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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

[ X ]    Annual report pursuant to Section 13 or 15(d) of the Securities  
         Exchange Act of 1934 For the fiscal year ended December 31, 1998 or

[   ]    Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the transition period 
         from ________ to ________

                          COMMISSION FILE NO.: 0-25978

                           THERAPEUTIC ANTIBODIES INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

               DELAWARE                                  62-1212485
-------------------------------------    ---------------------------------------
   (State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
    Incorporation or Organization)


      1207 17TH AVENUE SOUTH, SUITE 103
           NASHVILLE, TENNESSEE                                 37212
--------------------------------------------            ---------------------
  (Address of Principal Executive Offices)                    (Zip Code)

       Registrant's telephone number, including area code: (615) 327-1027

           Securities registered pursuant to Section 12(b) of the Act:

                                                Name of Each Exchange
      Title of Each Class                        on Which Registered
             NONE                                        NONE
--------------------------------        -------------------------------------

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE
                     ---------------------------------------
                                (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 the 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.   [ ]

                  The aggregate market value of the shares of Common Stock of
the registrant held by non-affiliates on March 26, 1999 ($.91 per share) was
$42,581,409. As of March 26, 1999, the registrant had outstanding 52,057,219
shares of Common Stock.



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                       DOCUMENTS INCORPORATED BY REFERENCE

                  Portions of Part III are incorporated by reference from the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 19, 1999. Certain exhibits listed in Part IV hereof are incorporated by
reference to the following documents previously filed by the Registrant with the
Commission: Registration Statement on Form 10, filed on May 1, 1995; Quarterly
Report on Form 10-Q for the period ended September 30, 1995; Quarterly Report on
Form 10-Q for the period ended March 31, 1996; Quarterly Report on Form 10-Q for
the period ended June 30, 1996; Quarterly Report on Form 10-Q for the period
ended September 30, 1996; Proxy Statement relating to the Special Meeting of
Shareholders held on July 5, 1996; Annual Report on Form 10-K for the fiscal
year ended December 31, 1996; Quarterly Report on Form 10-Q for the period ended
March 31, 1997; Annual Report on Form 10-K for the fiscal year ended December
31, 1997; Form 10-Q for the period ended June 30, 1998; Form 10-Q for the period
ended September 30, 1998; Proxy Statement relating to the Special Meeting of
Shareholders held on November 6, 1998.

                                     PART I

ITEM 1.           BUSINESS

OVERVIEW AND RECENT DEVELOPMENTS

                  Therapeutic Antibodies Inc. (the "Company") is a development
stage biopharmaceutical company specializing in the preparation of polyclonal
antibodies for the treatment of disease and life threatening conditions for
which satisfactory therapies have, generally, not previously existed. The
Company has developed systems for the production and purification of polyclonal
antibody products. The Company has its headquarters in Nashville, Tennessee, and
has operations in the United States, the United Kingdom, and Australia.

                  The Company was incorporated in Delaware in 1984. Its
executive offices are located in Nashville, Tennessee, in the vicinity of the
Vanderbilt University Medical Center. Research, production and testing
operations are conducted through the Company's subsidiaries. The Company
operates its research and development laboratories through Therapeutic
Antibodies UK Ltd ("TAb UK"), at the facilities of The Medical College of St.
Bartholomew's Hospital in London. The Company's antibody production operations
are located in both Llandysul, Wales and Adelaide, Australia. These operations
are conducted through the Company's subsidiaries, TAb UK and Therapeutic
Antibodies Australasia Pty Ltd. ("TAb Australasia"). See "Item 2. Properties."
The Company has affiliated itself with scientists at academic institutions in
the United States and Europe to assist in the research, testing and development
of new antibody products. See "Item 1. Business-Principal Licensing and Other
Collaborative Arrangements."

                  The Company has developed systems for the production and
purification of a new generation of polyclonal antibodies that management
believes can produce suitable therapies for neutralizing a variety of toxins,
including certain venoms, cytokines and drugs. Some of the Company's innovations
include the preparation of unique immunogens, the purification of specific
antibodies and the digestion of antibodies into fragments. Management believes
that these capabilities enable the Company to produce a broad range of specific
antibodies that are safer and more effective than the antibody products
currently available. The Company's antibody products are in various stages of
development, ranging from pre-clinical testing to commercial distribution.

                  During 1998, the Company underwent a period of restructuring
following a strategic review of its business. In March 1998, Dr. Andrew Heath
joined the Company as Chief Executive Officer and Vice Chairman. Dr. Heath has
significant commercial experience in the pharmaceutical industry, with previous
positions at Glaxo plc and Astra AB. In September 1998, Stuart M. Wallis was
appointed as non-executive Chairman of the Board. Mr. Wallis has held a number
of senior management and board positions in the automotive, publishing,
packaging and pharmaceutical industries and served as the chief executive
officer of the pharmaceutical group, Fisons, from 1994 to 1995.


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Mr. Wallis' appointment coincided with the restructuring of the Company's Board
of Directors.

                  The Company completed a strategic review of its product
development, research and other activities in 1998. This review has resulted in
a more focused product portfolio. Through its previous research and development
and associated investment, the Company has developed a highly flexible
technology platform and advanced production facilities which have together been
used to develop a range of products. In the near term, Therapeutic Antibodies'
resources are primarily focused on CroTAb(R), the Company's crotalid antivenom
product, which the Directors expect to be marketed in 1999, and DigiTAb(R), the
Company's digoxin antidote, which the Directors expect to begin marketing in the
United States in 2000. In the mid-term, the Directors anticipate the launch of
TriTAb(R), an antidote to tricyclic anti-depressant toxicity, and CytoTAb(R),
the Company's anti-TNF(alpha) antibody, for the first of several indications.

                  Focusing on Therapeutic Antibodies' development program has
led to the cessation of some basic research activities and certain clinical
trial programs including research into the application of CytoTAb(R) to treat
the symptoms of sepsis syndrome. The Phase IIb clinical trial of CytoTAb(R) in
sepsis syndrome was discontinued because of the Directors' perception of the
commercial risk which it posed to the Company. Over the last few years, and in
particular since the Company's 1996 initial public offering on the London Stock
Exchange (the "IPO"), there have been several notable failures by other
companies of products designed to treat sepsis syndrome. As a result, major
pharmaceutical companies have become reluctant to enter into licensing and
marketing agreements in this area without pivotal clinical trial data proving
efficacy. Providing this efficacy data would require a very substantial
financial investment by the Company in a large scale Phase III clinical trial.
The Board concluded that continuing to pursue this particular application of
CytoTAb(R) did not represent an appropriate use of the Company's capital at this
stage of the Company's development and therefore discontinued the trial.
Therapeutic Antibodies would welcome a collaboration agreement in relation to
the application of CytoTAb(R) to sepsis syndrome if a major pharmaceutical
company was prepared to fund further trials, although there are none in
contemplation at present, and the Company is not actively seeking such an
agreement.

                  Through the sepsis studies and other trials, the Company has
developed a significant understanding of the efficacy of CytoTAb(R) in
neutralizing TNF(alpha). This has enabled the Company to explore applications of
CytoTAb(R) in relation to other indications including Crohn's disease, bypass
surgery, and cerebral malaria. Each of these indications is described in greater
detail under "Item 1. Business - Products." The Directors believe that research
and development efforts in these indications are a more appropriate use of the
Company's resources. Clinical trial results in initial studies should be
available relatively quickly since it is anticipated that small numbers of
patients will be required to provide proof of concept because the patient
populations are relatively homogenous and the onset of elevated concentrations
of TNF(alpha) can be readily predicted.

                  The Directors intend to continue to pursue the Company's
remaining development programs, with emphasis being given to bringing CroTAb(R),
DigiTAb(R), and TriTAb(R) to market as rapidly as possible.

THE INDUSTRY

                  The biotechnology/biopharmaceutical industry is considered a
segment of the pharmaceutical industry. Management believes that advances in
biotechnology research will 



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contribute to the development of new pharmaceutical products. In the past
decade, medicine has benefited from advances in immunology through the use of
antibodies for diagnostic purposes and to detect the presence of a variety of
substances in the body. Antibodies are used for diagnostic purposes to measure
various hormones, cancer markers, drugs and other materials in patient blood
samples.

                  In addition to diagnostic applications, research has begun to
focus on the therapeutic applications of antibodies, which can be used for the
treatment of numerous toxic conditions including envenomation, drug overdose and
infectious disease. Although one of the Company's subsidiaries produces and
sells small amounts of animal antisera that is used for diagnostic purposes, the
Company's primary focus is on the production of antibodies for therapeutic
purposes.

TECHNOLOGY AND PRODUCTION

                  The human immune system is part of the body's protection
against invasion by infectious agents such as viruses, bacteria and parasites.
It acts in two main ways, through white blood cells and antibodies. White blood
cells engulf and digest organisms and other microscopic enemies of the body.
Antibodies, which are a class of protein, act by binding to part of the target
molecule referred to as the antigen or epitope. The reaction is highly specific
to a particular combination of epitope and antibody, often likened to a lock and
key. A large target molecule may present a number of different epitopes.
Antibodies are specific to each different epitope and the binding of an antibody
to one or more epitopes can neutralize the biological activity of that molecule,
including its function, dysfunction or toxic activity.

                  Manipulation of the immune system for therapeutic purposes has
been practiced for more than two centuries, for example against smallpox,
diphtheria and tetanus. This has been accomplished by the current widely
practiced method of vaccination, also referred to as "active immunization."
Alternatively, in passive immunization, antibodies produced by active
immunization of an animal with the target molecule are subsequently injected
into humans.

                  There are two general classes of antibodies for use as
therapeutic agents. The first, at the heart of Therapeutic Antibodies'
technology, is polyclonal antibodies, which contain a variety of antibodies
directed to different epitopes on the target molecule. The second type,
monoclonal antibodies, consists of a population of identical antibodies all
directed to a single epitope.

                  The Directors believe that the combination of the following
factors differentiates Therapeutic Antibodies from its competitors: 


                  - the use of polyclonal antibodies; 

                  - the production of purified specific fragments of polyclonal 
                    antibodies; and

                  - production systems common among the Company's existing and 
                    proposed products.

                  These factors are described in more detail in the following
sections.

         POLYCLONAL ANTIBODIES

                  The Directors have focused Therapeutic Antibodies' development
resources on polyclonal antibodies. These may be effective for several
therapeutic applications in humans, where the Directors believe that many
clinically significant target molecules have multiple epitopes and are therefore
better treated by polyclonal antibodies.


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                  Unlike Therapeutic Antibodies, most immunotherapy companies in
recent years have focused on monoclonal antibodies. The Directors believe that
the advantages of processed and purified polyclonal antibodies over monoclonals
are that polyclonals:

                  - bind multiple sites, resulting in more effective 
                    neutralization of toxic molecules; 

                  - usually bind more strongly; 

                  - are often more robust and can generally better withstand the
                    fragmentation and purification process; and 

                  - can be developed at less expense using a common technology.

         ANTIBODY FRAGMENTS

                  An antibody can be divided into two identical components known
as antibody binding Fab fragments and an additional Fc fragment. Each Fab
fragment has a binding site which attaches to a specific epitope on the target
molecule in order to neutralize its toxic effects. The Fc fragment is
potentially harmful and can cause hypersensitivity and other adverse effects. 
The Company's technology allows for this harmful Fc fragment to be removed and
discarded.

                  Any foreign protein, including an antibody of animal origin,
will induce an immune response if injected into a patient. Life threatening
acute reactions and delayed serum sickness were common when passive immunization
was first introduced at the end of the last century for the treatment of
diphtheria and tetanus. This was due to the large volume of unprocessed equine
serum contained in the treatment. The incidence and severity of side-effects
were reduced by separating antibodies from most of the contaminating proteins.
Because of its smaller size and purity, the Fab fragment is less immunogenic and
less likely to form immune complexes, thereby significantly reducing the
incidence of serum sickness.

                  Therapeutic Antibodies uses papain, a cleavage enzyme, to
split an antibody into its three components. Therapeutic Antibodies separates
and discards the potentially harmful Fc fragment and retains the two beneficial
Fab fragments, unimpaired in their ability to bind and neutralize the target
molecule. Their small size ensures that the Fab fragment products are rapidly
and evenly distributed throughout the body. This means that, following
injection, they quickly reach the various tissues where a target molecule may be
causing toxic effects. The small size of Fab fragments means that once they have
bound to the target molecule they can be excreted by the kidneys.

         COMMON PRODUCTION PROCESS

                  All of Therapeutic Antibodies' products are prepared using a
very similar series of manufacturing steps. The Directors believe this common
production platform simplifies the development process and the obtaining of
regulatory approval.

                  Products for preclinical and clinical trials are prepared in
Therapeutic Antibodies' production site in Wales. The Welsh facility includes a
20,000 square foot manufacturing plant. This plant has been inspected by the 
United States Food and Drug Administration (the "FDA") as part of the process of
obtaining approval for the manufacture of CroTAb(R). Therapeutic Antibodies' 
Australian facilities have serum processing capability and currently provide
antisera to the manufacturing plant in Wales. The facilities in Australia have
been licensed by the Australian Therapeutic Goods Administration, the Australian
national regulatory authority.


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                  Therapeutic Antibodies' production process has been developed
and refined over a number of years. This technical know-how remains confidential
and represents a significant commercial asset of the Company. In general terms
it can be separated into three stages: 

                  - the creation of product specific immunogens. These, together
                    with the immunization techniques developed by Therapeutic 
                    Antibodies, ensure high yields of antibodies. Once suitable 
                    levels of circulating high affinity antibodies have been 
                    obtained, collection of antisera commences on a regular 
                    basis;

                  - the removal of unwanted serum proteins and the subsequent 
                    enzymatic cleavage with papain to produce Fab fragments of 
                    the remaining antibodies; and 

                  - the use of chromatography to select Fab fragments specific
                    to the target molecule, thus minimizing the amount of 
                    foreign protein present in the drug.

                  The Company has selected sheep as its source of polyclonal
antibodies. Sheep antibody based products have a proven safety record when used
therapeutically in patients with limited adverse effects resulting from
immunogenicity and allergenicity. Therapeutic Antibodies supplies all of the
antisera required for the production of its antibody products from its own
flocks of sheep. All animal handling procedures are subject to stringent
regulations with which the Company complies, including the Animals (Scientific
Procedures) Act 1986 in the United Kingdom and those stipulated by Ethical
Committees in Australia. Since the IPO, Therapeutic Antibodies has
substantially increased its sheep farming production capacity in Australia and
the Directors are ceasing the use of flocks raised in Wales.

PRODUCTS

                  The Company has chosen to focus on a few key products within
each product development program as discussed in more detail below. Each product
is described by its principal use and geographic area, estimated annual
incidence of the relevant indication, stage of development, i.e., whether in
progress or launched, and licensing arrangements. For financial information
about foreign and domestic operations and export sales, see Note 11 to the
financial statements included herein at Item 8.

                  CROTAB(R)

                  CroTAb(R) is the Company's product for the treatment of bites
from North American crotalids (such as the rattlesnake). Clinical trials of
CroTAb(R) were completed in 1997 and the Company submitted its FDA Product
License Application ("PLA") and FDA Establishment License Application ("ELA") to
the FDA in April 1998. In June 1998, the FDA accepted the applications for
filing and the product will receive a standard twelve month review by the FDA.
Consequently, the Directors believe that this product should be approved for
sales in mid-1999. Pursuant to an agreement (the "Altana Agreement") with Altana
Inc. ("Altana"), Altana will distribute this product within the United States,
primarily to hospital emergency rooms. See "Item 1. Business-Principal Licensing
and Other Collaboration Agreements." In 1994, CroTAb(R) was granted orphan drug
status by the FDA and will therefore receive seven years of marketing
exclusivity if the PLA is approved.

                  Based on preclinical tests conducted on behalf of the Company
at the University of Arizona, CroTAb(R) has been shown to be, on average, over
five times more potent on a weight for weight basis than the existing
commercially available equine derived antivenom. Although the Company has
commenced but not completed comparative clinical studies of CroTAb(R) with the
marketed product, the Directors believe that the safety profile will be seen as
superior to the existing antivenom, which has a relatively high incidence of
serious side-effects.


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                  DIGITAB(R)

                  Therapeutic Antibodies has developed DigiTAb(R) for treating
digoxin intoxication. Digoxin is a prescription drug which is used to treat
certain cardiac conditions on a long term support basis. It is the most commonly
prescribed form of digitalis which has been in use worldwide for many years.
However, digoxin has a narrow therapeutic range and can cause life-threatening
toxicity as a result of both acute overdose and chronic poisoning when taken in
excess. The Directors estimate that 7,500 cases of digoxin toxicity occur
annually in the United States and Europe with the majority in the United States.

                  In 1986, Glaxo Wellcome plc, a major multinational 
pharmaceutical company, introduced in the United States a specific sheep-derived
polyclonal antibody product, Digibind(R), to treat life-threatening digoxin
intoxication. DigiTAb(R) will therefore be competing directly with a similar
established product in this market.

                  Therapeutic Antibodies completed enrollment for the pivotal
clinical study for DigiTAb(R) in December 1997, in which normal volunteers 
compared DigiTAb(R) to Digibind(R). The data from this study, in conjunction
with data obtained from an ongoing study of DigiTAb(R) in overdose patients in
the United States and Europe, is expected to be submitted to the FDA in a PLA by
mid-1999. This product will be marketed in the United States under the Altana
Agreement. See "Item 1. Business - Principal Licensing and Other Collaborative
Arrangements."

                  TRITAB(R)

                  Therapeutic Antibodies is developing TriTAb(R) to treat
tricyclic antidepressant ("TCA") toxicity. TCAs are a family of structurally
related compounds used in the treatment of severe clinical depression and are
one of the main causes of poisoning by drug overdose in the United States and
Europe. Despite the introduction of safer non-TCA antidepressant drugs, TCAs, as
a group, continue to hold a large share of the antidepressant market. TCAs are
typically generic, and their patents have expired. For this reason, the
Directors believe that TCAs are likely to remain in use for some time.

                  The number of TCA poisoning cases in the United States and
Europe is estimated to be approximately 60,000 per year. The most severe side
effects of TCAs affect the heart, necessitating prolonged intensive care
treatment, and can ultimately be fatal. At present, no specific antidote for TCA
poisoning is available.

                  On the basis that preclinical tests demonstrated TriTAb(R) to
be effective in reversing TCA toxicity, a Phase I/II clinical study was
initiated under an Investigator IND by Dr. Richard Dart of the Rocky Mountain
Poison and Drug Center. The first overdose patient in this pilot study was
treated in June 1998 and patient enrollment continues. The results of this study
are expected to be announced by mid-1999. The Company plans to submit an IND to
the FDA and expects to commence a Phase II/III clinical study in overdose
patients by the end of 1999. This product will also be marketed in the United
States under the Altana Agreement and will be detailed to hospital emergency
rooms. The Directors are not aware of any other competitive commercial efforts
in this field.

                  CYTOTAB(R)

         The body's inflammatory response to trauma, certain infections and
disorders often involves the release of high levels of cytokines, such as tumor
necrosis factor alpha ("TNF(alpha)"), which themselves may have serious or even
life-threatening effects. Therapeutic Antibodies' CytoTAb(R) product is designed
to neutralize the effects of TNF(alpha). Management believes CytoTAb(R) is an


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extremely beneficial drug that can be used to treat or prevent a number of
indications, and has elected to focus the Company's current research and
development efforts on the following disorders:

                  - CROHN'S DISEASE -- The Company is currently enrolling 
                    patients into Phase I/II study of CytoTAb(R) in Crohn's
                    disease. The symptoms of this disease include abdominal
                    pain, frequent and protracted diarrhea, fever, malaise,
                    chronic fatigue and signs and symptoms of nutritional
                    deficiency. It is estimated that there are at least 400,000
                    people with this disease in the United States and Europe.
                    The relationship of TNF(alpha) to the clinical complications
                    of this disease has recently been recognized with the FDA's
                    approval of Centocor Inc.'s product Remicade(R). This
                    product is a monoclonal antibody and was recommended by the
                    FDA to be restricted initially to short term use only. The
                    Directors believe that CytoTAb(R) may have favorable
                    kinetics, with rapid onset of action and a similar safety
                    profile. The Company commenced enrollment in this study in
                    January 1999 and three patients have been enrolled to date.

                  - CEREBRAL MALARIA--Severe cerebral malaria is associated
                    with mortality and elevated concentrations of TNF(alpha).
                    Therapeutic Antibodies is investigating the use of
                    CytoTAb(R) in mitigating the morbidity and mortality and the
                    possible complications of treating cerebral malaria. In June
                    1997, Therapeutic Antibodies completed its Phase I study
                    conducted in 28 severely ill patients suffering from
                    malaria. This study met its objectives and demonstrated a
                    reduction in the levels of TNF(alpha). In early 1998, the
                    Company launched an expanded 100 patient Phase II clinical
                    trial in Thailand. Enrollment was completed in September
                    1998 and the results of this study are expected by mid-1999.

                  - CORONARY ARTERY BYPASS GRAFT SURGERY ("CABG") -- There is 
                    data to Indicate that TNF(alpha) levels in the plasma are
                    elevated in patients undergoing cardiac surgery involving
                    cardiopulmonary bypass. This is due to the tendency of the
                    cardiac bypass machine to induce an inflammatory response.
                    This response may contribute to cardiac dysfunction leading
                    to increased post surgical morbidity and mortality. The
                    Directors believe that CytoTAb(R) could reduce the incidence
                    of these surgical side effects, making the procedure safer
                    and less expensive. The Company plans to commence clinical
                    trials in 1999. The Directors estimate that approximately
                    365,000 patients per year in the United States and 185,000
                    patients per year in Europe undergo the CABG procedure,
                    during which cardiopulmonary bypass is required.

                  In each of these indications, patient populations are
relatively homogenous and the onset of elevated concentrations of TNF(alpha) can
be readily predicted. Management, therefore, anticipates that small numbers of
patients will be required to provide proof of concept and that clinical trial
results from initial studies in these indications could be available relatively
quickly. The CytoTAb(R) pilot study to evaluate the product's use in patients
who encounter acute graft versus host disease as a result of bone marrow
transplants was put on hold in the fourth quarter of 1998. Further development
will be dependent upon other CytoTAb(R) programs which have a greater commercial
potential in the short term.

                  CytoTAb(R) has been shown to be safe and effective in
neutralizing TNF(alpha) through work carried out to date by the Company. The
Directors believe that the safety profile of CytoTAb(R) will be further
documented from the data of the 81 patients enrolled in the Phase IIb sepsis
study, which the Company elected to close in June 1998. See "Item 1. Business -
Overview and Recent Developments." It is expected that the results of this study
will be available in 1999 and will provide a greater understanding of the
clinical effectiveness of CytoTAb(R).


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                  POLONGATAB(TM)

                  PolongaTAb is an antivenom for the Sri Lankan Daboia russelli
("Russell's viper"). The pivotal clinical study for this product was completed
in December 1997. Provisional registration for this product was received in
March 1999 which will allow sales prior to full registration. The Company is
currently working in collaboration with F.H. Faulding & Co. Limited ("F.H.
Faulding") to prepare the full registration application for the approval of this
product in certain Southeast Asian markets.

LAUNCHED PRODUCTS

                  VIPERATAB(R)

                  Therapeutic Antibodies produces and sells ViperaTAb(R) to
treat bites from the European Vipera berus ("common adder") snake. This product
is currently being sold on a named patient basis in Sweden, Norway, Finland and
Denmark under an agreement with Swedish Orphan AB ("Swedish Orphan").
Furthermore, the Company supplies ViperaTAb(R) to the United States Department
of Defense. ViperaTAb(R) has been shown to be over eight times more potent on a
weight for weight basis than an equine-derived antivenom available in Europe.
The Directors would like to extend product sales throughout the European Union
and will pursue the approval process when the Company's resources permit.

                  ECHITAB(TM)

                  EchiTAb(TM) is sold by Therapeutic Antibodies as an antivenom
against the West African Echis ocellatus ("carpet viper") snake. Therapeutic
Antibodies has entered into an agreement with the Federal Ministry of Health on
behalf of the Nigerian Government under which the Nigerian Government has
contributed to the costs of development and clinical trials of EchiTAb(TM). The
Company has supplied the Nigerian Government with this product since 1996.

PRINCIPAL LICENSING AND OTHER COLLABORATIVE ARRANGEMENTS

                  For certain product candidates, the Company has secured, or
will in the future pursue, some form of collaborative agreement as the preferred
arrangement for bringing its products to market. Abundant precedents exist
within the industry for such alliances. Typically, the biotechnology company
handles development while a collaborator provides funding and regulatory
assistance, and takes responsibility for marketing and distribution of the
product.

                  COLLABORATIVE ARRANGEMENTS

                  The following is a summary of the Company's current 
agreements:

                  Altana. In October 1997, the Company signed an agreement
whereby, upon receipt of regulatory approvals, Altana, the U.S. subsidiary
of Altana, AG, a leading German supplier of pharmaceuticals through its Byk
Gulden unit, will market and distribute three of Therapeutic Antibodies'
emergency medicine products: CroTAb(R), DigiTAb(R), and TriTAb(R). Subject to
FDA approval, the Directors expect that CroTAb(R) will be launched by Altana
during the third quarter of 1999.

                  Under terms of the Altana Agreement, Altana will pay up to $23
million for the U.S. distribution rights to CroTAb(R), DigiTAb(R), and
TriTAb(R). The Company will receive up to $10 million in payments based on the
achievement of milestones culminating with FDA approvals for the product line.
The Company will also receive bonus payments estimated at up to $13 million tied
to the first three years of each product's sales following FDA approval. To date
the Company has received $2.5 million of such payments. Revenues will be shared
between the companies with the Company receiving 50 per cent of net revenues
through ongoing payments for the supply of product and royalties on sales.



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                  The Altana Agreement extends for five years following the
first FDA approval of each product. A renewal clause calls for an additional
five years if minimum sales targets are met. The Company will continue to be
responsible for the clinical development, regulatory submissions, manufacturing
and packaging of each product.

                  Swedish Orphan. In January 1990, the Company entered into
an agreement with Swedish Orphan, a Swedish company, appointing them as
exclusive sales representative to market ViperaTAb(R) in certain territories.
The agreement was subsequently amended to include CroTAb(R), other antivenom
products, and DigiTAb(R) and TriTAb(R). The territories are currently Sweden,
Norway, Denmark and Finland. Swedish Orphan specializes in the development,
regulatory handling, marketing and distribution of niche pharmaceuticals.
Swedish Orphan has arranged for the Karolinska Institute to conduct clinical
trials of the products, which are a pre-requisite to their registration in
Scandinavia. Swedish Orphan receives a commission on sales of the products in
all of the territories. The agreement will continue until December 31, 2002 and
thereafter unless terminated by 120 days' notice by either party.

                  F.H. Faulding. In September 1995, the Company entered into an
exclusive distribution agreement with F.H. Faulding, an Australian company,
appointing F.H. Faulding to obtain registration and marketing approvals for
DigiTAb(R), TriTAb(R) and PolongaTAb(R). Pursuant to this agreement F.H.
Faulding will also be the exclusive distributor of these products in Australia,
New Zealand, and Sri Lanka. Three other countries, India, Thailand and
Indonesia, may be included later upon the agreement of the Company.

                  In October 1996, the Company signed a Clinical Trials and
Registration Agreement with F.H. Faulding, to provide financial support for
clinical trials and to seek registration and marketing approvals for CytoTAb(R)
for treatment of cerebral malaria for Thailand and other countries in Southeast
Asia. Subject to the receipt of all of the necessary approvals, F.H. Faulding
has been granted an exclusive option for ninety days after issuance of such
regulatory approvals to enter into a ten-year distribution and profit-sharing
agreement based upon commercial terms specified in the October 1996 agreement.

                  In November 1998, the Company entered an additional agreement
with F.H. Faulding to vial, lyophilise and package CroTAb(R).

                  Federal Ministry of Health of Nigeria. In August 1995, the
Company entered into an agreement with the Federal Ministry of Health on behalf
of the Nigerian Government under which the Nigerian Government has contributed
to the costs of development and clinical trials of EchiTAb(TM).

                  ACADEMIC AND CLINICAL AFFILIATIONS

                  A proportion of the Company's research and development and
product testing activities have been carried out through affiliations and
consulting arrangements with clinical research organizations and scientists at
academic institutions in the United Kingdom, Scandinavia and North America.
Research and development and product testing have been carried out in
conjunction with the St. Bartholomew's Hospital, the Karolinska Institute, the
University of Arizona and Vanderbilt University Medical Center. These include
arrangements in respect of preclinical and clinical research, consultancy,
patents, royalties and facility leases where appropriate.

COMPETITION

                  Antivenoms. A number of organizations and companies
manufacture snake antivenom throughout the world. However, management believes
most are using equine-derived products based on older technology. Based on
clinical results, management believes that the Company's antivenom products are,
in general, safer and have greater efficacy.


                                       9

<PAGE>   11



                  There are two main European competitors to the Company's
Vipera product. Both of the European Viper Antivenoms are equine-derived
products. Management believes that the Company's product is superior, although
both competing products are considerably cheaper. Notwithstanding the price
differential, the Company has successfully competed with the products
manufactured in Europe and has achieved an 80% marketshare.

                  Only one crotalid antivenom product is currently approved in
the United States. There are frequent toxicity problems associated with that
product.

                  Equine-derived antivenom products with which EchiTAb(TM) and
certain other of the Company's potential antivenoms will compete are produced
by, among others, Institut Pasteur and Haffkine BioPharmaceuticals.

                  Digoxin Antidote. The Company has two competitors, one of
which is well-established in Europe and the other in the United States. Glaxo
Wellcome plc's  Digibind(R) is available in the United Kingdom and the United
States and Boehringer Mannheim GmbH's Digitalis - Antidot BM(R) is available in
Europe. Both of these products are Fab-based and derived from sheep polyclonal
antibodies. However, Management believes that DigiTAb(R) could achieve an
attractive niche position in this area.

                  Tricyclic Antidepressant Antidote. No specific tricyclic
antidepressant antidote exists and management does not know of any
commercially competitive activity in this area. The Company intends to apply for
orphan drug status in the United States which, if granted, will provide seven
years of marketing exclusivity. Furthermore, the Company has been granted a
United States patent for the key immunogens, the production process, the
resultant product and the use of the product to treat tricyclic antidepressant
toxicity.

                  Anti-TNF(alpha).

                  Crohn's Disease. In August of 1998, the FDA approved
Remicade(R), a product manufactured by Centocor for the treatment of Crohn's
Disease. The Company is aware of several other companies pursing clinical
development for the indication.

                  Coronary Artery Bypass Graft (CABG). The Company is not aware
of any anti-TNF(alpha) product currently approved in the United States for this
indication. However, the Company is aware of several companies pursuing clinical
development for this indication.

INTELLECTUAL PROPERTY

                  The Company's policy is to protect and defend the intellectual
property associated with its technology and products. The Company seeks patents
whenever appropriate. Management also believes that sufficient steps have been
taken to ensure that trade secrets such as animal husbandry techniques and
processes unique to large-scale production of polyclonal antibodies are
protected.

                  The Company has optimized the production and purification of
polyclonal antibodies and has developed extensive proprietary knowledge in this
area, combining scientific, veterinary and large-volume processing skills. The
Company has applied for patents (United States, Europe, and elsewhere) and in
some cases has been granted patents which include several key aspects of the
relevant techniques. However, some parts of the process are non-patentable, and
the Company has policies and procedures designed to protect proprietary
information concerning manufacturing techniques.



                                       10

<PAGE>   12


                  PATENTS

                  The Company is pursuing a multinational patent strategy for
the protection of intellectual property associated with its technology and
products. The Company holds the following patents: 

                  - European, Australian, and New Zealand patents for use of Fab
                    fragments of anti-TNF(alpha) antibodies in medicine; 

                  - United States and European patents for a method of preparing
                    Fab fragments from whole blood in a closed sterile 
                    environment;

                  - European, United Kingdom, Australian and Russian patents on
                    the use of mixed monospecific antivenoms; and

                  - a United States patent in respect of an antidote to 
                    poisoning with tricyclic antidepressants.

                  In addition, United States and European patents for use of
anti-human TNF(alpha) antibodies to prevent or treat shock-related conditions
arising from antilymphocyte antibody therapy were assigned to the Company by
Nutrition Toxicology and Environment Research Institute Maastricht in a 1996
agreement. A confirmatory assignment is currently being arranged in order to
ensure that the Company owns all the rights and to record the Company as
proprietor of the patents.

                  The Company is pursuing the following patent applications:

                  - use of Fab fragments of anti-TNF(alpha) antibodies in
                    medicine (in other territories including the United States, 
                    Canada and Japan);

                  - a United States divisional for various steps in the process 
                    of production of Fab fragments;

                  - a European divisional for a method of accelerated clotting 
                    of blood in the production of polyclonal antibodies; and

                  - the use of mixed monospecific antivenoms (in other
                    territories including the United States and Japan).

                  United States applications remain confidential and are only
published if a patent is granted, whereas international applications are
published within 18 months even if they do not proceed to grant. In order to
ensure the protection of know-how, no international equivalent of the United
States application in respect of an antidote to poisoning with tricyclic
antidepressants was filed.

                  There can be no assurance that the Company will receive the
requested approval of the pending patent applications.

                  There are two European patents, both in the name of
Rockefeller University, which may affect CytoTAb(R). Following the Company's
opposition to the first of these patents and an oral hearing at the Opposition
Division of the European Patent Office ("EPO"), the patent was revoked in its
entirety. The decision could be appealed, but the Company intends to vigorously
defend any appeal and management believes that the revocation will stand. The
Company is also opposing the second Rockefeller patent on various grounds,
including lack of patentability. If valid as granted, the patent could be used
to attempt to limit the Company's freedom to use anti-TNF(alpha) antibodies, and


                                       11


<PAGE>   13

therefore its ability to market CytoTAb(R). The provisional (although
non-binding) opinion of the Opposition Division of the EPO is that this patent
should also be revoked. The Company will continue to oppose the patents until a
final decision is reached, which is expected by the end of 1999.

                  Patent rights related to those European patents referred to in
the previous paragraph also exist in the United States, Canada, Australia and
Japan. Management is of the opinion that, owing to the precise nature of these
patent rights in Australia and the United States, commercial exploitation of
CytoTAb(R) in these territories will not infringe any valid claims of these
patents. The Company has itself applied for specific patents covering the use of
Fab fragments of anti-TNF(alpha) antibodies, and methods for their preparation,
as summarized above.

                  In March 1999, the Company's patent attorneys opined that the
antilymphocyte antibody therapy United States patent can be used to prevent the
use of anti-TNF(alpha) antibodies to prevent or ameliorate acute tumor lysis
syndrome brought about by the administration of the monoclonal antibody
rituximab. Rituximab, an anticancer treatment directed against lymphoma cells
that express the CD20 tumor antigen, is licensed in Europe by the Roche Group
from IDEC Pharmaceuticals ("IDEC") in the United States, where IDEC markets the
product jointly with Genentech, Inc. ("Genentech").

                  In January 1999, following a routine search by its patent
attorneys, the Company was alerted to a Genentech United States patent, dated
August 18, 1998, with claim to "A tumor necrosis factor-alpha (TNF-alpha)
antagonist comprising an antibody which neutralizes cytotoxic activity of human
TNF-alpha." This patent was subsequently found to be a continuation of another
Genentech United States patent which claims "A method for treatment of a graft
versus host reaction which comprises administering to a patient a
therapeutically effective dose of a tumor necrosis factor-alpha antagonist." The
Company is currently investigating the implications of these patents. No
equivalent European patents or applications have been found.

                  A European patent has recently been granted which includes
claims relating to the purification of antivenoms and the resulting purified
antivenoms and which, if valid, could be used to attempt to limit exploitation
of the Company's antivenom products. The Company has been advised by one of its
patent attorneys, Carpmaels & Ransford, that to the extent it is alleged any of
the Company's mixed monospecific antivenom products fall within the scope of the
claims of the patent, there are reasonable grounds to argue the claims are
invalid. The Company therefore intends, if necessary, to oppose the patent.
Significant validation deadlines for the patent in various European countries
fell due recently and the outcomes are currently being monitored by the
Company's attorneys. Initial indications suggest a varied pattern, with the
patent being allowed to lapse in some territories.

                  Broadly equivalent patents to the European patent referred to
in the previous paragraph have been granted in Australia and the United States
but the claims of these patents are more limited than those of the European
patent. Management has been advised and is confident that exploitation of the
Company's antivenom products in these territories will not infringe the granted
patents.

                  TRADEMARKS

                  The Company has registered the following trademarks: 

                  - TAb in the United States, Canada, Australia, major European
                    countries, and Japan; 

                  - CytoTAb, DigiTAb, TriTAb, and ViperaTAb in the United States
                    and various countries worldwide; and 


                                       12

<PAGE>   14



                  - CroTAb in the United States.

The Company has withdrawn or abandoned its attempts to register the DigiTAb mark
in Australia, Canada, Denmark, and Germany in the face of oppositions or prior
registrations of Digibind(R). An application for the TAb mark in the United
Kingdom is pending.

MARKETING AND RESEARCH AND DEVELOPMENT STRATEGIES

                  MARKETING STRATEGY

                  Collaboration agreements between large pharmaceutical
companies and biotechnology companies are common. The large pharmaceutical
companies seek to in-license products which are at an advanced stage of
development, providing the pharmaceutical companies with lower risk investments
in the development of new pharmaceuticals and access to products outside their
core area of research and development expertise. This provides a biotechnology
or biopharmaceutical company, such as the Company, with a source of revenue
prior to the launch of a product together with access to marketing skills and to
an experienced sales force. These agreements typically include an upfront
payment on signing the agreement, milestone payments on reaching defined
stages in the development program, and royalties payable on sales by the
marketing collaborator together with a margin on the supply of product.

                  Management intends to enter into such arrangements for most of
the Company's products. The stage at which the Company will out-license will
depend on balancing the market potential of the product with the costs and risks
associated with the continuing development program. Except in certain limited
circumstances, the Directors do not intend that the Company will establish its
own sales force but expect to market its products through alliances with
collaborators.

                  Management groups the Company's products in two general
categories:

                  Niche Products. These products include the antivenoms and
DigiTAb(R). Niche products serve an acute medical need in a low volume market.
Generally, the products have a lower commercial risk as they tend to have lower
development costs, shorter lead times and potentially accelerated regulatory
review. Management believes that the Company's niche products will be able to
show improved safety or efficacy compared with existing products or that they
will be able to present a market opportunity in an established market place.

                  Major Market Products. These products include the
anti-cytokine products and certain of the anti-drug products. Major market
products are being developed to meet medical needs for life threatening
conditions, which management considers to have significant market potential. For
products requiring sizable later stage trials, management intends to out-license
these products at the end of Phase II clinical trials.


                                       13

<PAGE>   15

                  RESEARCH AND DEVELOPMENT STRATEGY

                  The nature of the Company's technology affords flexibility in
its development of a variety of products. By varying the initial target molecule
and using consistent production techniques, the Company has already demonstrated
that it can create products for different therapeutic uses.

                  Management intends to take advantage of opportunities for
which United States orphan drug status might be granted given the development,
registration and marketing incentives which are available when such status is
granted.

                  The Company has already established and will continue to seek
new collaborative arrangements with academic institutions either sponsoring
their work directly or acquiring the intellectual property rights (or rights to
use the same) to complementary novel developments. This provides the Company
with another source of new technology to develop further its new products.

GOVERNMENT REGULATION

                  GENERAL

                  Regulation by government authorities in the United States,
Europe and other countries in which the Company operates is a significant
consideration in the development, production, marketing, labeling and
reimbursement of the Company's products and in its continuing research and
development activities.

                  In the United States, Europe and most other countries there is
a requirement to obtain and to maintain an approval for a product from the
appropriate regulatory authority ("marketing authorization"). The Company is
also subject to various laws, regulations, policies, guidelines and
recommendations relating to such matters as safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the protection
of the environment. The general trend has been towards greater regulation of the
pharmaceutical industry and its products.

                  The submission of an application to a regulatory authority
does not guarantee that an authorization will be granted. Regulatory authorities
require substantial data in connection with marketing authorization
applications, resulting in a lengthy approval process. The time taken to obtain
such approval varies, but can take from a few months to several years and can
involve substantial expenditure. This may be due to the lack of the necessary
results required by regulatory authorities or changing or additional regulation
during the product development process. Furthermore, regulatory authorities of
different countries may impose differing requirements and may refuse to grant,
or may require additional data before granting an approval, even though the
product may have been approved by the regulatory authority of another country.
Even if approval is obtained, failure to comply with present or future
regulatory requirements, or new information reflecting on the safety or
effectiveness of the approved drug, can lead the regulator to withdraw its
approval to market the product.

                  In the United States, the principal regulatory agency is the
FDA. Nearly all other countries have national regulatory authorities. The
Company may have to satisfy different requirements from the FDA, European
authorities and other national regulatory authorities. There is an ongoing
initiative, the International Conference on Harmonization, between
representatives from Japan, the United States and the European Union, to limit
differences where possible, but it may be many years before its objective is
achieved, if at all.

                  In Europe, the Company must take into consideration (a) the
regulatory climate within the European Union, including the stances of the
International Conference on Harmonization, 


                                       14

<PAGE>   16

the European Agency for the Evaluation of Medicinal Products ("EMEA") and the
European Committee for Proprietary Medicinal Products ("CPMP"), as well as (b)
the position of the national regulatory authorities of other European countries.
New licensing procedures were introduced in the European Union in 1995 aimed at
progressively limiting the differences in requirements between the regulatory
authorities of European member states in respect of the same products. However,
it is too early to assess fully the impact of these new procedures.

                  Wherever practical, the Company intends to design preclinical
and clinical protocols which should generate sufficient data to be acceptable to
support applications for the same product in each country where it is intended
to be marketed.

                  PRICE REGULATION

                  In some countries it is necessary to obtain approval for the
price to be charged. This is true in a number of European member states. In the
United Kingdom the launch price is set by the manufacturer (subject to the
constraints of the pharmaceutical price regulation system, which controls the
profitability of a company's business with the United Kingdom's National Health
Service).

                  Governments may also influence the price through the control
of national healthcare systems and also organizations which may bear the cost of
supply of such products. In the United States, government-funded or private
medical care plans can influence prices, and there are a variety of indirect
controls.

                  UNITED STATES REGULATION

                  Regulatory Authorities. The development and marketing of
medicinal products for human use in the United States is regulated at the
federal and state levels. The principal federal regulatory agency is the FDA
within the Department of Health and Human Services. Although most states
maintain one or more agencies with power to regulate medicines, they commonly
defer to the FDA in matters relating to product development and approval.

                  Due to the requirements imposed by the FDA, the development
process for new pharmaceuticals in the United States is lengthy, expensive and
commercially risky. The great majority of compounds screened for possible
development are ultimately rejected at some stage in the pre-market testing
process; total development time for successful compounds often exceeds 10 years.
However, under the provisions of recent legislation the FDA has committed to
reduce the review time for applications. Although the agency has achieved some
reductions, especially for high-priority medicines, the review process remains
lengthy and complex. There has been little or no reduction in the testing
required before applications are submitted, which consumes most of the time
spent in developing new medicines for the United States market.

                  Good Practice Standards. Various standards are applied either
by law or custom to the activities of pharmaceutical companies. These include
principally Good Laboratory Practice ("GLP"), applied to studies performed
during preclinical developments to identify the compound's behavior and toxicity
in animals, Good Clinical Practice ("GCP"), intended to ensure the quality and
integrity of clinical data and to protect the rights and safety of human
subjects in clinical trials, and Good Manufacturing Practice ("GMP") which
ensures the quality of drugs by setting minimum standards for all drug
manufacturing facilities. Such standards have been developed by the FDA and by
the United States National Committee for Clinical Laboratory Standards.
Violation of these regulations can lead to invalidation of the relevant studies.
In Europe they are embodied in law (GMP and GLP) or guidelines (GCP).

                  The Company has used consulting firms in the United Kingdom 
and in the United States for advice on compliance with existing regulations and
guidelines.


                                       15

<PAGE>   17



                  Clinical Trials. Clinical trials of new product candidates are
designed to establish their safety and efficacy in treating a specific disease
and are usually conducted in three phases, although there are not always
distinct divisions between the objectives and activities undertaken in each
phase. The clinical trial process may take from two to six years or more to
complete.

                  Phase I trials are normally conducted in a small number of
healthy human subjects or patients with the specific condition targeted. Their
purpose is to provide a preliminary evaluation of the product candidate's
safety, toxicity and behavior when administered to humans.

                  In Phase II trials, the product candidate is assessed for its
short-term safety and preliminary efficacy in a limited number of patients with
the targeted disease or disorder. The appropriate dose ranges and regimens for
Phase III are also determined during this Phase.

                  Phase III trials involve a comprehensive evaluation of safety,
efficacy and toxicity that might not have been seen in smaller studies. The
trials are carried out, typically on a multi-center basis, on a sufficient
number of patients to obtain statistically significant results. All adverse
reactions are investigated in detail and special features of the product
candidate are explored.

                  All clinical trials of investigational medicines in the United
States must be carried out under investigational new drug ("IND") submissions to
the FDA. FDA regulations impose requirements for documenting the safety of
proposed clinical trials, provide for submissions to FDA before clinical trials
can commence and authorize the FDA to suspend or withdraw permission to continue
clinical trials.

                  If the drug is considered by the FDA and by prospective users
to provide an important benefit in the treatment of a serious disease, the
applicant may be faced with demands from patient groups, sometimes endorsed by
the FDA, for release of the drug for treatment during the investigative stage.
The supply of such treatment is termed treatment use. Supplying drugs on this
basis can involve significant expense and resource demands for the sponsor of
the drug, which must administer the pre-approval release program. This may, in
some situations, interfere with the ability to complete controlled clinical
trials of the drug.

                  Approval Procedures and Criteria. The FDA applies essentially
the same requirements for approval of all products: proof of safety and
efficacy, demonstration of adequate controls in the manufacturing process and
conformity with requirements for labeling. Efficacy must usually be demonstrated
by two well-controlled clinical trials carried out in accordance with FDA
regulations.

                  The FDA has discretion to determine whether the data submitted
is adequate for approval. The time taken for this approval process is related
to the quality of the submission, the potential contribution of the compound in
improving the treatment of the target disease and the workload at the FDA. There
can be no assurance that any new drug will successfully proceed through this
approval process or that it will be approved in any specific period of time.

                  During its review, the FDA may ask for additional test data.
If the FDA approves the product, it may require post-marketing testing,
including potentially expensive Phase IV studies. This phase assesses further
the product's therapeutic value and provides additional information about the
safety and efficacy of the product across a broader patient base. In addition,
the FDA can impose restrictions on the use of the drug that may be difficult and
expensive to administer.

                  Orphan Drug Status. The Orphan Drug Act encourages
manufacturers to seek approval of products intended to treat diseases with a
prevalence of under 200,000 patients per annum in the United States. This Act
provides tax incentives, FDA assistance with protocol design, and a period of
seven years of marketing exclusivity for the product. The Company expects some
of 


                                       16

<PAGE>   18



its proposed products to be designated as orphan drugs by the FDA. The
Company's Crotalid antivenom, CroTAb(R), has already been designated by the FDA
as an orphan drug.

                  Accelerated Approval. The FDA may accelerate approval of
medicines that offer a significant improvement in the treatment of fatal or
life-threatening conditions, or conditions for which there is no alternative
therapy. In certain cases, the FDA may permit Phase II and Phase III studies to
be compressed into a single study. It is unusual for the FDA to base an approval
on such compressed studies and, although many of the Company's products would be
included in this category, there can be no assurance that such combined testing
would be considered acceptable for any of the Company's products.

                  Acceptance of Foreign Clinical Data. The FDA will accept
reports of foreign clinical trials if they meet requirements for GCP and are
relevant to United States medical practice. It is, however, uncommon for the
agency to approve a product without some evidence from clinical trials conducted
in the United States, and most sponsors carry out at least one pivotal trial
there. Studies conducted outside the United States are subject to special audits
by FDA inspectors and may be rejected if United States requirements for
record-keeping, protection of human subjects and other matters relating to GCP
are not met.

                  Non-Patent Market Exclusivity. Under United States law, there
are two forms of non-patent market exclusivity. First, the law prohibits
approval of abbreviated new drug applications or literature-based applications
for copies of innovative products for a period of five years after the approval
of a new chemical entity, and three years after the approval of a new indication
or dosage form for which substantial clinical trials were required. 

                  Second, the law provides for a seven-year period of protection
for orphan drugs (see above). During this period, the FDA is precluded (subject
to complex exceptions) from approving any application for the same drug, even if
it is based on original data. These provisions apply to all drugs, including
antibiotics and biological products.

                  Manufacturing Controls. The FDA inspects pharmaceutical
manufacturing establishments for compliance with current GMP and conformity with
specifications in marketing approvals. Biological manufacturing establishments
must be licensed by the FDA. The agency inspects foreign manufacturing
facilities that supply bulk or finished products for the United States market.
If companies cannot meet FDA requirements, their products may be excluded from
the United States.

                  Advertising and Promotion. The FDA regulates advertising and
promotion of prescription medicines. Promotion for unapproved uses is
prohibited, and sponsorship of medical symposia and publications is restricted.
Financial incentives to prescribers are regulated under federal and state
criminal laws as well as codes of practice for the medical professions.

                  Enforcement Powers. The federal government has extensive
powers to compel compliance with pharmaceutical regulations. Volatile products
are subject to seizure, and imported products may be detained. Companies and
individuals that violate these regulations are subject to injunctions and
criminal penalties with no requirement for proof of negligence or intent.
Persons and companies convicted of certain offenses can be barred from
involvement in the approval process. The federal government can suspend or
withdraw approval of products if questions arise concerning safety or
effectiveness.

                  Product Liability. Companies that market medicines in the
United States are subject to suit in state and federal courts for personal
injuries caused by their products. The risk of product liability litigation is
significantly greater in the United States than in most European jurisdictions,


                                       17

<PAGE>   19




and damage awards can be substantial. FDA approval is not a defense to
liability, and failure to comply with FDA requirements may constitute evidence
of negligence.

                  EUROPEAN REGULATION

                  The Company's activities in Europe are regulated by national
and local laws and European Union law. There are European Directives governing
the development, manufacture and marketing (including wholesale) of medicinal
products which member states are required to implement into local law and which
must be interpreted in line with the European provisions. However, failure to
implement them properly by national governments may allow companies to rely upon
provisions of pre-existing local laws. Certain areas of regulation continue to
be regulated by national law, for example, the regulation of clinical research,
although a European Good Clinical Practice Directive is under development.
Another current proposal is the Orphan Drug Directive, which if implemented may
potentially have benefits for some of the Company's products.

                  Clinical Trials. The three phase approach to clinical
development of new product candidates discussed in the section on United States
Regulation is also applicable to European regulation. When adequate preclinical
data is available, application will usually be made to the regulatory authority
in the country where the trial is to be conducted. In most developed countries,
clinical trials may only be commenced after notification to and/or approval by
the competent regulatory authority and an independent ethics committee. In
European Union member states, marketing authorizations must be supported by
clinical trial data as set out in European Directives and guidelines, but the
approval process and criteria for commencement of clinical trials are not yet
uniform under European Union law. The International Conference on Harmonization
is developing proposals to conform national laws and practices.

                  Marketing Authorizations. When clinical trial data supporting
safety and efficacy and the necessary manufacturing and formulation data are
available, an application for a marketing authorization may be submitted. If a
regulatory authority is satisfied that the criteria of safety, quality and
efficacy are met, a marketing authorization will be granted although European
Union law does allow member states, exceptionally, to prohibit product use on
grounds connected with public order or morality. Marketing authorizations are
granted subject to certain generally applicable conditions and may also be
subject to product-specific restrictions determined by the regulatory
authorities.

                  Two new procedures for the registration of medicinal products
in the European Union came into effect on January 1, 1995: the "centralized" and
"mutual recognition" systems. From January 1, 1998, national applications have
effectively been superseded by the mutual recognition system.

                  The centralized system is compulsory for certain biotechnology
products, and optional for certain other products, including new active
substances not previously authorized in the European Union, products
administered by innovative and novel delivery systems and significant new
indications for existing products. The EMEA coordinates the registration
process, but the CPMP, a body of scientific experts drawn from each member
state, undertakes the scientific assessment of the product dossier and gives an
opinion as to whether the product meets the criteria for authorization. Time
periods are laid down for various stages in the approval process, including
allowances for questions and appeals. The decision to grant or refuse a
marketing authorization is taken by the European Commission and, when granted,
the single authorization obtained is valid throughout all member states and the
European Free Trade Association.

                  The mutual recognition system is based upon a marketing
authorization granted by one national regulatory authority, the Reference Member
State ("RMS"). Having obtained a marketing authorization from the RMS, the
authorization holder may apply to the regulatory authorities of other member
states to "recognize" that prior authorization and to issue national
authorizations on the same terms. Such applications can be made sequentially.
There are procedures and time limits according to which objections by member
states can be raised and appeals 


                                       18

<PAGE>   20



may be heard, although these may significantly lengthen the time from initial
application to approval. Arbitrations are handled by the CPMP whose decision,
when adopted by the European Commission, is binding on all member states.
Consequently, arbitration may adversely affect prior authorizations.

                  The passage of a product through the approval system can
therefore be long and drawn out. Although the procedures impose time limits upon
the authorities, these limits do not run if the applicant delays in providing
additional data or responses to queries raised. In addition, the regulatory
authorities can suspend, vary or revoke a marketing authorization at any time
after it has been granted if they are no longer satisfied as to the product's
safety, quality or efficacy. Increasing uniformity of decision-making in the
European Union through the CPMP means that, in the future, concerns raised by
any one member state are likely to be examined at CPMP level and the outcome of
its deliberations will affect the product in all member states.

                  Marketing authorizations are generally granted for a period of
five years and require renewal. During that period, should new developments
occur, the holder of the authorization is required to update the product
dossier. There is an obligation on the holder of the authorization to report
adverse events to the regulatory authorities and to keep product safety under
review.

                  Manufacturing Authorizations and Facilities Licenses. European
Union law requires that companies manufacturing medicinal products must hold a
manufacturer's authorization and must comply with the requirements of GMP. These
standards are enforced by inspection. Failure to comply may result in the
suspension or revocation of the manufacturer's authorization and may lead to
suspension of product marketing.

                  In the United Kingdom facilities licenses are issued after an
application to, and inspection by, the Medicines Control Agency, and similarly
in Australia by the Therapeutic Goods Administration ("TGA").

REGULATION IN OTHER COUNTRIES

                  In general, regulation is similar in countries outside the
United States and Europe, with the approval system regulated by specific
agencies in each geographic area. However, approval by one agency does not
ensure approval in other countries.

                  In Australia successful marketing of a therapeutic substance
may be dependent on receiving marketing approval from the TGA and also on
obtaining Commonwealth Government subsidy for use of the product via either the
Pharmaceutical Benefit Scheme or the Special Access Scheme. Applications for
listing on either of these Schemes requires additional information, in
particular economic analysis data, and approval for this second step may lag
behind obtaining marketing approval. The Australian Government is able to
exercise considerable power over price control through this process.

EMPLOYEES

                  As of December 31, 1998, the Company had 142 full-time
employees, including 41 scientists, 22 management and 22 administrative
personnel. In addition, the Company employed 26 part-time employees at December
31, 1998. The Company believes that its future success will depend, in part, on
its ability to attract and retain highly skilled technical, marketing, support
and management personnel.

                  None of the Company's employees in the United States are
subject to a collective bargaining agreement, and the Company has never
experienced a work stoppage. Management believes that its employee relations are
good.


                                       19


<PAGE>   21

ITEM 2.           PROPERTIES

                  The Company's physical properties are primarily owned or
leased through its subsidiaries. TAb UK operates the Company's research and
development laboratories at St. Bartholomew's Hospital Medical College in London
located at Charterhouse Square, London, EC1A 7BE. TAb UK leases 5,099 square
feet of laboratory space from the trustees of St. Bartholomew's Medical School.
The current lease term has an expiration date of September 30, 2003. TAb UK also
leases approximately 4,000 square feet of office space at 14/15 Newbury Street
in Central London. The contractual terms of the lease came to an end on March
24, 1999. Under English law TAb UK is entitled to continue to occupy the
premises and is entitled to a new tenancy of the premises. At present TAb UK is
in the process of negotiating with the landlord terms for a possible new lease.

                  In addition, TAb UK owns and operates production offices,
quality control laboratories and a manufacturing facility located at Blaenwaun
Farm and Gernos Farm in Ceredigion, Wales. In 1992, the Company acquired these
initial Welsh facilities, including approximately 220 acres of pasture land,
animal stock, and production and ancillary facilities. The Welsh facilities were
established with financial support of the Welsh Office and Welsh Development
Agency in the form of grants and investments. In 1995, TAb UK completed
construction of a 20,000 square foot manufacturing plant within its existing
Welsh facilities.

                  In 1995, TAb Australasia (formerly TAb Australia Pty. Ltd)
leased offices and laboratories and acquired grazing rights over 250 hectares of
land at the Turretfield Research Centre in Adelaide, South Australia. The flocks
of sheep were moved to this location and a bleeding shed constructed. In the
fourth quarter of 1996, TAb Australasia completed construction of new facilities
on the property, which include offices, a cleanroom and a manufacturing plant,
located adjacent to the Company's existing facilities. The lease of the
Turretfield Research Centre property will expire on July 31, 2000, but the
Company has an option to extend the term on prior written notice for a further
period of 15 years. The Company has grazing rights at the Turretfield Research
Centre until July 31, 2005 and has an option to further extend this right for a
period of 10 years upon prior written notice.

                  The Company's corporate headquarters is located at 1207 17th
Avenue South, Suite 103, Nashville, Tennessee 37212. This property is 7,722
square feet of leased office space in the vicinity of Vanderbilt University
Medical Center. This lease expires on January 31, 2001.

                  All of the Company's laboratories, production facilities and
farms are suitably equipped for their intended purposes.

ITEM 3.           LEGAL PROCEEDINGS

                  There are no pending legal proceedings involving the Company
or any of its subsidiaries.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  A Special Meeting of Shareholders of the Company was held on
November 6, 1998. At the meeting, the shareholders approved and authorized the
Company to file a Certificate of Amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 39,000,000 to 59,000,000. This increase of authorized shares
was necessary to facilitate the private placement of 28,690,561 shares of the
Company's Common Stock, which closed on November 9, 1998. Proxies for the
meeting were solicited pursuant to Rule 14a-3 under the Securities Exchange Act
of 1934, as amended. There was no solicitation in opposition to management's
recommendations as stated in the proxy statement. 



                                       20

<PAGE>   22



The vote on the amendment was 15,162,843 in favor and 34,425 against, with zero
broker non-votes or abstentions.

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
                  MATTERS

                  The Company's Common Stock is currently traded on the London 
Stock Exchange (under the symbol TAB). There is no public trading market for the
Company's Common Stock within the United States.

                  The following table presents quarterly information on the
price range(1) of the Company's Common Stock, stated in British pounds and 
United States dollars. This information indicates the high and low sale prices
reported by the London Stock Exchange.

<TABLE>
<CAPTION>
     QUARTER ENDING                      HIGH                       LOW
     --------------                      ----                       ---
<S>                              <C>                        <C>
     March 31, 1997              (pound)3.89   ($6.38)      (pound)3.035   ($5.00)

     June 30, 1997               (pound)3.74   ($6.18)      (pound)3.325   ($5.50)

     September 30, 1997         (pound)3.325   ($5.62)       (pound)1.80   ($2.80)

     December 31, 1997          (pound)2.585   ($4.45)       (pound)2.18   ($3.60)

     March 31, 1998              (pound)2.22   ($3.66)       (pound)1.93   ($3.23)

     June 30, 1998               (pound)2.09   ($3.48)       (pound)1.40   ($2.28)

     September 30, 1998          (pound)1.42   ($2.36)       (pound)0.63   ($1.03)

     December 31, 1998           (pound)0.86   ($1.47)       (pound)0.47   ($0.77)
--------
(1) Currency translations were calculated based upon the currency exchange 
rates in effect on the date the price disclosed was reported on the London 
Stock Exchange.
</TABLE>

                  As of March 26, 1999, there were approximately 1,344 holders
of record of the Company's Common Stock. On March 26, 1999, the last sale prices
reported on the London Stock Exchange for the Company's Common Stock was 56
pence ($.91).

                  The Company to date has paid no dividends on its Common Stock.
The declaration and payment of future dividends will be determined by the Board
of Directors in light of conditions existing in the future and are expected to
depend upon earnings, financial condition, capital requirements, and other
relevant factors not presently determinable. The Company does not expect to pay
dividends in the foreseeable future.

                  On November 9, 1998, the Company issued an aggregate of
28,690,561 new shares of the Company's Common Stock in connection with a $19.5
million refinancing. This refinancing consisted of a private placement of
21,300,000 new shares at $0.68 per share to raise approximately $12.6 million
net of expenses. In addition, the holders of approximately $2.9 million
aggregate principal amount of the Company's 1998 15% Subordinated Promissory
Notes and certain other 






                                       21

<PAGE>   23

notes elected to convert their notes into 4,394,869 shares of Common Stock. Also
in connection with the refinancing, the holders of the Company's Series A
Convertible Redeemable Preferred Stock elected to convert all outstanding shares
of Series A Preferred Stock, together with accrued dividends thereon, into
2,995,692 shares of Common Stock. Panmure Gordon & Co. Limited acted as
underwriters for the shares sold in the private placement. All shares issued in
the refinancing were issued without registration under the Securities Act of
1933, as amended, (the "Securities Act") in reliance on exemptions contained in
Section 4(2) of the Securities Act.

ITEM 6.           SELECTED FINANCIAL DATA

                  The following selected consolidated financial data at and for
each of the five years in the period ended December 31, 1998 have been derived
from the Company's consolidated financial statements. The data set forth below
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere herein and also with "Management's Discussion
and Analysis of Financial Condition and Results of Operations"


<TABLE>
<CAPTION>
                                                                                                                         8/10/84
                                                                  YEARS ENDED DECEMBER 31,                             (INCEPTION)
                                                 -------------------------------------------------------------------     THROUGH
                                                    1998           1997          1996          1995         1994         12/31/98
                                                    ----           ----          ----          ----         ----         --------
<S>                                              <C>          <C>           <C>            <C>           <C>        
STATEMENT OF OPERATIONS DATA:

Total Revenues(1)...........................    $ 3,631,809   $  2,677,931  $  3,268,368   $   750,490   $ 1,130,323   $ 13,018,554


Expenses:

     Research and development...............     11,363,218     11,462,352     9,185,126     6,321,674     5,107,894     53,405,675

     General, administrative, marketing.....      4,598,073      4,176,139     3,083,151     2,247,472     1,619,824     19,517,793

     Depreciation and amortization..........      1,561,951      1,643,922     1,387,916       856,756       864,288      7,073,621

     Interest expense and debt conversions..      1,305,549      1,001,959     2,002,932       388,258       137,018      5,837,728

     Foreign currency losses (1)............        240,703        913,119             _             _             _      1,153,822

     Other..................................        451,244        328,158       355,360        36,368       119,052      1,331,226
                                                -----------   ------------  ------------   -----------   -----------   ------------

       Total expenses.......................     19,520,737     19,525,649    16,014,485     9,850,528     7,848,076     88,319,865

     Net loss...............................    (15,888,928)  $(16,847,718) $(12,746,117)  $(9,100,038)  $(6,717,753)  $(75,301,311)

     Preferred stock dividends..............        (32,877)             _             _             _             _        (32,877)
                                                -----------   ------------  ------------   -----------   -----------   ------------
     Net loss applicable to common 
       shareholders.........................    (15,921,805)  $(16,847,718) $(12,746,117)  $(9,100,038)  $(6,717,753)  $(75,136,715)
                                                ===========   ============  ============   ===========   ===========   ============
     Basic and diluted net loss per share...         $(0.59)        $(0.74)       $(0.68)       $(0.57)       $(0.47)        $(6.78)
                                                ===========   ============  ============   ===========   ===========   ============


BALANCE SHEET DATA:

     Cash and cash equivalents(1)(3)........    $ 7,760,328   $  4,915,077  $ 20,502,536   $ 3,397,082   $   593,154

     Total assets(2)(3).....................     21,421,502     20,800,065    37,179,990    15,157,099    12,103,994

     Long term debt, net of current 
       portion (2)..........................      4,744,216      6,059,072     8,592,755     9,595,420     2,917,251

     Deficit accumulated during development     (75,301,311)   (59,412,383)  (42,564,665)  (29,818,548)  (20,718,510)
       stage................................                    

     Stockholders' equity(3)................     12,022,434      9,758,345    25,215,530       894,479     4,862,404
</TABLE>

Notes:
(1)      At December 31, 1998, the Company held approximately U.S. $7,508,000
         denominated in British pounds and U.S. $31,500 in Australian dollars.
         The decline in the exchange rate at year end between the British pound
         and Australian dollar versus the U.S. dollar resulted in a foreign
         currency transaction loss of U.S. $240,703. At December 31, 1997, the
         Company held approximately U.S. $2,960,000 which was denominated in
         British pounds. As a result of improvement in the exchange rate between
         the British pound and the U.S. dollar, the Company experienced a
         foreign currency transaction loss of U.S. $913,119 for the year ended
         December 31, 1997.
(2)      In 1995 and 1994, the Company constructed a pilot production facility
         in London and a manufacturing facility in Wales. These facilities were
         funded through financing arrangements provided by Aberlyn Capital
         Management Company, Inc. and the Welsh Development Agency. See Note 5
         to the consolidated financial statements.


                                       22

<PAGE>   24

(3)      On July 23, 1996, the Company completed an initial public offering of 
         4,190,477 shares of its common stock on the London Stock Exchange at 
         (pound)5.25  ($8.14) per share. See Note 1 to the consolidated 
         financial statements.


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS


         The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and notes thereto.

GENERAL

         Since its inception, Therapeutic Antibodies has been in the development
stage, devoting its efforts and resources to drug discovery and development
programs relating to the development of highly purified, polyclonal antibodies
for the treatment of disease. The Company's revenues have been primarily derived
from licensing agreements with corporate partners, contract agreements, product
sales, grant income, and interest income. The Company has incurred net losses
each year since its inception and the Company expects to continue to incur
operating losses during at least the next year due to continued spending on
research, product development and the requirements for process development,
preclinical and clinical testing, regulatory affairs, initial manufacturing
activities and administration. To fund these activities, the Company will
continue to evaluate opportunities to raise further funding which will be
required to carry out the current business plan.

         The Company conducts its operations from its headquarters in the United
States and through subsidiaries located in the United Kingdom and Australia. For
a discussion of the Company's international operations for the past three fiscal
years, see Note 11 to the Company's financial statements.


RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

         The Company's revenues for 1998 increased by 36% to $3,632,000 from
$2,678,000 for 1997. Licensing revenue increased 129% to $2,544,000 for the year
ended December 31, 1998 from $1,113,000 for the year ended December 31, 1997.
This increase is primarily attributable to milestone payments received from
licensing agreements with pharmaceutical partners. An 85% increase in sales and
contract revenue to $727,000 during the year ended December 31, 1998 from
$393,000 during the year ended December 31, 1997 was due to the recognition in
1998 of a $219,000 sale of the Company's Nigerian EchiTAb(TM) product as well as
an increase in contract revenue in 1998 due to an increase in the number of
sheep managed by Therapeutic Antibodies under contractual arrangements with
third parties in the United Kingdom. Grant revenue decreased 80% in 1998. The
Company received a $129,000 grant from the Welsh Government in 1997 for
expansion of the Company's Welsh operations. Interest income 



                                       23
<PAGE>   25


for the year ended December 31, 1998, decreased 73% to $239,000 from $887,000
for 1997 due to lower cash and short-term investment holdings during 1998.

         The Company's total expenses for the year ended December 31, 1998 were
slightly less than 1997 expenses. Research and development expenses for 1998
decreased to $11,363,000 from $11,462,000 in 1997 due to cost reduction measures
initiated by the Company in 1998. Research and development expenses had
increased between 18% and 50% per year for the previous five years ending in
1997. In early 1998, management implemented a plan to conserve cash and to
sharpen the focus of the Company's research and development efforts. As part of
this streamlining, some of the Company's basic research activities and certain
clinical trial programs, including research into the application of CytoTAb(R)
to treat the symptoms of sepsis syndrome, have ceased. The Company is currently
pursuing other applications for CytoTAb(R). The Company began to realize the
results of these cost reduction measures during late 1998.

         General and administrative expenses for the year ended December 31,
1998 increased by 14% to $4,051,000 from $3,562,000 for the year ended December
31, 1997. This increase is due to one-time costs incurred for management
changes, the development of an information systems department, and fees incurred
for restructuring the Company's United Kingdom subsidiary entities.

         Marketing and distribution expenses decreased for the year ended
December 31, 1998 by 11% to $547,000 from $615,000 for the year ended December
31, 1997 primarily as a result of a vacancy in the Director of Business
Development position from April until December 1998.

         Depreciation and amortization expenses for the year ended December 31,
1998 decreased by 5% to $1,562,000 from $1,644,000 for the year ended December
31, 1997. The Company had significant capital expenditures in 1994 through 1996
for the establishment of the Welsh and Australian production facilities.
Expenditures for production facilities incurred in 1997 and 1998 resulted in a
leveling off and slight reduction in depreciation expense in 1998. In addition,
the majority of 1998 expenditures occurred later in the year resulting in less
depreciation during the year.

         Interest expense for the year ended December 31, 1998 increased by 30%
to $1,306,000 from $1,002,000 for the year ended December 31, 1997. During 1998,
the Company incurred an additional $516,000 in interest and warrant expense
related to the Company's private placement of $4,025,000 principal amount of
short-term bridge notes between June and September 1998.

         Changes in foreign currency exchange rates resulted in the recording of
less foreign currency loss in 1998 than in 1997. Gains and losses are the result
of fluctuations in the exchange rates of the currencies in which the Company
conducts its business compared to the United States dollar.

         The Company's net loss for the year ended December 31, 1998, was
$15,889,000 compared to a net loss of $16,848,000 for the year ended December
31, 1997. The Company's net loss applicable to common shareholders for the year
ended December 31, 1998 was $15,922,000 compared to a net loss applicable to
common shareholders of $16,848,000 for the year ended December 31, 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

         Therapeutic Antibodies' revenues for 1997 decreased by 18% to
$2,678,000 from $3,268,000 for 1996. During the year ended December 31, 1996 the
Company recorded a foreign currency transaction gain of $1,733,000 as a result
of the United States dollar's improvement during 1996 against the British pound
sterling compared to a loss of $913,000 for the year ended December 31, 1997.
Licensing revenue increased 676% to $1,113,000 for the year ended December 31,
1997 



                                       24
<PAGE>   26


from $144,000 for the year ended December 31, 1996 due to milestone payments
received from licensing agreements with pharmaceutical partners. Sales and
contract revenue decreased during the year ended December 31, 1997 primarily
because 1996 included a one time payment of $173,000 which was attributable to
the Company's Nigerian EchiTAb(TM) contract. In 1997 grant revenue increased
$87,000 due to a grant received from the Welsh Government for expansion of the
Company's Welsh operations. Interest income in the year ended December 31, 1997,
increased 46% to $887,000 from $607,000 due to additional cash and short-term
investment holdings from the proceeds of the Company's IPO in the United Kingdom
in July 1996.

         Total expenses for the year ended December 31, 1997 increased by 22% to
$19,526,000 from $16,014,000 for the same period in 1996. Research and
development expenses during the same periods increased by 25% to $11,462,000
from $9,185,000 as a result of the following: advanced clinical trial activities
for DigiTAb(R) and CytoTAb(R); continued preparation for the regulatory review
process for CroTAb(R); manufacturing the Company's products for clinical trials;
and conducting and establishing the necessary quality control and assurance
systems. Additionally, the expansion of the Australian facility was completed in
early 1997 and the Company began devoting resources to that facility to meet the
need for increased serum requirements for commercial production.

         General and administrative expenses for the year ended December 31,
1997 increased by 31% to $3,562,000 from $2,722,000 for the year ended December
31, 1996. This increase relates primarily to increased insurance requirements,
stockholder relations and other activities required following the Company's
IPO in the United Kingdom in 1996.

         Marketing and distribution expenses increased for the year ended
December 31, 1997 by 70% to $615,000 from $361,000 in the year ended December
31, 1996. This increase reflects additional staffing and associated expenses.

         Depreciation and amortization expenses for the year ended December 31,
1997 increased by 18% to $1,644,000 from $1,388,000 for the year ended December
31, 1996. This increase is the result of the depreciation of the capital
expenditure for the Australian production facility, which was placed in service
in February 1997.

         Interest expenses for the year ended December 31, 1997 decreased by 17%
to $1,002,000 from $1,201,000 in the year ended December 31, 1996. This decrease
is a result of the Company's repayment in 1996 of approximately $4,750,000 in
debt obligations.

         The Company's net loss for the year ended December 31, 1997, was
$16,848,000 compared to a net loss of $12,746,000 for the year ended December
31, 1996. In addition to the factors described above, changes in foreign
currency exchange rates used to translate the foreign subsidiaries financial
statements into United States dollars resulted in higher expense levels.



                                       25
<PAGE>   27


LIQUIDITY AND CAPITAL RESOURCES

         Since its inception, the Company has been in the development stage,
devoting its efforts and resources to drug discovery and development programs.
Capital resources have been used for the establishment and expansion of
production facilities, for product research and development activities, for
clinical testing and to meet Therapeutic Antibodies' overall increased working
capital requirements. Management does not expect revenues from product sales to
be a significant source of funding until additional products receive regulatory
approval. Although the Company anticipates the launch of CroTAb(R) following FDA
approval in mid-1999, revenues from sales of CroTAb(R) are not expected to be
significant in 1999. Future capital requirements will depend on numerous factors
including the progress of the Company's research programs and clinical trials,
the development of regulatory submissions, the receipt of FDA approval of
CroTAb(R), the commercial viability of the Company's products, the ability to
attract collaborative partners with sales, distribution and marketing
capabilities, and the terms of any new licensing arrangements.

         Funds for the Company's operating and capital requirements historically
have been provided by the sale of equity and debt and from collaboration
agreements and other financing arrangements. In November 1998, the Company
completed the private placement (described below) of 28,690,561 shares of Common
Stock in the United States and in the United Kingdom, raising net cash proceeds
of $12,600,000. At the time of the private placement, the Company estimated that
the fundraising, together with licensing and contract revenue, would provide
sufficient funds to allow the Company to reach the launch of several of its
products, and accordingly bring the Company to the point at which its revenues
can sustain ongoing product development. With the loss of the 1999 milestone
payments and product revenues that would have been received under the Searle
agreement (described below), the Company will need to raise additional financing
by mid-1999 to fund operations. The Company is currently pursuing several
financing alternatives, including preliminary discussions that may lead to a
merger on a share exchange basis at a value that approximates the current market
value of Therapeutic Antibodies. The Board has also entered into discussions
with third parties relating to the sale of additional debt or equity securities,
the disposal of certain non-core investments, additional product licensing
arrangements, and possible combinations or collaborations with strategic
partners. While the Directors believe that they will be able to successfully
implement one or more of these financing strategies, there can be no assurance
that they will be able to do so or to otherwise obtain financing on terms
acceptable to the Company. In the meantime, the Company continues to take
measures, implemented in 1998, to conserve cash resources, while sustaining the
progress of clinical trials for products that promise the most success. See
"Item 1. Business- Overview and Recent Developments."

         At December 31, 1998, the Company had cash and cash equivalents
totaling $7,760,000, of which approximately $7,508,000 was denominated in
British pounds. The Company's net cash used in operating activities during the
year ended December 31, 1998 totaled $13,283,000, a decrease of 1% from the
year ended December 31, 1997. Capital expenditures increased 10% to $1,385,000
in 1998 from $1,257,000 in 1997. Capital expenditures included replacement of
certain essential equipment, computer hardware and software upgrades to meet
Year 2000 needs (see below), and facility improvements prior to the early 1999
inspection of the Welsh facility by the FDA. Capital expenditures of $1,900,000
are budgeted for 1999. These expenditures are for process improvement and
scale-up of the Company's facilities for commercial production and will be
contingent upon availability of funding. Therapeutic Antibodies uses sheep for
the production of its polyclonal antibodies and supplies all the antisera
required from its own flocks. The Company's subsidiaries currently have
approximately 6,200 sheep. The Company will keep the number of sheep constant
through much of 1999 and add sheep in late 1999 in anticipation of increased
TriTAb(R) production requirements.

         The Company has agreed to repay the outstanding balance of an $800,000
term loan, plus accrued interest, to Equitas, L.P. on or before March 31, 1999.
The loan currently bears interest at an annual rate of 11.5%.



                                       26
<PAGE>   28


         During 1998, the Company received milestone payments of $1,500,000
under the Altana Agreement as a result of the FDA's acceptance of the Company's
PLA and ELA for CroTAb(R). The Company is entitled to receive additional
payments under the agreement based on achievement of certain milestones relating
to CroTAb(R) and the Company's DigiTAb(R) and TriTAb(R) products. The Company
anticipates receiving additional payments under the agreement of $2,000,000 in
1999 based on FDA approval of CroTAb(R) and progression of the DigiTAb(R) and
TriTAb(R) regulatory filings with the FDA.

         In May 1998, the Company entered into an agreement with G. D. Searle &
Co. ("Searle") for the identification, development and commercialization of a
new antibody based drug designed to titrate the effects of Searle's new
xemilofiban and orbofiban anticoagulent products. Searle anticipated that it
would pay the Company up to $8,000,000 over the term of the agreement for
research and development and product supplies based on achieving certain
milestones. The Company received its first milestone payment of $1,000,000 upon
execution of the agreement in May 1998. In January 1999, however, Searle made
the decision to cease development of its xemilofiban and orbofiban projects and
exercised its right to terminate its agreement with the Company.

         Between June and September 1998, the Company raised $4,025,000 in a 
private placement of 15% Subordinated Promissory Notes (the "1998 Notes"). The
1998 Notes matured in the fourth quarter of 1998 and interest was payable
quarterly. The Company issued warrants to purchase 25,000 shares of its Common
Stock to each purchaser of $250,000 principal amount of 1998 Notes. As part of
the Company's November 1998 Placing (described below), the holders of $2,375,000
aggregate principal amount of the 1998 Notes converted principal plus accrued
interest of $107,000 into a total of 3,658,058 shares of the Company's Common
Stock. A portion of the proceeds of the Company's 1998 Placing was used to repay
$1,650,000 of the outstanding principal balance and $80,000 of accrued interest
on the 1998 Notes in November 1998.

         In September 1998, the Company issued 100 shares of Series A
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") to an
institutional investor and received total proceeds of $2,000,000. In November
1998, as a part of the 1998 Placing, the investor exercised its right to convert
all outstanding shares of the Series A Preferred Stock and $33,000 of accrued
dividends into 2,995,692 shares of the Company's Common Stock.

         On November 9, 1998, the Company completed a $19,500,000 capital
refinancing involving the issuance of 28,690,561 new shares of the Company's
Common Stock on the London Stock Exchange at $.68 per share (the "1998
Placing"). The 1998 Placing included the private placement of 21,300,000 new
shares of Common Stock and the conversion of all outstanding shares of Series A
Preferred Stock and $2,900,000 principal and interest amount of the 1998 Notes
and certain other loan notes into a total of 7,390,561 shares of the Company's
Common Stock. Included in the loans converted was $500,000 principal amount of
an outstanding $750,000 loan from an officer of the Company which was converted
into 736,811 shares of Common Stock. Of the approximately $12,600,000 in cash
raised in the private placement, net of expenses, $1,730,000 was used to repay
the outstanding balance of principal and interest on the 1998 Notes. The
remaining proceeds were and continue to be used to fund the ongoing development
of the Company's products.

         In April 1998, the Company received a loan of $162,000 from the
Department of Primary Industries and Resources of the South Australian
Government to be used for the construction of transportable buildings at the
Company's Australian facility. The interest rate on the loan is currently 6.5%
annually and is variable at the discretion of the Minister for Primary
Industries. Principal on the loan is payable in 20 equal semi-annual
installments, together with interest accrued thereon, beginning October 1998
through April 2008.



                                       27
<PAGE>   29


         In June 1998, the Company received the final installment on a loan from
the Department of Industry and Trade ("DIT") of the South Australian Government.
In April 1996, the DIT agreed to loan the Company up to $62,000 based upon the
number of local citizens employed by the Company through April 1998. At December
31, 1998, the Company had received a total of $50,000. This loan is provided
interest-free and is due in full on April 29, 2006.

Year 2000 Readiness

General

         The following material is designated a Year 2000 readiness disclosure 
for purposes of the Year 2000 Information Readiness and Disclosure Act. The
Company utilizes management information systems and software technology that may
be affected by Year 2000 issues. During 1998, the Company implemented a plan
(the "Y2K project") to ensure that its systems would be Year 2000 compliant. The
Y2K project is addressing the issue of Programmable Logic Controllers ("PLC")
and computer programs being able to distinguish between dates in the 20th
century and dates in the 21st century. The Y2K project is expected to make all
of the Company's business systems Year 2000 compliant.

Y2K Project

         Therapeutic Antibodies' Y2K project is divided into five phases. The
project phases are as follows: 1) compile an inventory of all equipment; 2)
assign priorities to the equipment identified as being at risk for Year 2000
issues; 3) assess the Year 2000 compliance of items identified as being
significant to the operational activities of the Company; 4) repair or replace
material items that are determined not to be Year 2000 compliant; and 5) test
and validate material items. A task force has been established to carry out
these tasks which includes subgroups at each of the Company's four locations,
Nashville, USA; Adelaide, Australia; London, UK; and Llandysul, UK.

         During 1998 the Company completed the inventory and priority assignment
phases (phases 1 and 2) for each location.

         The assessment of Year 2000 compliance (phase 3) includes the
identification and prioritization of critical external suppliers. The Company is
currently communicating with its critical suppliers to evaluate their progress
and preparation for Year 2000 compliance. Based on the results of these
evaluations the Company will develop contingency plans in the second quarter of
1999. The Company plans to complete Phase 3 by mid-1999.

         Phase 4, the repair and replacement of equipment and application
software that is not Year 2000 compliant, includes conversion, where available
from the supplier, or replacement. Finally, Phase 5, the testing phase, will be
undertaken as the hardware and software is converted or replaced.

         During 1998, the Y2K task force had identified the accounting software
used in Australia as not being Year 2000 compliant. During the first quarter of
1999 the software vendor has released an upgrade solution that is Year 2000
compliant which TAb is planning to implement during the third quarter of 1999.
In addition, TAb has identified a possible risk to Year 2000 compliance posed by
some of the PLC or embedded systems controlling the site utilities at each of
its production sites (Wales and Australia). The Company is currently researching
the extent of this risk and the optimal solution by obtaining confirmation from
suppliers that there is no hidden coding in the embedded systems and also by
looking at the source code to determine where dates are used and the impact
those have on the operation of the system. Changes in equipment will be made
during the Company's September shut-down.



                                       28
<PAGE>   30


         All phases of the Y2K project are expected to be complete before the
end of 1999. The phases are concurrent rather than consecutive; therefore, more
than one phase may be in progress at the same time.

Costs

         The total estimated cost associated with the Y2K project is not
expected to be material to the Company's financial position. The total capital
cost is estimated to be no more than $150,000. This figure will depend on the
cost of any replacements needed after completion of the assessment phase of the
Y2K project. The total operating cost attributable to staff time and effort
devoted to the Y2K project to date is $45,000. The estimated future operating
cost of completing the project is $60,000.

Risks

         The failure to correct any Year 2000 problem could result in an
interruption in, or a failure of normal business activities or operations. Due
to the inherent uncertainty when dealing with Year 2000 issues, and from the
uncertainty of the Year 2000 readiness of suppliers and other third parties, the
Company is unable to determine whether or not any Year 2000 failures will have a
material effect on the Company, its operations or its financial condition. The
Y2K project is expected to significantly reduce the level of uncertainty about
any Year 2000 problems posed to the Company, either internally, or by the
compliance of its third party suppliers. The Company believes that with the
implementation and completion of its Y2K project the possibility of significant
interruptions of normal operations should be minimal. Despite the efforts of the
Company to address year 2000 issues, the Company can provide no assurance that
the year 2000 issues will not have an adverse effect upon the Company's
operations or financial condition. Further, although the Company has received
assurances of year 2000 compliance from third parties with which the Company has
significant relationships, the Company cannot guarantee that these parties will
be year 2000 compliant.

NET OPERATING LOSS CARRYFORWARDS

         As of December 31, 1998, the Company had approximately $70.5 million of
net operating loss carryforwards for income tax purposes, of which $57.7 million
are available to offset United States federal income taxes and expire from 1999
through 2018. In addition, the Company has approximately $307,000 of research
and development tax credits available to offset future federal income tax,
subject to limitations for alternative minimum tax. The Internal Revenue Code of
1986, as amended, contains certain limits on net operating loss carryforwards
available to be used in any given year if certain events occur, including
significant changes in ownership. At present the Company's net operating loss
carryforwards are subject to these limitations. No assets have been recognized
in the Company's financial statements for these net operating loss carryforwards
because management believes the criteria for recognition under generally
accepted accounting principle have not been met.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         During 1998, the Financial Accounting Standards Board issued Statement
of Position No. 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The Company
will adopt SOP No. 98-1 and 



                                       29
<PAGE>   31


SOP No. 98-5 in 1999 as required. The effect of the adoption, however, will not
have a significant impact on the Company's financial position and results of
operations.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). In general, SFAS No. 133 requires that all derivatives be recognized as
either assets or liabilities in the balance sheet at their face value, and sets
forth the manner in which gains or losses thereon are to be recorded. The
treatment of such gains and losses is dependent upon the type of exposure, if
any, for which the derivative is designated as a hedge. This statement is
effective for periods beginning after June 15, 1999. Management is currently
assessing the impact of adopting SFAS No. 133, but does not anticipate a
significant impact on the Company's financial position or results of operations.



                                       30
<PAGE>   32
BUSINESS RISKS

                  This report contains forward-looking statements regarding our
business and industry. Such statements include the completion of certain
clinical trials involving our products, the receipt of regulatory approvals, the
adequacy of our capital resources and other statements regarding trends relating
to the biopharmaceutical industry and various revenue and expense items. Many
factors, including the uncertainties described below, could cause actual results
to differ materially from those discussed in the forward-looking statements made
in this report.

         We may be unable to develop commercially successful products.

                  Although we have completed the development of our first
products, our success depends on the research and development of additional
products. We cannot assure you that we will successfully develop any of our
product candidates. To produce polyclonal antibodies in quantities sufficient
for commercial distribution, we may encounter delays and incur unanticipated
production costs and expenses. Our product candidates may not successfully
complete the clinical testing process or meet the regulatory and production
requirements necessary for commercial distribution.

         We have a history of operating losses.

                  We have incurred annual operating losses since our
organization in 1984, and we may incur additional losses in the future. As of
December 31, 1998, our accumulated deficit was approximately $75 million. Losses
result principally from costs associated with the research and development and
clinical and manufacturing activities before marketing approval of our products.
Collaborative research, development and licensing arrangements, research grants
and interest income have generated substantially all of our revenue to date. We
cannot guarantee that we will be able to operate profitably unless our products
achieve regulatory approval and commercial success.

         We will require additional financing to continue our operations.

                  We must spend substantial funds to complete the research,
development, manufacturing and marketing of our products. Until we begin
generating sufficient revenue from product sales, we may obtain additional
funding for these purposes through a variety of methods, including new
collaborative arrangements, strategic alliances and additional equity or debt
financings. We cannot assure you that additional funds will be available in the
future. Even if available, the cost of funds may substantially dilute
stockholders' interests. If we do not have adequate funds available, our
business will be materially adversely affected.

         Failure to obtain regulatory approval would adversely affect our
business.

                  Various regulations in all countries apply to the clinical
evaluation, manufacturing and marketing of our products. We must obtain and
maintain applicable regulatory approval for a product before we can market it.
To receive this approval, we must clinically evaluate data relating to the
safety, quality and efficacy of a product. Many


                                       31
<PAGE>   33

countries, including the United States and the United Kingdom, have very high
standards of technical appraisal. Therefore, the clinical trial process and
obtaining of regulatory approval is, in most cases, costly and very lengthy.
Although the time frame for approval varies, it can be up to five years from the
date of application.

                  Additionally, if a product obtains regulatory approval, the
applicable regulatory agency continues to review the product and its
manufacture. We cannot assure you that a government or regulatory agency will
not withdraw or restrict approval for our products. A regulatory agency may
impose restrictions on a product if there are changes in legislation, regulatory
policies or the discovery of problems with the product or its manufacture. Any
of these restrictions may adversely affect our business.

                  Our manufacturing facilities have not yet obtained the
necessary regulatory approvals and we cannot assure you that they will receive
them. The progress and success of our clinical evaluations will also influence
our ability to obtain commercial collaboration and funding agreements with
pharmaceutical manufacturers and distributors, and the value of those
agreements, if obtained.

         Professional guidelines could adversely affect our business.

                  Private health and science foundations and organizations
involved in various diseases may publish guidelines or recommendations to the
healthcare and patient communities. These private organizations may recommend
treatments that affect the usage of various therapies, drugs or procedures,
including our products. These recommendations may relate to:

                  -        usage,

                  -        dosage,

                  -        route of administration, and

                  -        use of concomitant therapies.

If patients and healthcare providers follow recommendations or guidelines that
result in decreased use of our products, our business could be materially
adversely affected. Additionally, if the investment community perceives that
patients and healthcare providers will follow these recommendations or
guidelines, the market price of our common stock could be adversely affected.

         Competition in the pharmaceutical industry could adversely affect our
business.

                  The pharmaceutical industry is highly competitive. We compete
with pharmaceutical companies in the United States, the United Kingdom and
Europe for both our existing products and those currently under development.
Many of these companies have research, development, marketing, financial and
personnel resources greater than ours. Competitors may develop and receive
regulatory approval for a marketable product before we do. Competitors may also
develop a product that is more effective or



                                       
                                       32
<PAGE>   34

economically viable than our products. We may not be able to compete
successfully and our technology and products may become obsolete.

         Our success depends on our collaborators, marketing and distribution.

                  Our success depends on our ability to contract with
pharmaceutical manufacturers and distributors to receive funding for product
development and to establish marketing and distribution alliances for our
products. Our ability to obtain these agreements, and their value, may depend on
the stage and success of clinical trials that we have not yet begun or
completed. We cannot assure you that we will obtain these agreements or that
they will be successful. Additionally, a company that contracts with us may
pursue alternative technologies either on its own or in collaboration with
others, including our competitors.

                  Although we will continue to seek contractual agreements with
third parties for the marketing and distribution of our products, we cannot
assure you that we will reach agreements with these parties.

         Failure to protect our patents and proprietary rights could adversely
affect our business.

                  Our ability to compete effectively with other companies
depends in part on the protection and exploitation of our technology. We cannot
assure you that our competitors have not developed or will not develop
substantially equivalent techniques or gain access to our technology. We may not
receive patents that we have applied for or that we may apply for in the future.
Our failure to receive patents may materially adversely affect our ability to
develop and market our proposed products. Additionally, we may not develop
products that are patentable, and granted patents may not be sufficiently broad
in their scope to prevent competition.

                  The commercial success of our products also depends upon
non-infringement of patents granted to third parties for products that
facilitate our ability to develop and exploit our own products. If infringement
occurs, we may have to obtain alternative technology or reach commercial terms
for the license of third party intellectual property rights. We cannot assure
you that we will obtain these licenses, and our failure to do so may materially
adversely affect our business.

                  Challenging the proprietary rights of others in defense of our
own proprietary rights could involve substantial time and expense and could
materially adversely affect our business.

         Product liability claims could adversely affect our business.

                  A product failure could expose us to substantial liability for
damages. Any such liability could materially adversely affect our business and
financial condition. We cannot assure you that we will have necessary insurance
coverage in the future or that our insurance coverage will be adequate if there
is a claim.



                                       33
<PAGE>   35

         The loss of key executives could adversely affect our business.

                  Although we have employment agreements with key members of our
management, we cannot guarantee their continued services. If any of our senior
management is ever unable or unwilling to continue in their present positions,
our business could be materially adversely affected.

         The uncertainty of reimbursement policies could adversely affect our
business.

                  Marketing our products successfully depends in part on the
level of reimbursement that government health administration authorities,
private health coverage insurers and other organizations provide for the cost of
our products and related treatments. Newly approved healthcare products have an
uncertain reimbursement status. We cannot assure you that we, or our licensees,
have adequate health administration or third party coverage to obtain
satisfactory price levels to realize an appropriate return on our investment.
Some governments are increasing the pressure to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. In some cases, these governments refuse to provide coverage for uses
of products for disease conditions if the relevant regulatory agency has not
granted marketing approval.

         The price of our common stock is volatile.

                  Occasionally, the market price of our common stock, like that
of other biotechnology companies, may fluctuate significantly. In recent years,
the stock market has fluctuated significantly in terms of price and volume. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance.
Factors that could cause this volatility include:

                  -        fluctuations in our operating results,

                  -        announcements by us or our competitors about clinical
                           trial results and other product developments,

                  -        regulatory matters,

                  -        announcements in the scientific and research
                           community,

                  -        intellectual property and legal matters,

                  -        changes in reimbursement policies or medical
                           practices, or

                  -        broader industry and market trends unrelated to our
                           performance.

                  Additionally, if our revenue or earnings in any quarter fail
to meet the investment community's expectations, this failure may immediately
adversely affect the price of our common stock.


                                       34
<PAGE>   36

         Environmental hazards could adversely affect our business.

                  Our business involves the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
handling and disposing of these materials comply with state and federal
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. If an accident occurs, we could be liable for
any resulting damages. We cannot assure you that any such liability will not
exceed our resources.



                                       35
<PAGE>   37



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Therapeutic Antibodies is exposed to market risk from changes in
foreign currency exchange rates and interest rates, which could impact its
results of operations and financial condition. A significant portion of the
Company's operations consist of manufacturing and sales activities in foreign
countries exposing the Company to the effects of changes in foreign currency
rates. The Company has exposure to changes in interest rates on certain floating
rate debt instruments. The Company does not purchase derivative instruments or
engage in hedging activities to mitigate the risks of fluctuations in foreign
currency exchange rates or interest rates. The Company believes that its
exposure to foreign currency and interest rate risks are currently not
material.

         The Company is exposed to foreign currency gains and losses from the
translation of cash into other foreign currencies and from sales and purchase
transactions with certain customers and suppliers. For these transactions,
currency exchange rates are agreed upon prior to the time of the actual transfer
of cash. The Company realizes a transaction gain or loss based upon the actual
currency exchange rate at the time the transaction is completed and records
these gains and losses in the Statements of Operations and Comprehensive Losses.
To reduce exposure to these fluctuations, the Company keeps cash balances in its
primary foreign currencies. For all years reported, the primary net foreign
currency market exposures were British pounds and Australian dollars. At
December 31, 1998, the Company held (pound)4,524,000 in British pounds. The
Company's exposure to foreign currency fluctuations is not considered material.
In addition to transaction gains and losses, the Company remeasures foreign
denominated assets and liabilities every reporting period and records
translation gains and losses resulting from fluctuations in the foreign currency
exchange rates on the Balance Sheets. At December 31, 1998 and 1997, the
cumulative translation gains were $197,000 and $220,000, respectively.

         Therapeutic Antibodies has loans with floating interest rates. These
loans were 23% and 19% of the Company's total debt portfolio at December 31,
1998 and 1997. Changes in the interest rates charged on these loans have not
been material in the years ended December 31, 1998, 1997 and 1996.






                                       36
<PAGE>   38



ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
                          (A Development Stage Company)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
              for the years ended December 31, 1998, 1997 and 1996
                    and the cumulative development stage from
              August 10, 1984 (inception) through December 31, 1998

<TABLE>
<CAPTION>

                                                                         Page
                                                                         ----
<S>                                                                      <C> 
Report of Independent Accountants.........................................38

Consolidated Financial Statements:

         Balance Sheets...................................................39

         Statements of Operations.........................................40

         Statements of Stockholders' Equity...............................41

         Statements of Cash Flows.........................................42

         Notes to Financial Statements....................................43
</TABLE>








                                       37
<PAGE>   39
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Therapeutic Antibodies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity, and cash flows present fairly, in all material respects, the financial
position of Therapeutic Antibodies, Inc. and Subsidiaries, A Development Stage
Company (the Company) at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 and for the period August 10, 1984 (inception) through
December 31, 1998, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has been in the development stage since inception with its primary activities
being research and development and has not yet commenced planned principal
operations. The Company's efforts to obtain additional financing necessary to
support 1999 activities have not been concluded, raising substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/S/ PRICEWATERHOUSECOOPERS, LLP

Louisville, Kentucky
March 5, 1999






                                       38
<PAGE>   40
                  THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                     December 31, 1998      December 31, 1997
                                                                                     -----------------      -----------------
<S>                                                                                  <C>                    <C>
         ASSETS

Current assets:
     Cash and cash equivalents                                                          $  7,760,328           $  4,915,077
     Restricted cash                                                                         419,168                      -
     Short-term investments                                                                        -              1,997,240
     Trade receivables                                                                        67,677                594,267
     Value added tax receivable                                                              326,849                179,629
     Inventories                                                                             287,802                489,138
     Other current assets                                                                    712,370                409,929
                                                                                        ------------           ------------

                   Total current assets                                                    9,574,194              8,585,280

Property and equipment, net                                                               11,074,766             11,456,690
Patent and trademark costs, net                                                              678,306                598,924
Other assets, net                                                                             94,236                159,171
                                                                                        ------------           ------------

                   Total assets                                                         $ 21,421,502           $ 20,800,065
                                                                                        ============           ============


         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued expenses                                              $  1,755,098           $  1,457,121
     Accrued interest                                                                        122,486                146,326
     Current portion of notes payable                                                      2,159,428              2,545,701
                                                                                        ------------           ------------
                   Total current liabilities                                               4,037,012              4,149,148

Notes payable, net of current portion                                                      4,744,216              6,059,072
Deferred revenue                                                                             342,363                559,467
Other liabilities                                                                            275,477                274,033
                                                                                        ------------           ------------

                   Total liabilities                                                       9,399,068             11,041,720
                                                                                        ------------           ------------

Convertible redeemable preferred stock - par value $.01 per share;
        1,000,000 shares authorized                                                                -                      -

Stockholders' equity:
     Common stock - par value $.001 per share; 59,000,000 shares authorized,
        52,057,219 issued and outstanding December 31, 1998; 30,000,000 shares
        authorized, 23,252,825 issued and outstanding December 31, 1997                       52,057                 23,253
     Additional paid-in capital                                                           87,074,215             68,927,203
     Deficit accumulated during the development stage (1984-1998)                        (75,301,311)           (59,412,383)
     Other comprehensive income                                                              197,473                220,272
                                                                                        ------------           ------------

                   Total stockholders' equity                                             12,022,434              9,758,345
                                                                                        ------------           ------------

                   Total liabilities and stockholders' equity                           $ 21,421,502           $ 20,800,065
                                                                                        ============           ============
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.






                                       39
<PAGE>   41

                                        
                  THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
                         (A Development Stage Company)
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS



<TABLE>
<CAPTION>
                                                                                                            For the Cumulative
                                                                   For the Years Ended                      Development Stage
                                                                       December 31,                        from August 10, 1984
                                                   ----------------------------------------------------    (inception) through
                                                       1998                1997                1996         December 31, 1998
                                                   ------------        ------------        ------------     -----------------
<S>                                                <C>                 <C>                 <C>              <C>
Revenues:
    Sales and contract revenue                     $    726,960        $    392,888        $    600,607        $  3,518,077
    Licensing revenue                                 2,543,925           1,112,955             143,500           3,900,380
    Interest income                                     239,362             886,511             607,479           2,162,048
    Grant income                                         41,488             205,569             118,535             774,007
    Foreign currency gains                                    -                   -           1,733,357           1,785,984
    Value-added tax and insurance recoveries                  -                   -                   -             577,170
    Other                                                80,074              80,008              64,890             300,888
                                                   ------------        ------------        ------------        ------------

                                                      3,631,809           2,677,931           3,268,368          13,018,554
                                                   ------------        ------------        ------------        ------------


Expenses:
    Cost of sales and contract revenue                  440,759             110,740             334,989             985,916
    Research and development                         11,363,218          11,462,352           9,185,126          53,405,675
    General and administrative                        4,050,667           3,561,541           2,721,889          16,993,834
    Marketing and distribution                          547,406             614,598             361,262           2,523,959
    Depreciation and amortization                     1,561,951           1,643,922           1,387,916           7,073,621
    Interest                                          1,305,549           1,001,959           1,201,335           5,036,131
    Foreign currency losses                             240,703             913,119                   -           1,153,822
    Debt conversion expense                                   -                   -             801,597             801,597
    Other                                                10,485             217,418              20,371             345,310
                                                   ------------        ------------        ------------        ------------

                                                     19,520,737          19,525,649          16,014,485          88,319,865
                                                   ------------        ------------        ------------        ------------

Net loss                                            (15,888,928)        (16,847,718)        (12,746,117)        (75,301,311)

Preferred stock dividends                               (32,877)                  -                   -             (32,877)

                                                   ------------        ------------        ------------        ------------
Net loss applicable to common shareholders          (15,921,805)        (16,847,718)        (12,746,117)        (75,334,188)
Other comprehensive income (loss), before
    and after tax:
    Change in equity due to foreign currency
      translation adjustments                           (22,799)           (455,521)            859,202             197,473
                                                   ------------        ------------        ------------        ------------

Total comprehensive loss                           $(15,944,604)       $(17,303,239)       $(11,886,915)       $(75,136,715)
                                                   ============        ============        ============        ============


Basic and diluted net loss per share               $      (0.59)       $      (0.74)       $      (0.68)       $      (6.78)
                                                   ============        ============        ============        ============

Weighted average shares used in computing
    basic and diluted net loss per share             26,910,291          22,888,226          18,821,524          11,114,957
                                                   ============        ============        ============        ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                       


                                       40
<PAGE>   42

                  THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
                         (A Development Stage Company)
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  for the years ended December 31, 1998, 1997 and 1996 and for the Cumulative
  Development Stage from August 10, 1984 (inception) through December 31, 1998

<TABLE>
<CAPTION>
                                                            Common Stock                                       Additional   
                                                    ------------------------------      Common Stock             Paid-In     
                                                      Shares         Par Value           Subscribed              Capital     
                                                    ------------  ---------------    -------------------    ----------------  
<S>                                                 <C>           <C>                <C>                    <C>
Sale of common stock 1985 - 1995                     10,055,243   $        10,055                  2,122    $     27,418,235
One thousand-for-one stock split 1985                 2,797,200             2,797                                     (2,797)
Exercise of stock warrants
     at $.75 per share 1989 and $.50-$.75 1995          166,402               167                                    110,134
Issuance of shares 1990, 1992, 1994 and 1995          2,121,883             2,122                 (2,122)            (13,677)
Issuance of shares for acquisition
     of PAL 1992                                      1,415,875             1,416                                  3,155,984
Issuance of warrants 1992 and 1993                                                                                   212,000
Translation adjustment 1992 - 1995
Net loss from August 10, 1984 (inception)
     to December 31, 1995
                                                    ------------    --------------    -------------------     ---------------

Balance, December 31, 1995                           16,556,603            16,557                      -          30,879,879
Issuance of shares
     upon debt conversion                               466,383               466                                  2,564,639
Debt conversion charge                                                                                               801,597
Sale of common stock, net                               164,332               165                                    933,384
Initial public offering, net                          4,190,477             4,190                                 30,370,518
Exercise of stock warrants
     at $.75-$4.50 per share                            942,897               943                                  1,332,989
Exercise of stock options                                33,000                33                                     89,667
Issuance of warrants                                                                                                  46,944
Stock-based compensation expense                                                                                      62,431
Net loss 1996                                                                                                               
Translation adjustment                                                                                                     
                                                    ------------    --------------    -------------------     ---------------  

Balance, December 31, 1996                           22,353,692            22,354                      -          67,082,048
Exercise of stock warrants
     at $.60-$3.50 per share                            888,716               889                                  1,357,197
Stock-based compensation expense                                                                                     469,438
Exercise of stock options                                10,417                10                                     18,520
Net loss 1997                                                                                                                  
Translation adjustment                                                                                                         
                                                    ------------    --------------    -------------------     ---------------  

Balance, December 31, 1997                           23,252,825            23,253                      -          68,927,203
Refinancing, net                                     28,690,561            28,690                      -          17,642,828
Exercise of stock warrants
     at $2.50 per share                                  20,500                21                                     51,229
Stock-based compensation expense                                                                                     160,129
Exercise of stock options                                93,333                93                                        (93)
Issuance of warrants                                                                                                 292,919
Net loss 1998                                                                                                                  
Translation adjustment                                                                                                         
                                                    ------------    --------------    -------------------     ---------------

Balance, December 31, 1998                           52,057,219   $        52,057                      -    $     87,074,215
                                                    ============    ==============    ===================     ===============  

</TABLE>

<TABLE>
<CAPTION>
                                                                                 Deficit
                                                            Stock           Accumulated During       Other
                                                        Subscriptions          Development       Comprehensive
                                                          Receivable              Stage             Income           Total
                                                      -----------------    ------------------    -------------   ------------
<S>                                                   <C>                  <C>                   <C>             <C>
Sale of common stock 1985 - 1995                            (3,528,537)                     -               -    $ 23,901,875
One thousand-for-one stock split 1985               
Exercise of stock warrants
     at $.75 per share 1989 and $.50-$.75 1995                                                                        110,301
Issuance of shares 1990, 1992, 1994 and 1995                 3,528,537                                              3,514,860
Issuance of shares for acquisition
     of PAL 1992                                                                                                    3,157,400
Issuance of warrants 1992 and 1993                                                                                    212,000
Translation adjustment 1992 - 1995                                                                $  (183,409)       (183,409)
Net loss from August 10, 1984 (inception)
     to December 31, 1995                                                  $      (29,818,548)                    (29,818,548)
                                                      ----------------     ------------------     -----------      ----------

Balance, December 31, 1995                                           -            (29,818,548)       (183,409)        894,479
Issuance of shares
     upon debt conversion                                                                                           2,565,105
Debt conversion charge                                                                                                801,597
Sale of common stock, net                                                                                             933,549
Initial public offering, net                                                                                       30,374,708
Exercise of stock warrants
     at $.75-$4.50 per share                                                                                        1,333,932
Exercise of stock options                                                                                              89,700
Issuance of warrants                                                                                                   46,944
Stock-based compensation expense                                                                                       62,431
Net loss 1996                                                                     (12,746,117)                    (12,746,117)
Translation adjustment                                                                                859,202         859,202
                                                      ----------------     ------------------     -----------      ----------

Balance, December 31, 1996                                           -            (42,564,665)        675,793      25,215,530
Exercise of stock warrants
     at $.60-$3.50 per share                                                                                        1,358,086
Stock-based compensation expense                                                                                      469,438
Exercise of stock options                                                                                              18,530
Net loss 1997                                                                     (16,847,718)                    (16,847,718)
Translation adjustment                                                                               (455,521)       (455,521)
                                                      ----------------     ------------------     -----------      ---------- 

Balance, December 31, 1997                                           -            (59,412,383)        220,272       9,758,345
Refinancing, net                                                     -                                             17,671,518
Exercise of stock warrants
     at $2.50 per share                                                                                                51,250
Stock-based compensation expense                                                                                      160,129
Exercise of stock options                                                                                                   -
Issuance of warrants                                                                                                  292,919
Net loss 1998                                                                     (15,888,928)                    (15,888,928)
Translation adjustment                                                                                (22,799)        (22,799)
                                                      ----------------     ------------------     -----------      ----------  

Balance, December 31, 1998                                           -     $      (75,301,311)    $   197,473     $12,022,434
                                                      ================     ==================     ===========     =========== 
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                       41
<PAGE>   43
                                        
                                        
                  Therapeutic Antibodies Inc. and Subsidiaries
                         (A Development Stage Company)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                FOR the Cumulative
                                                                              For the Years Ended               Development Stage
                                                                                 December 31,                  From August 10, 1984
                                                              ------------------------------------------------ (Inception) Through
                                                                  1998             1997                1996     December 31, 1998
                                                              ------------      ------------       ----------- -------------------
<S>                                                           <C>               <C>                <C>         <C>
Cash flow from operating activities:
    Net loss                                                  $(15,888,928)     $(16,847,718)      $(12,746,117)      $(75,301,311)
    Adjustments to reconcile net loss to net
    cash used in operating activities:
        Depreciation and amortization                            1,561,951         1,643,922          1,387,916          7,073,621
        Disposal of property and equipment                         279,328           282,806            532,817          1,206,566
        Foreign currency loss (gain)                               240,703           913,119         (1,733,357)          (632,162)
        Warrant expense                                            292,919                 -             46,944            486,913
        Stock-based compensation expense                           160,129           487,968             62,431            710,528
        Debt conversion expense                                          -                 -            801,597            801,597
        Changes in:
             Restricted cash                                      (419,168)                -                  -           (419,168)
             Trade receivable                                      355,227          (434,140)           (52,373)          (154,005)
             Inventories                                           201,335           (88,971)            (7,073)          (173,629)
             Other current assets                                 (301,155)           60,616           (128,813)          (709,262)
             Accounts payable and accrued expenses                 333,821           646,550           (340,411)         1,887,203
             Accrued interest                                       86,749              (777)           (37,512)           862,974
             Deferred revenue                                     (218,581)          (84,063)           313,670             11,026
             Other                                                  32,877                 -           (234,301)           (10,612)
                                                              ------------      ------------       ------------       ------------

      Net cash used in operating activities                    (13,282,793)      (13,420,688)       (12,134,582)       (64,359,721)
                                                              ------------      ------------       ------------       ------------

Cash flows from investing activities:
    Purchase of property and equipment                          (1,385,027)       (1,257,448)        (3,293,214)       (15,273,350)
    Patent and trademark costs, net                                (99,657)         (109,709)          (198,502)          (760,654)
    Purchase of short-term investments                                   -       (11,931,028)        (2,002,266)       (13,933,294)
    Maturity of short-term investments                           2,094,509        11,838,785                  -         13,933,294
    Other                                                                -                 -                  -             69,750
                                                              ------------      ------------       ------------       ------------

      Net cash provided by (used in) investing activities          609,825        (1,459,400)        (5,493,982)       (15,964,254)
                                                              ------------      ------------       ------------       ------------

Cash flows from financing activities:
    Proceeds from notes payable                                  4,641,239            17,605          2,518,239         20,450,244
    Payments on notes payable                                   (3,346,423)       (1,299,211)        (1,969,138)        (9,523,894)
    Proceeds from line of credit                                         -            61,897            123,371          3,371,278
    Payments on line of credit                                     (43,836)         (118,505)        (1,018,738)        (3,371,278)
    Proceeds from convertible debt, net                                  -                 -          5,432,500          9,655,000
    Payments on convertible debt                                         -                 -         (4,320,325)        (4,320,325)
    Proceeds from issuance of stock, net                        14,707,529         1,358,086         32,326,264         71,719,109
    Proceeds from issuance of warrants                                   -                 -                  -             65,000
    Other                                                           (1,869)           39,184             (5,628)          (149,467)
                                                              ------------      ------------       ------------       ------------

      Net cash provided by financing activities                 15,956,640            59,056         33,086,545         87,895,667
                                                              ------------      ------------       ------------       ------------


Effect of exchange rate changes on cash and cash equivalents      (438,421)         (766,427)         1,647,473            188,636
                                                              ------------      ------------       ------------       ------------
Net (decrease) increase in cash and cash equivalents             2,845,251       (15,587,459)        17,105,454          7,760,328

Cash and cash equivalents, beginning of period                   4,915,077        20,502,536          3,397,082                  -
                                                              ------------      ------------       ------------       ------------

Cash and cash equivalents, end of period                      $  7,760,328      $  4,915,077       $ 20,502,536       $  7,760,328
                                                              ============      ============       ============       ============
Supplemental cash flow disclosures:
    Cash payments for interest (net of amount capitalized)    $    929,106      $  1,017,000       $  1,142,738       $  1,612,778
                                                              ============      ============       ============       ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.








                                       42
<PAGE>   44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION AND OPERATIONS OF THE COMPANY:

         Therapeutic Antibodies Inc. (the "Company") was incorporated on August
         10, 1984 for the purpose of engaging in the research, development,
         production and marketing of therapeutic antibodies that provide
         protection against venoms, drugs, toxins and infectious diseases. The
         Company is a development stage company as defined in Statement of
         Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting
         by Development Stage Enterprises, and is devoting substantially all of
         its present efforts to research and development, including
         pre-production activities. Certain of the Company's research and
         development and product testing activities are carried out through
         affiliations with scientists at academic institutions around the world.
         These affiliations include preclinical and clinical research
         agreements, consulting agreements, patent and royalty agreements and
         facility leases. Inherent in the development stage is a range of risks
         including the need for, and uncertainty of, future financing. The
         Company also faces risks stemming from the nature of the
         biopharmaceutical industry, such as the risk of competition, the risk
         of regulatory change, including potential changes in health care
         coverage, uncertainties associated with obtaining and enforcing patents
         and proprietary technology, uncertainty of the approval of products by
         governmental agencies and risks related to fluctuations in interest
         rates and foreign currencies.

         Since its inception, the Company has been in the development stage,
         devoting its efforts and resources to drug discovery and development
         programs. Capital resources have been used for the establishment and
         expansion of production facilities, for product research and
         development activities, for clinical testing and to meet Therapeutic
         Antibodies' overall increased working capital requirements. Management
         does not expect revenues from product sales to be a significant source
         of funding until additional products receive regulatory approval.
         Although the Company anticipates the launch of CroTAb(R) following FDA
         approval in mid-1999, revenues from sales of CroTAb(R) are not expected
         to be significant in 1999. Future capital requirements will depend on
         numerous factors including the progress of the Company's research
         programs and clinical trials, the development of regulatory
         submissions, the receipt of FDA approval of CroTAb(R), the commercial
         viability of the Company's products, the ability to attract
         collaborative partners with sales, distribution and marketing
         capabilities, and the terms of any new licensing arrangements. 

         Funds for the Company's operating and capital requirements historically
         have been provided by the sale of equity and debt and from
         collaboration agreements and other financing arrangements. In November
         1998, the Company successfully completed the private placement
         (described below in more detail) of 28,690,561 shares of Common Stock
         in the United States and in the United Kingdom, raising net cash
         proceeds of $12,600,000. At the time of the private placement, the
         Company estimated that the fundraising, together with licensing and
         contract revenue, would provide sufficient funds to allow the Company
         to reach the launch of several of its products, and accordingly bring
         the Company to the point at which its revenues can sustain ongoing
         product development. With the loss of the 1999 milestone payments and
         product revenues that would have been received under the Searle
         agreement, the Company will need to raise additional financing by
         mid-1999 to fund operations. The Company is currently pursuing several
         financing alternatives, including preliminary discussions that may lead
         to a merger on a share exchange basis at a value that approximates the
         current market value of Therapeutic Antibodies. The Board has also
         entered into discussions with third parties relating to the sale of
         additional debt or equity securities, the disposal of certain non-core
         investments, entering into additional product licensing arrangements,
         and possible combinations or collaborations with strategic partners.
         While the Directors believe that they will be able to successfully
         implement one or more of these financing strategies, there can be no
         assurance that they will be able to do so or to otherwise obtain
         financing on terms acceptable to the Company. The financial statements
         do not include any adjustments that might result from the outcome of
         this uncertainty. In the meantime, the Company continues to take
         measures, implemented in 1998, to conserve cash resources, while
         sustaining the progress of clinical trials for products that promise
         the most success.
      
         On November 9, 1998, the Company completed a $19,500,000
         ((pound)11,500,000) capital refinancing involving the issuance of
         28,690,561 new shares of Common Stock on the London Stock Exchange at
         $.68 (40 pence) per share. The refinancing included the private
         placement of 21,300,000 new shares of Common Stock. It also included
         the conversion of $2,000,000 (all outstanding shares) of the Series A
         Convertible Redeemable Preferred Stock issued by the Company in
         September 1998 and accrued dividends thereon of $33,000 into 2,995,692
         shares of the Company's Common Stock and of $2,900,000
         ((pound)1,700,000) principal and interest amount of certain loan notes
         into 4,394,869 shares of Common Stock. Approximately $12,600,000
         ((pound)7,500,000) in cash was raised in the private placement, net of
         expenses, which will be used to fund the ongoing development of the
         Company's products and to repay the balance of the outstanding 15%
         Notes (see Note 5).




                                       43
<PAGE>   45



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         a.       PRINCIPLES OF CONSOLIDATION: The consolidated financial
                  statements of the Company include the accounts of the Company
                  and its wholly owned subsidiaries. All intercompany accounts
                  and transactions have been eliminated.

         b.       FOREIGN CURRENCY TRANSLATION: Assets and liabilities of
                  foreign subsidiaries denominated in foreign currencies are
                  translated to United States (U.S.) dollars at period-end
                  exchange rates. Revenues and expenses denominated in foreign
                  currencies are translated at average exchange rates for the
                  period. Translation adjustments are reported as a separate
                  component of stockholders' equity. The effects of translation
                  of intercompany loans to international subsidiaries, which
                  have been designated as long-term investments, are also
                  included in the separate component of stockholders' equity. At
                  December 31, 1998, the Company had
                  approximately(pound)4,524,000 in British sterling and $31,500
                  in Australian dollars which were translated to U.S. dollars at
                  the year end currency rates of 1.6595 and 0.6123,
                  respectively. Foreign currency transaction losses for the
                  years ended December 31, 1998 and 1997 were $240,703 and
                  $913,119 and foreign currency transaction gains for the year
                  ending December 31, 1996 were $1,733,357.

         c.       CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: All highly liquid
                  investments with an original maturity of three months or less
                  when purchased are classified as cash equivalents.

                  Financial instruments that potentially subject the Company to
                  concentrations of credit risk consist principally of cash and
                  temporary cash investments. The Company places substantially
                  all of its cash and temporary cash investments with one major
                  financial institution. As of December 31, 1998, and at times
                  throughout the period, cash balances were in excess of Federal
                  Deposit Insurance Corporation insurance limits. The Company
                  has not experienced any losses in such accounts and believes
                  no significant exposure from this concentration exists with
                  respect to cash and temporary cash investments. The Company
                  also maintains balances at a U.S. institution denominated in
                  British pounds sterling and Australian dollars.

                  Short-term investments consisted of governmental and corporate
                  debt instruments. The carrying value of these short-term
                  investments approximated fair value at December 31, 1997.

         d.       INVENTORIES: Inventories are stated at the lower of cost
                  (first-in, first-out) or market.



                                       44
<PAGE>   46






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         e.       LONG-LIVED ASSETS: Property and equipment is stated at cost
                  and is depreciated using the straight-line method over the
                  estimated useful life of the asset as follows:

                  Buildings and improvements - 10 to 20 years 
                  Furniture, fixtures and equipment - 3 to 10 years
                  Livestock - 5 years

                  Leasehold improvements are amortized over the shorter of their
                  estimated life or the period of the related leases, including
                  anticipated renewals for which the Company has an option.

                  Patent costs consist of legal fees associated with patent
                  applications and filings and trademark costs consists of legal
                  fees associated with trademark procurement. Once a patent is
                  granted, costs are amortized using the straight-line method
                  over 17 years from the patent grant date. Accumulated
                  amortization was $55,117 and $27,282 as of December 31, 1998
                  and 1997, respectively. Trademark costs are amortized using
                  the straight-line method over 10 years. Accumulated
                  amortization was $27,231 and $34,790 as of December 31, 1998
                  and 1997, respectively.

                  The carrying value of long-lived assets is reviewed if the
                  facts and circumstances suggest that they may be impaired. If
                  this review indicates that the carrying value will not be
                  recoverable, the carrying value is reduced to fair value.

         f.       REVENUE RECOGNITION: Revenues from sales of products are
                  recognized at the time of shipment. Revenues from licensing
                  agreements are recognized when earned based upon signing the
                  agreement, if applicable, and upon reaching predefined
                  milestones in the development program.

                  The Company has received grants from the United Kingdom (U.K.)
                  and Australia as a result of reaching certain employment
                  levels and constructing production facilities. Grants related
                  to employment levels and conducting clinical trials are
                  recognized as income at the point in time that the conditions
                  of the grant are satisfied. Grants related to construction of
                  production facilities are recognized over the life of the
                  facility.

         g.       RESEARCH AND DEVELOPMENT COSTS: Research and development costs
                  ("R&D"), costs for developing and improving manufacturing
                  processes, pilot plant operations and inventories of products
                  not yet approved for sale by governmental regulatory
                  authorities are expensed when incurred.




                                       45
<PAGE>   47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         h.       BASIC AND DILUTED EARNINGS PER COMMON SHARE: The basic and
                  diluted earnings per common share calculation was based on
                  SFAS No. 128, "Earnings per Share", which the Company adopted
                  during the year ended December 31, 1997.

                  The calculations are based upon the weighted average number of
                  shares of common stock outstanding during each period. Common
                  equivalent shares from stock options, warrants and other
                  dilutive securities are excluded from the computations, as
                  their effect is antidilutive.

         i.       VALUE-ADDED TAX RECEIVABLE: The Company's operations in the
                  U.K. are subject to value-added tax (VAT) where the Company
                  pays tax at a rate of 17.5% on most goods and services
                  purchased. These VAT taxes are subject to refund based on
                  returns, which are filed quarterly with U.K. taxing
                  authorities.

         j.       FINANCIAL STATEMENTS 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 dates of the financial statements and the
                  reported amounts of revenues and expenses during the reporting
                  periods. Actual results could differ from those estimates.

3.       RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

         During 1998 Statement of Position (SOP) No. 98-1 "Accounting for the
         Costs of Computer Software Developed or Obtained for Internal Use"
         ("SOP No. 98-1") and Statement of Position No. 98-5 "Reporting on the
         Costs of Start-Up Activities" ("SOP No. 98-5") were issued. The Company
         will adopt SOP No. 98-1 and SOP No. 98-5 in 1999 as required. However,
         the effect of the adoption will not have a significant impact on the
         Company's financial position and results of operations.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
         133, "Accounting for Derivative Instruments and Hedging Activities". In
         general, SFAS No. 133 requires that all derivatives be recognized as
         either assets or liabilities in the balance sheet at their face value,
         and sets forth the manner in which gains or losses thereon are to be
         recorded. The treatment of such gains and losses is dependent upon the
         type of exposure, if any, for which the derivative is designated as a
         hedge. This statement is effective for periods beginning after June 15,
         1999. Management is currently assessing the impact of adopting SFAS No.
         133, but does not anticipate a significant impact on the Company's
         financial position or results of operations.




                                       46
<PAGE>   48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.       PROPERTY AND EQUIPMENT:

         Property and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
                                                             1998                  1997
                                                          -----------          ------------
               <S>                                        <C>                  <C>
               Land                                       $   617,668          $   614,429
               Buildings and improvements                   8,314,053            7,976,570
               Construction in progress                             -               64,571
               Furniture, fixtures and equipment            7,870,686            7,141,732
               Livestock                                      905,062              870,323
                                                          -----------          -----------

                                                           17,707,469           16,667,625
               Accumulated depreciation                     6,632,703            5,210,935
                                                          -----------          -----------

                                                          $11,074,766          $11,456,690
                                                          ===========          ===========
</TABLE>

         Buildings and improvements includes $10,120 and $38,288 of capitalized
         interest associated with the construction of a building in Australia in
         1997 and 1996, respectively and $491,408 with the construction of
         buildings in the U.K. in 1995.






                                       47
<PAGE>   49


Notes to Consolidated Financial Statements, Continued

5.   Notes Payable:

     Notes payable at December 31 consist of:

<TABLE>
<CAPTION>
                                                                                                     1998                1997
                                                                                                 ------------        ------------
   <S>                                                                                           <C>                 <C>
   6% convertible notes payable, principal due October 1, 2000, interest
       due semi-annually on April 1 and October 1                                                $  2,905,000        $  2,905,000

   Capital lease payable to Phoenixcor Inc. (formerly Aberlyn Capital Management Limited
       Partnership), interest at 14.5%-18%, collateralized by equipment in the U.K. with a
       net book value of $1 million with monthly payments due through January 2000                    568,118           1,697,708

   11.5% note payable to Equitas, LP, principal due March 1999, interest
       due quarterly in November, February, May, and August, collateralized
       by various assets of the Company's subsidiaries and common shares of the Company's 
       subsidiary, TAb U.K.                                                                           800,000             800,000

   12% and 15% unsecured notes payable to an officer of the Company,
       interest due monthly and/or quarterly, principal due January 1999 and December 
       2000, respectively                                                                             500,000           1,000,000

   Note payable to Bank of Wales PLC, collateralized by certain real
       property in the U.K., interest at 2.5% over Bank of Wales lending
       rate (effective rate of 8.75% at December 31, 1998), principal and
       interest due monthly over 10 years through February 2005                                       356,445             395,363

   Notes payable to South Australian Minister for Primary Industries,
       collateralized by building and equipment, interest rates from 6.5%
       to 9%, principal repayable in annual installments through April 2008                         1,199,775           1,217,177

   Capital equipment leases, interest rates from 10.6% to 21.3%, principal 
       and interest payable monthly through 2001                                                      206,711             327,172

    6% note payable to CATO, Inc., interest due semi-annually, principal due December 2000            100,000             100,000

   Other                                                                                              267,595             162,353
                                                                                                 ------------        ------------
                                                                                                    6,903,644           8,604,773
   Less current portion                                                                             2,159,428           2,545,701
                                                                                                 ------------        ------------
                                                                                                 $  4,744,216        $  6,059,072
                                                                                                 ============        ============
</TABLE>




                                       48
<PAGE>   50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       NOTES PAYABLE, CONTINUED:

         In August 1995, the Company initiated a private placement of its 6%
         Convertible Notes due October 1, 2000 (the "6% Notes"). Interest on the
         6% Notes is payable semi-annually and the notes are convertible into
         shares of the Company's Common Stock at $8.00 per share at any time
         prior to maturity upon the election of the holder. The 6% Notes are not
         collateralized. In January 1996, the Company offered each holder of the
         6% Notes the opportunity to exchange all or a portion of their 6% Notes
         for shares of the Company's Common Stock at the rate of $5.50 per share
         until February 9, 1996. Pursuant to this offer, the holders of
         $2,565,105 aggregate amount of principal and accrued interest on the 6%
         Notes elected to tender their 6% Notes to the Company in exchange for
         466,383 shares of common stock. This exchange conversion resulted in a
         non-cash debt conversion expense of $801,597.

         The Company has capital lease agreements with Aberlyn Capital
         Management Limited Partnership under which it has financed $1,000,000
         at 18% and $3,203,573 at 14.5%. The borrowings are collateralized by
         certain of the Company's equipment located in the U.K. Principal
         amounts mature through January 2000. During 1998, the $1,000,000 leases
         at 18% were repaid in full. Principal and interest payments on the
         remaining leases of $568,118 are due monthly. In connection with the
         agreement, the Company issued warrants in 1995 and 1994 to purchase a
         total of 102,514 shares of the Company's Common Stock at $5.00 per
         share. In June 1998, Aberlyn assigned the $3,203,573 leases at 14.5% to
         Phoenixcor Inc.

         In 1995, the Company obtained the proceeds of an $800,000 loan from
         Equitas, LP. The loan agreement provides for interest at an annual rate
         of 11.5% to be paid quarterly. Principal is due in full at maturity on
         July 24, 2000. However, the lender has elected to exercise its right to
         call the loan early and principal will be repaid in March 1999. The
         lender received warrants to purchase 22,198 shares of the Company's
         Common Stock at $8.00 per share. The loan is collateralized by accounts
         receivable, antisera inventory, and livestock from certain of the
         Company's subsidiaries as well as limited guarantees from those
         subsidiaries. The common shares of the Company's subsidiary, TAb U.K.,
         additionally collateralize this loan.

         In April 1996, an officer of the Company made a short-term unsecured
         loan to the Company of $1,000,000 bearing interest at 12% (the "12%
         Note"). In May 1996, the officer converted $750,000 principal amount of
         the 12% Note into an equal amount of the Company's 1996 notes bearing
         interest at 15% (the "15% Notes"). In November 1998, $500,000 of the
         15% Note was converted into 736,811 shares of the Company's Common
         Stock as a part of the capital refinancing. The $250,000 principal
         balance on the remaining 12% Note was paid in full with accrued
         interest in January 1999. The remaining $250,000 principal balance on
         the 15% Note is due in December 2000.



                                       49
<PAGE>   51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.       NOTES PAYABLE, CONTINUED:

         In January 1995, financing of $465,900 was obtained from Bank of Wales
         PLC collateralized by certain real property in the U.K. The note is
         repayable over 10 years beginning in February 1995. Interest is paid at
         2.5% over the Bank of Wales's base lending rate (effective rate of 
         8.75% at December 31, 1998).

         The Company's subsidiary, TAb Australasia Pty. Ltd., has two loan
         agreements with the South Australian Minister for Primary Industries
         (the "Minister"). The first agreement allowed TAb Australasia Pty. Ltd.
         to draw up to $2,000,000 Australian dollars ($1,224,600 U.S. dollars at
         December 31, 1998) to assist with construction and equipment of
         buildings at its Turretfield location in South Australia. The loan is
         to be repaid over ten years in equal annual installments through August
         2007. Interest is variable at the discretion of the Minister and is due
         annually. The interest rates at December 31, 1998 and 1997 were 9% and
         11% per annum. The loan is collateralized by a mortgage on the building
         and equipment purchased. The second agreement provided for a loan of
         $250,000 Australian dollars ($153,075 U.S. dollars at December 31,
         1998) for the construction of transportable buildings at the Company's
         Australian location. Principal and interest accrued thereon are to be
         repaid in semi-annual installments through April 2008. The interest
         rate at December 31, 1998 was 6.5% and is variable at the discretion of
         the Minister.

         The Company has available lines of credit at December 31, 1998 totaling
         150,000 British pounds sterling with the Bank of Scotland and its
         subsidiary, Bank of Wales PLC, in the U.K. Interest is paid at 2.5%
         over the relevant bank's base lending rate (effective rate of 8.75% at
         December 31, 1998). The Company also has available lines of credit at
         December 31, 1998 of 50,000 Australian dollars with the Westpac Bank.
         This line of credit bears interest at 1.75% above the bank's base
         lending rate (effective rate of 10.5% at December 31, 1998). These
         lines of credit are collateralized by the guarantee of the Company and
         are due on demand. At December 31, 1998, the Company had no outstanding
         borrowings on these lines of credit. The weighted average interest rate
         on these lines of credit outstanding at December 31, 1997 was 9%.




                                       50
<PAGE>   52









NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       NOTES PAYABLE, CONTINUED:

         Aggregate maturities of fixed payments on notes payable for the next
         five years follow:

<TABLE>
<CAPTION>
                      YEARS ENDING
                      DECEMBER 31:
                      ------------
                      <S>                          <C>
                          1999                     $2,159,428
                          2000                      3,514,044
                          2001                        193,623
                          2002                        202,405
                          2003                        215,733
                       Thereafter                     618,411
                                                   ----------
                                                   $6,903,644
                                                   ==========
</TABLE>

         At December 31, 1998 and 1997, $1,700,250 and $1,868,967, respectively,
         of the Company's debt obligations were denominated in British pounds
         sterling or Australian dollars and were translated to U.S. dollars at
         year-end exchange rates. The Company is subject to foreign currency
         risk to the extent that exchange rates between the U.S. dollar and the
         foreign currencies change. For accounting purposes, changes in exchange
         rates for the debt obligations result in translation adjustments which
         are reported as part of the separate component of stockholders' equity.
         At December 31, 1998 and 1997, the amount included in the cumulative
         translation adjustment related to the Company's debt obligations was
         $320,484 and $242,956 of gain, respectively. The Company does not hedge
         its exposure to foreign currency risks.




                                       51
<PAGE>   53


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.       INCOME TAXES:

         Under SFAS No. 109, Accounting for Income Taxes, deferred income taxes
         are recognized for future tax consequences of differences between the
         tax bases of assets and liabilities and their financial reporting
         amounts based on enacted laws and statutory rates applicable in the
         periods in which the differences are expected to affect taxable income.
         Valuation allowances are established when necessary to reduce deferred
         tax assets to the amount expected to be realized. The Company
         determined that at December 31, 1998 and 1997 its ability to realize
         future benefits of deferred tax assets did not meet the "more likely
         than not" criteria in SFAS No. 109. The components of the net deferred
         tax liability recognized in the accompanying consolidated balance
         sheets are as follows:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              1998                1997
                                                          ------------         -----------
               <S>                                        <C>                  <C>
               Deferred tax assets                        $ 24,916,109          $ 19,214,452
               Deferred tax liabilities                       (275,477)             (643,339)
               Valuation allowance                         (24,916,109)          (18,845,146)
                                                          ------------          ------------

                                                          $   (275,477)         $   (274,033)
                                                          ============          ============
</TABLE>

         The deferred tax liability arose due to tax differences in the bases of
         assets and liabilities relative to the acquisition of Polyclonal
         Antibodies, Ltd. and the temporary difference in capital allowance in
         U.K. assets. The deferred tax asset arises primarily from the Company's
         net operating loss carryforwards.

         At December 31, 1998, the Company had available net operating loss
         carryforwards for U.S. federal tax purposes of approximately
         $57,700,000, which expire in various amounts through 2018 and
         approximately $307,000 of research and development tax credits which
         expire through 2013. As a result of the capital refinancing in 1998
         discussed in Note 1, the Company experienced an "ownership change"
         within the meaning of Section 382 of the Internal Revenue Code.
         Consequently, the Company is subject to an annual limitation on the
         amount of net operating loss carryforwards that can be used to offset
         taxable income. The annual limitation is $1,502,000 plus certain gains
         included in taxable income attributable to the Company prior to the
         ownership change.

         United Kingdom net operating loss carryforwards of $11,128,000 and
         Australian net operating loss carryforwards of $1,687,000 are available
         to offset future taxable income generated in those respective countries
         and may be carried forward indefinitely.

         The Company's effective tax rate varies from the federal statutory rate
         due to the recognition of a valuation allowance for financial reporting
         purposes.





                                       52
<PAGE>   54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       STOCK WARRANTS AND STOCK OPTIONS:

         At December 31, 1998 there were warrants outstanding to purchase
         1,265,207 shares of the Company's Common Stock at prices ranging from
         $.68 to $8.00 (average price of $4.18) per share. All outstanding
         warrants expire from 1999 to 2003.

         Activity in stock warrants is as follows:

<TABLE>
<CAPTION>
                                                      NUMBER OF       EXERCISE PRICE
                                                      WARRANTS           PER SHARE
                                                    -------------------------------
        <S>                                         <C>               <C> 
        Outstanding at December 31, 1995             2,303,135          $ .60-$8.00
           Granted                                     366,500          $      8.00
           Forfeited                                         -                    -
           Exercised                                  (942,897)         $ .75-$4.50


        Outstanding at December 31, 1996             1,726,738          $ .60-$8.00
           Granted                                       5,000          $      1.25
           Forfeited                                  (105,648)         $1.25-$3.50
           Exercised                                  (888,716)         $ .60-$3.50

        Outstanding at December 31, 1997               737,374          $2.50-$8.00
           Granted                                     707,500          $ .68-$2.49
           Forfeited                                  (159,167)         $2.50-$3.50
           Exercised                                   (20,500)         $      2.50

                                                   -----------
        Outstanding at December 31, 1998             1,265,207          $ .68-$8.00
                                                   ===========
</TABLE>

         On April 26, 1996, the Board of Directors of the Company amended the
         Therapeutic Antibodies Inc. 1990 Stock Incentive Plan (the "1990
         Plan"). Up to 1,650,000 shares of the Company's Common Stock may be
         subject to incentives under the 1990 Plan. The 1990 Plan provides for
         the grant to key employees, advisors, officers and directors of the
         Company of stock options complying with Section 422(a) of the Internal
         Revenue Code (qualified options) or options not qualifying under such
         provision (nonqualified options) as well as stock appreciation rights
         (SARs). The 1990 Plan provides for adjustment of the number of shares
         under the 1990 Plan in the event of stock splits, stock dividends and
         certain other events. The 1990 Plan also provides that if the Company
         shall not be the surviving corporation in a business combination, the
         holder of an outstanding option will be entitled to purchase stock in
         the surviving corporation on the same terms and conditions as the
         options. Options are nontransferable, and options and SARs are subject
         to any restrictions contained in the grant and applicable securities
         laws.



                                       


                                       53
<PAGE>   55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       STOCK WARRANTS AND STOCK OPTIONS, CONTINUED:

         On April 27, 1997, shareholders of the Company voted in favor of
         adopting the Company's 1997 Stock Option Plan (the "1997 Plan"). The
         1997 Plan states that 1,100,000 shares of the Company's Common Stock
         will be reserved for issuance, at the discretion of the Company's
         Compensation Committee, to any director, employee, consultant or
         advisor of the Company or any of its subsidiaries. The 1997 Plan
         provides for adjustment of the number of shares available under the
         1997 Plan in the event of stock splits, stock dividends and certain
         other events.

         Between the 1990 Plan and the 1997 Plan, options to purchase 2,589,609
         shares of the Company's Common Stock were outstanding at December 31,
         1998 at prices ranging from $.90 to $8.18 (average price of $3.97).
         Options granted under both the 1990 and 1997 Plans have a contractual
         life of ten years. The average remaining contractual life of
         outstanding options under both plans at December 31, 1998 is
         approximately 7.4 years. Generally, the Company grants options with a
         graded vesting requirement, which typically vests ratably over one to
         five years. The options are issued at or above the fair value of the
         underlying stock at date of grant. At December 31, 1998, 1,611,259
         options were exercisable at a weighted average price of $4.09. All
         options expire from 1999 to 2008.

         Activity in stock options is as follows:

<TABLE>
<CAPTION>
                                                     NUMBER OF         EXERCISE PRICE        WEIGHTED
                                                      OPTIONS            PER SHARE         AVERAGE PRICE
                                                     ---------------------------------------------------
          <S>                                        <C>               <C>                 <C>
          Outstanding at December 31, 1995           1,108,626           $1.25-$6.00          $   3.10
                      Granted                          538,050           $6.00-$8.18          $   6.12
                     Forfeited                          (1,300)          $      6.00          $   6.00
                     Exercised                         (33,000)          $2.40-$3.00          $   2.49

          Outstanding at December 31, 1996           1,612,376           $1.25-$8.18          $   4.12
                      Granted                          504,450           $4.00-$6.00          $   5.49
                     Forfeited                         (84,438)          $3.00-$6.00          $   4.18
                     Exercised                               -                     -                 -

          Outstanding at December 31, 1997           2,032,388           $1.25-$8.18          $   4.46
                      Granted                        1,042,670           $ .90-$3.37          $   2.71
                     Forfeited                        (287,949)          $2.40-$6.58          $   4.73
                     Exercised                        (197,500)          $      1.25          $   1.25
                                                     ---------
          Outstanding at December 31, 1998           2,589,609           $.90-$8.18           $   3.97
                                                     =========
</TABLE>

                                       


                                       54
<PAGE>   56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       STOCK WARRANTS AND STOCK OPTIONS, CONTINUED:

         As permitted by SFAS No. 123, "Accounting for Stock Based
         Compensation", the Company follows the provisions of Accounting
         Principles Board Opinion 25 "Accounting For Stock Issued to Employees",
         and related interpretations in accounting for its stock option grants.
         Compensation expense for employees has not been recognized for options
         issued under the 1990 Plan and the 1997 Plan. Had compensation been
         determined based on the fair value of the awards at the grant date
         consistent with the provisions of SFAS No. 123, the Company's net loss
         and basic and diluted net loss per share would have been increased to
         the pro forma amounts that follow:


<TABLE>
<CAPTION>
                                                            1998              1997           1996
                                                        ------------     ------------    ------------
          <S>                                           <C>              <C>             <C>   
          Net loss applicable to common shareholders
                 As reported                            ($15,921,805)    ($16,847,718)   ($12,746,117)
                 Pro forma                              ($16,572,715)    ($17,249,174)   ($12,922,164)

          Basic and diluted net loss per share
                 As reported                                  ($0.59)          ($0.74)         ($0.68)
                 Pro forma                                    ($0.62)          ($0.75)         ($0.69)
</TABLE>



         During 1998, 1997 and 1996, the Company granted options to
         non-employees to purchase 395,420, 290,650 and 107,550 shares,
         respectively, of the Company's Common Stock. The expense related to
         these grants recognized during 1998, 1997 and 1996 was approximately
         $160,000, $469,000 and $62,000 respectively.

         The weighted average fair value of options granted during 1998, 1997
         and 1996 was $1.55, $2.88 and $0.97, respectively.

         Fair value estimates were determined using a variation of the
         Black-Scholes model with the following weighted average assumptions for
         1998, 1997 and 1996:


<TABLE>
<CAPTION>
                                          1998         1997         1996
                                        ---------    ---------     -------
          <S>                           <C>          <C>           <C>
          Risk-free interest rate          6.0%         6.0%         6.0%
          Volatility factor                 55%          30%          25%
          Expected term of
            options (in years)              10           10            5
          Dividend yield                  none         none         none
</TABLE>

         The effects of applying SFAS No. 123 in this pro forma disclosure are
         not necessarily indicative of the future amounts. SFAS No. 123 does not
         apply to awards made prior to December 31, 1995, and the Company
         anticipates making awards in the future under its stock-based
         compensation plan.

                                      


                                       55
<PAGE>   57


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.       NET LOSS PER COMMON SHARE COMPUTATIONS:



<TABLE>
<CAPTION>
                                                      1998                 1997                1996
                                                   -----------        -------------       ------------
<S>                                                <C>                <C>                 <C>
Net loss applicable to common shareholders 
used for basic and diluted per share 
computations (numerator)                          ($15,921,805)       ($16,847,718)       ($12,746,117)

Shares used for basic and diluted per share
computations (denominator)                          26,910,291           2,888,226          18,821,524

Basic and diluted net loss per amount share             ($0.59)             ($0.74)             ($0.68)
</TABLE>




9.       COMMITMENTS:

         ROYALTY COMMITMENT: In 1992, the Company entered into a patent sale and
         royalty agreement with scientists who at the time worked at the
         University of Arizona. Under the agreement, the Company purchased the
         scientists' rights under their U.S. patent and certain U.S. patent
         applications. The Company agreed to pay royalties to the sellers with
         respect to products developed and sold under the patents. Currently, no
         royalty payments have yet been required under this agreement.

         LEASES: The Company leases laboratory and office space under operating
         leases. Aggregate rent expense incurred under these leases was
         approximately $694,915 in 1998, $475,209 in 1997 and $190,248 in 1996.
         Future minimum rental commitments under noncancelable operating leases
         as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                    YEARS ENDING
                    DECEMBER 31,
                    ------------
                    <S>                                   <C>
                       1999                               $  733,941
                       2000                                  696,087
                       2001                                  535,883
                       2002                                  519,836
                       2003                                  508,965
                                                          ----------
                                                          $2,994,712
                                                          ==========
</TABLE>





                                       
                                       56
<PAGE>   58



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.      RELATED PARTY TRANSACTIONS:

         The Company incurred interest expense and loan guarantee fees of
         $167,312, $142,500 and $115,241 in the years ended December 31, 1998,
         1997 and 1996, respectively, on notes payable to certain directors of
         the Company and loan guarantees made by certain directors on behalf of
         the Company in order to obtain short-term loan financing.



                                       
                                       57
<PAGE>   59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.  INTERNATIONAL OPERATIONS:

      The Company operates in one business segment and conducts its activities 
      in the U.S., the U.K., Australia and before 1998, New Zealand. 
      International operations are primarily located in the U.K. Intercompany 
      sales between regions are made at cost plus markup. Summarized financial 
      data by region are as follows:

<TABLE>
<CAPTION>
1998                            U.S.            INTERNATIONAL       ELIMINATIONS            NET
----                        ------------        ------------        ------------        ------------
<S>                         <C>                 <C>                 <C>                 <C>    
Revenues:
   Trade                    $  3,292,859        $    338,950        $         --        $  3,631,809
   Intercompany (a)              908,323           9,747,363         (10,655,686)                 --
                            ------------        ------------        ------------        ------------
                            $  4,201,182        $ 10,086,313         (10,655,686)       $  3,631,809
                            ============        ============        ============        ============
R & D expense (a)           $ 11,512,863        $  9,268,170        $ (9,417,815)       $ 11,363,218
                            ============        ============        ============        ============
Foreign currency loss       $    240,703        $    157,652        $   (157,652)       $    240,703
                            ============        ============        ============        ============
Net loss                    $(13,386,190)       $ (2,490,904)       $     11,834        $(15,888,928)
                            ============        ============        ============        ============
Capital expenditures        $     33,126        $  1,351,901        $         --        $  1,385,027
                            ============        ============        ============        ============
Long lived assets           $  1,375,562        $ 10,483,745        $    (12,000)       $ 11,847,307
                            ============        ============        ============        ============
</TABLE>



<TABLE>
<CAPTION>
1997                            U.S.            INTERNATIONAL       ELIMINATIONS             NET
----                        ------------        -------------       ------------        ------------
<S>                         <C>                 <C>                 <C>                 <C>
Revenues:
   Trade                    $  2,255,334        $    422,597        $         --        $  2,677,931
   Intercompany (a)              779,507          10,912,302         (11,691,809)                 --
                            ------------        ------------        ------------        ------------
                            $  3,034,841        $ 11,334,899        $(11,691,809)       $  2,677,931
                            ============        ============        ============        ============
R & D expense (a)           $ 13,458,565        $  8,871,785        $(10,867,998)       $ 11,462,352
                            ============        ============        ============        ============
Foreign currency loss       $    913,119        $    696,969        $   (696,969)       $    913,119
                            ============        ============        ============        ============
Net loss                    $(15,763,860)       $ (1,819,741)       $    735,883        $(16,847,718)
                            ============        ============        ============        ============
Capital expenditures        $     54,712        $  1,202,736        $         --        $  1,257,448
                            ============        ============        ============        ============
Long lived assets           $  1,459,792        $ 10,766,992        $    (12,000)       $ 12,214,784
                            ============        ============        ============        ============
</TABLE>




                                       
                                       58
<PAGE>   60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.      INTERNATIONAL OPERATIONS, CONTINUED:


<TABLE>
<CAPTION>
1996                              U.S.             INTERNATIONAL       ELIMINATIONS           NET
----                           ------------        -------------       ------------       ------------
<S>                            <C>                 <C>                 <C>                <C>
Revenues:
   Trade                       $  1,184,619        $    350,392        $        --        $  1,535,011
   Foreign currency gain          1,733,357                  --                 --           1,733,357
   Intercompany (a)               1,301,702           5,318,319         (6,620,021)                 --
                               ------------        ------------        -----------        ------------
                               $  4,219,678        $  5,668,711        $(6,620,021)       $  3,268,368
                               ============        ============        ===========        ============
R & D expense (a)              $  5,279,302        $  6,860,712        $(2,954,888)       $  9,185,126
                               ============        ============        ===========        ============
Net loss                       $ (5,468,662)       $ (5,223,305)       $(2,054,150)       $(12,746,117)
                               ============        ============        ===========        ============
Capital expenditures           $     99,035        $  3,194,179        $        --        $  3,293,214
                               ============        ============        ===========        ============
Long lived assets              $  1,528,257        $ 11,931,885        $   (12,000)       $ 13,448,142
                               ============        ============        ===========        ============
</TABLE>


         (a)      Intercompany revenues include interest income earned by the
                  U.S. parent company on loans made to international
                  subsidiaries and sales of products to, and the performance of
                  contract research and development for, the U.S. parent company
                  by international subsidiaries on a cost plus markup basis. The
                  intercompany account associated with this activity is
                  eliminated in consolidation.


12.      NONCASH INVESTING AND FINANCING ACTIVITIES:

         During 1998 and 1997 the Company purchased equipment in the amounts of
         $19,195 and $227,000, respectively, which was financed under capital
         lease agreements.





                                       59
<PAGE>   61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.      NONCASH INVESTING AND FINANCING ACTIVITIES, CONTINUED:

         On November 9, 1998 holders of $2,375,000 of the 15% Notes issued in
         1998 converted principal plus accrued interest of $107,000 into
         3,658,058 shares of the Company's Common Stock.

         On November 9, 1998, the Company converted $2,000,000 (all of the 100
         outstanding shares) of its Series A Convertible Redeemable Preferred
         Stock and $33,000 of accrued dividends into 2,995,692 shares of its
         Common Stock.

         On November 9, 1998 the Company also converted $500,000 principal of
         the 15% Note held by an officer of the Company into 736,811 shares of
         the Company's Common Stock.

         On February 9, 1996 the Company issued 466,383 shares of common stock
         in exchange for $2,500,000 of principal and $65,000 of accrued interest
         on the 6% Notes.

         In May 1996 an officer of the Company converted $750,000 principal of
         the 12% Note into an equal principal amount of the Company's 15% Notes.

         On October 21, 1996 the Company issued 150,000 shares of common stock
         in exchange for(pound)250,000 principal on two notes payable to the
         Welsh Development Agency.

13.      CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL INSTRUMENTS:

         The carrying amount of cash and cash equivalents and short-term
         investments approximates fair value due to the short maturities of
         these instruments. The Company believes that it is not practicable to
         estimate the fair value of its long-term debt because these instruments
         were generally issued in a convertible form or in conjunction with
         warrants to purchase the Company's Common Stock. The Company would be
         required to obtain an independent valuation of each specific
         instrument.


                                       60
<PAGE>   62
ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

                  None

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND 
                  SECTION 16(a) COMPLIANCE

                  Information with respect to the executive officers and
directors of the Company and with respect to compliance with Section 16(a) of
the Securities and Exchange Act of 1934 is incorporated by reference from the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on May 19, 1999.

ITEM 11.          EXECUTIVE COMPENSATION

                  Information with respect to the compensation of the Company's
executive officers is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 19,
1999, except that the Comparative Performance Graph and the Report on Executive
Compensation included in the Proxy Statement are expressly not incorporated
herein by reference.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  Information with respect to the security ownership of certain
beneficial owners of the Company's common stock and management is incorporated
by reference from the Company's Proxy Statement relating to the Annual Meeting
of Shareholders to be held on May 19, 1999.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  This information is incorporated by reference to the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held on 
May 19, 1999.






                                       61
<PAGE>   63



                                     PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 
                 FORM 8-K

         (a)     The following documents are being filed as part of this Report.

                 1.       Financial Statements...............See Item 8 herein.

                 2.       Financial Statement Schedules

                          Independent Auditors Report........See Item 8 herein.

                 All schedules are omitted, because they are not applicable or
                 not required, or because the required information is included
                 in the consolidated financial statements or notes thereto.

                 3.       Exhibits.

<TABLE>
<CAPTION>
                   EXHIBIT
                   NUMBER                                          DESCRIPTION OF EXHIBITS
                   -------                                         -----------------------
<S>                                 <C> 
                      3.1           -   Amended and Restated Certificate of Incorporation of Therapeutic Antibodies
                                        Inc. (6)

                      3.2           -   Certificate of Amendment of the Amended and Restated Certificate of
                                        Incorporation of Therapeutic Antibodies Inc., filed May 13, 1998 (10)

                      3.3           -   Certificate of Amendment to the Amended and Restated Certificate of
                                        Incorporation of Therapeutic Antibodies Inc., filed November 6, 1998 (11)

                      3.4           -   Amended and Restated Bylaws of Therapeutic Antibodies Inc. (6)

                      4.1           -   Certificate of Designation of Rights and Preferences of Series A
                                        Convertible Redeemable Preferred Stock of Therapeutic Antibodies Inc.,
                                        filed September 28, 1998 (11)

                     10.1           -   Marketing Agreement, as amended, dated January 1, 1990, between Swedish
                                        Orphan AB and the Company.  (1)

                     10.2           -   Contract for the Production of Sheep Anti-Human IgG, dated October 5, 1992,
                                        between Baxter Germany and the Company.  (1)

                     10.4           -   Contract Services Agreement, dated December 16, 1991, between Ministry of
                                        Agriculture and Fisheries and the Company.  (1)

                     10.5           -   Agreement, dated December 16, 1991, between Ministry of Fisheries (now
                                        AgResearch) and the Company.  (1)

                     10.6           -   Office Lease Agreement, as amended, dated August 28, 1990, between Summit
                                        Place Limited and the Company.  (1)

</TABLE>



                                       62
<PAGE>   64

<TABLE>
<S>                                 <C>
                     10.7           -   Lease, dated January 9, 1992, between The Medical College of St.
                                        Bartholomew's Hospital in the City of London and the Company. (1)

                     10.8           -   Lease Agreement, dated January 29, 1997, between Vanderbilt University and
                                        the Company. (7)

                     10.9           -   Sublease, dated January 29, 1997, between Platinum Entertainment, Inc. as
                                        Sublessor, and the Company, as Sublessee. (7)

                     10.10          -   Assignment of 14/15 Newbury Street London EC1A 7HU, dated February 1, 1996,
                                        between Immunogen International Limited, as Assignor, and TAb London
                                        Limited, as Assignee. (7)

                     10.11          -   1990 Stock Incentive Plan, as amended. (1)

                     10.12          -   1997 Stock Option Plan (9)

                     10.13          -   Basic Cooperation/Joint Program Agreement, dated August 30, 1995, between
                                        Nigerian Federal Ministry of Health and Therapeutic Antibodies Inc.  (2)

                     10.14          -   Memorandum of Lease, dated August 1, 1995, between Minister for Primary
                                        Industries, as Lessor, and TAb Australia Pty. Limited, as Lessee
                                        (Turretfield lease).  (2)

                     10.15          -   Registration and Distribution Agreement, dated August 31, 1995, between
                                        Therapeutic Antibodies Inc. and F.H. Faulding & Co. Limited.  (2)

                     10.16          -   Loan Agreement, dated July 10, 1995, between Minister for Primary
                                        Industries and TAb Australia Pty. Ltd. and Deed of Charge, dated July 10,
                                        1995, between Minister for Primary Industries and TAb Australia Pty. Ltd. (2)

                     10.17          -   Lease Assignment, dated February 1, 1996, between Immunogen International
                                        Limited and TAb London Limited. (3)

                     10.18          -   Assignment, dated April 29, 1996, between Minister for Industry,
                                        Manufacturing, Small Business and Regional Development and TAb Australia,
                                        Pty. Ltd.  (4)

                     10.19          -   Agistment Agreement, dated August 29, 1996, between Martindale Holdings Pty
                                        Ltd. and TAb. Australia Pty Ltd.  (5)

                     10.20          -   Clinical Trials and Registration Agreement, dated October 4, 1996, between
                                        Therapeutic Antibodies Inc. and F.H. Faulding & Co. Limited.  (7)

                     10.21          -   Clinical Trials, Registration, Manufacturing and Distribution Agreement,
                                        dated February 21, 1997, between the Company and CSL Limited A.C.N.  (8)
</TABLE>




                                       63
<PAGE>   65
<TABLE>
<S>                                 <C>
                     10.22          -   Distribution Agreement, dated October 2, 1997, between the Company and
                                        Altana, Inc. (9)

                     10.23          -   Service Agreement, dated July 5, 1996, between Professor Timothy Chard and
                                        the Company. (7)

                     10.24          -   Employment Agreement, dated February 6, 1998, between Andrew J. Heath and the
                                        Company.*

                     10.25          -   Letter Agreement, dated September 1, 1998, between Stuart M. Wallis and the
                                        Company (regarding appointment as non-executive chairman).*

                     10.26          -   Consultancy Agreement, dated August 21, 1998, between Stuart M. Wallis and
                                        the Company.*

                     10.27          -   Consultancy Agreement, dated September 1, 1998, between Stuart M. Wallis and
                                        the Company.*

                     21.1           -   List of subsidiaries of the Registrant.*

                     27.1           -   Financial Data Schedule (for SEC use only)*
</TABLE>



               (1)  Incorporated by reference to exhibits filed with the
                    Company's Registration Statement on Form 10, filed on May 1,
                    1995, File No. 0-25978.

               (2)  Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended September 30, 1995.

               (3)  Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended March 31, 1996.

               (4)  Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended June 30, 1996.

               (5)  Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended September 30, 1996.

               (6)  Incorporated by reference to appendices filed with the
                    Company's Proxy Statement relating to the Special Meeting of
                    Shareholders held on July 5, 1996.

               (7)  Incorporated by reference to exhibits filed with the
                    Company's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 1996.

               (8)  Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended March 31, 1997.

               (9)  Incorporated by reference to exhibits filed with the
                    Company's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 1997.

               (10) Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended June 30, 1998.

               (11) Incorporated by reference to exhibits filed with the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended September 30, 1998.

               *    Filed herewith.

         (b)   Reports on Form 8-K.



                                       64
<PAGE>   66


                      The Company filed a Current Report on Form 8-K on October
                      29, 1998 relating to an (pound) 11.5 million (US $19.5
                      million) refinancing involving the issue of 28,690,561 new
                      shares of Common Stock, par value US $0.001, of the
                      Company.

                      On November 10, 1998, the Company filed a Current Report 
                      on Form 8-K relating to a Special Meeting of Shareholders 
                      held to approve an amendment to the Company's Amended and
                      Restated Certificate of Incorporation, which increased the
                      number of authorized shares of the Company's Common Stock,
                      par value US $0.001, from 39,000,000 to 59,000,000 shares.

         (c)      Compensatory Plans or Arrangements.

                  The following is a list of all executive compensation plans
and arrangements filed as exhibits to this Annual Report on Form 10-K.


<TABLE>
<CAPTION>
                  Exhibit Number         Description of Exhibit
                  --------------         ----------------------
<S>                                      <C>
                  10.11                  1990 Stock Incentive Plan, as amended. (1)

                  10.12                  1997 Stock Option Plan. (9)

                  10.23                  Service Agreement, dated July 5, 1996, between Professor
                                         Tim Chard and the Company. (7)

                  10.24                  Employment Agreement, dated February 6, 1998, between 
                                         Andrew J. Heath, M.D. and the Company.* 
                                         
                  10.25                  Letter Agreement, dated September 1, 1998, between 
                                         Stuart M. Wallis and the Company (regarding appointment 
                                         or non-executive chairman).*

                  10.26                  Consultancy Agreement, dated August 21, 1998, between 
                                         Stuart M. Wallis and the Company.*

                  10.27                  Consultancy Agreement, dated September 1, 1998, 
                                         between Stuart M. Wallis and the Company.*

</TABLE>

               *    Filed herewith.

               (1)  Incorporated by reference to exhibits filed with the
                    Company's Registration Statement on Form 10, filed on May 1,
                    1995, File No. 0-25978.

               (7)  Incorporated by reference to exhibits to the Company's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 1996.

               (9)  Incorporated by reference to exhibits to the Company's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 1997.

         (d)   Financial Statement Schedules Excluded from Annual Report to 
               Shareholders.

               None.





                                       65

<PAGE>   67



                                   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.


                                       THERAPEUTIC ANTIBODIES INC.



Date:  March 30, 1999
                                       By: /s/ Andrew John Heath, M.D., Ph.D.
                                           -------------------------------------
                                           Andrew John Heath, M.D., Ph.D.
                                           Chief Executive Officer
                                           (Interim Principal Financial and 
                                           Accounting Officer)


                                POWER OF ATTORNEY


                  That the undersigned officers and directors of Therapeutic
Antibodies Inc., a Delaware corporation, do hereby constitute and appoint Andrew
John Heath, M.D., Ph.D the lawful attorney and agent with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended, and any rules or regulations or requirements
of the Securities and Exchange Commission in connection with this Annual Report
on Form 10-K. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Annual Report on Form 10-K or amendments or supplements thereto, and each
of the undersigned hereby ratifies and confirms all that said attorney and agent
shall do or cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.

                  IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney as of the date indicated opposite his name.

                  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.

<TABLE>
<CAPTION>
            NAME                                         TITLE                              DATE
------------------------------------   -----------------------------------------       --------------
<S>                                    <C>                                             <C>
/s/ Stuart Michael Wallis              Chairman of the Board                           March 30, 1999
------------------------------------  
Stuart Michael Wallis

/s/ Andrew John Heath, M.D., Ph.D.     Chief Executive Officer, Vice Chairman of       March 30, 1999
------------------------------------   the Board
Andrew John Heath, M.D., Ph.D.         

/s/ Martin Shallenberger Brown         Secretary and Director                          March 30, 1999
------------------------------------   
Martin Shallenberger Brown

/s/ Timothy Chard, M.D.                Senior Vice President-Research and              March 30, 1999
------------------------------------   Development Administration and Director
Timothy Chard, M.D.                    
</TABLE>



                                       66