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                                 FORM 10-KSB/A-1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1997

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                         Commission File Number 0-28782

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                              NEOTHERAPEUTICS, INC.
                 (Name of Small Business Issuer in its charter)

                DELAWARE                               93-0979187
      (State or other jurisdiction                  (I.R.S. Employer
    of incorporation or organization)              Identification No.)

          157 TECHNOLOGY DRIVE
           IRVINE, CALIFORNIA                             92618
 (Address of principal executive offices)              (Zip Code)

        Issuers telephone number:                     (949)788-6700

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        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: N/A

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

                          Common Stock, $.001 par value
                         Common Stock Purchase Warrants

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Check whether the issuer (1) has all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Revenues for the issuer's most recent fiscal year were $0.

The aggregate market value of the voting stock held by non-affiliates as of
December 31, 1997 was $43,949,199.

As of March 16, 1998, there were 5,474,307 shares of the issuer's Common Stock
outstanding.


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ITEM 10. EXECUTIVE COMPENSATION

        The following tables present summary information regarding the
compensation paid and stock options granted to each of the Company's Chief
Executive Officer and its Executive Vice President (the "Named Executive
Officers") for services rendered to the Company in all capacities during the
fiscal years ended December 31, 1996 and 1997. No other executive officer of the
Company received compensation in 1997 in excess of $100,000.

                                     TABLE I
                           SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES -------------------------- UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS - --------------------------------- ---- ---------- ------- ----------- ------------ Alvin J. Glasky, Ph.D Chairman, Chief Executive Officer and President 1997 ..... $199,992(1) $ -- $ -- -- 1996 ..... $165,398(2) -- -- 75,000 Stephen Runnels Executive Vice President 1997 ..... $108,513 $ -- $ 25,107(3) 62,000
- ---------- (1) Excludes prior years accrued salaries of $265,328 and auto allowances and expense account reimbursements previously accrued aggregating $84,516, all of which were paid in 1997. (2) Includes an auto allowance of $450 per month. See "Employment Agreement". Of the total amounts, $72,998 has been paid and $92,400 has been accrued for 1996. (3) Represents a one-time relocation allowance. TABLE II STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
PERCENTAGE OF TOTAL OPTIONS OPTIONS GRANTED TO EXERCISE GRANTED EMPLOYEES IN PRICE EXPIRATION NAME (NO. OF SHARES) FISCAL YEAR ($/SHARE) DATE - --------------- -------------- -------------- -------- -------------- Stephen Runnels 50,000(1) 48% $7.25 April 29, 2007 " 12,000(2) 12% $5.13 April 7, 2007
- ---------- (1) Option becomes exercisable in 20% increments, commencing twelve months from the date of grant and each year thereafter. (2) Option becomes exercisable and vested 45 days from the date of grant. STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table presents certain information regarding the exercise of options to purchase shares of the Company's Common Stock by the Named Executive Officers during the period commencing January 1, 1997 and ending December 31, 1997: 2 3 TABLE III AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES FISCAL YEAR-END FISCAL YEAR-END(1) ACQUIRED VALUE ----------------------------- ----------------------------- NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- -------- ----------- ------------- ----------- ------------- Alvin J. Glasky, Ph.D. -- -- 25,000 50,000 $159,250 $318,500 Stephen Runnels -- -- 12,000 50,000 $ 64,440 $162,500
- ---------- (1) Based upon the closing price of the Common Stock on December 31, 1997, as reported by the NASDAQ National Market ($10.50 per share). EMPLOYMENT AGREEMENT The Company entered into an employment agreement with Dr. Alvin J. Glasky, effective as of July 1, 1996. The agreement requires Dr. Glasky to devote all of his productive time, attention, knowledge and skill to the affairs of the Company during the term of the agreement. The agreement provides for an annual base salary of $200,000 with annual increases and an annual bonus based on the Company's attainment of certain performance objectives. The agreement ends on June 30, 1999 and may be terminated by the Company with or without "cause" (as defined in the agreement). The agreement also provides for guaranteed severance payments equal to Dr. Glasky's annual base salary over the remaining life of the agreement upon the termination of employment without cause or upon a change in control of the Company. In connection with entering into this agreement, Dr. Glasky was granted an incentive stock option to purchase 75,000 shares of Common Stock at an exercise price of $4.13 per share, which vests in three equal increments over the life of Dr. Glasky's employment agreement. COMPENSATION OF DIRECTORS Each of the Company's non-employee directors receives $1,000 for each Board of Directors meeting and $500 for each committee meeting attended (with the Chairman of the committee receiving $1,000). The directors are also reimbursed for certain expenses in connection with attendance at Board meetings. During the year ended December 31, 1997, the Company also granted to each director, other than the Chairman of the Board, an option to purchase 10,000 shares of Common Stock at $12.875 per share. STOCK OPTION PLANS The Company has two stock option plans: the 1991 Stock Incentive Plan (the "1991 Plan") and the 1997 Stock Incentive Plan (the "1997 Plan") (the "Plans"). The Plans were adopted by the Company's stockholders and Board of Directors in May 1991 and June 17, 1997, respectively. The Company's 1987 Stock Incentive Plan, under which no options were issued, expired in 1997. The 1991 Incentive Stock Option Plan The 1991 Plan provides for grants of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock options, stock appreciation rights ("SARs") and bonus stock. The 1991 Plan authorized for issuance up to 140,000 shares of the Company's Common Stock. The number of shares issuable under the 1991 Plan is increased each January 1 by a number equal to one percent of the Company's then total outstanding shares. On August 7, 1996, the Company's stockholders approved an amendment to the 1991 Plan increasing the number of authorized shares by 60,000, to a total of 293,154 shares as of that date. As of January 1, 1998, the number of shares authorized under the 1991 Plan automatically increased by 54,658 (one percent of the total shares outstanding on that date) to a total of 401,430. Under the 1991 Plan, incentive stock options may be granted to employees, and nonqualified stock options, SARs and bonus stock may be granted to employees of the Company and other 3 4 persons whose participation in the 1991 Plan is determined to be in the Company's best interest. As of January 1, 1998, there were options to purchase 255,000 shares of Common Stock outstanding under the 1991 Plan. The 1997 Incentive Stock Option Plan The 1997 Plan provides for grants of "incentive stock options" within the meaning of the Code, nonqualified stock options and rights to purchase shares of Common Stock ("Purchase Rights"). The 1997 Plan authorized for issuance up to 500,000 shares of the Company's Common Stock, subject to adjustment in the number and kind of shares subject to the 1997 Plan and to outstanding shares in the event of stock splits, stock dividends or certain other similar changes in the capital structure of the Company. Under the 1997 Plan, incentive stock options, nonqualified stock options and Purchase Rights may be granted to employees of the Company and its subsidiaries and affiliates. Nonqualified stock options and Purchase Rights may be granted to employees of the Company and its subsidiaries and affiliates, non-employee directors and officers, consultants and other service providers. As of January 1, 1998, there were options to purchase 45,000 shares of Common Stock outstanding under the 1997 Plan. The Plans are administered by the Board of Directors or a committee appointed by the Board (the "Committee"), which has sole discretion and authority, consistent with the provisions of the Plans, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the Plans. In the event of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, all outstanding options and SARs granted under the 1991 Plan shall be assumed or equivalent options and SARs substituted by the successor corporation. In the event a successor corporation refuses to assume or substitute the options and SARs, the exercisability of the options and SARs under the 1991 Plan shall be accelerated. The exercise price of incentive stock options must be not less than the fair market value of a share of Common Stock on the date that the option is granted (110% with respect to optionees who own at least 10% of the outstanding Common Stock). Nonqualified options shall have such exercise price as determined by the Committee. The Committee has the authority to determine the time or times at which options granted under the Plans become exercisable, provided that options expire no later than ten years from the date of grant (five years with respect to optionees who own at least 10% of the outstanding Common Stock). Options are nontransferable, other than upon death, by will and the laws of descent and distribution, and incentive stock options may be exercised only by an employee while employed by the Company or within three months after termination of employment (one year for termination resulting from death or disability). SECTION 401(k) PLAN In January 1990, the Company adopted the AIT Cash or Deferred Profit Sharing Plan (the "401(k) Plan") covering the Company's full-time employees located in the United States. The 401(k) Plan is intended to qualify under Section 401(k) of the Code, so that contributions to the 401(k) Plan by employees or by the Company, and the investment earnings thereon, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Company, if any, will be deductible by the Company when made. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit ($10,000 in 1998) and to have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional matching contributions to the 401(k) Plan by the Company on behalf of all participants in the 401(k) Plan. The Company has not made any contributions to the 401(k) Plan. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In September 1990, the Company issued a warrant to Dr. Alvin J. Glasky (the "Glasky Warrant") to purchase up to 88,173 shares of Common Stock of the Company at any time between September 1, 1990 and August 31, 1995 for $3.75 per share. Effective August 31, 1995, the expiration date of the Glasky Warrant was extended to August 31, 2000. 4 5 On June 30, 1990, in exchange for cancellation of $503,144 of indebtedness for unpaid compensation, the Company issued a total of 402,517 shares of Common Stock in the following amounts: Dr. Alvin J. Glasky, 184,000 shares; Sanford Glasky (the brother of Dr. Alvin J. Glasky), 60,013 shares; JoAnne Law, 24,333 shares; Luana Kruse, 19,200 shares; Rosalie Glasky (the wife of Dr. Alvin J. Glasky), 28,065 shares; and John W. Baldridge, 86,906 shares (the "1990 Restricted Stock Exchange"). On December 30, 1993, in exchange for cancellation of $690,798 of indebtedness for unpaid compensation and accrued expenses, the Company issued a total of 276,317 shares of Common Stock in the following amounts: Dr. Alvin J. Glasky, 169,001 shares; Sanford Glasky, 49,837 shares; JoAnne Law, 16,559 shares; Luana Kruse, 19,800 shares; Rosalie Glasky, 19,178 shares; and John W. Baldridge, 1,942 shares (the "1993 Restricted Stock Exchange"). Both the 1990 Restricted Stock Exchange and the 1993 Restricted Stock Exchange involved a risk of forfeiture whereby if the Company did not generate a minimum of $500,000 in total operating revenues from inception through December 31, 1995, all shares would be returned to the Company with the holders forfeiting all rights to the shares and forfeiting any claim to the previously accrued but unpaid compensation. Effective December 31, 1995, five of the parties, all of whom were present or past employees of the Company, entered into agreements with the Company whereby the forfeiture date was extended from December 31, 1995 to December 31, 1997 in exchange for increasing the minimum total operating revenues which the Company would need to achieve in order to avoid forfeiture of the shares from $500,000 to $1,000,000, with such revenues to be achieved by December 31, 1997. One party claimed that his 88,848 shares are vested and that there was no need for him to enter into a new Agreement, and therefore had not entered into an Agreement under the new terms. As of December 31, 1997, the Company had not achieved the revenue goals set forth in the Agreements, as previously amended. Several former employees who are parties to the Agreements have indicated disagreement with the Company's position and, to date, none of the shares have been surrendered for cancellation. The Company's Chief Executive Officer and his wife, the Secretary and Treasurer of the Company, have indicated that they are willing to conditionally surrender their shares, (amounting to an aggregate of 400,244 shares) subject to resolution of the dispute with the aforementioned former employees. Until such time as the Company can obtain the surrender of all of these shares and the matter is fully resolved, the Company is accounting for all of the stock, which it has deemed forfeited, as issued and outstanding. On June 6, 1991, the Company entered into an agreement (the "1991 Patent Agreement") with Dr. Alvin J. Glasky whereby Dr. Glasky assigned to the Company all rights to the inventions covered by United States Patent No. 5,091,432 and any corresponding foreign applications and patents, including all continuations, divisions, reissues and renewals of said applications and any patents issued out of or based upon said applications (the "Assigned Rights"). The 1991 Patent Agreement was amended on July 26, 1996. The 1991 Patent Agreement, as amended, calls for the Company to pay Dr. Glasky a two percent royalty on all revenues derived by the Company from the use and sale by the Company of any products covered by these patents and applications or any patents derived from them. In the event that Dr. Glasky's employment is terminated by the Company without cause, the royalty rate shall be increased to five percent and in the event that Dr. Glasky dies during the term of the 1991 Patent Agreement, Dr. Glasky's family or estate shall be entitled to continue to receive royalties at the rate of two percent. The 1991 Patent Agreement terminates on the later of its ten year anniversary or the expiration of the final patent included within the Assigned Rights. On June 30, 1996, the Company and Dr. Glasky entered into an agreement whereby Dr. Glasky assigned to AIT all rights to the inventions covered by United States Patent No. 5,447,938 (the "1996 Patent Agreement"). The scope of the 1996 Patent Agreement as well as its terms and conditions are identical in all material respects to the 1991 Patent Agreement; provided, however, that the aggregate royalty amount with respect to any product shall be two percent (five percent in the event of termination without cause), even if a product is based on both patents. The 1996 Patent Agreement was also amended on July 26, 1996. Dr. Glasky will not receive any royalties with respect to sales of products which utilize patent rights licenses to the Company by McMaster University. See "ITEM 1 - Description of Business - Patents and Proprietary Rights." On December 31, 1993, the Company issued 200,000 shares of Common Stock to Dr. Alvin J. Glasky in Exchange for cancellation of $500,000 of indebtedness for loans made by Dr. Glasky to the Company. Dr. Glasky received certain registration rights with respect to these shares. The remaining $257,900 in principal on the loans payable and accrued interest of $300,404 due to Dr. Glasky were converted into a $558,304 promissory note which, as amended from time to time, is currently unsecured, bears interest at 9% per annum, and is payable upon demand. 5 6 In July 1996, all of the holders of the 75 outstanding Revenue Participation Units ("RPUs") converted their RPUs into an aggregate of 300,000 shares of Common Stock. As a part of this transaction, Dr. Alvin J. Glasky converted his 28 outstanding RPUs into a total of 112,000 shares of Common Stock. See Note 8 of Notes to Consolidated Financial Statements. ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K a) Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Certificate of Incorporation of the Registrant, as filed on May 7, 1997. (Filed as Exhibit B to the Definitive Proxy Statement dated May 8, 1997, for the Annual Meeting of Shareholders of NeoTherapeutics Colorado, the predecessor to Registrant, held on June 17, 1997, as filed with the Securities and Exchange Commission on May 9, 1997, and incorporated herein by reference.) 3.2 Bylaws of the Registrant. (Filed as Exhibit C to the Definitive Proxy Statement dated May 8, 1997, for the Annual Meeting of Shareholders of NeoTherapeutics Colorado, the predecessor to Registrant, held on June 17, 1997, as filed with the Securities and Exchange Commission on May 9, 1997, and incorporated herein by reference.) 4.1 Form of Registration Rights Agreement dated as of July 23, 1996, entered into between the Registrant and certain investors named therein. (Filed as Exhibit 4.1 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 4.2 Form of Registration Rights Agreement dated December 30, 1993, entered into between the Registrant and each of Alvin J. Glasky, Sanford J. Glasky, Joanne Law, Luana M. Kruse, Rosalie H. Glasky and John W. Baldridge. (Filed as Exhibit 4.2 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 4.3 Form of Representatives' Warrant Agreement dated as of September 25, 1996, entered into in connection with the public offering of the Company's securities on September 26, 1996. (Filed as Exhibit 4.3 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 4.4 Form of Stock Purchase Agreement dated December 30, 1993, including amendment effective December 30, 1995, between the Registrant and each of Alvin J. Glasky, Sanford Glasky, Joanne Law, Luana Kruse, Rosalie Glasky and John Baldridge. (Filed as Exhibit 4.4 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 4.5 Form of Stock Purchase Agreement dated June 30, 1990, as amended on May 27, 1992, June 30, 1993 and December 30, 1993, and amendment thereto effective December 30, 1995, between the Registrant and each of Alvin J. Glasky, Sanford Glasky, Joanne Law, Luana Kruse, Rosalie Glasky and John Baldridge. (Filed as Exhibit 4.5 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 4.6 Warrant Agreement entered into between Neotherapeutics, Inc. and U.S. Stock Transfer Corporation dated as of September 25, 1996. (Filed as Exhibit 4.6 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.1 Intentionally omitted.
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EXHIBIT NO. DESCRIPTION ----------- ----------- 10.2* 1991 Stock Incentive Plan. (Filed as Exhibit 10.2 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.3* Employment Agreement between the Registrant and Alvin J. Glasky, Ph.D. (Filed as Exhibit 10.3 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.4 Note dated June 21, 1996 between the Registrant and Alvin J. Glasky and related Security Agreement dated August 31, 1990. (Filed as Exhibit 10.4 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.5 Warrant to purchase Common Stock of the Registrant dated August 31, 1990 held by Alvin J. Glasky. (Filed as Exhibit 10.6 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.6 Agreement dated as of June 6, 1991, as amended on July 26, 1996, by and between the Registrant and Alvin J. Glasky. (Filed as Exhibit 10.7 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.7 Agreement dated as of June 30, 1991, as amended on July 26, 1996, by and between the Registrant and Alvin J. Glasky. (Filed as Exhibit 10.8 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.8* Form of Indemnification Agreement between the Registrant and each of its officers and directors. (Filed as Exhibit 10.10 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.9 Underwriting Agreement dated as of September 25, 1996, among the Company, Paulson Investment Company, Inc. and First Colonial Securities Group, Inc. (Filed as Exhibit 1.1 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.10 Letter Agreement dated March 18, 1993, including addendums dated April 1, 1993, December 31, 1993, April 6, 1995 and May 3, 1996, and amendment dated July 26, 1996, between the Registrant and North American Capital Partners. (Filed as Exhibit 1.2 to the Registration Statement on Form SB-2 as amended (No. 333-05342-LA), and incorporated herein by reference.) 10.11 Industrial Lease Agreement, dated January 16, 1997, between the Company and the Irvine Company. (Filed as Exhibit 10.11 to the Form 10-KSB for the fiscal year ended December 31, 1996, as filed with the Securities and Exchange Commission on March 31, 1997, and incorporated herein by reference). 10.12 Addendum to Note dated June 21, 1996 between the Registrant and Alvin J. Glasky. (Filed as Exhibit 10.12 to the Form 10-KSB for fiscal year ended December 31, 1996, as filed with the Securities and Exchange Commission on March 31, 1997, and incorporated herein by reference). 10.13 1997 Stock Incentive Plan. (Filed as Exhibit D to the Definitive Proxy Statement dated May 8, 1997, for the Annual Meeting of Shareholders of NeoTherapeutics Colorado, the predecessor to Registrant, held on June 17, 1997, as filed with the Securities and Exchange Commission on May 9, 1997, and incorporated herein by reference).
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EXHIBIT NO. DESCRIPTION ----------- ----------- 10.14(1) Line of Credit Agreement dated as of August 20, 1997, between the Company and Sanwa Bank California. 21.1(1) Subsidiaries of Registrant. 23 Consent of Arthur Andersen LLP. 27(1) Financial Data Schedule.
- -------- * Indicates a management contract or compensatory plan or arrangement. (1) Previously filed. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended December 31, 1996. 8 9 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEOTHERAPEUTICS, INC. Date: May 14, 1998 By: /s/ Samuel Gulko --------------------------------------- Samuel Gulko Chief Financial Officer (Principal Accounting and Financial Officer) 9 10 EXHIBIT INDEX
EXHIBITS DESCRIPTION -------- ----------- 23 Consent of Arthur Andersen LLP.
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                                   EXHIBIT 23

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 333-30321 on Form S-8, Registration Statement
File No. 333-30345 on Form S-8, Registration Statement File No. 333-05342-LA on
Form S-3, and into Registration Statement File No. 333-37585 on Form S-3.

                                               /s/ Arthur Andersen LLP
                                               ---------------------------------
                                                   ARTHUR ANDERSEN LLP

Orange County, California
May 14, 1998



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