-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BSuEAgNImBe0wf+YbQmGCTK2K5kPEalCRtNYZacGqTMBCsrkIs8uLr30GjaJRgYF TecUjd3LgOl/8tUKNz8s2g== 0000856984-99-000001.txt : 19990517 0000856984-99-000001.hdr.sgml : 19990517 ACCESSION NUMBER: 0000856984-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BIOGENETIC SCIENCES INC CENTRAL INDEX KEY: 0000856984 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 112655906 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19041 FILM NUMBER: 99623247 BUSINESS ADDRESS: STREET 1: 1375 AKRON STREET STREET 2: P O BOX 1001 CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: 5167892600 10-Q 1 1ST QTR 3/31/99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1999 Commission File Number 0-19041 American Biogenetic Sciences, Inc. (Exact name of registrant as specified in its charter) Delaware 11-2655906 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1375 Akron Street 516-789-2600 Copiague, New York 11726 (Telephone number) (Address of Principal Executive Offices) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 7, 1999 Class A Common Stock, par value $.001 36,041,841 Class B Common Stock, par value $.001 3,000,000 Page 1 AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) Form 10-Q for the Quarter Ended March 31, 1999 INDEX Part I - FINANCIAL INFORMATION Item 1: Financial Statements: Page No. Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Consolidated Statements of Operations - Three Months Ended March 31, 1999 and March 31, 1998 and For the Period from Inception (September 1, 1983) Through March 31, 1999 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1999 and March 31, 1998 and For the Period from Inception (September 1, 1983) Through March 31, 1999 5 Consolidated Statements of Stockholders' Equity - For the Period from Inception (September 1, 1983) Through March 31, 1999 6 - 8 Notes to Consolidated Financial Statements 9 - 11 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 12 Item 3: Quantitative and Qualitative Disclosures about Market Risk 16 Part II - OTHER INFORMATION Item 2: Changes in Securities 17 Item 6: Exhibits and Reports on Form 8-K 18 Signature 18 Page 2 AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
March 31, December 31, Assets 1999 1998 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $1,785,000 $3,047,000 Accounts receivable 175,000 177,000 Inventory 590,000 545,000 Other current assets 115,000 40,000 ------------ ------------ Total current assets 2,665,000 3,809,000 ------------ ------------ Fixed assets, at cost, net of accumulated depreciation and amortization of $1,760,000 and $1,718,000, respectively 607,000 631,000 Patent costs, net of accumulated amortization of $415,000 and $390,000, respectively 1,684,000 1,468,000 Intangible assets, net 564,000 580,000 Other assets 219,000 26,000 ------------ ------------ Total assets $5,739,000 $6,514,000 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $695,000 $797,000 Current portion of capital lease obligation - 8,000 Current portion of notes payable 55,000 57,000 ------------ ------------ Total current liabilities 750,000 862,000 ------------ ------------ Long Term Liabilities: Notes payable, less current portion 50,000 56,000 ------------ ------------ Total liabilities 800,000 918,000 ------------ ------------ Stockholders' Equity: Class A common stock, par value $.001 per share; 50,000,000 shares authorized; 36,023,841 and 35,559,556 shares issued and outstanding, respectively 36,000 36,000 Class B common stock, par value $.001 per share; 3,000,000 shares authorized; 3,000,000 shares issued and outstanding, respectively 3,000 3,000 Additional paid-in capital 63,334,000 62,520,000 Deficit accumulated during the development stage (58,434,000) (56,963,000) ------------ ------------ Total stockholders' equity 4,939,000 5,596,000 ------------ ------------ $5,739,000 $6,514,000 ============ ============ The accompanying notes are an integral part of these consolidated balance sheets. Page 3
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Period From Inception Three Months Ended (September 1, -------------------------- 1983) Through March 31, March 31, March 31, 1999 1998 1999 ------------ ------------ -------------- Revenues: Sales $292,000 $114,000 $1,639,000 Royalties / license fees - - 1,000,000 Collaborative agreements 40,000 - 342,000 ------------ ------------ -------------- 332,000 114,000 2,981,000 Costs and expenses: Cost of sales 118,000 36,000 615,000 Research and development 518,000 496,000 29,324,000 Selling, general and administrative 1,186,000 1,036,000 30,279,000 Facility consolidation cost - - 252,000 ------------ ------------ -------------- Loss from operations (1,490,000) (1,454,000) (57,489,000) ------------ ------------ -------------- Other Income (Expense): Interest expense (1,000) (49,000) (4,357,000) Net gain on sale of fixed assets - - 7,000 Investment income 20,000 86,000 4,545,000 ------------ ------------ -------------- Loss before extraordinary charge (1,471,000) (1,417,000) (57,294,000) Extraordinary charge for early retirement of debentures, net - - (1,140,000) ------------ ------------ -------------- Net loss ($1,471,000) ($1,417,000) ($58,434,000) ============ ============ ============== Per Share Information (Note 2): Basic and Diluted net loss per share Net loss ($0.04) ($0.07) ============ ============ Common shares used in computing per share amounts: Basic and Diluted 38,683,000 21,280,000 ============ ============ The accompanying notes are an integral part of these consolidated statements. Page 4
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Period From Inception
(September 1, Three Months Ended 1983) -------------------------- Through March 31, March 31, March 31, 1999 1998 1999 ------------ ------------ -------------- Cash Flows From Operating Activities: Net loss ($1,471,000) ($1,417,000) ($58,434,000) Adjustments to reconcile net (loss) to net cash provided by or (used) in operating activities: Depreciation and amortization 83,000 110,000 2,805,000 Net gain on sale of fixed assets - - (7,000) Net gain on sale of marketable securities - - (217,000) Other non-cash expenses accrued primarily for stocks and warrants 167,000 27,000 2,209,000 Amortization of debt discount included in interest expense - - 2,160,000 Extraordinary loss on repurchase of debt - - 1,140,000 Write off of patent costs - - 93,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 2,000 (93,000) (67,000) (Increase) decrease in inventory (45,000) 21,000 (432,000) (Increase) decrease in other current assets (75,000) (22,000) (115,000) (Increase) decrease in other assets 5,000 - 78,000 Increase (decrease) in accounts payable and accrued expenses (151,000) 16,000 825,000 Increase in interest payable to stockholder - - 112,000 ------------ ------------ -------------- Net cash provided by (used in) operating activities (1,485,000) (1,358,000) (49,850,000) ------------ ------------ -------------- Cash Flows From Investing Activities: Capital expenditures (18,000) (7,000) (2,061,000) Proceeds from sale of fixed assets - - 18,000 Payments for patent costs and other assets (241,000) (55,000) (2,169,000) Business acquisition, net of stock issued and cash acquired - - (119,000) Proceeds from maturity and sale of marketable securities - - 67,549,000 Purchases of marketable securities - - (67,332,000) ------------ ------------ -------------- Net cash provided by (used in) investing activities (259,000) (62,000) (4,114,000) ------------ ------------ -------------- Cash Flows From Financing Activities: Payments to debentureholders - (427,000) (2,246,000) Proceeds from issuance of common stock, net 498,000 7,000 39,982,000 Proceeds from issuance of 5% convertible debentures, net - - 3,727,000 Proceeds from issuance of 7% convertible debentures, net - - 8,565,000 Proceeds from issuance of 8% convertible debentures, net - - 7,790,000 Principal payments under capital lease obligation and notes payable (16,000) - (86,000) Redemption of 8% convertible debentures - - (500,000) Repurchase of 5% convertible debentures - - (3,852,000) Capital contributions from chairman - - 1,000,000 Increase in loans payable to stockholder / affiliates - - 2,669,000 Repayment of loans payable to stockholder and affiliates (remainder contributed to capital by the stockholder) - - (1,300,000) ------------ ------------ -------------- Net cash provided by (used in) financing activities 482,000 (420,000) 55,749,000 ------------ ------------ -------------- Net Increase (Decrease) in Cash and Cash Equivalents (1,262,000) (1,840,000) 1,785,000 Cash and Cash Equivalents at Beginning of Period 3,047,000 7,121,000 - ------------ ------------ -------------- Cash and Cash Equivalents at End of Period $1,785,000 $5,281,000 $1,785,000 ============ ============ ============== Supplemental Disclosure of Noncash Activities: Capital expenditures made under capital lease obligation - - $20,000 ============ ============ ============== Convertible Debentures converted into 0, 271,252, and 10,470,583 shares of Common Stock, respectively - $320,000 $14,658,000 ============ ============ ============== Warrants $264,000 - $852,000 ============ ============ ============== Conversion of stockholder loan to paid-in capital - - $1,481,000 ============ ============ ============== The accompanying notes are an integral part of these consolidated statements. Page 5
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A Class B Per Common Stock Common Stock Share --------------------------- ------------------------ Amount Shares Dollars Shares Dollars ------- ------------ ------------- ----------- ----------- BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - - $ - Sale of common stock to chairman for cash .33 78,000 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1983 78,000 - - - Sale of common stock to chairman for cash .33 193,500 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1984 271,500 - - - Sale of common stock to chairman for cash .33 276,700 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1985 548,200 1,000 - - Sale of common stock to chairman for cash .33 404,820 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1986 953,020 1,000 - - Sale of common stock to chairman for cash .33 48,048 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1987 1,001,068 1,000 - - Exchange of common stock for Class B stock (1,001,068) (1,000) 1,001,068 1,000 Sale of Class B stock to chairman for cash .33 - - 1,998,932 2,000 Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1988 - - 3,000,000 3,000 Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1989 - - 3,000,000 3,000 Conversion of loans payable to stockholder into additional paid-in capital - - - - Sale of 1,150,000 Units to public consisting of 3,450,000 shares of Class A common stock and warrants (net of $1,198,000 underwriting expenses) 2.00 3,450,000 3,000 - - Conversion of Class B stock into Class A stock 668,500 1,000 (668,500) (1,000) Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000 ------------ ------------- ----------- ----------- CONTINUED Page 6 BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000 Exercise of Class A Warrants (net of $203,000 in underwriting expenses) for cash 3.00 3,449,955 3,000 - - Exercise of Class B Warrants for cash 4.50 79,071 - - - Conversion of Class B stock into Class A stock 850,000 1,000 (850,000) (1,000) Exercise of stock options 2.00 417,750 1,000 - - Expense for warrants issued - - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1991 8,915,276 9,000 1,481,500 1,000 Exercise of Class B Warrants (net of $701,000 in underwriting expenses) for cash 4.50 3,370,884 3,000 - - Conversion of Class B stock into Class A stock 106,000 - (106,000) - Exercise of stock options 2.49 348,300 1,000 - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1992 12,740,460 13,000 1,375,500 1,000 Sale of common stock to Medeva PLC. 7.50 200,000 - - - Exercise of stock options 2.00 32,700 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1993 12,973,160 13,000 1,375,500 1,000 Exercise of stock options 2.16 91,250 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1994 13,064,410 13,000 1,375,500 1,000 Conversion of 8% Convertible Debentures into Class A Common Stock 1.85 354,204 - - - Exercise of stock options 1.82 12,750 - - - Expense for warrants/options issued - - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000 ------------ ------------- ----------- ----------- CONTINUED Page 7 ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000 Conversion of 8% Convertible Debentures into Class A Common Stock 2.74 2,269,755 2,000 - - Exercise of stock options 2.53 569,875 1,000 - - Expense for warrants/options issued - - - - Discount on 7% convertible debentures - - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1996 16,270,994 16,000 1,375,500 1,000 ------------ ------------- ----------- ----------- Conversion of 7% and 8% Convertible Debentures into Class A Common Stock 2.93 2,995,006 3,000 - - Sale of Class B Common Stock to Chairman for cash 2.23 - - 350,000 1,000 Exercise of stock options 2.00 27,500 - - - Expense for warrants issued - - - - Class A Common Stock issued 3.12 48,117 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1997 19,341,617 19,000 1,725,500 2,000 ------------ ------------- ----------- ----------- Conversion of 5%, 7% and 8% Convertible Debentures into Class A Common Stock 0.32 4,851,618 5,000 - - Sale of Class B Common Stock to Chairman for cash 0.37 - - 1,274,500 1,000 Exercise of stock options 1.75 4,000 - - - Expense for warrants issued - - - - Class A Common Stock issued 1.06 163,915 - - - Class A Common Stock issued for Stellar 1.76 398,406 1,000 - - Class A Common Stock issued for Private Placement 0.25 10,800,000 11,000 - - Discount on 5% convertible debentures - - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, DECEMBER 31, 1998 35,559,556 36,000 3,000,000 3,000 ------------ ------------- ----------- ----------- Sale of Class A Common Stock to Chairman for cash 1.13 440,000 - - - Exercise of stock options 0.61 5,000 - - - Expense for warrants issued - - - - Class A Common Stock issued 1.19 19,285 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, MARCH 31, 1999 36,023,841 $36,000 3,000,000 $3,000 ============ ============= =========== =========== The accompanying notes are an integral part of these consolidated statements. Page 8
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Deficit Accumulated Additional During the Paid-in Development Capital Stage Total ------------ ------------- ----------- BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - $ - Sale of common stock to chairman for cash 26,000 - 26,000 Net (loss) for the period - (25,000) (25,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1983 26,000 (25,000) 1,000 Sale of common stock to chairman for cash 65,000 - 65,000 Net (loss) for the period - (242,000) (242,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1984 91,000 (267,000) (176,000) Sale of common stock to chairman for cash 92,000 - 92,000 Net (loss) for the period - (305,000) (305,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1985 183,000 (572,000) (388,000) Sale of common stock to chairman for cash 134,000 - 134,000 Net (loss) for the period - (433,000) (433,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1986 317,000 (1,005,000) (687,000) Sale of common stock to chairman for cash 16,000 - 16,000 Net (loss) for the period - (730,000) (730,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1987 333,000 (1,735,000) (1,401,000) Exchange of common stock for Class B stock - - - Sale of Class B stock to chairman for cash 664,000 - 666,000 Net (loss) for the period - (1,031,000) (1,031,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1988 997,000 (2,766,000) (1,766,000) Net (loss) for the period - (1,522,000) (1,522,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1989 997,000 (4,288,000) (3,288,000) Conversion of loans payable to stockholder into additional paid-in capital 1,481,000 - 1,481,000 Sale of 1,150,000 Units to public consisting of 3,450,000 shares of Class A common stock and warrants (net of $1,198,000 underwriting expenses) 5,699,000 - 5,702,000 Conversion of Class B stock into Class A stock - - - Net (loss) for the period - (2,100,000) (2,100,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000 ------------ ------------- ----------- CONTINUED Page - 6 (column continuation) BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000 Exercise of Class A Warrants (net of $203,000 in underwriting expenses) for cash 10,143,000 - 10,146,000 Exercise of Class B Warrants for cash 356,000 - 356,000 Conversion of Class B stock into Class A stock - - - Exercise of stock options 835,000 - 836,000 Expense for warrants issued 900,000 - 900,000 Net (loss) for the period - (4,605,000) (4,605,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1991 20,411,000 (10,993,000) 9,428,000 Exercise of Class B Warrants (net of $701,000 in underwriting expenses) for cash 14,465,000 - 14,468,000 Conversion of Class B stock into Class A stock - - - Exercise of stock options 865,000 - 866,000 Net (loss) for the period - (4,016,000) (4,016,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1992 35,741,000 (15,009,000) 20,746,000 Sale of common stock to Medeva PLC. 1,500,000 - 1,500,000 Exercise of stock options 65,000 - 65,000 Net (loss) for the period - (6,521,000) (6,521,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1993 37,306,000 (21,530,000) 15,790,000 Exercise of stock options 197,000 - 197,000 Net (loss) for the period - (7,431,000) (7,431,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1994 37,503,000 (28,961,000) 8,556,000 Conversion of 8% Convertible Debentures into Class A Common Stock 571,000 - 571,000 Exercise of stock options 23,000 - 23,000 Expense for warrants/options issued 602,000 - 602,000 Net (loss) for the period - (5,607,000) (5,607,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000 ------------ ------------- ----------- CONTINUED Page - 7 (column continuation) BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000 Conversion of 8% Convertible Debentures into Class A Common Stock 5,483,000 - 5,485,000 Exercise of stock options 1,438,000 - 1,439,000 Expense for warrants/options issued 330,000 - 330,000 Discount on 7% convertible debentures 1,843,000 - 1,843,000 Net (loss) for the period - (7,700,000) (7,700,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1996 47,793,000 (42,268,000) 5,542,000 ------------ ------------- ----------- Conversion of 7% and 8% Convertible Debentures into Class A Common Stock 7,152,000 - 7,155,000 Sale of Class B Common Stock to Chairman for cash 778,000 - 779,000 Exercise of stock options 55,000 - 55,000 Expense for warrants issued 149,000 - 149,000 Class A Common Stock issued 150,000 - 150,000 Net (loss) for the period - (7,147,000) (7,147,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1997 56,077,000 (49,415,000) 6,683,000 ------------ ------------- ----------- Conversion of 5%, 7% and 8% Convertible Debentures into Class A Common Stock 1,442,000 - 1,447,000 Sale of Class B Common Stock to Chairman for cash 465,000 - 466,000 Exercise of stock options 7,000 - 7,000 Expense for warrants issued 205,000 - 205,000 Class A Common Stock issued 174,000 - 174,000 Class A Common Stock issued for Stellar 699,000 - 700,000 Class A Common Stock issued for Private Placement 2,689,000 - 2,700,000 Discount on 5% convertible debentures 762,000 - 762,000 Net (loss) for the period - (7,548,000) (7,548,000) ------------ ------------- ----------- BALANCE, DECEMBER 31, 1998 62,520,000 (56,963,000) 5,596,000 ------------ ------------- ----------- Sale of Class A Common Stock to Chairman for cash 495,000 - 495,000 Exercise of stock options 3,000 - 3,000 Expense for warrants issued 293,000 - 293,000 Class A Common Stock issued 23,000 - 23,000 Net (loss) for the period - (1,471,000) (1,471,000) ------------ ------------- ----------- BALANCE, MARCH 31, 1999 $63,334,000 ($58,434,000) $4,939,000 ============ ============= =========== The accompanying notes are an integral part of these consolidated statements. CONTINUED Page - 8 (column continuation)
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1999 (1) INTERIM FINANCIAL STATEMENTS The interim unaudited consolidated financial statements presented herein have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The interim financial statements presented herein reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position as of March 31, 1999 and results of operations for the three months ended March 31, 1999 and March 31, 1998. The Company's financial statements should be read in conjunction with the summary of significant accounting policies and the notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results for the full year. (2) NET LOSS PER COMMON SHARE Basic net loss per common share ("Basic EPS") is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share ("Diluted EPS") is computed by dividing net loss by the weighted average number of common shares and dilutive potential common shares then outstanding. The provisions of Statement of Financial Accounting Standards ("SFAS") No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the consolidated statements of operations. Diluted EPS for 1999 and 1998 is the same as Basic EPS because the inclusion of stock options and warrants outstanding would be antidilutive. Page 9 (3) INVENTORY Inventory consists of the following:
March 31, December 31, ------------------------ 1999 1998 ----- ----- Raw Materials $313,000 $339,000 Work in Process 79,000 91,000 Finished Goods 198,000 115,000 ------------------------ $590,000 $545,000 ========================
(4) STOCKHOLDERS' EQUITY Stock Options - The following summarizes the stock option activity in all stock option plans for the three months ended March 31, 1999.
Weighted Avg Option Shares Price ------------------------ Granted 205,000 $1.14 Exercised 5,000 $0.61 Cancelled 82,166 $3.76
Each option entitles the holder to purchase one share of Class A Common Stock of the Company. Other Shares and Warrants - In connection with a lease agreement for the Company's Boston research facility, the Company may at its option pay a portion of the annual lease obligation with Class A Common Stock plus warrants. The number of shares of Common Stock is computed using the average market price of the Company's Class A Common Stock during the ten days prior to issuance. The warrants are to be exercisable at a price equal to the closing price of the underlying Class A Common Stock on the date the warrant is issued and for a period of four years from the date of issuance. With respect to the three months ended February 26, 1999, the Company calculated 29,850 shares of Class A Common Stock to be issued, as well as warrants to purchase 29,850 shares of Class A Page 10 Common Stock at an exercise price of $1.28 per share. These shares and warrants will be issued during the second quarter of 1999. The fair value of the warrants were calculated using an option-pricing model as of February 26, 1999 and recorded a charge to operations of $24,000. Pursuant to an investor relations agreement, the Company is to issue a warrant to the investor relations firm to purchase up to 300,000 shares of Class A Common Stock at $1.00 per share for five years, with vesting based on the achievement of certain goals. Included in Other assets is the fair value of these warrants as determined using an option-pricing model of $264,000 which is being amortized over the service period of the agreement. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which ABS' management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere herein. Liquidity and Capital Resources ABS, a development stage company incorporated in September 1983, launched two commercial products (TpP , ABS' Thrombus Precursor Protein diagnostic test, and FiF , ABS' Functional Intact Fibrinogen diagnostic test) in the fourth quarter of 1997. Although, to date, ABS has not derived any significant revenues from the sale of these products. On April 23, 1998, the Company acquired Stellar Bio Systems, Inc. ( Stellar ) a manufacturer and distributor of in vitro diagnostic products and research reagents. Reagents are individual components of diagnostic products, such as antibodies, calibrators and serum used in the biotechnology industry. The purchase price was $120,000 in cash and $700,000 in Class A Common Stock (398,406 shares were issued), plus future contingent payments of $650,000 in Class A Common Stock to be Page 11 paid over three years based upon future sales levels of Stellar, with the Class A Common Stock to be valued at its market value on the acquisition agreement anniversary dates. The Company recorded a contingent payment of $150,000 in Class A Common Stock (131,118 shares) on April 23, 1999 (second fiscal quarter) representing the first contingent payment. ABS expects to continue to incur substantial expenditures in research and product development in the neurobiology program and in the development and commercialization of a point of care format for TpP , as well as in the FDA approval process relating to additional 510(k) filings for TpP , FiF and Stellar s products. As of March 31, 1999, ABS had working capital of $1,915,000, compared to $2,947,000 at December 31,1998. ABS' management believes that current working capital along with additional financing, projected receipt of licensing fees and/or other contingency plans, will be sufficient to fund its planned activities through the first quarter of 2000. The Company is seeking to license TpP and its neurobiology compound ABS 103, to large pharmaceutical companies in order to provide additional funding and clinical expertise, to perform additional testing necessary to obtain regulatory approvals, to provide manufacturing expertise and to market ABS' products. Without such licensing or co- marketing arrangements, additional sources of funding will be required to finance ABS. There can be no assurances that such funding will be available or, if available, the terms thereof. The Company's cash and cash equivalents decreased by $1,262,000 to $1,785,000 during the first quarter of 1999, primarily because cash used in operations ($1,485,000) and investing activities ($259,000) exceeded net cash provided by financing activities ($482,000). Net cash of $1,485,000 was used in operations to fund the Company s cash loss from operations of $1,221,000 (net of non cash expenses of $83,000 for depreciation and amortization, and $167,000 incurred in connection with the issuance of stock and warrants). Net cash of $264,000 was used by changes in operating assets and liabilities primarily as a result of decrease in accounts payable and accrued expenses ($151,000), an increase in inventory ($45,000) to cover expected increased shipments in Page 12 the second quarter of 1999, an increase in other current assets ($75,000) primarily a receivable from a National Institutes of Health ("NIH") grant, partially offset by an increase in accounts receivable ($2,000) and other assets ($5,000). Cash used in investing activities was for the purchase of equipment ($18,000) and capitalized patent costs ($241,000) primarily for neurobiology compounds. Financing activities provided $482,000 as a result of the purchase by the Company's Chairman of 440,000 shares of Class A Common Stock for $495,000, the exercise of stock options, offset by payments under capital lease obligations and notes payable. Results of Operations The Company's net loss of $1,471,000 for the first quarter ended March 31, 1999 increased by $54,000 from a net loss of $1,417,000 for the first quarter ended March 31, 1998. The increase in the net loss is primarily due to increased selling, general and administrative expenses of $150,000, increased research and development expenses of $22,000, lower investment income of $66,000, offset by an increase in gross profit of $96,000, an earned NIH grant of $40,000 and reduced interest expense of $48,000. Revenue during the first quarter of 1999 was primarily from sales of Stellar products. Sales of TpP and FiF diagnostic kits were lower during the first quarter of 1999 compared to 1998 due to a slow market acceptance of the current test format. In addition, the sales of TpP during the first quarter of 1998 was the result of distributors' initial stocking of the product. The revenue of $40,000 reflects the earned portion of an NIH grant. The Company obtained a grant of $135,000 from the NIH National Institute on Aging for additional studies of the Company's neurobiology compound ABS 205 of which $40,000 was earned in the first quarter of 1999. This study will be completed by the end of June 1999. Research and development expenses increased by $22,000, from $496,000 to $518,000, primarily due to the cost of TpP point of care development and the inclusion of Stellar's research and development Page 13 costs which related primarily to work supporting FDA 510K filings. Results of Stellar are included in the Company's results of operations only since its April 23, 1998 acquisition by the Company. Selling, general and administrative expenses increased by $150,000, from $1,036,000 to $1,186,000, as a result of the inclusion of Stellar's selling and general expenses, increases in the cost of investor relations offset in part by a reduction in other consulting costs. Interest expense decreased by $48,000, from $49,000 to $1,000, resulting from the absence of convertible debentures outstanding which were repurchased in the fourth quarter of fiscal 1998. Investment income decreased by $66,000, from $86,000 in 1998 to $20,000 in 1999, as a result of lower average cash balances. Year 2000 State of Readiness: The Year 2000 problem is the result of some computer programs being written using two-digits rather than four to define the applicable year. Therefore, it is possible that programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in a system failure or miscalculation. ABS has been assessing the impact of the Year 2000 issue on its information systems. ABS uses software developed and supported by third parties for various applications, including financial reporting, sales, purchasing and inventory, which will require upgrade. In addition, ABS may face some risk to the extent that suppliers of products and others with whom ABS has a material business relationship will not be Year 2000 compliant. Accordingly, ABS has initiated formal communications with significant suppliers and third parties in order to Page 14 determine the extent to which ABS may be vulnerable to the failure of these suppliers and third parties to remediate their own Year 2000 issues. ABS is reviewing and evaluating the responses it receives and periodically monitor the progress of these suppliers and third parties in addressing their own Year 2000 issues. However, ABS is not dependent upon any one supplier and believes that it could readily replace non- compliant suppliers should that become necessary. ABS has reviewed its non-information technology systems to determine the extent of any changes that may be necessary and currently believes that minimal changes are necessary for Year 2000 compliance. Costs: The estimated cost of the Year 2000 project is approximately $50,000. This cost estimate may change as ABS progresses in its Year 2000 project, obtains additional information and conducts further testing. Risks: ABS is not aware, at this time, of any Year 2000 non- compliance that will not be cured by the end of 1999 and that will materially affect ABS. However some risks that ABS faces include: the failure of internal information systems, a slow down in receipt of manufactured product and in customers' ability to make payments. Contingency Plans: As an additional precaution, ABS is in the process of developing contingency plans to mitigate the possible disruption in business operations that could result. These plans, which are dependent in large part on the responses ABS receives from third parties with whom ABS has a business relationship, are expected to be completed during the first half of 1999. Once developed, contingency plans and related cost estimates will be continually refined as additional information becomes available. Page 15 Item 3 Quantitative and Qualitative Disclosures about Market Risk The Company s available cash is invested in highly liquid investments (primarily United States Treasury Bills) which have a maturity, at the time of purchase, of less than three months. ABS does not have operations subject to risks of foreign currency fluctuations, nor does it use derivative financial instruments in its operations. ABS does not have exposure to market risks associated with changes in interest rates as it has no variable interest rate debt outstanding. ABS does not believe it has any other material exposure to market risks associated with interest rates. Page 16 PART II OTHER INFORMATION Item 2. Changes in Securities In connection with a lease agreement for the Boston research facility, the Company may at its option pay a portion of the annual lease obligation with Class A Common Stock (the "Issued Shares") plus a warrant (the "Warrant") to purchase shares of Class A Common Stock (the "Warrant Shares"). The number of Issued Shares is computed using the average market price of the Company's Class A Common Stock during the ten days prior to issuance. The Warrant Shares are to be exercisable during a period of four years from the date of issuance, at a price equal to the closing price of the underlying Class A Common Stock on the date the warrant is issued. Pursuant thereto for the three months ended February 26, 1999, the Company calculated 29,850 shares of Class A Common Stock to be issued and a warrant to purchase 29,850 shares of Class A Common Stock at an exercise price of $1.28 per share. These shares and warrant will be issued during the second quarter of 1999. In connection with such acquisition, the purchaser agreed to acquire the Issued Shares, the Warrant and the Warrant Shares for investment and not with a view to the distribution of such securities. In connection therewith, the Company has granted the purchaser certain rights to cause the Warrant Shares to be registered under the Act at the Company's expense. The Company believes that the exemption from registration afforded by Section 4(2) of the Act is applicable to the issuance of such securities. Page 17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed for the quarter covered by this Report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN BIOGENETIC SCIENCES, INC. (Registrant) Date May 14, 1999 /s/ Josef C. Schoell Josef C. Schoell Vice President, Finance (Principal Financial and Accounting Officer) Page 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS THREE MONTH YEAR TO DATE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1999 10-Q FOR THE FIRST QUARTER ENDED MARCH 31, 1999. 3-MOS DEC-31-1999 MAR-31-1999 1,785,000 0 175,000 0 590,000 2,665,000 2,367,000 1,760,000 5,739,000 750,000 0 0 0 39,000 4,900,000 5,739,000 292,000 332,000 118,000 118,000 518,000 0 1,000 (1,471,000) 0 (1,471,000) 0 0 0 (1,471,000) (.04) (.04)
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