-----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, PAn6F7Bzn1x7PO1YuL2xQyT8VWmihyfoobSyNionSJ+h5JK374pI07rs/97Yb/94 /KNqaqMw1ERXVuEBxeCgUA== 0000856984-99-000002.txt : 19990816 0000856984-99-000002.hdr.sgml : 19990816 ACCESSION NUMBER: 0000856984-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99689424 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 2ND QTR 6/30/99 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 June 30, 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 (I.R.S. Employer Identification No.) 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 August 6, 1999 Class A Common Stock, par value $.001 36,305,380 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 June 30, 1999 INDEX Part I - FINANCIAL INFORMATION Item 1: Financial Statements: Page No. Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations - Three and Six Months Ended June 30, 1999 and June 30, 1998 and For the Period from Inception (September 1, 1983) Through June 30, 1999 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and June 30, 1998 and For the Period from Inception (September 1, 1983) Through June 30, 1999 5 Consolidated Statements of Stockholders' Equity - For the Period from Inception (September 1, 1983) Through June 30, 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 - 18 Item 3: Quantitative and Qualitative Disclosures about Market Risk 18 Part II - OTHER INFORMATION Item 2: Changes in Securities 18 - 19 Item 4: Submission of Matters to Vote of Security Holders 20 - 22 Item 5: Other Events 22 Item 6: Exhibits and Reports on Form 8-K 22 Signature 23 Page 2 AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
June 30, December 31, Assets 1999 1998 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $454,000 $3,047,000 Accounts receivable 216,000 177,000 Inventory 603,000 545,000 Other current assets 185,000 40,000 ------------ ------------ Total current assets 1,458,000 3,809,000 ------------ ------------ Fixed assets, at cost, net of accumulated depreciation and amortization of $1,794,000 and $1,718,000, respectively 542,000 631,000 Patent costs, net of accumulated amortization of $444,000 and $390,000, respectively 1,763,000 1,468,000 Intangible assets, net 696,000 580,000 Other assets 151,000 26,000 ------------ ------------ Total assets $4,610,000 $6,514,000 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $770,000 $797,000 Current portion of capital lease obligation - 8,000 Current portion of notes payable 47,000 57,000 ------------ ------------ Total current liabilities 817,000 862,000 ------------ ------------ Long Term Liabilities: Notes payable, less current portion 44,000 56,000 ------------ ------------ Total liabilities 861,000 918,000 ------------ ------------ Stockholders' Equity: Class A common stock, par value $.001 per share; 100,000,000 shares authorized; 36,295,130 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 63,694,000 62,520,000 Deficit accumulated during the development stage (59,984,000) (56,963,000) ------------ ------------ Total stockholders' equity 3,749,000 5,596,000 ------------ ------------ $4,610,000 $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 Six Months Ended (September 1, -------------------------- ------------------------------ 1983) Through June 30, June 30, June 30, June 30, June 30, 1999 1998 1999 1998 1999 ------------ ------------ -------------- -------------- -------------- Revenues: Sales $343,000 $327,000 $635,000 $441,000 $1,982,000 Royalties / license fees - - - - 1,000,000 Collaborative agreements 39,000 - 79,000 - 381,000 ------------ ------------ -------------- -------------- -------------- 382,000 327,000 714,000 441,000 3,363,000 Expenses: Cost of sales 147,000 106,000 265,000 142,000 762,000 Research and development 520,000 580,000 1,038,000 1,076,000 29,844,000 Selling, general and administrative 1,269,000 1,095,000 2,455,000 2,131,000 31,548,000 Facility consolidation cost - - - - 252,000 ------------ ------------ -------------- -------------- -------------- Loss from operations (1,554,000) (1,454,000) (3,044,000) (2,908,000) (59,043,000) ------------ ------------ -------------- -------------- -------------- Other Income (Expense): Interest expense (4,000) (127,000) (5,000) (176,000) (4,361,000) Net gain on sale of fixed assets - - - - 7,000 Investment income 8,000 85,000 28,000 171,000 4,553,000 ------------ ------------ -------------- -------------- -------------- Loss before extraordinary charge (1,550,000) (1,496,000) (3,021,000) (2,913,000) (58,844,000) Extraordinary charge for early retirement of debentures, net - - - - (1,140,000) ------------ ------------ -------------- -------------- -------------- Net loss ($1,550,000) ($1,496,000) ($3,021,000) ($2,913,000) ($59,984,000) ============ ============ ============== ============== ============== Per Share Information (Note 2): Basic and Diluted net loss per share ($0.04) ($0.07) ($0.08) ($0.14) ============ ============ ============== ============== Common shares used in computing per share amounts: Basic and Diluted 39,136,000 21,726,000 38,918,000 21,505,000 ============ ============ ============== ============== 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, Six Months Ended 1983) -------------------------- Through June 30, June 30, June 30, 1999 1998 1999 ------------ ------------ -------------- Cash Flows From Operating Activities: Net loss ($3,021,000) ($2,913,000) ($59,984,000) Adjustments to reconcile net (loss) to net cash provided by or (used) in operating activities: Depreciation and amortization 164,000 249,000 2,886,000 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 291,000 51,000 2,333,000 Amortization of debt discount included in interest expense - 64,000 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 (39,000) (198,000) (108,000) (Increase) decrease in inventory (58,000) (9,000) (445,000) (Increase) decrease in other current assets (145,000) (18,000) (185,000) (Increase) decrease in other assets 7,000 (5,000) 80,000 Increase (decrease) in accounts payable and accrued expenses 26,000 736,000 1,002,000 Increase in interest payable to stockholder - - 112,000 ------------ ------------ -------------- Net cash provided by (used in) operating activities (2,775,000) (2,043,000) (51,140,000) ------------ ------------ -------------- Cash Flows From Investing Activities: Capital expenditures (19,000) (14,000) (2,062,000) Proceeds from sale of fixed assets - - 18,000 Payments for patent costs and other assets (349,000) (96,000) (2,277,000) Business acquisition, net of stock issued and cash acquired - (119,000) (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 (368,000) (229,000) (4,223,000) ------------ ------------ -------------- Cash Flows From Financing Activities: Payments to debentureholders - (1,000,000) (2,246,000) Proceeds from issuance of common stock, net 580,000 98,000 40,064,000 Proceeds from issuance of 5% convertible debentures, net - 3,727,000 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 (30,000) (13,000) (100,000) 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 550,000 2,812,000 55,817,000 ------------ ------------ -------------- Net Increase (Decrease) in Cash and Cash Equivalents (2,593,000) 540,000 454,000 Cash and Cash Equivalents at Beginning of Period 3,047,000 7,121,000 - ------------ ------------ -------------- Cash and Cash Equivalents at End of Period $454,000 $7,661,000 $454,000 ============ ============ ============== Supplemental Disclosure of Noncash Activities: Capital expenditures made under capital lease obligation - - $20,000 ============ ============ ============== Convertible Debentures converted into 0, 851,618, and 10,470,583 shares of Common Stock, respectively - $1,334,000 $14,658,000 ============ ============ ============== Warrants $264,000 $252,000 $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 (Unaudited)
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 1,000 - - 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 1.11 290,574 - - - Net (loss) for the period - - - - ------------ ------------- ----------- ----------- BALANCE, JUNE 30, 1999 36,295,130 $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 - 93,000 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 353,000 - 353,000 Class A Common Stock issued 323,000 - 323,000 Net (loss) for the period - (3,021,000) (3,021,000) ------------ ------------- ----------- BALANCE, JUNE 30, 1999 $63,694,000 ($59,984,000) $3,749,000 ============ ============= =========== 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) June 30, 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 June 30, 1999 and results of operations for the three and six months ended June 30, 1999 and June 30, 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 and six months ended June 30, 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:
June 30, December 31, ------------------------ 1999 1998 ----- ----- Raw Materials $323,000 $339,000 Work in Process 71,000 91,000 Finished Goods 209,000 115,000 ------------------------ $603,000 $545,000 ========================
(4)STOCKHOLDERS' EQUITY Stock Options - The following summarizes the stock option activity in all stock option plans for the three months ended June 30, 1999.
Weighted Avg Option Shares Price ------------------------ Granted 1,020,000 $1.00 Exercised - - Cancelled or expired 523,584 $3.26
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 former Boston research facility, the Company was entitled, at its option to pay a portion of the annual lease obligation with Class A Common Stock plus warrants. The Company paid $37,000 to terminate this lease and has no further obligations as of June 30, 1999. The number of shares of Common Stock issued was computed using the average market price of the Company's Class A Common Stock during the ten days prior to Page 10 issuance. The warrants issued are 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, on May 17, 1999, the Company issued 29,850 shares of Class A Common Stock, as well as warrants to purchase 29,850 shares of Class A Common Stock at an exercise price of $1.28 per share. The fair value of the warrants were calculated using an option-pricing model as of February 26, 1999. The Company recorded a charge to operations of $24,000 in the first quarter of 1999. Pursuant to an investor relations agreement, the Company issued 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. General 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. 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 Page 11 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 up to $650,000 in Class A Common Stock to be 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 made a contingent payment of $150,000 in Class A Common Stock (131,118 shares) as of April 23, 1999 representing the first contingent payment. This amount was charged to Intangible assets and is being amortized over 10 years. Results of Stellar are included in the Company's results of operations only since its April 23, 1998 acquisition by the Company. Liquidity and Capital Resources ABS intends to continue to make substantial expenditures for 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. However, as of June 30, 1999, ABS had working capital of $641,000, compared to $2,947,000 at December 31, 1998. The Company has implemented a cash conservation plan which includes salary deferrals by executive officers and other employees ranging from 5% to 100% of salary. In addition, non-essential projects and consultants have been terminated or have agreed to other methods of payment for services including the issuance of stock or are expected to agree to defer payments. ABS' management believes that current working capital and loans and or an equity investment which the Company's Chairman has indicated a willingness to make to the Company, along with other financing and technology licensing fees and collaborative fees which the Company is seeking would be sufficient to fund its planned activities through the first quarter of 2000. The Company is seeking to license TpP and its ABS 103 neurobiology compound to large pharmaceutical companies in order to provide additional funding Page 12 and clinical expertise, to perform additional testing necessary to obtain regulatory approvals, to provide manufacturing expertise and to market ABS' products. Without significant licensing or co-marketing arrangements, additional sources of funding will be required to finance ABS longer term. There can be no assurances that any funding will be available or, if available, the terms thereof. The Company's cash and cash equivalents decreased by $2,593,000 to $454,000 during the six months ended June 30, 1999, primarily because cash used in operations of $2,775,000 and investing activities of $368,000 exceeded net cash provided by financing activities of $550,000. Net cash of $2,775,000 was used in operations to fund the Company's cash loss from operations of $2,566,000 (net of non cash expenses of $164,000 for depreciation and amortization, and $291,000 incurred as a result of the issuance of stock and warrants for services). Net cash of $209,000 was used by changes in operating assets and liabilities as a result of an increase in other current assets ($145,000) due to a contractual loan made to the President/CEO of $100,000 as part of the inducement to him to join the Company, a receivable of $29,000 from the National Institute of Health (NIH), an increase in inventory ($58,000) and an increase in accounts receivable ($39,000), partially offset by a decrease in other assets ($7,000) and an increase in accounts payable ($26,000). Cash used in investing activities was for the purchase of fixed assets ($19,000) and capitalized patent costs ($349,000) primarily for neurobiology compounds. Financing activities provided $550,000 as a result of the purchase by the Company's Chairman of 440,000 shares of Class A Common Stock for $495,000, the purchase by the Company's President/CEO of 82,000 shares of Class A Common Stock for $82,000, and the exercise of stock options, offset in part, by payments under capital lease obligations and notes payable. Page 13 Results of Operations The Company has completed the relocation of its R&D facility and antigen free mouse colony from Boston, Massachusetts to Maryland, where R&D operations have been integrated with Stellar's facilities. The relocation has reduced personnel costs, as well as rent and maintenance costs. Three Months Ended June 30, 1999 The Company's net loss of $1,550,000 for the second quarter ended June 30, 1999 increased by $54,000 from a net loss of $1,496,000 for the second quarter ended June 30, 1998. The increase in the net loss was primarily due to increased selling, general and administrative expenses of $174,000, a decrease in gross profit of $25,000 and lower investment income of $77,000, partially offset by a decrease in research and development expenses of $60,000, the portion of an NIH grant earned during the quarter ($39,000) and reduced interest expense of $123,000. Revenue during the second quarter of 1999 was primarily from sales of Stellar products. Sales of TpP and FiF diagnostic kits were slightly higher during the second quarter of 1999 as compared to the second quarter of 1998. Collaborative agreement revenue of $39,000 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. The study has been completed and the final report is expected to be submitted during the fourth quarter of 1999. Research and development expenses decreased by $60,000, from $580,000 to $520,000, primarily due to the consolidation of R&D operations in Stellar's facilities which resulted in savings in personnel costs, rent and maintenance costs, partially offset by the inclusion of Stellar's costs for the full three month period in 1999 compared to approximately two months in 1998, increases in Stellar's Page 14 research and development costs relating to FDA 510(k) filings and continued TpP point of care development and clinical costs. Selling, general and administrative expenses increased by $174,000, from $1,095,000 to $1,269,000, as a result of the inclusion of Stellar's selling and general expenses for the full three months in 1999 compared to approximately two months in 1998, increases in the cost of investor relations, the noncash value of warrants issued for services and increases in travel and meeting costs. Interest expense decreased by $123,000, from $127,000 to $4,000, resulting from the absence of convertible debentures which were repurchased in the fourth quarter of fiscal 1998. Investment income decreased by $77,000, from $85,000 in the second quarter of 1998 to $8,000 in 1999, as a result of lower average cash balances. Six Months Ended June 30, 1999 The Company's net loss of $3,021,000 for the six months ended June 30, 1999 increased by $108,000 from a net loss of $2,913,000 for the six months ended June 30, 1998. The increase in the net loss was primarily due to increased selling, general and administrative expenses of $324,000, and lower investment income of $143,000, partially offset by an increase in gross profit of $71,000, a decrease in research and development expenses of $38,000, the portion of an NIH grant earned during the six months ($79,000) and reduced interest expense of $171,000. The increase in sales during the six months ended June 30, 1999 of $194,000 was primarily due to sales of Stellar products. Partially offsetting this increase were lower sales of TpP and FiF diagnostic kits during the six month period of 1999 as compared to the first six months of 1998 due to a continued slow market acceptance of the current test format. Sales of TpP during the first quarter of 1998 was the result of distributors initial stocking of the product. The collaborative Page 15 agreement revenue of $79,000 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. The study has been completed and the final report is expected to be submitted during the fourth quarter of 1999. Research and development expenses decreased by $38,000, from $1,076,000 to $1,038,000, primarily due to the consolidation of R&D facilities offset in part by the inclusion of Stellar's costs for the full six month period of 1999 compared to approximately two months in 1998, increases in Stellar's post-acquisition research and development costs relating to FDA 510(k) filings and continued TpP point of care development and clinical costs. Selling, general and administrative expenses increased by $324,000, from $2,131,000 to $2,455,000, as a result of the inclusion of Stellar's selling and general expenses for the full six month period of 1999 compared to approximately two months of 1998, increases in the cost of investor relations and the noncash value of warrants issued for services offset, in part, by a reduction in other consulting costs. Interest expense decreased by $171,000, from $176,000 to $5,000, resulting from the absence of convertible debentures which were repurchased in the fourth quarter of fiscal 1998. Investment income decreased by $143,000, from $171,000 in the six month period of 1998 to $28,000 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 Page 16 failure or miscalculation. ABS uses software developed and supported by third parties for various applications, including financial reporting, sales, purchasing and inventory, which will require upgrade. ABS has assessed the impact of the Year 2000 issue on its information systems. The Company believes that the upgrade can be completed within one month through the purchase of readily available software. The Company has delayed purchasing and installing this software in order to conserve cash. 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 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. The Company has received written responses from its material suppliers and service providers which indicate that they are Year 2000 compliant. ABS is not dependent upon any one supplier and believes that it could readily replace non-compliant suppliers should that become necessary. ABS has also 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 Company currently estimates that the cost of the Year 2000 project will not exceed $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 it anticipates 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. Page 17 Contingency Plans: ABS believes that, on a continency basis, it can operate its financial reporting, sales, purchasing and inventory systems on a manual basis. 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. PART II OTHER INFORMATION Item 2. Changes in Securities In connection with a lease agreement for its Boston research facility, the lease for which was terminated on June 30, 1999, the Company was entitled at its option to 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 was 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 exercisable during a period of four years from the date of issuance at an exercise price equal to the closing price of the underlying Class A Common Stock on the date the warrant was issued. Pursuant thereto, for the three months ended February 26, 1999, on May 17, 1999 the Company issued 29,850 shares of Class A Common Stock and a warrant to purchase 29,850 shares of Class A Common Stock at an exercise price of $1.28 per share. No shares or warrants were issued with respect to the period after February 26, 1999. In connection with such acquisition, the landlord agreed to Page 18 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 landlord certain rights to cause the Warrant Shares to be registered under the Securities Act of 1933, as amended (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. During the six months ended June 30, 1999, the Company issued an aggregate of 47,606 Class A Common Stock to two consultants in partial consideration for services rendered, valued at $53,000. In connection with such issuances, the consultants agreed to acquire the shares issued to them for investment only and not with a view to the distribution of such securities. The Company believes that the exemption from registration afforded by Section 4(2) of the Act is applicable to the issuance of such securities. During the six months ended June 30, 1999, the Company issued a warrant to an investor relations firm to purchase up to 300,000 shares of Class A Common Stock. The warrant is exercisable until January 19, 2004 at an exercise price of $1.00 per share, with vesting based on the achievement of certain goals. In connection with such issuance, the investor relations firm agreed to acquire the warrant and any shares of Class A Common Stock that may be issued upon the exercise of the warrant for investment and not with a view to the distribution of such shares. In connection therewith, the Company has granted the investor relations firm certain rights to cause the shares issuable upon the exercise of the warrant 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 19 Item 4. Submission of Matters to a Vote of Security Holders At the Company's 1999 Annual Meeting of Stockholders held on June 15, 1999 the following matters were voted on: (a) The following eight directors to serve until the next annual meeting of stockholders and until their respective successors are elected and qualified by the following vote: Voting Authority For Withheld Alfred J. Roach 56,209,481 982,589 John S. North 56,901,703 290,367 Ellena M. Byrne 56,837,303 354,767 Timothy J. Roach 56,361,808 830,262 Gustav V. R. Born 56,435,855 756,215 Glenna M. Crooks 56,876,158 315,912 Joseph C. Hogan 56,712,703 479,367 William G. Sharwell 56,716,703 475,367 (b) Adopted an amendment to the Company's Certificate of Incorporation to increase the number of shares of Class A Common Stock which the Company is authorized to issue from 50,000,000 to 100,000,000 shares by the following votes: Class A Common Stock voting as a separate class: For Against Abstain 24,790,809 2,276,231 125,030 Page 20 Class A and Class B voting as one class: For Against Abstain 54,790,809 2,276,231 125,030 (c) Adopted an amendment to the Company's 1996 Stock Option Plan to increase the number of shares of Common Stock which may be issued thereunder from 2,000,000 to 4,000,000 shares by the following vote: Broker For Against Abstain Non Votes 41,879,753 3,073,536 146,621 12,092,160 (d) Adopted an amendment to the Company's 1996 Stock Option Plan to increase the number of shares that may be subject to options granted to any one optionee in any calendar year from 150,000 to 500,000 shares by the following vote: Broker For Against Abstain Non Votes 54,345,068 2,366,158 142,055 338,789 (e) Ratified the selection of Arthur Andersen LLP to serve as the Company's independent auditors for the year ending December 31, 1999 by the following vote: For Against Abstain 57,013,105 109,469 69,496 Each matter was approved by the vote of Class A and Class B Common Stock stockholders voting together as one class, with each share of Class A having one vote and each share of Class B having ten votes, except that the proposal to amend the Company's Certificate of Incorporation to increase the number of shares of Class A Common Stock Page 21 which the Company is authorized to issue was also approved by the vote of Class A Common Stock stockholders voting as a separate class. Item 5. Other Events At the annual meeting of the Board of Directors, following the annual meeting of the Stockholders on June 15, 1999, the Board elected the following as the executive officers of the Company. Name Position Alfred J. Roach Chairman of the Board John S. North President and Chief Executive Officer Ellena M. Byrne Executive Vice President-Global Scientific Network James H. McLinden Vice President-Molecular Biology George Christoffersen Vice President-Research and Development Josef C. Schoell Vice President Finance Timothy J. Roach Treasurer and Secretary 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. Page 22 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 August 13, 1999 /s/ Josef C. Schoell Josef C. Schoell Vice President, Finance (Principal Financial and Accounting Officer) Page 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SIX MONTH YEAR TO DATE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1999 10-Q FOR THE SECOND QUARTER ENDED JUNE 30, 1999. 6-MOS DEC-31-1999 JUN-30-1999 454,000 0 216,000 0 603,000 1,458,000 2,336,000 1,794,000 4,610,000 817,000 0 0 0 39,000 3,710,000 4,610,000 635,000 714,000 265,000 265,000 1,038,000 0 5,000 (3,021,000) 0 (3,021,000) 0 0 0 (3,021,000) (.08) (.08)
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