SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
Advanced Business Sciences, Inc.
(Name of Small Business Issuer in its charter)
DELAWARE 87-0347787
(State of incorporation) (IRS Employer Identification No.)
3345 No. 107th Street, Omaha, Nebraska 68134
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (402) 498-2734
Securities to be registered under Section 12(b) of the Act: None.
Securities to be registered under Section 12(g) of the Act:
Common Stock (par value $0.001 per share)
(Title of class)
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TABLE OF CONTENTS
Page
PART I.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 1. Description of Business . . . . . . . . . . . . .1
(a) Business Development. . . . . . . . . . . . . . .1
(b) Business of Issuer. . . . . . . . . . . . . . . .1
(i) Introduction . . . . . . . . . . . . . . . .1
(ii) The Electronic Monitoring Market. . . .2
(iii) Competition . . . . . . . . . . . . . .3
(iv) Business Strategy . . . . . . . . . . .3
(v) The Products and Services of the Company . .5
(vi) The Technology. . . . . . . . . . . . .5
(vii) Intellectual Property Rights. . . . . .7
(viii) Regulation. . . . . . . . . . . . . . .7
(ix) Research and Development. . . . . . . .8
(x) Customers; Orders Backlog. . . . . . . . . .8
(xi) Seasonality . . . . . . . . . . . . . .8
Item 2. Management's Discussion and Analysis or Plan of
Operation........................................8
(a) Revenue . . . . . . . . . . . . . . . . . . . . .9
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(b) Cost of Sales . . . . . . . . . . . . . . . . . 10
(c) Gross Profit. . . . . . . . . . . . . . . . . . 10
(d) Expenses Research and Development . . . . . . . 10
(e) Sales and Marketing . . . . . . . . . . . . . . 11
(f) General and Administrative. . . . . . . . . . . 11
(g) Profit (loss) from Operations . . . . . . . . . 11
(h) Interest Expense. . . . . . . . . . . . . . . . 12
(i) Asset Abandonment Charge. . . . . . . . . . . . 12
(j) Extraordinary Items, Gain from Extinguishment
of Debt.........................................12
(k) Net Loss. . . . . . . . . . . . . . . . . . . . 12
(l) Liquidity and Capital Resources . . . . . . . . 12
(m) Impact of Year 2000 Issues. . . . . . . . . . . 13
Item 3. Description of Property . . . . . . . . . . . . 14
Item 4. Security Ownership of Certain Beneficial Owners
and Management..................................14
Item 5. Directors, Executive Officers, Promoters and
Control Persons.................................15
Item 6. Executive Compensation. . . . . . . . . . . . . 17
Item 7. Certain Relationships and Related Transactions. 17
Item 8. Description of Securities . . . . . . . . . . . 18
(a) General . . . . . . . . . . . . . . . . . . . . 18
(b) Common Shares . . . . . . . . . . . . . . . . . 18
(c) Preferred Stock . . . . . . . . . . . . . . . . 18
(d) No Preemptive Rights. . . . . . . . . . . . . . 19
(e) Delaware Business Combination Statute . . . . . 19
(f) Certain Charter Provisions. . . . . . . . . . . 19
(i) General. . . . . . . . . . . . . . . . . . 19
(ii) Number of Directors; Removal; Vacancies. . 19
(iii) Classified Board of Directors . . . . 20
(iv) Approval of Repurchases. . . . . . . . . . 20
(v) Amendments to Bylaws . . . . . . . . . . . 20
(vi) Amendment of the Certificate of
Incorporation..............................20
(g) Limitation of Liability and Indemnification . . 20
(h) Transfer Agent and Registrar. . . . . . . . . . 21
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 1. Market Price of and Dividends on the Company's
Common Equity and OtherShareholder Matters. . . 22
Item 2. Legal Proceedings . . . . . . . . . . . . . . . 22
Item 3. Changes in and Disagreements with Accountants . 23
Item 4. Recent Sales of Unregistered Securities . . . . 23
Item 5. Indemnification of Directors and Officers . . . 24
PART F/S . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART III.. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Item 1. Index to Exhibits . . . . . . . . . . . . . . . 58
Item 2. Description of Exhibits . . . . . . . . . . . . 58
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 59
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PART I.
Item 1. Description of Business
(a) Business Development
ADVANCED BUSINESS SCIENCES, INC. ("ABS" or the "Company") is a development
stage company. The Company develops, produces, markets and supports a broad
product line of solutions relating to the wireless electronic tracking,
monitoring and reporting of individuals and things. ABS products are designed to
enhance productivity, reduce costs, and improve overall response using on-line
access to information previously maintained on a variety of media. Today, the
Company primarily markets to the criminal justice application for house arrest
and continuous electronic monitoring. ABS provides individual monitoring within
eleven (11) states: Arizona, Minnesota, Iowa, New Jersey, Ohio, Texas,
Wisconsin, Colorado, South Carolina, New York, and Kansas.
The Company was incorporated under the laws of the State of Colorado on June 13,
1983 under the name "Sage Institute International, Inc." A Delaware corporation
under the name "Sage Analytics International, Inc." was incorporated on July 17,
1986; and, on September 2, 1986, the Company was reincorporated as a Delaware
corporation by merging the Colorado corporation with and into the Delaware
corporation.
On December 17, 1997, the shareholders of Advanced Business Sciences, Inc.,
a Nebraska corporation, concluded a share exchange with the Company (the "Share
Exchange") whereupon the Nebraska corporation became the wholly-owned subsidiary
of the Company and control of the Company was transferred to the former
shareholders of the Nebraska corporation. See "Security Ownership of Certain
Beneficial Owners and Management," "Directors, Executive Officers, Promoters and
Control Persons," and "Recent Sales of Unregistered Securities." The Company
changed its name to Advanced Business Sciences, Inc. on December 18, 1997.
On September 28, 1998, the Company concluded a share exchange with Comguard
Leasing and Financial, Inc., an Illinois corporation ("Comguard Leasing"), and
its shareholders (the "Comguard Acquisition"). Comguard Leasing, through its
subsidiary, Comguard, Inc., provides house arrest monitoring services
principally to the State of Illinois. When the Company came under new
management, it was determined that Comguard Leasing was not consistent with the
Company's long-term strategic goals. See "Description of Business-Business of
Issuer-Business Strategy." The Company's management therefore determined that
the Company should divest its holdings in Comguard Leasing. With the agreement
of the former shareholders of Comguard Leasing, the Comguard Acquisition was
rescinded effective June 1, 1999.
(b) Business of Issuer
(i) Introduction
The Company was initially engaged in the commercial application of a form
of decision support technology which incorporated proprietary methodology and
software. This technology involved the identification of potential failures
facing an organization or project, ranking such failures in order of
significance and determining their root causes. This technology was marketed to
both government and private industry. The Company conducted no business
operations from in or about April, 1996, until the completion of the Share
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Exchange on December 17, 1997. Upon completion of the Share Exchange, the
Company commenced operations once again as described below.
The Company now designs, develops, produces, sells and supports wireless
products and services relating to the tracking, monitoring and reporting of
individuals and things. Currently, the Company's business relates to criminal
justice applications for house arrest and electronic monitoring.
The ABS<ComTrak(R) product, which utilizes Global Positioning System
("GPS") technology, wireless communications and proprietary computer software,
provides real time monitoring, tracking and reporting of adult and juvenile
offenders as a criminal justice rehabilitative alternative. Through controlled
monitoring in ABS or customer staffed operations centers, the system tracks the
geographic location of every offender in the system, reports specific activities
and identifies violations against customer-established parameters. This
information is then delivered to the appropriate authorities using various
methods, including telephone calls, paging and internet-based e-mail and
web-based reports. The Company believes use of its system can offer a
substantial cost savings over the cost of incarceration and improve the
efficiency of probation and parole officers. It also offers the backlogged
criminal justice systems a more secure solution to the problems of rapidly
growing criminal populations, overcrowded correctional facilities and more
lenient sentencing alternatives.
In addition to the criminal justice market, the Company has targeted
additional industries where it believes its products and services offer
attractive solutions to current problems. One market which the Company has
targeted is the transportation industry. This market would include (i) automatic
vehicle tracking and (2) through the installation of tracking units at strategic
locations, monitoring the status of freight cargo (whether loaded or unloaded on
the trailer or other container).
Another market which the Company has targeted is the healthcare industry.
This market would include (1) emergency response services and (2) tracking
infants and Alzheimer's patients.
The monitoring and reporting operations of the Company are conducted through ABS
Nebraska, Inc., a Nebraska corporation ("ABS Nebraska"), the direct subsidiary
of the Company. The Company has eighteen (18) full time employees and one (1)
part-time employee.
(ii) The Electronic Monitoring Market
To date, the Company has focused primarily upon electronic monitoring in
the criminal justice system. The Department of Justice reported that the 1998
prison population included 1,178,978 state prisoners and 123,041 federal
prisoners for a total of 1,302,019. That was up 59,866 or 4.8% from 1997.
Counting the local 592,000 jail inmates, there were over 1.8 million people
behind bars in the United States in 1998. In addition, there were 704,000
individuals on parole and 3,400,000 persons on probation for the same period.
The Department of Justice has projected an annual growth of 10% for persons on
parole or probation.
This growth has resulted in stresses on the correctional system in terms of
both management and costs. While this has led to increased use of probation and
parole as alternatives to incarceration, caseworkers are unable to monitor
probationers and parolees effectively. Electronic monitoring enhances the
ability of caseworkers to monitor the activities of probationers and parolees,
as well as affording house arrest as an economic alternative to incarceration.
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The traditional house arrest application utilizes (1) a fixed location
radio frequency device connected to a power source and telephone line (a "house
arrest unit") and (2) a tamper-proof transmitter cuff worn by the offender. The
individual under house arrest must remain within a specified distance of the
house arrest unit. When they leave that proximity, the house arrest unit
transmits a notification over the telephone line to a monitoring center. The
monitoring center software and operators determine if this is a permitted or
authorized departure, using tables of individual schedules provided by the
contracting authorities. If they determine it is a violation of the programmed
schedule, a violation notice is created and the appropriate authorities are
contacted using pre-established protocols. These protocols can include voice
calls, paging, faxing, e-mail or some combination. Additionally, reports are
created for transmission as required by the customer organization.
House arrest monitoring equipment first became commercially available in
1984. In 1987, twenty-one (21) states reported using this electronic monitoring
as a sentencing alternative. By 1995, all fifty states were using at least
limited amounts of house arrest electronic monitoring. Experts estimate that as
many as 300,000 individuals now incarcerated could be supervised more
cost-effectively and safely using appropriate electronic supervision. [Source:
Journal of Offender Monitoring, January 1998 and March 1999 issues] There were
an estimated 95,000 individuals under electronic house arrest at the beginning
of 1998. These individuals were monitored primarily through third party service
providers under contract to the appropriate local, state and federal agencies.
The Company believes there is a substantial opportunity to provide a mobile
system to monitor offenders in the community environment away from the fixed
house arrest location. ABS has pioneered the development of a mobile personal
tracking unit (a "tracking unit") system which provides continuous monitoring
away from the fixed location, utilizing GPS locational information and wireless
communications technologies. As of March 31, 1999, the Company had approximately
forty (40) of its GPS-based tracking units in use in the criminal justice system
in Arizona, Texas, Ohio, Wisconsin and Iowa.
The term of the Company's typical contract ranges in duration from day to
day to annual. No maximum or minimum number of persons to be monitored is
typically specified. Rather, the Company charges a fixed fee based upon the
number of tracking units in service at any given time, which number can
frequently vary from day to day. Tracking units are sold or leased in
conjunction with the provision of monitoring services by the Company. The
Company also sells or leases tracking units to third party providers of
monitoring services. See "Item 2. Management's Discussion and Analysis or Plan
of Operation."
(iii) Competition
Today, there are several companies providing monitoring services on a
nation-wide basis, including BI Incorporated ("BI"), SecurityLink (an Ameritech
company), and General Security Services Corp. In addition, there are many
smaller companies that provide monitoring services on a local basis for smaller
governmental agencies. BI is believed to be the largest company monitoring
offenders in the criminal justice market, with a reported 21,500 active units as
of March 31, 1999. There are also other companies which provide house arrest
equipment. BI has historically been the largest provider of the equipment in use
today. Most companies supplying house arrest monitoring services also provide
equipment. Other companies providing house arrest equipment and monitoring
services include ElmoTech, Comguard Leasing, Digital Products Corporation, and
Tracking Systems Corporation.
ABS believes that only one other company, Pro Tech Monitoring, Inc., has a
GPS-based product in the field today. BI, however, has announced plans to
introduce a GPS-based product in 1999.
(iv) Business Strategy
The key elements of the Company's business strategy are to:
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* Be a leader in applying GPS technology to applications for tracking
individuals and things.
The Company has an accumulated deficit in excess of $9,500,000, which
represents the Company's efforts to date to improve its products.
Improvements in technology components and communications systems are
being constantly evaluated. The Company intends to incorporate
appropriate new or improved capabilities into its products on an
ongoing basis, and to continue to devote significant resources to the
area of product development.
*Target application opportunities within specific market niches and to
be a supplier of equipment and software to those end markets.
The Company intends to target to the criminal justice segment service
providers that need additional and replacement house arrest equipment
and who have a need for GPS-based systems.
GPS technology, in general, has already gained acceptance in the
automatic vehicle location segment of the transportation industry and
ABS believes that its core product can be readily adapted to that
market. The Company has identified the location of untethered trailers
as one initial application niche to serve in the transportation
industry. ABS has also identified the healthcare industry as a market
where its technology may be useful, including newborn infant and
senior care as initial market opportunities.
Additionally, the Company will maintain the capability to undertake
special projects, funded by specific customers to meet their unique
needs. These special projects will be done to advance ABS's knowledge
in targeted markets and to fund development within specific
application areas. To date, the Company has worked on no special
projects.
* Partner with other businesses that can assist the Company in the
development and distribution of its products.
The Company has engaged the services of other companies to assist the
Company in developing its products, whereby the Company maintains
ownership of the final product design and application. Harris
Corporation assists the Company in the manufacture and circuit design
of the Company's product. SiRF Technology Incorporated licenses the
integrated circuit board and assists the Company in the development of
GPS circuit designs. INTECK Corporation assists the Company through
software development. Innovative Manufacturing Solutions assists in
the design and manufacturing of the products' casing/housing. The
Company will maintain certain core competencies on its staff,
including the senior technology knowledge, and knowledge specific to
managing its production, distribution, and sales functions. Part of
the business strategy is to identify partner companies in the areas of
engineering, manufacturing, technology, communications and
distribution.
To date, the Company has had limited revenue from operations and has
accumulated significant losses. Consequently, the Company has had difficulty in
obtaining funding from commercial lenders, thereby requiring the Company to
obtain funding from private sources. See "Certain Relationships and Relations
Transactions." The Company may not be able to find adequate sources of funding
to implement its strategic goals. Moreover, there is no assurance that it will
ever generate significant revenues or profits.
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(v) The Products and Services of the Company
The Company markets the ABS<ComTrak(R) solution which provides its
customers real-time monitoring of any individual or thing on either a continuous
or periodic basis, whether the person or object is moving or is at a fixed
location.
The ABS<ComTrak(R) solution consists of four basic components:
A tracking unit is worn by or placed near the subject. The tracking unit is
secured to the subject via a wireless cuff, which is about the size of many
wrist watches. The wireless cuff is waterproof and shockproof; its case and
strap are designed to be tamper resistant. The tracking unit utilizes
information from the GPS to triangulate the subject's physical position. The
tracking unit then transmits this and other information to an operations center.
In addition, the tracking unit can be used in a docking station (which is
similar to a cradle for a cordless telephone) as a house arrest monitor.
The tracking unit monitors the status of the wireless cuff and itself and
reports to the operations center (see below) the following conditions:
* Status of radiofrequency contact between tracking unit and the house
arrest monitor, including proximity violations (i.e. failure to remain
within specified proximity of the house arrest monitor)
* Tampering with tracking unit or the house arrest monitor
* Status of communications between the house arrest monitor and the
operations center
* Status of power connection of the house arrest monitor
* Status of tracking unit battery
* Exclusion zone violations (i.e., being in an area or location from
which the subject is prohibited)
ABS Nebraska operates an operations center 24 hours per day, 7 days per week.
The operations center monitors the house arrest units and tracking units and
provides technical support to customers.
Each customer maintains a computer workstation at its site. The computer
workstation is used by the customer to build daily schedules and program
inclusion and exclusion zones. Five levels of service are provided by the
Company to meet the specific needs of its customers.
(vi) The Technology
(A) Wireless Services and their Regulation
Wireless communications are transmitted through the space via
radiofrequency radiation, one of several types of electromagnetic radiation. The
radio frequency part of the electromagnetic spectrum is generally defined as
electromagnetic radiation with frequencies in the range of 3 kilohertz to 300
gigahertz. One "hertz" equals one cycle per second. A kilohertz ("kHz") is one
thousand hertz, a megahertz ("mHz") is one million hertz and a gigahertz ("gHz")
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is one billion hertz. Microwave radiation is a high-frequency form of
radiofrequency radiation usually defined as from about 300 mHz to 300 gHz.
Familiar uses of radiofrequency radiation involving telecommunications
include AM and FM radios, television, citizens band radio, hand-held walkie
talkies, amateur radio, short-wave radio, cordless telephones and microwave
point-to-point and ground-to-satellite telecommunications links.
Non-telecommunications applications include microwave ovens and radar.
The manufacture, sale and use of devices which utilize any part of the
radiofrequency radiation spectrum are subject to regulation. The Federal
Communications Commission (the "FCC") is the principal agency responsible for
such regulation within the United States. State and local governments, however,
exercise some control respecting the siting of wireless facilities. While many
transmitters (such as radio stations) must be individually licensed, certain
low-power transmitters need not be. These would include such devices as cordless
telephones, baby monitors, garage door openers, wireless home security systems,
and keyless automobile entry systems. Before such a device may be marketed,
however, it must first be tested to determine if the device meets FCC
specifications and then receive authorization from the FCC. The devices which
the Company markets fit within this regulatory scheme.
(B) Global Positioning System
The Global Positioning System consists of at least 24 operational
satellites that orbit the earth every 12 hours. Operated by the Department of
Defense, this constellation typically permits from five to eight satellites to
be visible from any point on earth at any given moment in time. A master control
facility located at Schriever Air Force Base in Colorado monitors signals from
the satellites and uploads orbital and clock data. Users of GPS convert signals
from four different satellites to compute position and time.
Only authorized users of GPS with specially equipped receivers are
permitted to use the precise positioning system. The precise positioning system
is accurate within 22 meters for horizontal position, 27.7 meters for vertical
position and 100 nanoseconds time accuracy. On the other hand, civil users of
GPS such as the Company are permitted to use the standard positioning service.
The accuracy of the standard positioning service is intentionally degraded by
the Department of Defense using a technique referred to as selective
availability. The standard positioning service is accurate within 100 meters for
horizontal position, 156 meters for vertical position and 340 nanoseconds time
accuracy. The standard positioning service is available 24 hours per day without
charge or restrictions on a worldwide basis.
To correct the errors created by selective availability, methods have been
developed which are generally referred to as differential GPS techniques.
Differential GPS corrects errors at one location with measured bias errors at a
known position. A reference receiver (or base station) computes corrections for
each satellite signal. Corrections may then be transmitted by radio link or
other electronic means. The U.S. Coast Guard, for example, maintains a network
of differential monitors and transmits differential GPS corrections over
radiobeacons covering much of the U. S. coastline. Private differential GPS
services are also available, some of which require payment of a user fee.
Tracking unit's are configured to use the standard positioning service. Tracking
unit's may be configured to use differential GPS if customers so desire.
On March 29, 1996, a Presidential directive (the "Presidential Directive")
announced that it is the policy of the U.S. Government that the U.S. would
continue to provide GPS for peaceful civil, commercial and scientific use on a
continuous, worldwide basis, free of direct user fees, but that selective
availability would be discontinued within ten years. As a result, civil
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GPS-based would be able to use the precise positioning system. On January 25,
1999, the Vice President announced a budgetary initiative to modernize GPS by
adding two new civil signals to future GPS satellites.
GPS satellites and their ground support systems are complex electronic
systems subject to electronic and mechanical failures and possible sabotage. The
satellites have design lives of 7.5 years and are subject to damage by the
hostile space environment in which they operate. To repair damaged or
malfunctioning satellites is not economically feasible. If a significant number
of satellites were to become inoperable, there could be a substantial delay
before they are replaced with new satellites. A reduction in the number of
operating satellites would impair the current utility of the GPS system and the
growth of current and additional market opportunities. In addition, there can be
no assurance that the U.S. government will remain committed to the operation and
maintenance of GPS satellites over a long period, or that the policies of the
U.S. Government for the use of GPS without charge will remain unchanged.
However, the Presidential Directive marks the first time in the evolution of GPS
that access for consumer, civilian and commercial use has a solid foundation in
law. Because of ever-increasing commercial applications of GPS, other U.S.
Government agencies may become involved in the administration or the regulation
of the use of GPS signals. Any of the foregoing factors could affect the
willingness of buyers of the Company's products to select GPS-based systems
instead of products based on competing technologies. Any resulting change in
market demand for GPS products could have a material adverse effect on the
Company's financial results.
A recent study by the Johns Hopkins University Applied Physics Laboratory
(January, 1999) examined the susceptibility of GPS equipment to intentional or
inadvertent signal interference. This study concluded that only intentional
interference (i.e., jamming) and ionospheric errors and scintillation
represented any significant risk. Such risks, however, could be reduced using
various mitigation techniques; and, moreover, such interference would most
likely be short in duration. The Company has a patent pending regarding certain
software solutions to mitigate such interference. Nevertheless, concerns about
the integrity of GPS could translate into reduced demand for the Company's
products and services.
(vii) Intellectual Property Rights
The Company has three pending U.S. Patent Applications covering its
technology. Two of the patent applications cover a system for remotely
monitoring an individual, and for providing real time notification if that
individual fails to comply with predetermined conditions. The third application
covers a unique antenna for use with the system.
The Company has been granted a nonexclusive, nontransferable software
license from SiRF Technology Incorporated ("SiRF"). SiRF has designed GPS chip
sets and software solutions that allow ABS to embed GPS technology into its
products. This license is for an indefinite term; however, it may be terminated
if SiRF loses any of its rights as to the software products encompassed therein
or by either party upon thirty (30) days written notice in the event of a
material breach of the license by the other party.
(viii) Regulation
The manufacture, sale and use of radiofrequency radiation devices is
regulated by the FCC. See Item 1(b)(vi)(A) of this Part I. Similarly, insofar as
GPS remains funded and controlled by the U. S. government, devices utilizing GPS
must conform with government specifications. The FCC's authorization is pending
with respect to the Company's products.
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The use of tracking devices as an aid to, or indeed substitute for,
physical surveillance by law enforcement personnel, is subject to federal, state
and local law. Generally stated, tracking devices may be attached to or
installed upon the monitored person or object without court order as long as the
person or object remain in public view. Once the person or object is withdrawn
from public view, a court order is required. But, where a tracking device has
been placed with contraband (e.g., stolen goods), rather than with a lawfully
possessed item, warrantless monitoring can continue to occur even after the
monitored object has been taken onto private premises. As a rule, all persons
presently monitored by the Company are subject to a court order requiring such
monitoring as a condition to their release.
The use of tracking devices by private persons is also subject to
applicable law. The monitoring of persons without their consent or of objects
without their owners' or lawful possessors' consent may be a violation of laws
protecting privacy and property rights.
(ix) Research and Development
During 1997 and 1998, the Company expended $32,065 and $468,563,
respectively, toward research and development. The costs of such research and
development are borne by the Company and not by any of its customers.
(x) Customers; Orders Backlog
Because the Company is a development stage company, it has to date
sustained significant losses. The loss of any customer could further worsen the
prospects and business of the Company. There is no material backlog of orders
for products of the Company.
(xi) Seasonality
The Company's business is not seasonal.
Item 2. Management's Discussion and Analysis or Plan of Operation
ABS is a developmental stage company. As such, the financial results of
operations reflect the primary activities of the Company directed toward
development and testing of its GPS products, principally for offender monitoring
in the criminal justice marketplace. The following table sets forth the number
of tracking units monitored or leased for the period indicated. Prior to January
1, 1999, the Company monitored and leased were the same as they appear in the
table below. Since January 1, 1999, the Company monitored and leased 190 units
in the first quarter of 1999 and monitored and leased 180 units in the second
quarter of 1999. The remainder of 562 and 377 in the first and second quarter of
1999, respectively, were monitored units only.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ---- ----------- ----------- ----------- ----------- -----
1997 33 9 34 43 119
1998 24 27 49 58 158
1999 752 557 -- -- 1309
The following table provides a breakdown of selected results of operations
for the six months ended June 30, 1999, and June 30, 1998, and for the twelve
months ended December 31, 1999 and December 31, 1998, and is the basis for the
following discussion of the results of operations:
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<TABLE>
<CAPTION>
Period Year Ended Year Ended
Period Ended Ended June December December
June 30, 1999 30, 1998 31, 1998 31, 1997
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues 90,957 16,120 49,353 26,100
Cost of Sales 64,559 53,195 90,146 22,867
Gross Profit (Loss) 26,398 (37,076) (40,793) 3,233
Expenses
Research and Development 67,396 106,476 500,628 32,065
Sales and Marketing 205,706 153,578 427,120 --
General and Administrative 1,114,174 782,330 2,176,396 2,183,812
Total Expenses 1,387,275 1,042,384 3,104,144 2,215,877
Loss from Operation (1,360,877) (1,079,460) (3,144,937) (2,212,644)
Other Income and Expense
Interest Income - - - 4,172
Other Income - - - -
Loss on Sales of Property
and Equipment - - (349) (2,876)
Interest Expense (126,858) (30,005) (206,426) (183,812)
Asset Abandonment - - (94,300) -
Total Other Income
and Expense (126,858) (30,005) (301,075) (182,516)
Loss Before Extraordinary
Item and Provision for
Income Taxes (1,487,735) (1,109,465) (3,446,012) (2,395,160)
Extraordinary Item
Gain from Extinguishment
of Debt, Net of Income
Taxes - - - 569,901
Loss Before Provisions for
Income Taxes (1,487,735) (1,109,465) (3,446,012) (1,825,259)
Provision for Income Taxes - - - -
Net Loss $ (1,487,735) $(1,109,465) $(3,446,012) $(1,825,259)
</TABLE>
(a) Revenue
The Company derives revenue from sale of products, billable services for
monitoring, software license fees, equipment and software leasing, and charges
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for maintenance and repair of equipment. For the six months ended June 30, 1999,
revenue increased $74,837, to $90,957, an increase of 464.3% over the comparable
period of 1998 of $16,120. The reason for the increase is more units being
monitored and leased in the first six months of 1999 (1,309 units) as compared
to the same period in 1998 (51 units).
For the twelve months ended December 31, 1998, revenue increased $23, 253,
or 89.1%, over the comparable period of 1997. The reason for the increase was an
increase in the number of units monitored and leased to 158 units in 1998
compared to 51 units for the same comparable period in 1997.
(b) Cost of Sales
Cost of Sales represents the direct costs associated with the generation of
revenue, and includes cost of goods for products which are sold, direct costs of
distribution of software and equipment, maintenance expenses on equipment
repaired under service agreements, and the direct variable communications
expenses associated with the monitoring services provided by the Company. For
the six months ended June 30, 1999, Cost of Sales was $64,559, or 71.0% of
revenues, compared with $53,195, or 330.0% of revenue for the comparable period
in 1998. The primary reason for the lower cost of sales as a percentage of
revenue in the 1999 period were increased utilization of the Company assets in
service.
For the twelve months ended December 31, 1998, Cost of Sales was $90,146,
or 182.7% of revenues, compared with $22,867, or 87.6% of revenue for the
comparable period in 1997. These increases were due to an increase in the number
of customer and prospect demonstrations and demonstration units deployed by the
company in 1998, as a result of its sales and marketing activities.
(c) Gross Profit
For the six months ended June 30, 1999, Gross Profit for the Company
increased $64,014, to $26,938, compared to a negative Gross Profit of $(37,076)
in the comparable period of 1998. The reasons for this increase were higher
revenues and proportionately lower Cost of Sales in the 1999 period, as
discussed above.
In the twelve months ended December 31, 1998, Gross Profit for the Company
declined $44,026, to a loss of $40,793 compared to a positive Gross Profit of
$3,233 in the comparable period of 1997. The reason for the decline was the
proportionately higher Cost of Sales in 1998, as discussed above.
(d) Expenses Research and Development
Research and Development expenses are the direct costs associated with the
Company's development of its proprietary products. Expenses in this category
include the cost of outside contracted engineering and design, staffing expenses
for the Company's own engineers and software developers, and the actual costs of
components, prototypes, and testing equipment and services used in the product
development functions. For the six months ended June 30, 1999, Research and
Development expenses decreased $39,080 to $67,396, compared to $106,476 in the
comparable period of 1998. The primary reason for this decrease was that
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the Company was in the planning stages for the release of its Series 2000
product, and therefor was not expending as much with its outside suppliers
during the period.
Research and Development expenses increased $217,199 in the twelve month period
ending December 31, 1998 to $500,628, compared to $283,429 in the comparable
period of 1997. The primary reason for this increase was the funding for the
continuing development of the Company's ABS COMTRAK unit for criminal justice
applications and for development of the Company's monitoring center system. The
new device was installed in 1998 for customers and prospects in Arizona, Texas,
Iowa, Wisconsin, New Jersey, and Ohio.
(e) Sales and Marketing
Sales and Marketing expenses represent the costs of the Company's sales and
marketing staff, travel and related expenses associated with sales to the
Company's customers and prospects, the costs of advertising in magazines and
periodicals, attendance at trade shows, and production of marketing and related
collateral material. For the six months ended June 30, 1999, Sales and Marketing
expenses increased $52,128 to $205,706, compared to $153,578 in the comparable
six month period of 1998. The primary reason for this increase was that the
Company increased the sales and marketing staff over the comparable period in
1998.
Sales and Marketing expenses increased $43,068 to $427,120 in the twelve months
ended December 31, 1998, compared to $384,052 in the comparable period of 1997.
The reason for this increase was the Company's expanded efforts to market the
ABS COMTRAK unit to the criminal justice market place in 1998, and to build a
market image for that product within the criminal justice market.
(f) General and Administrative
General and Administrative expenses are all the indirect and overhead
expenses associated with the operations of the Company, outside of those
expenses described above. These expenses include executive, administrative, and
accounting staff payroll, taxes and benefits, rent on property, all travel not
included in the Sales and Marketing expense, fixed telephone expenses, office
leases and supplies, and recruiting and training expense. For the six months
ended June 30, 1999, General and Administrative expense increased $331,884 to
$1,114,174, from $782,330 in the comparable period of 1998. The primary reason
for the increase was an increases in administrative and executive staff. For the
twelve months ended December 31, 1998, General and Administrative expense
increased by $628,000 to $2,176,396, from $1,548,396 in the comparable period of
1997. The primary reason for this increase was an increase in administrative and
executive staff.
(g) Profit (loss) from Operations
For the six months ended June 30, 1999, Loss from Operations increased
$281,417 to $(1,360,877), compared to $(1,079,460) for the same period in 1998.
The reason for this increase was higher expenses in the period, as explained
above, offset by slightly higher gross profits.
For the twelve months ended December 31, 1998, Loss from Operations
increased by $932,293 to $(3,144,937), compared to an operating loss of
$(2,212,644) in the comparable period of 1997. The cause for this increase were
$217,199 higher Research and Development expenses, a $628,000 increase in
General and Administrative expense, $43,068 higher Sales and Marketing expense,
and $44,026 lower Gross Profit, for the reasons discussed above.
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(h) Interest Expense
For the six months ended June 30, 1999, Interest expense increased $96,853
to $126,858, compared to Interest expense of $30,005 in the comparable period of
1998. This interest expense increase was due to larger outstanding balances in
Company borrowings in 1999 over 1998.
For the twelve months ended December 31, 1998, Interest expense increased
$22,614 to $206,426, compared to Interest expense of $183,812 in the comparable
period of 1997. This interest expense increase was due primarily to larger
outstanding balances in Company borrowings in 1998 over 1997.
(i) Asset Abandonment Charge
For the twelve months ended December 31, 1998, the Company incurred a
charge for Asset Abandonment of $94,300. This charge was the result of
adjustments to the Company's property and equipment assets to reflect obsolete
or unusable assets.
(j) Extraordinary Items, Gain from Extinguishment of Debt
For the twelve months ended December 31, 1997, the Company recognized a
gain from extinguishment of debt of $569,901.
(k) Net Loss
For the six months ended June 30, 1999, the Company had a Net Loss of
$1,487,735 or $(.11) per share, compared to a Net Loss of $1,109,465 or $(.14)
per share, in the comparable period of 1998, for the reasons described above.
For the twelve months ended December 31, 1998, the Company had a Net Loss
of $(3,446,012) or $(.37) per share, compared to a Net Loss of $(1,825,259), or
$(.33) per share in the comparable period of 1997, for the reasons described
above.
(l) Liquidity and Capital Resources
For the six months ended June 30, 1999, the Company used $(1,111,408) of
cash in operating activities and another $(43,909) in investing activities. It
generated $(689,782 in cash from financing activities. The total of all cash
flow activities resulted in a decrease in the balance of cash and cash
equivalents for the three month period of $(365,535). For the twelve months
ended December 31, 1998, the Company used $(2,863,876) of cash in operating
activities and another $(358,581) in investing activities. It generated
$3,599,749 in cash from financing activities. The total of all cash flow
activities resulted in an increase in the balance of cash and cash equivalents
of $377,292 for the 1998 fiscal year. This increase was primarily the result of
an increase in cash provided by financing activities, and reduced by the
increase in cash used in operating and investing activities.
As of June 30, 1999, the Company had the following borrowing facilities in
place:
The Company has borrowed the principal sum of $1,000,000 from U.S. Bank
N.A. of Omaha, Nebraska. The loan is due in a single payment on August 15, 2000,
together with accrued interest. The interest rate is a variable rate based on
the U.S. Bank National Association Reference Rate (the "Index Rate") plus two
(2) percent. As of August 19, 1999, the Index Rate was eight (8) percent. This
loan is secured by a security interest in the Company's tangible and intangible
assets.
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The Company has borrowed the principal sum of $999,767.13 from Commercial
Savings Bank of Carroll, Iowa. The loan is due on October 5, 1999, together with
accrued interest. The interest rate is eight percent (8%) per annum. This loan
is secured by a security interest in the Company's tangible and intangible
assets. The Company believes that it can either renew this current banking
relationship or enter into a new arrangement for the sum due Commercial Savings
Bank. The Company can provide no assurance that it will be able to secure new
financing and, if successful, what would be the terms of such financing.
The Company has borrowed the principal sum of $500,000 from each of James
Pietig, a director of the Company, and Mary Collison, a stockholder of the
Company. See "Certain Relationships and Related Transactions."
The Company is a development stage business and has not yet achieved
profitable operations. The Company lacks sufficient operating capital, and
intends to fund its ongoing development and operations through a combination of
additional equity capital and further borrowings. As of March 31, 1999, the
Company did not have commitments for either debt or share purchases to meet its
planned 1999 operating capital requirements.
(m) Impact of Year 2000 Issues
The Year 2000 issue is related to computer software utilizing two digits rather
than four to define the appropriate year. As a result, any of the Company's
computer programs or any of the Company's suppliers or vendors that have date
sensitive software may incur system failures or generate incorrect data if "00"
is recognized as 1900 rather than 2000.
The Company has been addressing Year 2000 issues throughout fiscal year
1998 and has modified or is in the process of modifying any products or services
that are affected by Year 2000 issues. The Company has a formal comprehensive
Year 2000 readiness plan in place and under the oversight of executive
management and, ultimately, the Company's board of directors.
The Company's greatest risk for a material disruption in services lies in a
potential disruption of telecommunication services due to an external
telecommunication service provider's failure to be Year 2000 compliant and the
resulting impact upon the Company's monitoring services. The Company has
contacted and obtained assurances from its telecommunications providers that
their networks are Year 2000 compliant. In addition, the Company has backup
telecommunication provider connectivity if for any reason the primary carrier
has a disruption in service.
Databases, operating systems and system hardware have been reviewed and
updated as necessary for Year 2000 readiness. A review of the model 1702 GPS
tracking unit date format revealed that the 4-digit year is being used for all
calculations and Year 2000 issues should affect the model 1702. Year 2000 issues
were known when the GPS control software was developed and code was written to
comply with these issues.
Reviews of models 100, 101 and 102 firmware of our house arrest products show
that they are not affected by Year 2000 issues due to the way the information is
processed. The internal hardware components have been reviewed and will not be
affected by Year 2000 issues. Review is currently being done on the house arrest
control software that reports violations.
In addition to the review of the system, a Year 2000 testing laboratory was also
established. In this laboratory, a monitoring environment was established that
mirrored the current operating environment. As part of our testing, all
monitoring computers and monitoring units were set to December 31, 1999 and
allowed to run for three (3) days. Preliminary results show continued unaffected
processing of monitoring information.
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The Company believes that, based upon changes and modifications already
made and those that are currently planned for implementation in fiscal year
1999, the impact of Year 2000 issues will not be material. However, to the
extent the Company or third parties on which it relies do not timely achieve
Year 2000 readiness, the Company's results of operations may be adversely
affected.
Item 3. Description of Property
The Company leases approximately 6,212 square feet of office space located
at 3345 No. 107th Street, Omaha, Nebraska. All of the Company's administrative,
sales, service and other business operations are conducted at this location.
This lease is for a term commencing on December 1, 1998, and ending on November
30, 2001. The base rent is $4,659.00 per month. The lease also requires the
Company to pay $1,099.53 per month as its pro rata share of the operating
expenses respecting the leased premises.
The Company leases computers, office equipment and furniture from several
sources. The rent for such items is in excess of $3,900.00 per month.
In the opinion of the Company's management, the Company's properties are
adequately covered by insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock, par value $0.001 per share (the "Common
Shares"), as of August 19, 1999, by (i) each stockholder known by the Company to
be a beneficial owner(1) of more than five percent of the Common Shares, (ii) by
each of the Company's directors and executive officers, and (iii) the directors
and executive officers as a group. Unless otherwise indicated, all shares are
owned directly and the indicated owner has sole voting and dispositive power
with respect thereto.
Name and Address Amount and Nature
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Dennis Anderson 1,017,114 8.31%
135 Lois Avenue
Carroll, Iowa 51401
Robert Badding 773,843 6.32%
304 Timberline Road
Carroll, Iowa 51401
- ----------------------
(1) A beneficial owner of a security means
(a) Any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares: (1) voting
power, which includes the power to vote, or to direct the voting of, such
security or (2) investment power, which includes the power to dispose, or to
direct the disposition of, such security.
(b) Any person who, directly or indirectly, creates or uses a trust, proxy,
power of attorney, pooling arrangement, or any other contract, arrangement or
device with the purpose or effect of divesting such person of beneficial
ownership of a security or preventing the vesting of such beneficial ownership.
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John Gaukel 498,600 4.07%
3854 No. 208th Street
Elkhorn, Nebraska 68022
Roger Kanne (2) 703,126 5.75%
1311 Amy Avenue
Carroll, Iowa 51401
Benjamin J. Lamb 1,000,000 8.17%
11205 Washington Street
Omaha, Nebraska 68137
Ronald Muhlbauer 707,286 5.78%
222 Pleasant Ridge
Carroll, Iowa 51401
James Pietig 372,574 3.04%
129 Pleasant Ridge
Carroll, Iowa 51401
Directors and Executive 5,072,543 41.45%
Officers as a Group (7 persons)
- ----------------------
(2) Includes 592,626 Common Shares held directly by Mr. Kanne, 29,358
Common Shares held by Country Stores, 50,729 Common Shares held by E. T. Videos
and 29,413 Common Shares held by K & K Developers. Country, Stores, E.T. Videos
and K & K Developers are affiliates of Mr. Kanne.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The executive officers and directors of the Company and their ages as of
the date of this Registration Statement are as follows:
Name Age Position
- ---- --- --------
Benjamin J. Lamb 57 President and Chief Executive Officer, Director
John Gaukel 54 Vice President, Director
Roger Kanne 58 Treasurer, Director
James E. Stark 38 Controller
Dennis Anderson 54 Director
Robert Badding 69 Director
Ronald Muhlbauer 57 Director
James Pietig 56 Director
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Benjamin "Jack" Lamb was elected President and Chief Executive Officer of
ABS effective February 1, 1999, and was elected to the Board of Directors. From
April 1989 to February 1999, he was founder and Chief Executive Officer of
INTECK Corporation, a privately held software company. From 1976 to 1989, Mr.
Lamb held various technical, operations and management positions with Harris
Corporation, a Fortune 300 technology company. Mr. Lamb is a graduate of the
University of Georgia with a BA degree in Psychology and he holds an AS Degree
in General Science from the U.S. Army Institute of Technology. He has over 30
years experience in executive management positions, most notably with Harris
Corporation.
John Gaukel is Vice President and Chief Technical Officer and has been a
member of the Board of Directors since 1995. He is a graduate of the University
of Nebraska at Omaha, with a BS degree in Physics and a minor in Mathematics.
Prior to joining ABS, he worked with Brumko Magnetics Corporation in Elkhorn,
Nebraska from 1985 to 1994. Mr. Gaukel is the inventor of the patent pending
technology of ABS, which has been assigned to the Company, and he holds three
other patents which are unrelated to ABS's business. He continues to devote his
time to the ever-evolving changes and enhancements to the Company's product
lines.
Ronald W. Muhlbauer is Chairman of the Board and has been a member of the
Board of Directors since 1996. He is a Certified Public Accountant and has been
a partner with the accounting firm of Olsen, Muhlbauer & Co., L.L.P., in
Carroll, Iowa, since 1970. Mr. Muhlbauer is a graduate of Creighton University
in Omaha, Nebraska, with a BS degree in Business Administration.
Roger J. Kanne has been Treasurer and a member of the Board of Directors of
ABS since October 1997. From 1961 through the present, he has been President of
Community Oil Company in Carroll, Iowa. His business experience stems from his
involvement as owner and operator of several business entities including retail
and wholesale petroleum jobbers, real estate developments, convenience stores
and video stores in an eight state area.
James E. Stark joined the Company in September 1999. Prior to joining the
Company, Mr. Stark was the director of investor relations for Transcrypt
International, Inc. from May 1998 to September 1999. From February 1997 to May
1998, Mr. Stark was associated with Quantum North America. From January 1996 to
February 1997, Mr. Stark served as the director of financial planning and and
analysis for America West Airlines. From October 1994 to January 1996, Mr. Stark
was associated with Dal-Tile Corp. From February 1990 to September 1994, Mr.
Stark was associated with Greyhound Lines, Inc. Mr. Stark holds a Master of
Business Administration from the University of Phoenix and a Bachelor of Science
Degree in Economics from the University of Texas.
Dennis L. Anderson joined the Board of Directors of ABS in October, 1997.
He is a graduate of Buena-Vista University of Iowa. Mr. Anderson currently
serves as secretary-treasurer of The Farner Bocken Company of Carroll, Iowa, a
regional distributor of food, tobacco and related snack products to locations in
a multi-state area. Mr. Anderson has been active in the management of this
closely held corporation from 1973 through the present.
Robert E. Badding joined the Board of Directors of ABS in October, 1997. He
founded Badding Construction, Carroll, Iowa, in 1954 and continues as Chief
Executive Officer today. Badding Construction is a regional commercial and
residential construction firm. Mr. Badding has been involved in all levels of
the construction management of this mufti-state firm for the past 45 years.
James L. Pietig joined the ABS Board in December, 1997. From 1975 To 1992,
Mr. Pietig served as Chief Executive officer of Pepsi Cola Company of Carroll,
Iowa. Since 1992, he has been managing his investments in a hotel-convention
complex and in private and public land companies and developments.
Messrs. Kanne, Anderson, Badding and Pietig have no experience with
GPS-based technology nor with respect to the criminal justice system. They serve
on the Company's board of directors solely because of their substantial
investment in the Company. It is anticipated that Messrs. Anderson, Badding and
Pietig will not stand for reelection to the board of directors at the next
annual meeting of the Company's stockholders.
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The Company's certificate of incorporation provides that the Company's
Board of Directors is to be divided into three classes. As a result of the Share
Exchange, however, all directorships will be open to election at the next annual
meeting of the stockholders. It is anticipated that at the next annual meeting
of stockholders such directorships will be divided into three classes with one
class having a term of one year, one class having a term of two years and one
class having a term of three years. At each annual meeting of stockholders
thereafter at which the term of each class of directors expires, successor
directors of such class will be elected for a three-year term.
Executive officers of the Company are appointed by the Board of Directors on an
annual basis and serve until their successors have been duly elected and
qualified.
The Board of Directors is expected to establish and designate specific
functions and areas of oversight to an Executive Committee, an Audit Committee
and a Compensation Committee on or before October 1, 1999. The Bylaws permit the
creation of additional committees.
Item 6. Executive Compensation
The Company's chief executive officer receives a base salary in the amount of
$150,000 per year. In addition, as a condition of employment, the chief
executive officer received 1,000,000 Common Shares and options to purchase
4,000,000 Common Shares at an exercise price of $0.10 per share. The options are
exercisable and vested as follows: (1) one-third of such options are vested and
exercisable beginning the earlier of December 30, 1999, or when the closing bid
price for the Common Shares exceeds $3.00 per share for at least five
consecutive trading days; (2) one-third of such options are vested and
exercisable beginning the earlier of December 30, 2000, or when the closing bid
price for the Common Shares exceeds $4.00 for at least five consecutive trading
days; and (3) one-third of such options are vested and exercisable beginning the
earlier of December 30, 2001, or when the closing bid price for the Common
Shares exceeds $6.00 per share for at least five consecutive trading days. When
vested, the options are exercisable for a period of three years. All options
shall vest and be immediately exercisable in the event of a sale or merger of
the Company, including a transfer of control. The chief executive officer's
employment by the Company commenced on February 1, 1999 and, therefore, he
received no compensation from the Company prior to that time. No other employee
of the Company received a salary and other compensation that exceeded $100,000
in any year preceding the date hereof. There were no options or stock
appreciation rights outstanding during 1998.
Item 7. Certain Relationships and Related Transactions
On April 6 and 8, 1998, the Company entered into loan agreements with
Commercial Savings Bank and US Bank. See "Management's Discussion and Analysis
or Plan of Operation-Liquidity and Capital Resources." These loans were
unconditionally guarantied by Dennis Anderson, Robert Badding, Mary Collison,
John Gaukel, Martin Halibur, Roger Kanne, Ronald Muhlbauer, James Pietig, Rob
Rasmussen and James DiPrima. In consideration for giving these guaranties, each
of these individuals received 100,000 fully paid, nonassessable Common Shares.
Owing to the Company's continuing losses, it was unable to find a lending
institution willing to loan additional funds to the Company. At the suggestion
of First Star Bank of Iowa, N.A. (the "lending institution"), James Pietig, a
director of the Company, and Mary Collison, a stockholder of the Company, each
established a line of credit in the amount of $500,000 with the lending
institution.. These loans were unconditionally guarantied by Dennis Anderson,
Robert Badding and Roger Kanne, each of whom is an officer and/or director of
the Company, and by Martin Halibur, a stockholder of the Company. The amounts
drawn on these lines of credit bear interest at the lending institution's prime
interest rate plus 0.250 percent (the "Regular Rate"). Interest is payable
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monthly. The entire amount of unpaid principal and accrued interest is due and
payable on January 31, 2000. On April 30, 1999, the amounts drawn under these
lines of credit were loaned by Mr. Pietig and Ms. Collison to the Company. As of
the date of this registration statement, the outstanding principal balance under
these lines of credit is $1,000,000. The Company has agreed to repay the loans
under substantially the same terms as with the lending institution. In the event
of default, however, the Company will pay interest at a rate equal to the
Regular Rate plus five percent (5%). These loans are unsecured. As consideration
for entering into this arrangement, each of the lenders and guarantors received
83,333 fully paid, nonassessable Common Shares and a warrant to purchase 83,333
Common Shares at an exercise price of $1.00 per share, exercisable at any time
on or before October 31, 2000. The loan agreements between the Company and each
of Mr. Pietig and Ms. Collison have been filed with the SEC as exhibits to its
registration statement under Form 10-SB. The board of directors determined that,
without the loans as described herein, the Company would not be able to continue
operations and, consequently, the Company's capital stock would have virtually
no value. The board therefore determined that the value of the stock issued to
each of Mr. Pietig and Ms. Collison had a nominal value of $0.10 per share. The
number of shares issued to Mr. Pietig and Ms. Collison was arbitrarily
determined by the parties as being fair compensation for the risks accompanying
their undertakings with the lending institution. For each $1.00 loaned or
guaranteed, the board determined that each lender or guarantor, as the case may
be, would receive one-half of one Common Share.
Item 8. Description of Securities
(a) General
The authorized capital stock of the Company consists of 50,000,000 Common
Shares, and 1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). As of August 19, 1999, there were outstanding 12,238,573
Common Shares held of record by 417 stockholders. There are no shares of
Preferred Stock presently outstanding.
(b) Common Shares
Holders of Common Shares are entitled to one vote per share in all matters
to be voted on by the stockholders. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, holders of Common
Shares are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy". In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Shares are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any outstanding Preferred
Stock. All of the outstanding shares of Common Shares are fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Shares are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
(c) Preferred Stock
The Board of Directors has the authority, without any further vote or
action by the stockholders, to provide for the issuance of up to 1,000,000
shares of Preferred Stock from time to time in one or more series with such
designations, rights, preferences and limitations as the Board of Directors may
determine, including the consideration received therefor. The Board also has the
authority to determine the number of shares comprising each series, dividend
rates, redemption provisions, liquidation preferences, sinking fund provisions,
conversion rights and voting rights without approval by the holders of Common
Shares. Although it is not possible to state the effect that any issuance of
Preferred Stock might have on the rights of holders of Common Shares, the
issuance of Preferred Stock may have one or more of the following effects (i) to
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restrict Common Shares dividends if Preferred Stock dividends have not been
paid, (ii) to dilute the voting power and equity interest of holders of Common
Shares to the extent that any Preferred Stock series has voting rights or is
convertible into Common Shares or (iii) to prevent current holders of Common
Shares from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied. In
addition, the issuance of Preferred Stock may, under certain circumstances, have
the effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Certificate of Incorporation or any reorganization, consolidation, merger or
other similar transaction involving the Company. As a result, the issuance of
such Preferred Stock may discourage bids for the Common Shares at a premium over
the market price therefor, and could have a materially adverse effect on the
market value of the Common Shares. The Board of Directors does not presently
intend to issue any shares of Preferred Stock.
(d) No Preemptive Rights
No holder of any capital stock of the Company has any preemptive right to
subscribe for or purchase securities of any class or kind of the Company, nor
any redemption or conversion rights.
(e) Delaware Business Combination Statute
The Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL"). In general, this law prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date that
the person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. An "interested stockholder"
is, generally defined as a person who, together with affiliates and associates,
owns (or within three years prior, did own) 15% or more of the corporation's
voting stock. This provision of Delaware law may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholder.
(f) Certain Charter Provisions
(i) General
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise as well as the removal of incumbent officers
and directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to first negotiate with the
Company.
(ii) Number of Directors; Removal; Vacancies
The Certificate of Incorporation and the Bylaws provide that the number of
directors shall be determined from time to time exclusively by a vote of a
majority of the Company's Board of Directors then in office; provided, however,
that the number of Directors shall not be less than three (3) nor more than
fifteen (15). The Certificate of Incorporation also provides that the Company's
Board of Directors shall have the exclusive right to fill vacancies, including
vacancies created by an expansion of the Board. The Certificate of Incorporation
further provides that Directors may be removed with or without cause upon the
19
<PAGE>
affirmative vote of at least two-thirds of all of the shares of the Company's
capital stock then entitled to vote in the election of directors; provided,
however, that if there are one or more Interested Stockholders (as defined in
Article 9 of the Certificate of Incorporation), Directors may be removed only
for cause and, in addition to such two-thirds vote, there must also be an
affirmative vote for removal of not less than a majority of the voting power of
the shares held by stockholders other than such Interested Stockholders.
(iii) Classified Board of Directors
The Certificate of Incorporation provides for the Company's Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Company's Board of
Directors will be elected each year. See "Management--Executive Officers and
Directors". This provision could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. It could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company, thus increasing the likelihood that
incumbent directors will retain their position.
(iv) Approval of Repurchases
The Certificate of Incorporation prohibits repurchases by the Company from
a stockholder owning more than 5% of the Company's voting securities (a
"Significant Stockholder") (other than those stockholders currently meeting such
description) who has owned such securities of the Company for less than two
years, unless approved by an affirmative vote of at least a majority of the
total votes entitled to vote generally in the election of Directors other than
the voting power held by the Significant Stockholder.
(v) Amendments to Bylaws
The Certificate of Incorporation provides that the Board of Directors or
the holders of at least two-thirds of all shares of the Company's capital stock
then entitled to vote have the power to amend or repeal the Company's Bylaws;
provided, however, that if there are one or more Interested Stockholders, the
Bylaws may be amended, in addition to such two-thirds vote, upon the affirmative
vote for such action of not less than a majority of the voting power of the
shares held by stockholders other than such Interested Stockholders.
(vi) Amendment of the Certificate of Incorporation
Any proposal to amend, alter, change or repeal any provision of the
Certificate of Incorporation requires approval by the affirmative vote of a
majority vote of the voting power of all of the shares of the Company's capital
stock entitled to vote generally in the election of directors; provided,
however, that an affirmative vote of the holders of at least two-thirds of the
total votes eligible to be case is required to amend the provisions described
above.
(g) Limitation of Liability and Indemnification
The Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as a breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
20
<PAGE>
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Certificate of
Incorporation and Bylaws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
(h) Transfer Agent and Registrar
The Transfer Agent and Registrar of the Common Shares is Atlas Stock
Transfer Corporation of Salt Lake City, Utah.
21
<PAGE>
PART II.
Item 1. Market Price of and Dividends on the Company's Common Equity and Other
Shareholder Matters
Until July 2, 1999, the Common Shares of the Company were traded on the OTC
Bulletin Board under the trading symbol ABSH (or ABSHE). The following table
sets forth the high and low bid information for each quarter since January,
1998.
Year Quarter High Low
---- ------- ---- ---
1998 1st $2.6250 $1.2500
2nd $4.3750 $1.2500
3rd $4.5000 $1.5000
4th $2.6875 $0.7500
1999 1st $2.1250 $0.7500
2nd $0.625 $0.3125
The source of the foregoing information is Bloomberg, L.P. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Since July 2, 1999, the Common Shares have been quoted on the so-called
"pink sheets" maintained by the National Quotation Bureau.
Prior to January, 1998, the Common Shares were traded under the symbol
SAII; however, the Company does not have any bid information prior to the Share
Exchange.
The Company's management does not believe that the quotations on the
OTC Bulletin Board or the "pink sheets," as the case may be, accurately reflect
the value of the Common Shares for two reasons. First, the Common Shares are
thinly traded amongst a relatively small number of holders. Second, because the
Company has not filed current reports with the United States Securities Exchange
Commission, there has been inadequate information available to the public
respecting the business and financial condition of the Company. The net book
value of each Common Shares was ($.001), ($.062) and ($.341), as of December 31,
1997, December 31, 1998 and June 30, 1999, respectively.
As of August 19 , 1999, there were outstanding 12,238,573 Common Shares
held of record by 417 stockholders. There are no shares of Preferred Stock
presently
outstanding.
Item 2. Legal Proceedings
The Company's subsidiary, ABS Nebraska, is a defendant in an action pending
in Montana Eighteenth Judicial District Court, Gallatin County, captioned
Applied Technologies, Inc. v. Advanced Business Sciences, Inc., et al., No.
98-285. This action was initially filed on September 11, 1998. The Amended
Complaint alleges that ABS Nebraska is in breach of contract under which the
Plaintiff, Applied Technologies, Inc., was to produce prototype and production
parolee tracking devices. The Amended Complaint alleges that the Company is in
breach of contract for failure to make payments thereunder. The plaintiff prays
for an unspecified amount of compensatory and consequential damages . The
plaintiff also seeks attorney's fees and such other relief as the court may deem
equitable and proper. ABS Nebraska has denied the allegations, has raised
certain affirmative defenses and has brought a counterclaim alleging, among
other things, that the Plaintiff failed to deliver in a timely manner all
documents schematic drawings, mechanical drawings, computer disks of designs,
vendors lists with part numbers and art work. Management cannot estimate the
potential liability of an adverse decision.
22
<PAGE>
Item 3. Changes in and Disagreements with Accountants
[Not applicable]
Item 4. Recent Sales of Unregistered Securities
On December 17, 1997, the Company consummated a plan and agreement of
reorganization with ABS Nebraska and all of the shareholders of ABS Nebraska
(the "ABS Shareholders"). Under this agreement, the Company issued 7,050,000
Common Shares to the ABS Shareholders in exchange for all of the issued and
outstanding shares of ABS Nebraska. An additional 450,000 Common Shares were
issued to finders. Certain ABS Shareholders were also issued warrants to
purchase 574,000 Common Shares at an exercise price of $1.00 per share, which
warrants expire on December 20, 2000. As a result of this transaction, the ABS
Shareholders owned approximately 88% of the then issued and outstanding Common
Shares and ABS Nebraska became the wholly-owned subsidiary of the Company. This
transaction was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
under Section 4(2) thereof.
Effective December 31, 1997, the Company issued 165,000 Common Shares as
payment for certain accounts payable, 82,500 Common Shares for consulting
services, and 2,063 Common Shares as payment of bonus compensation to an
employee. Each of these transactions was exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(2)
thereof.
On February 1, 1998, the Company issued 1,250,000 units at $2.00 per unit
and an aggregate purchase price of $2,500,000. A unit consisted on one Common
Share and a warrant to purchase one Common Share at an exercise price of (1)
$3.00 per share during the first year, (2) $4.00 per share during the second
year and (3) $5.00 per share during the third year. The warrants expire February
1, 2001. There were 96 purchasers, of which all but sixteen were accredited
investors. The Company failed to comply with Regulation D under the Securities
Act in that it provided its audited financial statements for the years ended
December 31, 1995 and 1996, but supplied unaudited financial statements for the
year ended December 31, 1997. A subsequent audit for the year ended December 31,
1997, revealed that the unaudited statements reflected greater losses than
actually existed. The Company's management therefore believes that this
transaction was in substantial compliance with Rule 506 under the Securities
Act; however, the Company may have a contingent liability for the entire
offering. See "Notes to Financial Statements-Note 18." The Company does not
intend to make an offer of rescission to the purchasers of this offering.
Effective April 1, 1998, the Company issued 1,000,000 shares to certain
individuals in consideration for these individuals giving their unconditional
guaranty of indebtedness incurred by the Company with Commercial Savings Bank
and US Bank. See "Certain Relationships and Related Transactions." The loans
would not have been given without these personal guaranties. The board of
directors determined that, without the loans as described herein, the Company
would not be able to continue operations and, consequently, the Company's
capital stock would have virtually no value. The board therefore determined that
the value of the stock issued to each of the guarantors had a nominal value of
$0.10 per share. The number of shares issued to guarantors was arbitrarily
determined by the parties as being fair compensation for the risks accompanying
their undertakings with the lending institution. This transaction was exempt
from the registration and prospectus delivery requirements of the Securities Act
under Section 4(2) thereof.
On August 24, 1998, the Company issued 2,191,145 Common Shares to acquire
Comguard Leasing and Financial, Inc., an Illinois corporation. This transaction
was rescinded effective June 1, 1999. However, 242,500 Common Shares remained
23
<PAGE>
registration and prospectus delivery requirements of the Securities Act under
Section 4(2) thereof.
On January 18, 1999, the Company issued 152,000 Common Shares as payment of
bonuses to employees accrued during 1998. The bid and ask price for the Common
Shares were $0.88 and $1.25 per share, respectively, on such date. Each of these
transactions was exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(2) thereof.
On February 1, 1999, the Company agreed to issue 1,000,000 shares of its
Common Shares to Benjamin J. Lamb in consideration for Mr. Lamb entering into an
employment agreement with the Company. The bid and ask price for the Common
Shares were $1.75 and $2.06 per share, respectively, on such date. This
transaction was exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(2) thereof.
On March 15, 1999, the Company issued to certain directors, officers and
stockholders of the Company in the aggregate 500,000 Common Shares and warrants
to purchase in the aggregate 500,000 Common Shares at an exercise price of $1.00
per share. The warrants are exercisable at any time on or before October 31,
2000. These securities were given in consideration for direct loans to the
Company or for giving unconditional guaranties to loans from First Star Bank of
Iowa, N.A. which funded this indebtedness. The bid and ask price for the Common
Shares were $1.06 and $1.31 per share, respectively, on such date. See "Certain
Relationships and Related Transactions." This transaction was exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(2)thereof.
On June 1, 1999, the Company entered into agreements rescinding the
Comguard Acquisition. To consummate this rescission, the Company issued to
Frederick Bishop 100,000 Common Shares and issued to Michael Reeves a warrant to
purchase 50,000 Common Shares at an exercise price of $1.50 per share, expiring
on June 1, 2004. Messrs. Bishop and Reeves were former shareholders and
promoters of Comguard Leasing and facilitated the rescission of the Comguard
Acquisition. The bid and ask price for the Common Shares on June 1, 1999, were
$0.69 and $0.78 per share, respectively, on such date. This transaction was
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(2) thereof.
The Company's management does not believe that the quotations on the
OTC Bulletin Board or the "pink sheets," as the case may be, accurately reflect
the value of the Common Shares for two reasons. First, the Common Shares are
thinly traded amongst a relatively small number of holders. Second, because the
Company has not filed current reports with the United States Securities Exchange
Commission, there has been inadequate information available to the public
respecting the business and financial condition of the Company. The net book
value of each Common Shares was ($.001), ($.062) and ($.341), as of December 31,
1997, December 31, 1998 and June 30, 1999, respectively. The Company's
management thus believes that the price paid for Common Shares in each of the
above-described transactions was greater than the fair value therefor.
Item 5. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware permits
indemnification by a corporation of certain officers, directors, employees and
agents. Consistent therewith, Article 12 of the Company's Restated Certificate
of Incorporation provides that the Company, to the fullest extent permitted by
law, shall indemnify a director, officer, employee or agent of the Company or a
person who is or was serving at the request of the Company as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
Article VIII of the Company's Restated Bylaws provides that any
indemnification (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because such person has met
the applicable standard of conduct, as the case may be. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (i) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, or (iii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion or
(iv) by the stockholders. Such determination shall be made, with respect to
former directors and officers, by any person or persons having the authority to
act on the matter on behalf of the Company. To the extent, however, that a
present or former director or officer of the Company has been successful on the
24
<PAGE>
merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case. including service with respect to an
employee benefit plan, who was or is made (or threatened to be made) a party to
a civil, criminal, administrative or investigative proceeding.
Article VIII of the Company's Restated Bylaws further provides that
expenses incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Company as authorized in Article VIII.
25
<PAGE>
PART F/S
The Company's financial statements for the years ended December 31, 1998
and 1997 have been examined to the extent indicated in their reports by
Schvaneveldt and Company, independent certified accountants, and have been
prepared in accordance with generally accounting principles and pursuant to
Regulation S-B as promulgated by the Commission. These financial statements are
included herein on the following 31 pages, in response to Part F/S of this Form
10-SB.
26
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Financial Statements
June 30, 1999 (Unaudited) &
December 31, 1998 & 1997
27
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Index
Page
Independent Accountants' Audit Report. . . . . . . . . . . . . . . .29
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 30-31
Statements of Operations . . . . . . . . . . . . . . . . . . . 32-33
Statements of Stockholders' Equity (Deficit) . . . . . . . . . 34-37
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 38-39
Notes to Financial Statements. . . . . . . . . . . . . . . . . 40-53
Supplemental Information
Independent Accountants' Audit Report on Supplemental
Information. . . ............................................. . .55
Schedules of Expenses. . . . . . . . . . . . . . . . . . . . . 56-57
28
<PAGE>
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite #300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Independent Auditors Report
Board of Directors
Advanced Business Sciences, Inc.
I have audited the accompanying balance sheets of Advanced Business
Sciences, Inc., as of December 31, 1998 and 1997, and the related statements of
operations, stockholdersAE equity, and cash flows for the years ended December
31, 1998 and 1997. These financial statements are the responsibility of the
CompanyAEs management. My responsibility is to express an opinion on these
<PAGE>
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Advanced Business Sciences,
Inc., as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years ended December 31, 1998 and 1997, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #15 to the
financial statements, the Company has an accumulated deficit at December
31,
1998. These factors raise substantial doubt about the CompanyAEs ability to
continue as a going concern. ManagementAEs plans in regard to these matters are
also discussed in Note #15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
June 7, 1999
29
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets
June 30, 1999 (Unaudited), December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents ....................... $ 50,962 $ 377,592 $ 300
Receivables
Trade Accounts ................................. 40,508 13,995 11,461
Employees ...................................... 15,867 26,309 345
Stock Subscription Receivable (note 11) ........ -0- 599,452 -0-
Inventory ....................................... 644,100 535,055 582,108
Prepaid Expenses ................................ 146,677 16,212 5,000
------- ------ -----
Total Current Assets ......................... 898,114 1,568,615 599,214
------- --------- -------
Property and Equipment
Furniture and Equipment (note 4) ................ 610,092 571,779 549,514
Leasehold Improvements (note 4) ................. 16,326 16,326 77,585
Leased Equipment (note 4) ....................... 193,481 194,236 29,039
Intellectual Property (notes 4 & 8) ............. 169,000 169,000 -0-
------- ------- -------
Total Cost ................................... 988,899 951,341 656,138
Less Accumulated Depreciation and Amortization 500,008 346,277 237,402
------- ------- -------
Net Book Value ............................... 488,891 605,064 418,736
------- ------- -------
Other Assets
Rent and Utility Deposits ....................... 3,473 4,073 11,950
Patents (note 5) ................................ 13,631 13,631 15,145
Advance to Comguard (note 9) .................... 86,634 66,992 -0-
Investment in Comguard (note 9) ................. -0- 2,191 -0-
- ------ ----- ------
Total Other Assets ........................... 103,738 86,887 27,095
Total Assets ................................. $1,490,743 $2,260,566 $1,045,045
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets -Continued-
June 30, 1999 (Unaudited), December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Liabilities
Current Liabilities
- -------------------
Cash in Bank Overdraft ................................ $ -0- $206,230 $ 17,411
Accounts Payable ...................................... 247,551 392,016 439,446
Payroll Taxes Accrued and Withheld (note 6) ........... 57,826 220,440 228,739
Accrued Interest ...................................... 22,488 19,795 25,019
Accrued Wages ......................................... -0- 15,200 41,769
Note Payable Short Term Debt (note 12) ................ 3,581,776 2,034,768 87,453
Current Portion of Long-Term Debt (note 12) ........... 20,039 25,978 133,948
------ ------ -------
Total Current Liabilities .......................... 3,929,680 2,914,427 973,785
--------- --------- -------
Long-Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (note12) ......... 116,909 123,675 80,000
------- ------- ------
Total Liabilities ................................. 4,046,589 3,038,102 1,053,785
--------- --------- ---------
Commitments and Contingency (note 17)
Stockholders' Equity (Deficit) (note 14)
- ----------------------------------------
Preferred Stock 1,000,000 Shares Authorized at $.01
Par Value; None Issued
Common Stock 50,000,000 Shares Authorized at $.001
Par Value; 11,094,349; 12,633,494 and 7,487,099
Shares Issued and Outstanding Respectively
Retroactively Restated ............................... 11,095 12,634 7,487
Paid-in Capital ....................................... 8,047,094 7,982,546 5,310,477
Deficit Accumulated During the Development Stage ...... (10,614,035) ( 8,772,716) ( 5,326,704)
----------- ----------- -----------
Total Stockholders' Equity (Deficit) ............... ( 2,555,846) ( 777,536) ( 8,740)
----------- ------------ -----------
Total Liabilities and Stockholders' Equity (Deficit) $1,490,743 $ 2,260,566 $1,045,045
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Six Months Period January 1, 1999 to June 30, 1999 (Unaudited) and
for the Six Months Period January 1, 1998 to June 30, 1998 (Unaudited) and
the Years Ended December 31,1998 and 1997
and the Period from January 5, 1992 to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
d ended Period ended Year ended Year ended (Inception)
June June December December to June
30, 1999 30, 1998 31, 1998 31, 1997 30, 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ ............................................... 90,957 $ 16,120 $ 49,353 $ 26,100 $ 215,450
Cost of Sales ............................................ 64,559 53,196 90,146 22,867 212,090
--------- --------- ----------- ------------ ----------
Gross Profit (Loss) ...................................... 26,398 ( 37,076) ( 40,793) 3,233 3,360
Expenses
Research and Development ............................ 383,989 106,476 500,628 283,429 1,768,274
Sales and Marketing ................................. 208,353 153,578 427,120 384,052 1,186,761
General and Administrative .......................... 1,148,517 782,330 2,176,396 1,548,396 7,632,518
--------- --------- ---------- ----------- -----------
Total Expenses ................................... 1,740,859 1,042,384 3,104,144 2,215,877 10,587,553
Loss from Operations ............................. (1,714,461) ( 1,079,460) ( 3,144,937) ( 2,212,644) (10,584,193)
--------- --------- ----------- ------------ ------------
Other Income and (Expense)
Interest Income ...................................... -0- -0- -0- 4,172 14,744
Other Income ......................................... -0- -0- -0- -0- 84,528
Loss on Sale of Property & Equipment ................. -0- -0- ( 349) ( 2,876) ( 9,336)
Interest Expense ..................................... ( 126,858) ( 30,005) ( 206,426) ( 183,812) ( 595,379)
Asset Abandonment (note 4) ........................... -0- -0- ( 94,300) -0- ( 94,300)
--------- --------- ----------- ------------ -----------
Total Other Income & Expense ..................... ( 126,858) ( 30,005) ( 301,075) ( 182,516) ( 599,743)
--------- --------- ----------- ------------ -----------
Loss Before Extraordinary Item
& Provision for Income Taxes ..................... (1,841,319) ( 1,109,465) ( 3,446,012) (2,395,160) ( 11,183,936)
Extraordinary Item
Gain from Extinguishment of Debt,
Net of Income Taxes (note 16) ...................... -0- -0- -0- 569,901 569,901
--------- --------- ----------- ------------ -----------
Loss Before Provisions for
Income Taxes ..................................... (1,841,319) ( 1,109,465) ( 3,446,012) ( 1,825,259) (10,614,035)
Provision for Income Taxes ....................... -0- -0- -0- -0- -0-
--------- --------- ----------- ------------ -----------
Net Loss ......................................... ($1,841,319) ($1,109,465) ($3,446,012) ($1,825,259) ($ 10,614,035)
=========== =========== =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Period January 1, 1999 to June 30, 1999(Unaudited)and
the Years Ended December 31,1998 and 1997
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended
June June December December
30, 1999 30, 1998 31, 1998 31, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss Per Share Before Extraordinary Items... ($ .14) ( .15) ($ .37) ($ .44)
Loss Per Share After Extraordinary Items ... ( .14) ( .15 ( .37) ( .33)
Weighted Average Shares Outstanding as
Retroactively Restated ..................... 13,488,968 7,487,009 9,391,265 5,405,367
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) For the Period from
January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 5, 1992 .............. -0- $ -0- $ -0- $ -0-
Issuance of Stock for Cash at $0.0012
Per Share Retroactively Restated ...... 3,300,000 3,300 700
Net Loss for Year Ended
December 31, 1992 ..................... ( 5,870)
---------------------------------------------------------
Balance, December 31, 1992 ............ 3,300,000 3,300 700 ( 5,870)
Net Loss for Year Ended
December 31, 1993 ..................... ( 7,734)
---------------------------------------------------------
Balance, December 31, 1993 ............ 3,300,000 3,300 700 ( 13,604)
Net Income for Year Ended
December 31, 1994 ..................... 17,924
---------------------------------------------------------
Balance, December 31, 1994 ............ 3,300,000 3,300 700 4,320
Issuance of Stock for Services and the
Assignment, Rights, Title and Interest
in an Invention Disclosed in the
Company's Patent Application on
January 1, 1995 at $.0012 Per Share
Retroactively Restated ............... 583,688 584 123
Capital Contributed by a Shareholder . 3,200
Issuance of Stock through a Private
Placement Memorandum at $3.64
Per Share Retroactively Restated ..... 294,360 294 1,070,106
Cost of Private Placement ............ ( 54,192)
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-
For the Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
<PAGE>
Net Loss for the Year Ended
December 31, 1995 .................... ( 659,788)
Balance, December 31, 1995 ........... 4,178,048 4,178 1,019,937 ( 655,468)
Issuance of Stock through a Private
Placement Memorandum at $3.64 Per
Share Retroactively Restated ......... 118,140 118 429,482
Cost of Private Placement ............ ( 56,431)
Cancellation of Stock at $.001 Per
Share Retroactively Restated ......... ( 577,500) ( 577) 577
Issuance of Stock at $.01 Per Share
in Connection with Notes Payable
Retroactively Restated ............... 412,500 412 ( 412)
Issuance of Stock Related to the
Conversion of 10% Convertible
Sub-Ordinate Debenture at $6.06
Per Share Retroactively Restated ..... 41,250 41 249,959
Net Loss for the Year Ended
December 31, 1996 .................... ( 2,845,977)
-----------------------------------------------------------
Balance, December 31, 1996 ........... 4,172,438 4,172 1,643,112 ( 3,501,445)
Issuance of Stock at $.01 Per Share
in Connection with Notes Payable
Retroactively Restated ............... 165,000 165 ( 165)
Issuance of Stock Related to
Conversion of 10% Convertible
Subordinated Debentures at $6.06
Per Share Retroactively Restated ..... 16,500 17 99,983
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-
For the Period from January 5, 1992 to December 31, 1998 and the Period
January 1, 1999 to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Cost of Private Placement .............. ( 20,400)
Issuance of Stock for Services at $.01
Per Share Retroactively Restated ....... 82,500 82 ( 72)
Issuance of Stock Related to
Conversion of Sub-Ordinated
Debentures, Notes and Accrued
Interest, Retroactively Restated ....... 1,349,617 1,350 1,871,259
Issuance of Stock Related to Notes
Payable and Accrued Interest
Retroactively Restated (note 7) ........ 799,507 800 1,682,102
Issuance of Stock Related to Notes
Payable and Accrued Interest
Retroactively Restated ................. 12,375 12 29,988
Issuance of Stock Related to
Payments of Bonuses .................... 2,063 2 5,107
Issuance of Shares Related to Finder
Fees for "Reverse Acquisition Takeover"
of Sage Analytical International, Inc. . 450,000 450
Shares Issued to Shareholders of Sage
Analytical International, Inc., Prior to
"Reverse Acquisition Takeover" ......... 437,099 437 ( 437)
Net Loss for the Year Ended
December 31, 1997 ...................... ( 1,825,259)
------------------------------------------------------------
Balance, December 31, 1997 ............. 7,487,099 7,487 5,310,477 ( 5,326,704)
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-
For the Period from January 5, 1992 to December 31, 1998
and the Period January 1, 199 to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Shares Issued for Comguard Leasing
and Financial, Inc., Acquisition ..... 2,191,145 2,191
Consultation Fees Comguard Acquisition
at $0.10 Per Share ................... 242,500 243 24,007
Shares Issued for Employee Bonuses
at $0.10 Per Share ................... 457,750 458 45,317
Private Placement Memorandum
Proceeds at $2.00 Per Share .......... 1,250,000 1,250 2,498,750
Shares Issued for Line of Credit
Guarantor Fees at $0.10 Per Share .... 1,000,000 1,000 99,000
Shares Sold Pursuant to Warrant
Exercise at $1.00 Per Share .......... 5,000 5 4,995
Loss for Year Ended
December 31, 1998 .................... ( 3,446,012)
----------------------------------------------------------------
Balance, December 31, 1998 ........... 12,633,494 12,634 7,982,546 ( 8,772,716)
Shares Issued for 1998 Employee
Bonuses at $0.10 Per Share ........... 152,000 152 15,048
Shares Issued for Line of Credit
Guarantor Fees at $0.10 Per Share .... 500,000 500 49,500
Shares Returned from Rescission
of Comguard Acquisitions ............. ( 2,191,145) ( 2,191)
Loss for Period Ended
June 30, 1999 ........................ ( 1,841,319)
----------------------------------------------------------------
Balance, June 30, 1999 ............... 11,094,349 $ 11,095 $8,047,094 ($ 10,614,035)
========== ============ ========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Six Months Period January 1, 1999 to June 30, 1999 (Unaudited) and
for the Six Months Period January 1, 1998 to June 30, 1998 (Unaudited) and
and the Years Ended December 31, 1998 and 1997
Period from August 11, 1989 (Date of Inception) to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended (Inception)
June June December December to June
30, 1999 30, 1998 31, 1998 31, 1997 30, 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss ...........................................($ 1,841,319) ($ 1,109,465) ($ 3,446,012) ($ 1,825,259) ($10,614,035)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities;
Loss on Assets Write Off ......................... -0- -0- 94,300 -0- 94,300
Loss on Inventory Obsolence ...................... -0- -0- 202,996 -0- 202,996
Depreciation and Amortization .................... 153,731 31,407 172,221 130,917 548,686
Loss on Sale of Property & Equipment ............. -0- -0- 349 2,876 9,336
Expenses Paid by Issuance of Stock in
Lieu of Cash ................................... 65,200 1,366 170,025 5,567 219,703
Gain from Forgiveness of Debt .................... -0- -0- -0- ( 569,901) (569,901)
Changes in Operating Assets & Liabilities;
(Increase) Decrease in Trade Accounts Receivable( 26,513) ( 26,886) ( 2,534) ( 5,984) ( 40,508)
(Increase) Decrease in Employee Receivables .... 10,442 ( 247) ( 25,964) 4,655 ( 15,867)
(Increase) Decrease in Inventory ...............( 109,045) ( 387,570) 47,053 ( 115,467) (644,100)
(Increase) Decrease in Prepaid Expenses ........( 130,465) ( 1,667) 11,212 6,314 (146,677)
Increase (Decrease) in Accounts Payable ........( 144,465) ( 198,050) ( 47,430) 110,827 247,551
Increase (Decrease) in Payroll Taxes Accrued ...( 162,614) 35,996 ( 8,299) 206,744 57,826
Increase (Decrease) in Accrued Interest ........ 2,693 ( 25,019) ( 5,224) ( 18,653) 22,488
Increase (Decrease) in Accrued Wages ...........( 15,200) ( 41,769) ( 26,569) ( 24,113) -0-
(Increase) Decrease in Advances to Stockholders -0- -0- -0- ( 14,748) -0-
---------- ---------- --------- --------- ---------
Net Cash Used In Operating Activities ........( 2,197,555) ( 1,721,904) ( 2,863,876) (2,106,225) (10,628,202)
Cash Flows from Investing Activities
Proceeds from Sale of Property and Equipment ....... -0- -0- -0- 30,510 31,160
Purchase of Property and Equipment .................( 37,558) ( 1,830) ( 130,466) ( 29,039) ( 812,601)
(Increase) Decrease in Rent and Utility Deposits ... 600 -0- 7,877 ( 3,780) ( 3,473)
(Increase) in Patents .............................. -0- -0- -0- ( 4,390) ( 15,145)
Purchase of Intellectual Property .................. -0- -0- ( 169,000) -0- ( 169,000)
Funds Advanced to Comguard .........................( 19,642) -0- ( 66,992) -0- ( 86,634)
---------- ---------- --------- --------- ---------
Net Cash Used in Investing Activities ........( 56,600) ( 1,830) ( 358,581) ( 6,699) ( 1,055,693)
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Six Months Period January 1, 1999 to June 30, 1999 (Unaudited) and
for the Six Months Period January 1, 1998 to June 30, 1998 (Unaudited) and
and the Years Ended December 31, 1998 and 1997
Period from August 11, 1989 (Date of Inception) to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended (Inception)
June June December December to June
30, 1999 30, 1998 31, 1998 31, 1997 30, 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash Flows from Financing Activities
Increase (Decrease) in Notes Payable Banks ... 1,547,008 -0- 1,970,473 120,100 3,581,776
Proceeds from Long-Term Debt ................. -0- 1,085,825 ( 87,453) 2,397,000 4,144,081
Repayment of Long-Term Debt .................. ( 12,705) -0- -0- ( 342,286) -0-
Proceeds from Issuance of Common Stock ....... -0- 1,122,988 2,505,000 -0- 4,009,000
Increase (Decrease) in Banks Overdraft ....... ( 206,230) ( 17,411) ( 188,819) ( 63,990) -0-
(Increase) Decrease in Notes Receivable
Stockholders ............................ 599,452 -0- ( 599,452) -0- -0-
Cash Receivable in Note Receivable Stockholder -0- -0- -0- -0- -0-
Net Cash Provided by Financing Activities 1,927,525 2,191,402 3,599,749 2,110,824 11,734,857
Increase (Decrease) in Cash
and Cash Equivalents .................... ( 326,630) 467,668 377,292 ( 2,100) 50,962
Cash and Cash Equivalents,
Beginning of Period ..................... 377,592 300 300 2,400 -0-
Cash and Cash Equivalents,
End of Period ........................... $ 50,962 $ 467,968 $ 377,592 $ 300 $ 50,962
Disclosure from Operating Activities
Interest ............................... $ 126,858 $ 30,005 $ 206,426 $ 183,812 $ 561,965
Taxes .................................. -0- -0- -0- -0- -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements
NOTE #1 - Organization and Nature of Business
Advanced Business Sciences, Inc., (the Company) was incorporated under the laws
of the state of Colorado on June 13, 1983, under the name "Sage Institute
International, Inc." A Delaware Corporation, using the name Sage Analytics
International, Inc., was incorporated on July 17, 1986 and on September 2, 1986
the Company was reincorporated as a Delaware Corporation by merging the Colorado
Corporation with assets into the Delaware Corporation.
On December 17, 1997, the shareholders of Advanced Business Sciences, Inc., a
Nebraska Corporation, concluded a share exchange with the Company. Following the
exchange of shares the Nebraska Corporation became the wholly owned subsidiary
of the Company and control of the Company was transferred to the shareholders of
the Nebraska Corporation.
The purpose for which the Company is organized is to own, engage in, operate and
carry on any lawful business, and to do all things incidental thereto or
connected therewith which are not forbidden by the laws of the states of
Delaware and Nebraska. The Company designs, develops, produces, sells and
supports wireless products and services relating to the tracking, monitoring,
and reporting of individuals and things. Currently the Company's business
relates to criminal justice applications for house arrest and electronic
monitoring.
The Company is considered to be a development stage company.
NOTE #2 - Significant Accounting Policies
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period when
the goods are shipped to the customer.
C. The Company considers all short term, highly liquid investments that are
readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Basic Earnings Per Shares are computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted Earnings Per Share shall be computed
by including contingently issuable shares with the weighted average shares
outstanding during the period. When inclusion of the contingently issuable
shares would have an antidilutive effect upon earnings per share no diluted
earnings per share shall be presented.
E. Inventories: Inventories are stated at the lower of cost, determined by
the FIFO method or market.
F. The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. The cost of leasehold improvements is
amortized over the lesser of the length of the lease of the related assets
of the estimated lives of the assets. Depreciation and amortization is
computed on the straight line method.
40
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies -Continued-
G. Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
H. New Technical Pronouncements: In 1997, SFAS No. 129, "Disclosure of
Information about Capital Structure" was issued effective for periods
ending after December 15, 1997. The Company has adopted the disclosure
provisions of SFAS No. 129 effective with the fiscal year ended December
31, 1998.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued
effective for fiscal years beginning after December 31, 1997, with earlier
application permitted. The Company has elected to adopt SFAS No. 130
effective with the fiscal year ended December 31, 1998. Adoption of SFAS
No. 130 is not expected to have a material impact on the Company's
financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued for fiscal year beginning after
December 31, 1997, with earlier application permitted. The Company has
elected to adopt SFAS No. 131, effective with the fiscal years ended
December 31, 1998. Adoption of SFAS No. 131 is not expected to have a
material impact on the Company's financial statements.
NOTE #3 - Reverse Takeover and Recapitalization
Pursuant to a Plan and Agreement of Reorganization dated November 3, 1997,
Advanced Business Sciences, Inc., a Nebraska Corporation, (the legal acquiree)
and Sage Analytics International, Inc., a Delaware Corporation, (the legal
acquirer) exchanged common stock to give the shareholders of the legal acquiree
control of the legal acquirer.
Shareholders of the legal acquiree surrendered 100% of the outstanding shares
(80,000 shares) in exchange for 6,600,000 shares of the legal acquirer. Each
share of the legal acquiree was exchanged for 82.5 shares of the legal
acquirer's previously unissued common stock. As part of the agreement the legal
acquirer issued 450,000 shares to persons as finders fees.
Following the exchange the shareholders of the legal acquiree held 6,600,000
shares of the 7,487,099 issued shares of the legal acquirer (88.2%).
On December 18, 1997, Sage Analytics International, Inc., the legal acquirer,
filed a Certificate of Amendment with the Secretary of State of the state of
Delaware changing its name to Advanced Business Sciences, Inc.
41
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #3 - Reverse Takeover and Recapitalization -Continued-
The share exchange of a private operating Company, (Advanced Business Sciences,
Inc.) into a non-operating public shell corporation (Sage Analytics
International, Inc.), with no assets or liabilities resulted in the shareholders
of the private company having actual operating control of the combined company
after the transaction, and the shareholders of the former public shell
continuing only as passive investors.
This transaction is considered to be a capital transaction in substance, rather
than a business combination. That is, the transaction is equivalent to the
issuance of stock by the private company for the net monetary assets of the
shell corporation, accompanied by a recapitalization. The accounting is
identical to that resulting from a reverse acquisition, except no goodwill or
other intangible is recorded.
APB No., 16, paragraph 70 states that, "Presumptive evidence of the acquiring
corporation in combinations effected by an exchange of stock is obtained by
identifying the former common stockholder interest of a combined company which
either retains or receives the larger portion of the voting rights of the
combined corporation. That corporation should be treated as the acquirer unless
other evidence clearly indicates that another corporation is the acquirer."
Staff accounting Bulletin Topic 2A affirms the above principle and gives
guidelines that the post reverse-acquisition comparative historical financial
statements furnished for the legal acquirer should be those of the legal
acquiree.
In accordance with this guideline the outstanding shares of Advanced Business
Sciences, Inc., have been retroactively restated on the Balance Sheet, and the
Statement of Stockholders' Equity to give effect to the 82.5 shares for 1 share
exchange. The retroactively restated shares have been used in the Computations
for Earnings (Losses) Per Share to preserve comparability of those figures.
NOTE #4 - Property and Equipment and Depreciation Expenses
The Company capitalized the purchase of equipment for merger purchases in excess
of $500 per item. Capitalized amounts are depreciated over the estimated useful
life of the assets as follows:
Estimated
Property & Equipment Useful Life
-------------------- -----------
Furniture & Equipment 5 to 7 Years
Leasehold Improvements 3 Years
Leased Equipment 2 to 3 Years
42
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #4 - Property and Equipment and Depreciation Expenses -Continued-
Property and equipment at cost are as follows:
1999 1998 1997
---- ---- ----
Furniture & Equipment ...................... $610,092 $571,779 $549,514
Leasehold Improvements ..................... 16,326 16,326 77,585
Intellectual Property ...................... 169,000 169,000 -0-
Leased Equipment ........................... 193,481 194,236 29,039
Total Cost ............................... 988,899 951,341 656,138
Less Accumulated Depreciation ............ 500,008 346,277 237,402
------- ------- -------
Net Book Value ........................... $488,891 $605,064 $418,736
======== ======== ========
Depreciation and Amortization Expenses ..... $153,731 $172,221 $130,917
In 1998, the Company reduced the size of its office and warehouse space in
Omaha, Nebraska. Leasehold improvements and equipment that could not be moved
were written off.
NOTE #5 - Patents
The Company has filed three Petitions to the Commissioner of Patents and
Trademarks on an apparatus and methods for continuous Electronic Monitoring and
Tracking of individuals. The original application was filed on December 30,
1994. In 1997 a new Continuation in Part Patent Application was filed to further
pursue protection for the subject matter presented in the original applications.
NOTE #6 - Payroll Taxes
In January 1999, the Company paid the Internal Revenue Service $162,646 which
represented the balance of the withheld and accrued Federal Withholding, Social
Security and Medicare taxes for the quarterly tax periods ending September 30,
1996, December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997.
After the payment the Company owed $57,794 in penalties and interest associated
with the aforementioned quarterly payroll taxes. The Company has requested the
Internal Revenue Service to abate these penalties and interest.
NOTE #7 - Restatement of 1997 Issuance of Shares In Satisfaction of Notes
Payable
In 1997, the Company issued 799,507 shares of its common stock, for satisfaction
of debt in the amount of $1,770,355. In 1998, the Company learned that it had
obligations of $87,453 that required payments in cash and was not settled by the
issuance of the shares of stock. In 1998, the cash obligation was paid and the
issuance of the 799,507 shares of stock for $1,770,355 was restated to 799,507
shares of stock issued for satisfaction of debt of $1,682,902.
43
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #8 - Intellectual Property
In 1998, the Company paid $80,000 and incurred $89,000 as an account payable for
the design of the logics and in source code for the software that runs and
displays the support for house arrest monitoring programs. The Company will use
the intellectual property to have manufactured to its specification equipment to
be used in its sales of monitoring and tracking devises. The logics and the In
Source Code for the software will be amortized on a ratio of the current revenue
to anticipated total revenues from the sale of the product or a straight line
amortized of the product master cost over the estimated three year useful life
of the product master.
In 1998, the Company purchased a Software License Agreement with a developer
from California, a license for the software of a technology for use in the
Global Position System Market. The Company paid $4,995 for the software to
operate the license and capitalized it as software with a three-year life. The
License is of an unspecified length of time but the Company feels that the
technology will be outdated with the three-year life period.
NOTE #9 - Acquisition and Rescission of Comguard Leasing and Financial, Inc.
On August 24, 1998, the Company entered into a Plan and Agreement of
Reorganization, pursuant to which the Company acquired all of the issued and
outstanding shares of capital stock of Comguard Leasing and Financial, Inc., an
Illinois Corporation. On June 1, 1999, the Company, Comguard Leasing and
Financial, Inc., and the shareholders of Comguard Leasing and Financial, Inc.,
entered into and agreement whereby the 2,191,145 shares of the Company's shares
issued to acquire Comguard Leasing and Financial, Inc., would be returned to the
Company and the Company would receive a note from Comguard Leasing and
Financial, Inc., in the amount of $88,514 which represents the expenditures made
by the Company on behalf of Comguard Leasing and Financial, Inc.
Because the Company had control of Comguard Leasing and Financial, Inc. on a
temporary basis, accounting was done using the cost method and in compliance
with FAS 94 P. 13 that states "a majority-owned subsidiary shall not be
consolidated if control is likely to be temporary."
NOTE #10 - Litigation
The Company has been named as a Defendant in a suit filed in the Montana
Eighteenth Judicial District Court, Gallatin County, Montana. The complaint
against the Company alleges breach of a contract and requests an award of
compensatory and consequential damages in an amount to be determined at trial,
costs and attorney fees as allowed by law.
The Company answered the complaint, has denied all material allegations
contained in the complaint, has asserted eight affirmation defenses and has
asserted a counterclaim.
Insufficient discovery has taken place to make an evaluation of the potential
outcome of the litigation. The Company cannot estimate any possible loss from
the litigation.
44
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #11 -Stock Subscription Receivable
On December 30, 1998, the Company issued to a related party,
(stockholder/officer), 299,726 shares of its common stock at $2.00 per share for
a Stock Subscription Receivable of $599,452. As of June 1, 1999, the Company had
received payment in full of the stock subscription receivable.
NOTE #12 - Short Term and Long Term Debt
The Company has the following short term and long term debt.
Short Term Debt 1999 1998 1997
- --------------- ---- ---- ----
Term note payable to a commercial
bank #1, due June 1, 1999
Interest Rate 10.50% ................... $ 1,000,000 $ 1,000,000 $ -0-
Term note, payable to a commercial
bank and others #2, due October 5, 1999,
interest at 8% per annum ................ 998,767 998,768 -0-
Term note payable to a commercial bank
#3, due January 31, 2000 entered at prime
rate, announced by the bank,
plus 2.5% .............................. 998,013 -0- -0-
Note payable to shareholder,
non interest, due on demand ............. -0- 36,000 87,453
Note payable to a Commercial Bank #4,
due December 30, 1999 at a prime rate of
8.25% plus a variable factor
of 5.00 over prime rate ................. 200,000 -0- -0-
Note payable to an Officer -
Due on Demand at 0% Interest ............ 184,996 -0- -0-
Note payable to an Individual ..........
Due on Demand at an annual interest
rate of 9% ............................. 200,000 -0- -0-
------- ------------ ---------
Total Short Term Debt ................... $3,581,776 $ 2,034,768 $ 87,453
========== =========== =========
On April 1, 1998, the Company issued 1,000,000 shares to certain individuals as
consideration for these individuals giving their unconditional guaranty of
indebtedness incurred by the Company with commercial banks #1 and #2.
On March 15, 1999, the Company issued to certain directors, officers and
stockholders of the Company in the aggregate 500,000 Common Shares and Warrants
to purchase in the aggregate 500,000 Common Shares at an exercise price of $1.00
per share. The warrants are exercisable at any time on or before October 31,
2000. These securities were given in consideration for direct loans to the
Company or for giving unconditional guaranties to such loans.
45
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Short Term and Long Term Debt -Continued-
Long-Term Debt 1999 1998 1997
- -------------- ---- ---- ----
Capitalized equipment lease, payable
in twelve (12) monthly installments of
$7,605, including imputed interest at 9%,
with a bargain purchase option of $18,
through August 1997. This lease is
currently in default. $ -0- $ -0- $ 33,948
Capitalized equipment lease, payable
in twenty-four (24) to forty-eight (48)
monthly installments of $1,481, and
$1,264 respectively, including imputed
interest at 14.73%, through
September 1998. 56,948 69,653 -0-
10% convertible subordinated debentures,
due June 2002, convertible into shares
of common stock at $500 per share
(pre-reverse takeover) in accordance
with a Private Placement Memorandum
dated May 15, 1996. 80,000 80,000 180,000
------ ------ -------
Total Long-Term Debt 136,948 149,653 213,948
Less Current Portion 20,039 25,978 133,948
------ ------ -------
Long-Term Debt $ 116,909 $ 123,675 $ 80,000
========== ========== ===============
The aggregate maturities of long-term debt for the years ending after December
31, 1998 are as follows:
Years Ending
December 31, Amount
------------ ------
1999 $ 25,978
2000 20,039
2001 13,148
2002 90,488
---- ------
Total $ 149,653
============
46
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #13 - Taxes
The Company accounts for income taxes in accordance with SFAS No., 109,
Accounting for Income Taxes, which requires an asset and liability approach to a
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
The Company has net operating losses to carryforward for future tax purposes as
follows:
Year of Loss Amount of Loss Expiration Date
------------ -------------- ---------------
December 31, 1995 $ 655,468 2015
December 31, 1996 2,845,977 2016
December 31, 1997 1,825,259 2017
December 31, 1998 3,446,012 2018
Net deferred taxes in the accompanying balance sheets include the following
components as of December 31, 1998 and 1997:
1998 1997
---- ----
Deferred Tax Asset $ 2,972,583 $ 1,800,939
Net Operating Loss Carryforward
Valuation Allowance ( 2,972,583) ( 1,800,939)
Net Deferred Tax Asset $ -0- $ -0-
Current Tax Expense $ -0- $ -0-
The Company has established the valuation allowance at 100% of maximum tax
benefit because it is uncertain if the net loss carryforwards will result in tax
asset benefits.
47
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock,
$.01 par value, per share. The Preferred shares may be issued from time to time
in one or more series. The Board of Directors is authorized to fix the number of
shares of any series of Preferred shares and to determine the designation of any
such series. The Board of Directors is also authorized to determine or alter the
rights, preferences, privileges, and restrictions granted to or imposed upon any
wholly, unissued series of Preferred shares and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series than outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series.
No preferred shares are issued.
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock $0.001
par value, per share.
Common Stock Issued for Services and Other Non-Cash Transactions
The Company issued 583,688 post reverse takeover shares to acquire the
assignment, rights, titles and interest in an invention valued at $707
disclosed in the Company's Patent Application on January 1, 1995.
In 1997, the Company issued 165,000 post reverse takeover shares as
incentive for accounts payable. No value assigned to the shares issued.
In 1997, the Company issued 82,500 post reverse takeover shares for
services rendered valued at $10. An additional 2,063 post reverse takeover
shares were issued to an employee as payment of bonus compensation valued
at $5,103.
Pursuant to the Plan and Agreement of Reorganization between the Company
and Sage Analytics International, Inc., the Company issued 450,000 shares
as finders fees value at $450.
Common shares of the Company's post reverse takeover stock, owned by the
shareholders of Sage Analytics International, Inc., are 437,099 shares.
48
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
Pursuant to a Plan and Agreement of Reorganization dated August 24, 1998,
the Company issued 2,191,145 shares of common stock to acquire 100% of
Comguard Leasing and Financial, Inc., an Illinois Corporation, outstanding
stock. An agreement dated June 1, 1999, rescinded the agreement of August
24, 1998 and required the return of the 2,191,145 shares of common stock.
The Company issued 242,500 shares of its common stock as compensation to
outsiders in conjunction with the acquisition of Comguard Leasing and
Financial, Inc. These shares will not be returned to the Company pursuant
to the June 1, 1999, agreement.
The Company issued 457,750 shares of its common stock as payment of
employee bonuses for 1998 valued at $45,775.
The Company issued 1,000,000 shares of its common stock to Guarantor's of
the Companies loans with two Commercial Banks, (bank #1 and bank #2). The
guarantor fees were valued at $100,000.
In 1999, the Company issued 152,000 shares of common stock as payment of
accrued 1998 bonuses to employees valued at $15,200.
In 1999, the Company issued 500,000 shares to the makers and their
Guarantors of the credit line at a Commercial Bank, (bank #3). The
Guarantor's fees were valued at $50,000.
Stock Split
Concurrent with the Reverse Takeover and Recapitalization described in Note
#13 the outstanding shares of the Company, (the legal acquiree) were split
82.5 shares for one share. Retroactive restatement of shares outstanding in
the financial statements has been reflected.
Precedent to the Reverse Takeover and Recapitalization the outstanding
shares of Sage Analytics International, Inc., (the legal acquirer) were
split on a one share for twenty shares basis. Shares of the legal acquirer
and all options and warrants thereby issued have been retroactively
restated.
Options and Warrants
Sage Analytics International, Inc., the legal acquirer, (see Note #3) had
140,825 options, with exercise prices ranging from a minimum of $7.50 to a
maximum of $70.00. All of these options expire no later than November 2003.
49
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
The legal acquirer also had 7,065 warrants issued at the date of
acquisition, each of which entitles the holder thereof to purchase ten
shares of common stock at $12.50 per share of common stock. All warrants
expire in or around June 1999.
Pursuant to a Private Placement Memorandum, the Company issued 1,250,000
units during 1998. Proceeds of the units provided the Company $2,500,000.
Each unit issued consisted of one share of common stock $.001 par value per
share and one redeemable common stock purchase warrant. Each warrant
entitles the holder thereof to purchase one share of common stock at a
price of $3.00 during the first year, $4.00 during the second year and
$5.00 during the third year, after which time the exercise period will
expire. The exercise prices are subject to adjustments to prevent dilution,
for three years from the date of the memorandum (February 1, 1998).
The outstanding warrants are redeemable at the Company's option at $.05
each on 30 days prior written notice at any time after the closing price of
common stock has equaled or exceeded 200% of the then effective exercise
price for twenty consecutive trading days.
Prior to the reverse takeover as described in Note #3, the legal acquirer
reverse split its outstanding shares on a one for twenty, basis.
Convertible Debentures and Notes Payable
In 1997, the Company issued 2,177,999 post reverse takeover shares to
settle subordinated debentures, notes payables and accrued interest
totaling $3,772,964.
Deficit Accumulated in the Development Stage
The Company is considered to be a development stage company. Operations
have not produced significant revenues and expenditures for operating
expenses exceed revenues by $9,499,948.
This amount is considered to be the deficit accumulated during the
development stage.
NOTE #15 - Going Concern
The accompanying financial statements of Advanced Business Sciences, Inc., have
been prepared on a going-concern basis, which contemplates profitable operations
and the satisfaction of liabilities in the normal course of business. There are
uncertainties that raise substantial doubt about the ability of the Company to
continue as a going concern. As shown in the statements of operations, the
Company has not yet achieved profitable operations. As of March 31, 1999, the
Company has insufficient working capital. These items raise substantial doubt
about the ability of the Company
50
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #15 - Going Concern -Continued-
to continue as a going concern.
Management presently believes that the Company is in the final development stage
of its electronic tracking and monitoring devices and the delivery of services
relating to these devices. Although there has been substantial progress in the
development of this technology, the Company does not have any significant sales
and there can be no assurance that the Company will have any significant sales.
Management plans to continue financing development of the Company's technology
through the plan described herein.
Advanced Business Sciences, Inc., has been acquired by a public company. The
Plan and Agreement requires the Company stockholders to exchange their common
stock for approximately 90% of the common stock in the public company. The new
public company is proceeding with a private placement offering intended to raise
2.5 million dollars to be used for the elimination of debt, reduction of
outstanding trade accounts payable, product development and working capital.
The Company's continuation as a going concern is dependent upon its ability to
satisfactorily meet its debt obligations, meet its product development goals,
secure new financing and generate sufficient cash flows from operations. The
financial statements do not include any adjustments that might result from
outcome of these uncertainties.
NOTE #16 - Lease Obligations
The Company conducts its operations in leased facilities and has entered into
leases for warehouse and office space. In addition the Company has an operating
lease for a telephone system and voice processing system. The future minimum
lease payments under the three operating leases as of December 31, 1999 are as
follows:
Years Ending Lease
December 31, Amount
------------ ------
1999 $ 76,735
2000 76,735
2001 70,340
Total $ 223,810
NOTE #17 - Extinguishment of Debt
The Company was a beneficiary of the stock agreement dated May 6, 1997, between
the majority stockholder, Robert D. Brummels, his son, Tim R. Brummels, and ABS
Holding Co., Inc. The terms and conditions of this stock agreement resulted in
Robert D. Brummels assuming several notes payable to American Interstate Bank
totaling $452,608 including interest. Robert D. Brummels also
51
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #17 - Extinguishment of Debt -Continued-
assumed a term note payable to Norwest Bank totaling $102,055 including
interest. Additionally, the Company was released of the notes payable to Tim R.
Brummels including interest totaling $108,000.
In return, the Company released Robert D. Brummels and Tim R. Brummels of their
obligation to the Company totaling $82,981 and $9,781, respectively.
Furthermore, the Company co-signed an ABS Holding Co., Inc., note payable to
Robert D. And Tim R. Brummels in the amount of $300,000. Finally, Robert D., and
Tim R. Brummels resigned their positions as Board of Director members, officers,
agents and employees of the Company. As a result of this stock agreement, the
Company recognized a gain of $569,901 resulting from the extinguishment of debt.
NOTE #18 - Contingencies and Commitments
On February 1, 1998, the Company issued 1,250,000 units having an aggregate
purchase price of $2,500,000. A unit consisted on one Common Share and a warrant
to purchase one Common Share at an exercise price of (1) $3.00 per share during
the first year, (2) $4.00 per share during the second year and (3) $5.00 per
share during the third year. The warrants expire February 1, 2001. All but
sixteen investors in this offering were accredited investors. The Company's
management believes that this transaction was in substantial compliance with
Rule 506 under the Securities Act; however, the Company may have a contingent
liability for an undetermined amount.
The Company entered into an Agreement with a business executive to act as its
President and Chief Executive Officer on February 1, 1999. Under terms of the
Agreement the executive will act as President, Chief Executive Officer and a
voting Director of the Company.
The Contract will commence on February 1, 1999 and continue through the third
anniversary of that date. Thereafter the contract may be renewed annually and
continue on the same terms and conditions for an indefinite term until
termination in accordance with the terms of the Agreement.
The executive shall be compensated for his services at the rate of $150,000
annually to be paid in accordance with the Company normal payroll practices.
The executive shall be eligible for an annual bonus in accordance with criteria
established by the Board each year.
As discussed in note #19, the executive shall receive 1,000,000 shares of common
stock as a hiring incentive.
The Company has signed and filed with the state of Nebraska UCC, financing
statements attached to the bank #1 loans. This Financing Statement covers the
following types (or items) of property.
52
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #18 - Contingencies and Commitments -Continued-
All inventory, chattel paper, accounts, equipment and general intangibles;
whether any of the foregoing is owned now or acquired later; all accessions,
additions, replacements, and substitutions relating to any of the foregoing; all
records of any kind relating to any of the foregoing; all proceeds relating to
any of the foregoing (including insurance, general intangibles and other
accounts proceeds).
NOTE #19 - Subsequent Events
On February 1, 1999, the Company contractually committed to its President and
Chief Executive Officer as a hiring incentive to issue the executive 1,000,000
shares of the Company's common stock at no cost. Such shares shall be issued as
registered shares. At the date of this report these shares have not been issued.
53
<PAGE>
Supplemental Information
54
<PAGE>
Schvaneveldt & Company
Certified Public Accountant
275 East South Temple, Suite #300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Independent Accountants' Audit Report on Supplemental Information
Board of Directors and Stockholders
Advanced Business Sciences, Inc.
Omaha, Nebraska
The audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental information presented hereinafter
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Schvaneveldt & Company
June 7, 1999
Salt Lake City, Utah
55
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Schedules of Expenses
For the Period January 1, 1999 to June 30, 1999 (Unaudited)
and the Years Ended December 31,1998 and 1997
June December December
30, 1999 31, 1998 31, 1997
-------- -------- --------
Expenses
- --------
Salaries and Wages .......... $ 416,295 $ 666,650 $ 712,370
Bad Debt .................... -0- -0- 4,011
Bank Charges ................ 1,114 1,041 4,549
Commissions ................. -0- -0- -0-
Consulting Fees ............. 60,000 380,099 41,103
Contract Labor .............. 71,911 43,392 -0-
Depreciation and Amortization 153,732 172,221 130,917
Donations ................... 53,972 325 -0-
Dues and Subscriptions ...... 4,955 3,456 9,410
Employee Hiring Costs ....... 1,462 2,908 -0-
Equipment Rental ............ 9,345 14,190 14,830
Freight ..................... 1,424 13,001 -0-
Insurance:
General .................. 25,241 48,103 45,684
Health ................... 35,985 38,145 41,687
Meals and Entertainment ..... 8,549 16,391 4,027
Miscellaneous ............... 4,480 5,382 18,851
Office Supplies ............. 10,815 24,296 3,961
Penalties ................... -0- 58,391 2,556
Postage ..................... 1,479 3,115 -0-
Professional Fees ........... 90,981 154,510 92,040
Rent ........................ 38,759 70,337 84,002
Repairs and Maintenance ..... 52 3,266 -0-
Security Expense ............ -0- 1,140 8,749
Supplies .................... 1,391 8,429 -0-
Taxes:
Payroll .................. 46,972 51,988 82,356
Other .................... 4,435 25,195 3,539
Telephone ................... 83,955 92,590 92,078
Training .................... -0- -0- 1,035
Travel ...................... 15,363 36,933 42,972
Utilities ................... 1,042 14,507 17,003
Vehicle Expense ............. 4,808 23,399 16,699
Inventory Obsolence ......... -0- 202,996 46,789
Settlement Costs ............ -0- -0- 27,178
-----------------------------------
Total Expenses ......... $1,148,517 $2,176,396 $1,548,396
========== ========== ==========
See Independent Accountant's Audit Report on Supplemental Information
56
<PAGE>
Advanced Business Sciences, Inc.
Expense Schedule
For the Period January 1, 1999 to June 30, 1999 (Unaudited) and
the Years Ended December 31, 1998 and 1997
1999 1998 1997
---- ---- ----
Research & Development
Salaries ........................ $ 46,321 $ 95,219 $180,185
Telephone ....................... 4,133 55,527 71,179
Materials & Supplies ............ 4,990 299,900 32,065
Testing ......................... 328,545 49,982 -0-
------- ------ -------
Total Research & Development $383,989 $500,628 $283,429
======== ======== ========
Sales & Marketing
Consultant Fees ................. $ -0- $ -0- $ 98,443
Salaries ........................ 98,009 165,985 197,351
Payroll Taxes ................... 8,958 13,796 -0-
Contract Labor .................. -0- 16,650 -0-
Commissions ..................... -0- 948 -0-
Sales Shows Expenses ............ 2,647 17,222 10,581
Marketing/Sales Brochures ....... 10,318 46,999 -0-
Advertising ..................... 44,171 31,305 10,582
Entertainment & Meals ........... 3,306 2,715 -0-
Telephone ....................... 4,490 18,130 7,672
Office Supplies ................. 2,536 1,814 -0-
Travel .......................... 21,404 68,731 28,287
Supplies & Miscellaneous ........ 13,077 42,825 31,136
------ ------ ------
Total Sales & Marketing .... $208,916 $427,120 $384,052
======== ======== ========
See Independent Accountant's Audit Report on Supplemental Information
57
<PAGE>
PART III.
Item 1. Index to Exhibits
See Item 2 of this Part III.
Item 2. Description of Exhibits
Exhibit
Number Description
- ------ -----------
3.01 Restated Certificate of Incorporation of the Company*
3.02 Restated Bylaws of the Company*
4.01 Form of Common Stock Certificate*
10.01 Business Office Lease*
10.02 Loan Agreement with Commercial Savings Bank*
10.03 Loan Agreement with US Bank, N.A.*
10.04 Loan Agreement with Mary Collison*
10.05 Loan Agreement with James Pietig*
10.06 License with SiRF Technology, Inc.*
10.07 Employment Agreement by and between the Company and Benjamin J. Lamb*
21.01 Subsidiaries of the Company *
27.01 Financial Data Schedules
* Previously filed.
58
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED BUSINESS SCIENCES, INC.
By: /s/ Benjamin J. Lamb
-------------------------
Date: October 15, 1999 Benjamin J. Lamb
==========
President and Chief Executive Officer
59
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