(R) MAb/second-line chemotherapy
trial in 20 patients with recurrent disease, suggesting the potential of
OvaRex(R) MAb to improve clinical outcomes without further reduction of quality
of life, and presenting an opportunity for application of OvaRex(R) MAb to a
broader range of patients than originally anticipated.
The Company's novel technology was the subject of a published article in a
peer-reviewed journal (Cancer Biotherapy and Radiopharmaceuticals, Vol. 16,
Number 3, 2001) that reviewed the Company's mechanism of action data. In
addition, the OvaRex(R) clinical program was the subject of several
presentations at important medical, scientific and investor conferences -
presentations made by Company experts as well as renowned
gynecologic-oncologists who have expressed enthusiasm about the promise of
OvaRex(R) MAb as an ovarian cancer therapeutic.
On the financing front, on October 31, 2001, the Company closed a private
placement of 7,200,000 Special Units to acquire an equal number of common
shares and common share purchase warrants of the Company for estimated net
proceeds of C$11.2 million, of which C$3.15 million is being held in escrow
pending the Company obtaining a receipt from applicable Canadian securities
regulatory authorities for a prospectus qualifying the distribution of the
common shares and warrants. AltaRex believes that this financing will allow it
to continue ongoing clinical trials and manufacturing development with Abbott
Laboratories and others. The Company will continue to pursue additional
funding, from strategic collaborations with pharmaceutical and/or biotechnology
companies as well as equity or debt financing, and will closely manage costs in
collaboration with Abbott Laboratories and other service providers consistent
with the Company's goal of advancing OvaRex(R) MAb as we await additional
clinical data, including the results of a planned pharmacokinetic study
scheduled to be initiated early in 2002.
We now look forward to the final quarter of 2001 for the primary endpoint
analysis of the Company's designated pivotal OvaRex(R) trial - a 345-patient
trial for patients in remission ("watchful waiting") - and to the expected
initiation in 2002 of its first Biologies License Application with the U.S.
Food and Drug Administration (FDA) for regulatory approval of OvaRex(R) MAb.
This quarterly report contains forward-looking statements that involve risks
and uncertainties, which may cause actual results to differ materially from the
statements made. For this purpose, any statements that are contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Such risks and uncertainties
include, but are not limited to, the Company's need for capital and the risk
that the Company cannot raise funds on a timely basis on satisfactory terms or
at all, changing market conditions, uncertainties regarding the timely and
successful completion of clinical trials, patient enrollment rates, uncertainty
of pre-clinical, retrospective and early clinical trial results, which may not
be indicative of results that will be obtained in ongoing or future clinical
trials, whether the Company will file for regulatory approval on a timely
basis, uncertainties as to when, if at all, the FDA will approve the Company's
regulatory filings for its products, the need to establish and scale-up
manufacturing processes, the need to obtain and maintain corporate alliances,
uncertainty as to the timely development and market acceptance of the Company's
products, uncertainty as to whether patents will issue from pending patent
applications and, if issued, as to whether such patents will be sufficiently
broad to protect the Company's technology, and other risks detailed from
time-to-time in the Company's filings with the United States Securities and
Exchange Commission and Canadian securities authorities. The Company does not
assume any obligation to update any forward-looking statement.
Page 2 of 12
[ALTAREX LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Unaudited Consolidated Financial Statements and the notes thereto included
in this report. The Unaudited Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in Canada,
which conform in all materials respects with accounting principles generally
accepted in the United States except as disclosed in Note 4 to the Unaudited
Consolidated Financial Statements.
OVERVIEW
The Company's business is the research, development and commercialization
of biopharmaceutical products for the treatment of cancer and other diseases.
Substantially all of the Company's products are subject to regulation by the
Therapeutic Products Programme (TPP) of Health Canada in Canada, the Food and
Drug Administration (FDA) in the United States, the European Agency for the
Evaluation of Medicinal Products (EMEA) in Europe and similar agencies in other
countries. None of the Company's products have been approved by regulatory
agencies for sale to date. The Company has not been profitable since inception
and expects to continue to incur substantial losses in continuing the research,
development and clinical trials of its products. The Company does not expect to
generate significant revenues until such time as, and unless, its therapeutic
products are approved by applicable regulatory agencies and become commercially
viable.
The Company commenced operations on December 1, 1995 and completed its
first full year of operations on December 31, 1996. As of September 30, 2001,
the Company has incurred cumulative losses of $85.6 million. This includes a
loss of $23.7 million for the nine months ended September 30, 2001. These losses
are primarily due to the cost of clinical and product development activities,
supporting efforts in product commercialization and the settlement of
outstanding litigation in 1999. Costs for research and development and
supporting activities decreased in 2000 as a result of cost reduction activities
in late 1999. However, research and development costs have been increasing on a
quarterly basis throughout 2000 and 2001 and are expected to continue to
increase, assuming sufficient financial resources, as the Company pursues its
development, clinical trails and commercialization programs towards an expected
filing for regulatory approval of its lead product, OvaRex(R) MAb, with the FDA
and TPP.
RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
The Company recorded a net loss for the quarter ended September 30, 2001 of
$9.9 million, or $0.35 per share, compared to a net loss of $4.3 million, or
$0.27 per share, for the same period in 2000. The net loss for the nine months
ended September 30, 2001 was $23.7 million, or $0.90 per share, compared to a
net loss of $12.3 million, or $0.79 per share, for the same period in 2000. The
increased net loss for both periods is due to the increased spending in research
and development as the Company furthers its manufacturing development work and
continues its clinical trials for our lead product, OvaRex(R) MAb.
REVENUES
Revenues for the three months ended September 30, 2001, consisting of
interest income, totaled $126,751, an increase of $6,641 over the $120,110
recorded in the same period in 2000. Revenues for the nine months ended
September 30, 2001 were $453,358, an increase of $145,339 over the $308,019
recorded for the same period in 2000. The increase for the nine month period is
due to higher levels of invested cash and short-term investments.
Page 3 of 12
[ALTAREX LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
RESULTS OF OPERATIONS (CONTINUED)
EXPENSES
Research and development costs for the three months ended September 30,
2001 totaled $5.0 million, an increase of $3.6 million over the $1.4 million
recorded in the same period in 2000. For the nine months ended September 30,
2001, research and development expenses totaled $10.2 million, an increase of
$6.4 million over the $3.8 million recorded in the same period in 2000. These
increases for the three and nine month periods in research and development costs
are related to the advanced stage of development of the Company's lead product,
OvaRex(R) MAb. In particular, the Company is working with Abbott Laboratories
and other parties to complete the development of, and scale-up the manufacturing
of, cell culture based OvaRex(R) MAb. For the three and nine month periods of
2001, expenses related to Abbott Laboratories and other vendors in this area
accounted for $3.5 million and $6.0 million, respectively. These final stages of
development commenced with Abbott Laboratories and others in the first quarter
of 2001 and are expected to be substantially completed to support the Company's
filing of a Biologics License Application (BLA) with the FDA in 2002.
Clinical and regulatory costs for the three months ended September 30, 2001
totaled $2.9 million, an increase of $1.2 million over the $1.7 million recorded
in the same period in 2000. For the nine months ended September 30, 2001,
clinical and regulatory costs totaled $8.4 million, an increase of $3.7 million
over the $4.7 million recorded in the same period in 2000. These variances are
primarily related to the costs of conducting a 102 patient phase II OvaRex(R)
trial, which was initiated in September 2000 and achieved full enrollment in
June 2001, and the work related to the primary endpoint analysis of the
Company's pivotal 345-patient OvaRex(R) trial.
General and administrative costs for the three months ended September 30,
2001 totaled $2.2 million, an increase of $0.9 over the $1.3 million recorded in
the same period in 2000. For the nine months ended September 30, 2001, general
and administrative costs totaled $5.6 million, an increase of $1.4 million over
the $4.2 million recorded in the same period in 2000. These variances are
primarily related to additional professional fees related to the Company's
intellectual property portfolio and other corporate matters and increased
facility and office expenses due to the occupancy of new office space in the
United States in October 2000.
The Company anticipates that research and development and clinical and
regulatory expenses will continue to increase, if financial resources allow, as
the Company nears completion of clinical trials, continues OvaRex(R) MAb
manufacturing development efforts, approaches the submissions for regulatory
approval for OvaRex(R) MAb and continues development of other product
candidates. Similarly, the Company anticipates that general and administrative
expenses in 2001, excluding the impact of any foreign exchange gains or losses,
will remain higher than such expenses in 2000. The actual levels of research and
development, clinical and regulatory, and general and administrative
expenditures are dependent on many factors, including the progress and results
of ongoing clinical trials, the progress of development and scale-up of
manufacturing of OvaRex(R) MAb with Abbott Laboratories and others, the cost,
timing and outcome of the regulatory process, the costs of materials, the cost
of preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, the availability and cost of required personnel, the cash resources
available to the Company, and the extent to which the Company enters into
affiliations with one or more corporate partners for the ongoing development and
commercialization of its products. See "Liquidity and Capital Resources".
Page 4 of 12
[ALTAREX LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
At September 30, 2001, the Company's cash, cash equivalents and short-term
investments totaled $8.4 million as compared to $13.3 million at December 31,
2000. On October 31, 2001, the Company closed an offering of 7.2 million
Special Units, at a price of $1.75 per unit, for estimated net proceeds of
$11.2 million. Each Special Unit entitles the holder to acquire, for no
additional consideration, one common share of the Company and one warrant. Each
warrant is exercisable at $2.00 into one common share of the Company for a
period of 24 months from the date on which the Company obtains a receipt from
applicable Canadian securities regulatory authorities for a prospectus
qualifying the distribution of the common shares and warrants. Of the proceeds
of this offering, $3.15 million is being held in escrow pending the Company
obtaining a receipt for the final prospectus. If such receipt is not obtained
on or before January 29, 2002, holders of Special Units will have the right,
exercisable for a period of five days, to require the Company to purchase up to
25% of the Special Units, on a pro rata basis, using the escrowed funds.
Since its inception, the Company has financed its operations primarily
through private placements and public offerings of equity securities amounting
to approximately $88.1 million, interest income on invested balances amounting
to $3.4 million and amounts received under research contracts of $0.8 million.
The Company currently has no contributing cash flows from operations. As a
result, the Company relies on external sources of financing such as the issue
of equity or debt securities, the exercise of options or warrants and
investment income.
The Company's net cash used in operating activities amounted to $19.5
million for the nine months ended September 30, 2001 and $16.4 million and
$23.2 million for the years ended December 31, 2000 and 1999, respectively, and
resulted primarily from its net operating losses.
The Company expects to continue to incur substantial research and
development expenses, including expenses related to preclinical studies,
clinical trials, manufacturing and commercialization activities, and supporting
general and administrative expenses. The Company's funding needs may vary
depending on a number of factors, including the progress of its research and
development programs, the number and breadth of these programs, the results of
preclinical studies and clinical trials, the cost, timing and outcome of the
regulatory process, the establishment of collaborations, the cost of preparing,
filing, prosecuting, maintaining, defending and enforcing patent claims, the
status of competitive products and the availability of other financing. In
particular, manufacturing development activities, primarily with Abbott
Laboratories, represent the most significant operating expense of the Company.
The magnitude of ongoing expenditures in manufacturing development is dependent
on specific activities planned with Abbott and other vendors and is managed in
light of existing financial resources of the Company. Based on its current
plans, the Company believes that its available cash, cash equivalents and
short-term investments, including the net proceeds of its Special Unit offering
closed on October 31, 2001, and interest earned thereon, should be sufficient
to finance its operations through the first quarter of 2002.
The Company will seek additional funding through public or private equity
or debt financings from time to time, as market conditions permit, or through
collaborative arrangements. The Company's ability to access the capital markets
or to enlist strategic partners is substantially dependent on the progress of
its research and development programs and regulatory approval of its products.
There can be no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available, the
Company may be required to delay, reduce the scope of, or eliminate one or more
of its research and development programs or may be required to significantly
scale back or cease operations.
Page 5 of 12
[ALTAREX LOGO]
CONSOLIDATED STATEMENTS OF LOSS
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In Canadian dollars, except share 2001 2000 2001 2000
amounts)
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES
Interest income $126,751 $120,110 $453,358 $308,019
----------- ----------- ------------ -----------
Total revenues 126,751 120,110 453,358 308,019
=========== =========== ============ ===========
EXPENSES
Research & development 4,962,452 1,374,796 10,184,362 3,759,182
Clinical & regulatory 2,853,417 1,678,552 8,373,857 4,676,405
General & administrative 2,209,945 1,325,722 5,601,849 4,196,370
----------- ----------- ------------ ------------
Total expenses 10,025,814 4,379,070 24,160,068 12,631,957
----------- ----------- ------------ ------------
NET LOSS FOR THE PERIOD ($9,899,063) ($4,258,960) ($23,706,710) ($12,323,938)
=========== =========== ============ ============
Net loss per common share ($0.35) ($0.27) ($0.90) ($0.79)
Weighted average number of
common shares 28,586,029 15,827,227 26,442,278 15,620,065
=========== =========== ============ ============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
Page 6 of 12
[ALTAREX LOGO]
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
(In Canadian dollars) 2001 2000
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $6,029,824 $9,665,187
Short-term investments 2,376,123 3,591,323
Accounts and other receivables 95,114 75,223
Prepaid expenses 654,220 354,481
----------- -----------
9,155,281 13,686,214
Deposits and other assets 235,671 578,227
Capital assets 628,048 490,115
----------- -----------
$10,019,000 $14,754,556
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $7,603,806 $3,793,766
----------- -----------
7,603,806 3,793,766
Shareholders' equity:
Share capital 88,055,673 72,894,559
Accumulated deficit during the development stage (85,640,479) (61,933,769)
----------- -----------
Total shareholders' equity 2,415,194 10,960,790
----------- -----------
$10,019,000 $14,754,556
=========== ===========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
Page 7 of 12
[ALTAREX LOGO]
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
DEFICIT
DURING The TOTAL
COMMON SHARES DEVELOPMENT SHAREHOLDERS'
(In Canadian dollars, except share amounts) SHARES AMOUNT STAGE EQUITY
BALANCE, DECEMBER 31, 2000 22,032,200 $72,894,559 $(61,933,769) $10,960,790
---------- ----------- ------------ -----------
Issuance of common shares in
Public offering (unaudited) 4,402,211 7,232,087 - 7,232,087
Issuance of common shares as
payment for services (unaudited) 29,145 56,832 - 56,832
Exercise of special warrants (unaudited) 3,000,000 7,872,195 - 7,872,195
Net loss (unaudited) - - (23,706,710) (23,706,710)
---------- ----------- ------------ -----------
BALANCE, SEPTEMBER 30, 2001 (UNAUDITED) 29,463,556 $88,055,673 $(85,640,479) $2,415,194
</Table>
<Table>
<Caption>
ACCUMULATED
DEFICIT
DURING THE TOTAL
COMMON SHARES DEVELOPMENT SHAREHOLDERS'
(In Canadian dollars, except share amounts) SHARES AMOUNT STAGE EQUITY
BALANCE, DECEMBER 31, 1999 13,903,153 $50,427,647 $(44,209,691) $6,217,956
---------- ----------- ------------ -----------
Exercise of special warrants (unaudited) 1,421,887 5,443,618 - 5,443,618
Exercise of stock options (unaudited) 502,187 1,029,417 - 1,029,417
Issuance of common shares in
public offering (unaudited) 2,645,000 7,945,508 - 7,945,508
Issuance of common shares in
private placement (unaudited) 37,262 298,100 - 298,100
Net loss (unaudited) - - (12,323,938) (12,323,938)
---------- ----------- ------------ -----------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) 18,509,489 $65,144,290 $(56,533,629) $8,610,661
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
Page 8 of 12
[ALTAREX LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
(In Canadian dollars) (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ------------ ------------
CASH USED IN OPERATING ACTIVITIES
Net loss $(9,899,063) $(4,258,960) $(23,706,710) $(12,323,938)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 119,845 126,152 304,752 364,479
Amortization of deferred lease credit - (24,143) - (18,336)
Issue of common shares, net 56,832 - 56,832 -
Net changes in non-cash working capital
Balances 2,289,087 569,995 3,832,966 640,429
----------- ----------- ------------ ------------
(7,433,299) (3,586,956) (19,512,160) (11,337,366)
----------- ----------- ------------ ------------
CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES
Purchase of capital assets (226,522) (13,639) (442,685) (33,779)
Maturities and purchases of
Short-term investments 1,376,257 (4,112,581) 1,215,200 (2,070,679)
----------- ----------- ------------ ------------
1,149,735 (4,126,220) 772,515 (2,104,458)
----------- ----------- ------------ ------------
CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES
Issue of common shares, net - 8,067,556 7,232,087 14,716,643
Deferred finance costs - 46,957 - -
Employee relocation loans - 16,802 - 16,390
Exercise of special warrants, net (86,456) - 7,872,195 -
----------- ----------- ------------ ------------
(86,456) 8,131,315 15,104,282 14,733,033
----------- ----------- ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (6,370,020) 418,139 (3,635,363) 1,291,209
Cash and Cash Equivalents,
Beginning of Period 12,399,844 3,201,711 9,665,187 2,328,641
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $6,029,824 $3,619,850 $6,029,824 $3,619,850
----------- ----------- ------------ ------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
Page 9 of 12
[ALTAREX LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
AltaRex Corp. (the Company), incorporated under the Business Corporations
Act (Alberta), is a development-stage biotechnology company that is engaged in
the research, development and commercialization of biopharmaceutical products
for the treatment of cancer and other diseases.
GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. During the nine
months ended September 30, 2001 and the year ended December 31, 2000, the
Company incurred losses of $23,706,710 and $17,724,078, respectively. Including
the net proceeds from the October 31, 2001 issuance of Special Units, the
Company's cash, cash equivalents and short-term investments are adequate to fund
its operations through the first quarter of 2002. These factors, among others,
indicate that the Company may be unable to continue as a going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to (a) obtain additional financing
as may be required and (b) ultimately attain profitability. The Company is
pursuing additional financing through public or private equity or debt
instruments and through collaborative arrangements with potential partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements as of September 30, 2001
and for the three and nine months ended September 30, 2001 and 2000 are
unaudited. These unaudited financial statements have been prepared on the same
basis as the audited financial statements and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results for the three and
nine month periods ended September 30, 2001 are not necessarily indicative of
the results that may be expected for the entire fiscal year or future periods.
The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada, which conform in all
material respects to those established in the United States, except as disclosed
in Note 4. The preparation of financial statements in accordance with such
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 revenue and expenses during the reporting periods. Actual results could
differ from those estimates and those differences could be material.
NET LOSS PER SHARE
Effective January 1, 2001, the Company adopted the provisions of Section
3500 of the Handbook of the Canadian Institute of Chartered Accountants, with
respect to earnings per share. The new standard requires that the "treasury
stock" method rather than the "imputed earnings" approach be used to determine
the dilutive effect of instruments such as warrants and options. Under the
treasury stock method, earnings per share are computed as if the instruments
were exercised at the beginning of the period (or the time of issuance, if
later) and the funds obtained were used to purchase common stock at the average
market price during the period. The new accounting policy has been applied
retroactively and had no impact on the reported results of operations for any
current or prior period reported herein.
Page 10 of 12
[ALTAREX LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE (CONTINUED)
Basic and diluted net loss per share are the same, as outstanding common
stock options and warrants are antidilutive as the Company has recorded a net
loss for all periods presented. Options and warrants to purchase a total of
4,677,287 and 2,419,138 common shares as of September 30, 2001 and 2000,
respectively, have been excluded from the computation of diluted weighted
average shares outstanding.
3. SPECIAL WARRANTS
On June 6, 2001, the Company issued 3.0 million special warrants in a
private placement at $2.80 per special warrant. On July 26, 2001, the Company
filed a prospectus relating to the distribution of 3.0 million common shares of
the Company which are issuable upon the exercise of the 3.0 million special
warrants referred to above and each special warrant was exchanged for one
common share of the Company for no additional consideration. The net proceeds
of this sale, after deducting related expenses of approximately $528,000, were
$7,872,195.
4. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES
These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (Canadian GAAP), which
conform in all material respects to those accounting principles generally
accepted in the United States (U.S. GAAP), except as follows:
(a) Accounting for stock-based compensation
For U.S. GAAP purposes, the Company would account for stock-based
compensation to employees in accordance with Accounting Principles Board (APB)
Opinion No. 25. For U.S. GAAP purposes, no compensation expense would be
recognized on the Company's stock options and warrants granted if the exercise
price of these instruments equal the fair value of the Company's stock as at
the date of the grant. Stock-based compensation to non-employees would be
recorded at the fair value of the options and warrants granted.
The compensation expense related to the fair value of stock based
compensation to non-employees and the value of options issued to employees at
less than fair value on the grant date or other appropriate measurement date
would be amortized over the appropriate vesting periods. For Canadian GAAP
purposes, no compensation expense or deferral would be recognized in such
circumstances.
As of September 30, 2001, the unamortized compensation benefit that the
Company would record as additional compensation expense in future periods
amounts to $102,000 (December 31, 2000 -- $449,000).
Additionally, during 2001 and 2000 the Company issued 274,000 and 185,149
options, respectively, to agents of its offerings of common shares. The
compensation related to these issuances of $520,600 and $378,000, respectively,
would be recognized as a reduction in the net proceeds of the offering and an
increase in share capital for the value of the options. Accordingly, there
would be no net effect on the share capital of the Company.
Page 11 of 12
[ALTAREX LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES (CONTINUED)
(b) Reverse take-over costs
For Canadian GAAP purposes, costs incurred in connection with the Company's
reverse take-over are presented as a charge against share capital. For U.S. GAAP
purposes, these costs totaling $495,000 would be charged to expense.
Accordingly, net loss for the year ended December 31, 1996 and share capital for
each of the periods presented would increase by $495,000.
(c) Comprehensive income (loss)
For U.S. GAAP purposes, the Company would adopt the disclosure requirements
of Statement of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130
requires the presentation of comprehensive income (loss) and its components.
Comprehensive income (loss) includes all changes in equity during a period
except shareholder transactions. For the periods presented, comprehensive income
(loss) would equal net loss determined for U.S. GAAP purposes as set out in the
following table.
The following table reconciles the net loss as reported on the statements
of loss to the net loss that would have been reported had the financial
statements been prepared in accordance with U.S. GAAP.
<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In Canadian dollars, except share amounts) 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------------
Net loss per Canadian GAAP $9,899,063 $4,258,960 $23,706,710 $12,323,938
Adjustment for stock-based compensation 114,000 913,000 360,000 918,000
-------------------------------------------------------------------------------------------------------------------------
Net loss per U.S. GAAP $10,013,063 $5,171,960 $24,066,710 $13,241,938
Basic and diluted net loss per share,
U.S. GAAP $(0.35) $(0.30) $(0.91) $(0.85)
Basic and diluted weighted-average
number of common shares 28,586,029 17,289,343 26,442,278 15,620,065
-------------------------------------------------------------------------------------------------------------------------
</Table>
The following summarizes balance sheet items with material variations under U.S.
GAAP.
<Table>
<Caption>
-----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
-----------------------------------------------------------------------------------------------
Share capital $90,344,673 $74,823,559
Accumulated deficit 87,929,479 63,862,769
-----------------------------------------------------------------------------------------------
</Table>
5. SUBSEQUENT EVENT
On October 31, 2001, the Company issued 7,200,000 special units in a
private placement at a price of $1.75 per special unit for gross proceeds of
$12,600,000. Upon issuance of a receipt for a prospectus filed with the
regulatory authorities in certain provinces in Canada, each special unit will
be exchangeable, for no additional consideration, for one common share of the
Company and one warrant. Each warrant is exercisable at a price of $2.00 into
one common share of the Company for a period of 24 months. Of the proceeds,
$3,150,000 has been deposited in escrow. In the event that the Company does not
obtain a receipt for a prospectus qualifying the distribution of common shares
and warrants upon exercise of the special units prior to January 29, 2002, such
proceeds will be used by the Company to repurchase up to twenty-five percent of
the special units, if holders so elect. The estimated net proceeds of this
offering, after deducting related expenses of $1,344,0000, are approximately
$11,256,000.
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