-----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, QDOjTemBlEUSxe/iVXyhkxuiAJdeUu1qmihq9u6FgfFQSo/qotCwKEVMvu18MCQE 2qTwnJAwFUsYfv1JEpP7IA== 0000856984-97-000010.txt : 19971117 0000856984-97-000010.hdr.sgml : 19971117 ACCESSION NUMBER: 0000856984-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD 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: 97717732 BUSINESS ADDRESS: STREET 1: 1375 AKRON STREET CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: (516)789-2600 10-Q 1 10 Q THIRD QTR. 9/30/97 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 September 30, 1997 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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 November 6, 1997 Class A Common Stock, par value $.001 19,275,269 Class B Common Stock, par value $.001 1,475,500 AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) Form 10-Q for the Quarter Ended September 30, 1997 INDEX Part I - FINANCIAL INFORMATION Item 1: Financial Statements: Page No. Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 1997 and September 30, 1996 and For the Period from Inception (September 1, 1983) Through September 30, 1997 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and September 30, 1996 and For the Period from Inception (September 1, 1983) Through September 30, 1997 5 Consolidated Statements of Stockholders' Equity - For the Period from Inception (September 1, 1983) Through September 30, 1997 6 - 8 Notes to Consolidated Financial Statements 9 - 10 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 13 Part II - OTHER INFORMATION Item 2: Changes in Securities 14 Item 6: Exhibits and Reports on Form 8-K 15 Signature 16 AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
September 30, December 31, Assets 1997 1996 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $8,164,000 $10,760,000 Marketable securities - 3,021,000 Inventory 223,000 - Other current assets 34,000 528,000 ------------ ------------ Total current assets 8,421,000 14,309,000 ------------ ------------ Fixed assets, at cost, net of accumulated depreciation and amortization of $1,404,000 and $1,183,000, respectively 564,000 591,000 Patent costs, net of accumulated amortization of $269,000 and $212,000, respectively 1,286,000 983,000 Debt issuance costs, net of accumulated amortization of $499,000 and $370,000, respectively 83,000 569,000 Other assets 23,000 21,000 ------------ ------------ $10,377,000 $16,473,000 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $777,000 $609,000 Current portion of capital lease obligation 3,000 3,000 ------------ ------------ Total current liabilities 780,000 612,000 ------------ ------------ Long Term Liabilities: 7% convertible debentures, net of unamortized debt discount of $0 and $492,000, respectively 1,500,000 8,508,000 8% convertible debentures 850,000 1,800,000 Long-term portion of capital lease obligation 9,000 11,000 ------------ ------------ Total liabilities 3,139,000 10,931,000 ------------ ------------ Stockholders' Equity: Class A common stock, par value $.001 per share; 50,000,000 shares authorized, 19,275,269 and 16,270,994 shares issued and outstanding, respectively 19,000 16,000 Class B common stock, par value $.001 per share; 3,000,000 shares authorized; 1,475,500 and 1,375,500 shares issued and outstanding, respectivel 1,000 1,000 Additional paid-in capital 55,527,000 47,793,000 Deficit accumulated during the development stage (48,309,000) (42,268,000) ------------ ------------ Total stockholders' equity 7,238,000 5,542,000 ------------ ------------ $10,377,000 $16,473,000 ============ ============ See notes to unaudited consolidated financial statements 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 Nine Months Ended (September 1, -------------------------- ------------------------------ 1983) Through September 30, September 30, September 30, September 30, September 30, 1997 1996 1997 1996 1997 ------------ ------------ -------------- -------------- -------------- Revenues: Royalties / license fees $ - $ - $ - $ - $1,000,000 Collaborative agreements - 8,000 9,000 34,000 302,000 ------------ ------------ -------------- -------------- -------------- - 8,000 9,000 34,000 1,302,000 Expenses: Research and development 704,000 686,000 2,676,000 1,952,000 26,079,000 General and administrative 973,000 788,000 2,950,000 2,678,000 23,944,000 ------------ ------------ -------------- -------------- -------------- Loss from operations (1,677,000) (1,466,000) (5,617,000) (4,596,000) (48,721,000) ------------ ------------ -------------- -------------- -------------- Other Income (Expense): Interest expense (65,000) (65,000) (878,000) (318,000) (3,705,000) Net gain on sale of fixed assets 1,000 - 1,000 - 7,000 Net investment income 127,000 101,000 453,000 340,000 4,110,000 ------------ ------------ -------------- -------------- -------------- Net loss ($1,614,000) ($1,430,000) ($6,041,000) ($4,574,000) ($48,309,000) ============ ============ ============== ============== ============== Net Loss Per Common Share ($0.08) ($0.08) ($0.31) ($0.27) ($6.31) ============ ============ ============== ============== ============== Weighted Average Number of Common Shares Outstanding 20,694,000 17,553,000 19,774,000 17,069,000 7,652,000 ============ ============ ============== ============== ============== See notes to unaudited consolidated financial 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, Nine Months Ended 1983) -------------------------- Through September 30, September 30, September 30, 1997 1996 1997 ------------ ------------ -------------- Cash Flows From Operating Activities: Net loss ($6,041,000) ($4,574,000) ($48,309,000) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization 410,000 375,000 2,104,000 Net gain on sale of fixed assets (1,000) - (7,000) Net gain on sale of marketable securities - - (217,000) Other non-cash expenses accrued primarily for warrants 127,000 243,000 1,564,000 Amortization of debt discount included in interest expense 492,000 - 1,843,000 Write off of patent costs - - 93,000 (Increase) decrease inventory (223,000) - (223,000) (Increase) decrease in other current assets 494,000 43,000 (34,000) (Increase) decrease in other assets (2,000) 3,000 72,000 Increase in payables and accruals 440,000 270,000 1,105,000 Increase in interest payable to stockholder - - 112,000 ------------ ------------ -------------- Net cash provided by (used in) operating activities (4,304,000) (3,640,000) (41,897,000) ------------ ------------ -------------- Cash Flows From Investing Activities: Capital expenditures (198,000) (65,000) (1,978,000) Proceeds from sale of fixed assets 2,000 - 18,000 Payments for patent costs and other assets (360,000) (208,000) (1,625,000) Proceeds from maturity and sale of marketable securities 5,817,000 8,417,000 67,549,000 Purchases of marketable securities (2,796,000) (9,741,000) (67,332,000) ------------ ------------ -------------- Net cash provided by (used in) investing activities 2,465,000 (1,597,000) (3,368,000) ------------ ------------ -------------- Cash Flows From Financing Activities: Payments to debentureholders (1,154,000) - (1,154,000) Proceeds from issuance of common stock, net 399,000 1,306,000 35,867,000 Proceeds from issuance of 7% convertible debentures, net - 5,685,000 8,565,000 Proceeds from issuance of 8% convertible debentures, net - - 7,790,000 Principal payments under capital lease obligation (2,000) (3,000) (8,000) 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 (757,000) 6,988,000 53,429,000 ------------ ------------ -------------- Net Increase (Decrease) in Cash and Cash Equivalents (2,596,000) 1,751,000 8,164,000 Cash and Cash Equivalents at Beginning of Period 10,760,000 5,436,000 - ------------ ------------ -------------- Cash and Cash Equivalents at End of Period $8,164,000 $7,187,000 $8,164,000 ============ ============ ============== Supplemental Disclosure of Noncash Activities: Capital expenditures made under capital lease obligation - - $20,000 ============ ============ ============== Convertible Debentures converted into 2,944,201 2,237,684 and 5,568,160 shares of Common Stock, respectively $8,252,000 $5,386,000 $14,308,000 ============ ============ ============== Warrants issued to placement agent - $45,000 $525,000 ============ ============ ============== See notes to unaudited consolidated financial 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 30, 1996 16,270,994 16,000 1,375,500 1,000 ------------ ------------- ----------- ----------- Conversion of 7% and 8% Convertible Debentures into Class A Common Stock 2.92 2,944,201 3,000 - - Sale of Class B stock for cash 3.44 - - 100,000 - Exercise of stock options 2.00 27,500 - - - Expense for warrants issued - - - - Class A Common Stock issued 3.48 32,574 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, SEPTEMBER 30, 1997 19,275,269 $19,000 1,475,500 $1,000 ============ ============= =========== =========== See notes to unaudited consolidated financial 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 7,095,000 - 7,098,000 Sale of Class B stock for cash 344,000 - 344,000 Exercise of stock options 55,000 - 55,000 Expense for warrants issued 127,000 - 127,000 Class A Common Stock issued 113,000 - 113,000 Net (loss) for the period - (6,041,000) (6,041,000) ------------ ------------- ----------- BALANCE, SEPTEMBER 30, 1997 $55,527,000 ($48,309,000) $7,238,000 ============ ============= =========== See notes to unaudited consolidated financial statements CONTINUED Page 8 (column continuation)
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (a development stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1997 (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 September 30, 1997 and results of operations for the three and nine months ended September 30, 1997 and September 30, 1996. 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, 1996. The results of operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the results for the full year. (2) EARNINGS PER SHARE Earnings per share is computed using the weighted average number of common shares outstanding and, where applicable, common equivalent shares issuable upon exercise of stock options calculated under the treasury stock method. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, Earnings Per Share, and is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier adoption is not permitted. The Company does not expect the adoption of SFAS No. 128 to have a significant impact to its reported results. (3) STOCKHOLDERS' EQUITY Stock Options - The following summarizes the stock option activity in all stock option plans for the three months ended September 30, 1997. Shares Price Granted 55,000 $2.41 - $3.81 Exercised 6,250 $1.75 - $2.13 Cancelled 4,000 $1.75 - $5.50 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 certain facilities, 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 to be issued is to be computed by dividing the lease obligation to be paid with Common Stock by the average market price of the Company's Class A Common Stock during the ten days prior to issuance. The warrants are to cover an identical number of shares of Common Stock and are to be exercisable for 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. The Company issued 13,683 shares of Class A Common Stock during the quarter ended September 30, 1997, as well as a warrant to purchase 13,683 shares of Class A Common Stock at an exercise price of $2.75 per share. The Company has recorded a noncash charge of $25,000 which represents the fair value of the warrant. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months ended September 30, 1997 The Company's net loss of $1,614,000 for the third quarter ended September 30, 1997 was $184,000 higher than the net loss of $1,430,000 for the third quarter ended September 30, 1996. Research and development expenses increased $18,000 from $686,000 in the 1996 period to $704,000 in the 1997 period primarily as a result of additional personnel and increased rent costs offset, in part, by a reduction in payments for research/collaborative projects and reduced travel and meeting costs during the third quarter of 1997. General and administrative expenses increased $185,000 from $788,000 in the 1996 period to $973,000 in the 1997 period primarily as a result of an increase in consulting and professional services and additional personnel during the third quarter of 1997. Interest expense was flat during the 1997 period as compared to the 1996 period. Interest expense includes the amortization of debt issuance cost over the term of the debentures ($19,000 and $23,000 during the third quarters of 1997 and 1996, respectively ). Upon conversion of the Company's 7% and 8% Convertible Debentures ($150,000 and $100,000 during the third quarters of 1997 and 1996, respectively), the related unamortized debt issuance costs ($4,000 and $10,000 during the third quarters of 1997 and 1996, respectively) are charged to paid-in capital. Investment income increased $26,000 from $101,000 in the 1996 period to $127,000 in the 1997 period as a result of higher average cash balances and higher interest rates on U.S. Government obligations in which most of the Company s available cash is invested. Nine Months Ended September 30, 1997 The Company s net loss increased $1,467,000 during the nine months ended September 30, 1997 from a loss of $4,574,000 during the 1996 period to a loss of $6,041,000 in the 1997 period. Revenue during the nine months ended September 30, 1997 and September 30, 1996 are from the sale of reagents, research materials and services relating to collaborative agreements. Research and development expenses increased $724,000 from $1,952,000 in the 1996 period to $2,676,000 in the 1997 period primarily as a result of relocating the Company's research laboratories from South Bend, Indiana to Boston, Massachusetts (including severance, relocation and moving costs during the first quarter of 1997), additional personnel, increased rent costs and increased travel and meeting costs offset, in part, by a reduction in payments for research/collaborative projects. General and administrative expenses increased $272,000 from $2,678,000 in the 1996 period to $2,950,000 in the 1997 period as a result of increased consulting and other costs in connection with the publication of research papers by the Company, and increased personnel. Interest expense increased by $560,000 from $318,000 in the 1996 period to $878,000 in the 1997 period, resulting primarily from $492,000 of noncash amortization of the debt discount relating to the Company's 7% Convertible Debentures issued in September 1996. Upon conversion of the Company's 7% and 8% Convertible Debentures ($8,450,000 and $5,950,000 during the nine months of 1997 and 1996, respectively), the related unamortized debt issuance costs ($357,000 and $723,000 during the nine months of 1997 and 1996, respectively) are charged to paid-in capital. Investment income increased $113,000 from $340,000 in the 1996 period to $453,000 in the 1997 period as a result of higher average cash balances and higher interest rates on U.S. Government obligations in which most of the Company s available cash is invested. Liquidity and Capital Resources As of September 30, 1997, the Company had working capital of $7,641,000 compared to $13,697,000 at December 31, 1996. The decrease of $6,056,000 in working capital was primarily the result of losses from operating activities of $4,305,000 and the payment of $1,154,000 to Debentureholders upon conversions, at below the price at which the Company was required to pay cash in lieu of issuing additional shares of Class A Common Stock. During the nine months ended September 30, 1997, $7,500,000 of the 7% Convertible Debentures and $950,000 of the 8% Convertible Debentures were converted into an aggregate of 2,944,201 Class A Common Stock. The Company's management believes that its working capital will be sufficient to finance its currently anticipated liquidity needs through 1998. During the third quarter of 1997, the Company began building inventory components of TpP (the Company's Thrombus Precursor Protein) and FiF (the Company's Functional Intact Fibrinogen) diagnostic tests. The Company has contracted with two outside GMP (Good Manufacturing Practices) companies to manufacture the antibodies used in the TpP and FiF kits, and contracted with two other GMP companies to manufacture and assemble the finished TpP and FiF kits. Delivery of the finished kits to the Company is expected to begin in November. The Company has been preparing for a market launch of both FDA cleared products (TpP and FiF kits) in November 1997 at the MEDICA show in Europe. The Company expects to continue to incur substantial expenditures in research and product development and the FDA approval process, relating to Phase I/II human clinical testing of the MH1 imaging product, additional clinical studies for other medical indications for TpP, manufacturing of additional TpP and FiF reagents and kits and marketing efforts for both TpP and FiF. Despite the fact that the Company will begin marketing TpP and FiF kits, its product development plans continue to include entering into collaborative, licensing, distribution and co- marketing arrangements with pharmaceutical and diagnostic companies to provide additional funding and clinical expertise to perform tests necessary to obtain regulatory approvals, provide manufacturing expertise and market the Company's products. In order to expand its to marketing activities for these products without collaborative, licensing, distribution or co-marketing arrangements with pharmaceutical and diagnostic companies, the Company will require additional sources of financing, which may entail the sale and issuance of additional equity, including Class A Common Stock, debt and/or securities convertible into equity. There can be no assurance that the Company will be able to obtain any such financing or the terms of any financing it may be able to obtain. Also, there can be no assurance that the Company will be able to enter into any collaborative, licensing, distribution or co-marketing agreements, or if it does, the terms of any such arrangements, or that it will not require additional financing to initiate or supplement any such arrangements. PART II OTHER INFORMATION Item 2. Changes in Securities During the quarter ended September 30, 1997, holders of $150,000 of the Company's 7% Convertible Debentures converted such debentures into 50,709 shares of the Company's Class A Common Stock, respectively. The Company believes that the exemption from registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended (the "Act"), is applicable to the issuances of such shares as such issuances involved a security exchanged by the Company with existing securityholders exclusively where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchanges. In connection with a lease agreement for certain facilities, the Company may, at its option, pay a portion of the annual lease obligation with shares of Class A Common Stock (the "Issued Shares") plus a warrant (the "Warrant") to purchase an identical number of shares of Class A Common Stock (the "Warrant Shares"). The number of Issued Shares are computed by dividing the lease obligation to be paid with shares by 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 for 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 to the lease agreement, on August 29, 1997, the Company issued 13,683 shares of Class A Common Stock and a Warrant to purchase 13,683 shares of Class A Common Stock at an exercise price of $2.75 per share. 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. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K dated October 1, 1997 (date of earliest event reported) on October 20, 1997, reporting under Item 5, Other Events. 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 November 13, 1997 /s/ Josef C. Schoell ------------------ ------------------------ Josef C. Schoell Vice President, Finance (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS NINE MONTHS YEAR-TO-DATE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1997 10-Q FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1997 9-MOS DEC-31-1997 SEP-30-1997 8,164,000 0 0 0 223,000 34,000 1,968,000 1,404,000 10,377,000 780,000 2,359,000 0 0 20,000 7,218,000 10,377,000 0 9,000 0 0 2,676,000 0 878,000 (6,041,000) 0 (6,041,000) 0 0 0 (6,041,000) (.31) (.31)
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