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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10K-SB
Advanced Business Sciences, Inc.
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(Name of Small Business Issuer in its charter)
DELAWARE 87-0347787
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(State of incorporation) (IRS Employer Identification No.)
3345 No. 107th Street, Omaha, Nebraska 68134
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(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)
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(Title of class)
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PART I.
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Item 1. Description of Business
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(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 (14) states:
Arizona, Illinois, Minnesota, Iowa, New Jersey, Indiana, Ohio, Texas,
Louisiana, Wisconsin, Colorado, South Carolina, New York, and Maryland.
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
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Company conducted no business operations from in or about April 1996, until
the completion of the Share 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 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.
(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 1,102,653 state prisoners and 107,381
federal prisoners for a total of 1,210,034. 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. From the yearend 1985 to midyear 1998, the number of
inmates in the Nation's prisons and jails grew more than 1,058,000, an
annual increase of 7.3%, according to the Department of Justice Bureau of
Justice Statistics. The Department of Justice has projected an annual
growth equal to this historical rate.
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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According to the National Institute of Justice, electronic monitoring
offers two distinct advantages over incarceration, 1) it reduces the
public's tax burden by allowing the offender to work and, subsequently, to
pay for electronic monitoring costs, and 2) it reduces prison and jail
overcrowding by providing a viable alternative to incarceration.
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
December 31, 1999, the Company had approximately 28 of its GPS-based
tracking units in use in the criminal justice system in Arizona, Indiana,
Minnesota, Texas, New York, Ohio, New Jersey, and Wisconsin.
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 6. Management's Discussion and Analysis or
Plan of Operation."
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(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:
- 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.
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- 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.
SiRF Technology Incorporated licenses the integrated circuit
board and assists the Company in the development of GPS circuit
designs. Prism Resources Inc. 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.
(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 the following 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 wristwatches. 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 radio frequency 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
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- 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 radio
frequency 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") is one billion-hertz. Microwave radiation is a high-
frequency form of radio frequency radiation usually defined as from about
300 MHz to 300 GHz.
Familiar uses of radio frequency 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 radio frequency 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.
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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. Radio link or other
electronic means may then transmit corrections. The U.S. Coast Guard, for
example, maintains a network of differential monitors and transmits
differential GPS corrections over radio beacons 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 units 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 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.
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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 radio frequency 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 to government specifications. The FCC's
authorization is pending with respect to the Company's products.
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 objects 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, warrant-less 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.
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(ix) Research and Development
During 1997, 1998 and 1999, the Company expended $283,429, $500,628
and $1,096,357, 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.
Employees
The Company as of March 24, 2000 has 19 full-time employees', 1 part-
time employee and 3 contract employees on staff.
Item 2. Description of Property
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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 3. Legal Proceedings
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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
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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. On December 3,
1999, the parties entered into a stipulation for settlement. Under the
terms of this settlement, the defendant agreed to pay the sum of $25,000
payable in two equal installments due on December 10, 1999, and May 10,
2000, respectively. When the defendant makes such payment, the plaintiff
will cause the action to be dismissed with prejudice and will release the
defendant of all claims.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
PART II
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Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
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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.
From July 2, 1999 through the end of December 31, 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.
On February 29, 2000, the Company's common stock was relisted on the
OTC Bulletin Board under the trading symbol ABSH.
<TABLE>
<CAPTION>
Year Quarter High Low
-------------- ------------- -------------- -------------
<S> <C> <C> <C>
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 $1.1875 $0.5313
3rd $1.00 $0.1250
4th $0.6250 $0.1250
</TABLE>
The source of the foregoing information is Bloomberg, LP Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of January 31, 2000, there were outstanding 14,498,540 Common
Shares held of record by 434 stockholders. There are no shares of
Preferred Stock presently outstanding.
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Item 6. 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 individuals being tracked by units being monitored or
leased for the period indicated. Prior to January 1, 1999, the Company the
number of individuals that were monitored and had leased units was the same
as they appear in the table below. Since January 1, 1999, the Company
monitored and leased units to 190, 180, 135 and 390 individuals in each
quarter ended for 1999. The remainder of 562, 377, 276 and 150 in each
quarter for 1999, respectively, were monitored individuals only.
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
-------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
1997 33 9 34 43 119
1998 24 27 49 58 158
1999 752 557 411 540 2,260
</TABLE>
The following table provides a breakdown of selected results of operations
for the years ended December 31, 1999, 1998 and 1997, and is the basis for
the following discussion of the results of operations:
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<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
December December December
31, 1999 31, 1998 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues 178,074 49,353 26,100
Cost of Sales 103,234 90,146 22,867
Gross Profit (Loss) 74,840 (40,793) 3,233
Expenses
Research and Development 1,096,357 500,628 283,429
Sales and Marketing 403,933 427,120 384,052
General and Administrative 2,738,607 2,530,796 1,548,396
------------- ------------- -------------
Total Expenses 4,238,897 3,458,544 2,215,877
------------- ------------- -------------
Loss from Operation (4,164,057) (3,499,337) (2,212,644)
Other Income and Expense
Interest Income 43,707 - 4,172
Other Income 10 - -
Loss on Sale of Property
and Equipment (9,610) (349) (2,876)
Interest Expense (332,128) (206,426) (183,812)
Asset Abandonment (2,849) (94,300) -
------------- ------------- -------------
Total Other Income
and Expense (300,869) (301,075) (182,516)
------------- ------------- -------------
Loss Before Extraordinary Item
and Provision for Income Taxes (4,464,926) (3,800,412) (2,395,160)
Extraordinary Item
Gain from Extinguishment of Debt,
Net of Income Taxes - - 569,901
------------- ------------- -------------
Loss Before Provisions for
Income Taxes (4,464,926) (3,800,412) (1,825,259)
Provision for Income Taxes - - -
------------- ------------- -------------
Net Loss $(4,464,926) $(3,800,412) $(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 for maintenance and repair of equipment. For the year ended
December 31, 1999, revenue increased $128,721 to $178,074, an increase of
260.8% over the comparable period of 1998 of $49,353. The increase in
revenue is a result of an increase in the number of individuals being
monitored and leased in 1999 (2,260) as compared to the same period in 1998
(158).
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 individuals monitored and leased
to 158 in 1998 compared to 51 individuals for the same comparable period in
1997.
13
</Page>
<PAGE>
(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 year ended December 31, 1999, Cost of
Sales was $103,234, or 58.0% of revenues, compared with $90,146, or 182.7%
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 year 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 year ended December 31, 1999, Gross Profit for the Company
increased $115,633, to $78,840, compared to a Gross Profit of $(40,793) for
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.
For the year 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 year ended
December 31, 1999, Research and Development expenses increased $595,729 to
$1,096,357, compared to $500,628 for the comparable period of 1998. The
increase is a result of the Company's design and development work of its
Series 2000 product in the third and fourth quarters of 1999.
Research and Development expenses increased $217,199 in the year ended
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.
14
</Page>
<PAGE>
(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 year ended December 31,
1999, Sales and Marketing expenses decreased $23,187 to $403,933, compared
to $427,120 for the comparable period of 1998. The decrease is a result of
less travel and marketing supplies as compared to the same year end period
of 1998.
Sales and Marketing expenses increased $43,068 to $427,120 in the year
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 year ended December 31, 1999, General and Administrative expense
increased $207,811 to $2,738,607, from $2,530,796 for the comparable period
of 1998. The primary reason for the increase was an increase in
depreciation and amortization expense attributable to an increase in the
number of units in operation.
For the year ended December 31, 1998, General and Administrative
expense increased by $982,400 to $2,530,796, 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 year ended December 31, 1999, Loss from Operations increased
$664,720 to $(4,164,057), compared to $(3,499,337) 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 year ended December 31, 1998, Loss from Operations increased
by $1,286,693 to $(3,499,337), 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 $982,400 increase
in General and Administrative expense, $43,068 higher Sales and Marketing
expense, and $44,026 lower Gross Profit, for the reasons discussed above.
(h) Interest and Other Income
For the year ended December 31, 1999 the Company Interest Income of
$43,707 compared to 0 for the comparable period of 1998. The primary
reason for the Interest Income in the period was a write off of a disputed
lease, which has been resolved.
15
</Page>
<PAGE>
(i) Loss on Sales of Property and Equipment
For the year ended December 31, 1999 the Company incurred a loss on
the sale of certain computer equipment of $9,610 as compared to $349 for
the same comparable period in 1998.
(j) Interest Expense
For the year ended December 31, 1999, Interest expense increased
$125,702 to $332,128, compared to Interest expense of $206,426 in the
comparable period of 1998. This interest expense increase was due to
larger outstanding balances in Company's borrowings for 1999 when compared
to 1998.
For the year ended December 31, 1999, 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.
(k) Asset Abandonment Charge
For the year ended December 31, 1999, the Company incurred a charge
for Asset Abandonment of $2,849 compared to $94,300 for the same period in
1998. This charge is the result of adjustments to the Company's property
and equipment assets to reflect obsolete or unusable assets.
(l) Extraordinary Items, Gain from Extinguishment of Debt
For the year ended December 31, 1997, the Company recognized a gain
from extinguishment of debt of $569,901.
(m) Net Loss
For the year ended December 31,1999, the Company had a Net Loss of
$4,464,927 or $(.38) per share, compared to a Net Loss of $3,800,412 or
$(.40) per share, in the comparable period of 1998, for the reasons
described above.
For the year ended December 31, 1997, the Company had a Net Loss of
$(1,825,259), or $(.33) per share.
(n) Liquidity and Capital Resources
For the year ended December 31, 1999, the Company used $(3,723,640) of
cash in operating activities and another $(334,155) in investing
activities. It generated $3,688,046 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 twelve month period of $(369,749). The
Company is a development stage company, which continues to incur high
levels of development expenses in researching and designing its products.
The reduction in cash over the past twelve-month period is a result of this
continued development. For the year 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.
16
</Page>
<PAGE>
The Company continues to seek additional financing or funding sources,
including possible sale of securities. No assurance can be given that the
Company will be able to obtain such additional funding or financing, or a
renewal of its line of credit or be able to obtain financing on
satisfactory terms.
As of December 31, 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 was due in a single payment on
August 15, 1999, 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 January 15, 2000, the Index
Rate was eight and one-quarter (8.50) percent. This loan is secured by a
security interest in the Company's tangible and intangible assets. The
Company received an extension of this note until March 2, 2000 and is
currently negotiating another extension to this note.
The Company has borrowed the principal sum of $999,767.13 from
Commercial Savings Bank of Carroll, Iowa. The loan was due on October 5,
1999, together with accrued interest. The interest rate is eight percent
(8%) per annum. The Company renewed this note until April 5, 2000.
The Company has borrowed the principal sum of $499,021 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 has borrowed the principal sum of $850,000 from United
Bank of Iowa of Carroll, Iowa. The loan had an original maturity date of
December 30, 1999 and has been extended until April 15, 2000. The interest
rate is eight and one-quarter (8.25)% per annum.
The Company has borrowed the principal sum of $500,000 from Templeton
Savings Bank of Templeton, Iowa. The loan is due June 14, 2000 and carries
an interest rate of nine (9)% per annum.
The Company as borrowed an additional $810,396 from individuals and an
Officer which are payable on demand and have varying interest rates from
0.0% to 9.0%.
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 24, 2000, the Company did not have commitments for either debt or
share purchases to meet its planned 2000 operating capital requirements.
(o) Impact of Year 2000 Issues
The Company did not experience any Year 2000 system issues or
miscalculations causing disruptions of operations related to computer
software utilizing two digits rather than four to define the appropriate
year. The Company does not anticipate incurring any system issues related
to Year 2000 issues.
17
</Page>
<PAGE>
Item 7. Financial Statements.
- ------------------------------
See "Item 13 Exhibits, Financial Statement Schedules and Reports on
Form 8-K" for the Company's Consolidated Financial Statement and the notes
thereto, and the financial statement schedules filed as part of this
report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
- -------------------------------------------------------------------------
None.
PART III
---------
Incorporated by reference in Items 9 to 12 below are certain sections
of the Company's definitive proxy statement, to be filed pursuant to
Regulation 14A with the SEC within 120 days after December 31, 1999.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act.
- -----------------------------------------------------------------------
The information relating to the Company's directors, nominees for
election as directors and executive officers under the headings "Election
of Directors" and "Executive Officers" in the Company's definitive proxy
statement for the 1999 Annual Meeting of Shareholders is incorporated
herein by reference to such proxy statement.
Item 10. Executive Compensation.
- ---------------------------------
The discussion under the heading "Executive Compensation" in the
Company's definitive proxy statement for the 1999 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The discussion under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy
statement for the 1999 Annual Meeting of Shareholders is incorporated
herein by reference to such proxy statement.
Item 12. Certain Relationships and Related Transactions.
- ----------------------------------------------------------
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1999
Annual Meeting of Shareholders is incorporated herein by reference to such
proxy statement.
18
</Page>
<PAGE>
PART IV
--------
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to the Financial Statements on
Page F-1.
(a) (2) Exhibits
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 *
10.08 Employment Agreement by and between the Company and James E.
Stark *
21.01 Subsidiaries of the Company *
23.01 Consent of Independent Auditor
27.01 Financial Data Schedules
* Previously filed as an exhibit to the registrant's registration
statement under Form 10-SB (Commission File No. 0-26455), which is hereby
incorporated by this reference.
(b) (3) Reports on Form 8-K.
No reports on Form 8-K were filed during the Company's fourth
fiscal quarter.
19
</Page>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ADVANCED BUSINESS SCIENCES, INC.
By: /s/ JAMES E. STARK
-----------------------
James E. Stark
President and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
Dated: March 30, 2000
20
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Financial Statements
December 31, 1999 & 1998
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
December 31, 1999
Index
Page
Independent Accountants' Audit Report. . . . . . . . . . . . . . . . .F-3
Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . .F-4 & F-5
Statements of Operations . . . . . . . . . . . . . . . . . . . .F-6 & F-7
Statements of Stockholders' Equity (Deficit) . . . . . . . . .F-8 to F-13
Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-14 to F-15
Notes to Financial Statements. . . . . . . . . . . . . . . . F-17 to F-31
Supplemental Information
Independent Accountants' Audit Report on
Supplemental Information . . . . . . . . . . . . . . . . . . . . . . . 32
Schedules of Expenses. . . . . . . . . . . . . . . . . . . . .F-33 & F-34
</Page>
<PAGE>
/Letterhead/
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, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1999, 1998 and 1997. These financial statements
are the responsibility of the Company's management. My responsibility is
to express an opinion on these 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, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999, 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, 1999. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's 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
March 19, 2000
F-3
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current Assets
- --------------
Cash and Cash Equivalents $ 7,843 $ 377,592
Receivables
Trade Accounts 32,782 13,995
Employees 21,778 26,309
Stock Subscription Receivable (note 11) -0- 599,452
Inventory 777,432 535,055
Prepaid Expenses -0- 16,212
------------ ------------
Total Current Assets 839,835 1,568,615
------------ ------------
Property and Equipment
- ----------------------
Furniture and Equipment (note 4) 540,478 571,779
Leasehold Improvements (note 4) 16,326 16,326
Leased Equipment (note 4) 233,428 194,236
Intellectual Property (notes 4 & 8) -0- 169,000
------------ ------------
Total Cost 790,232 951,341
Less Accumulated Depreciation and Amortization 463,518 346,277
------------ ------------
Net Book Value 326,714 605,064
------------ ------------
Other Assets
- ------------
Product Development 229,683 -0-
Rent and Utility Deposits 3,473 4,073
Patents (note 5) 12,117 13,631
Advance to Comguard (note 9) 77,086 66,992
Investment in Comguard (note 9) -0- 2,191
------------ ------------
Total Other Assets 322,359 86,887
------------ ------------
Total Assets $ 1,488,908 $ 2,260,566
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
</Page>
<PAGE>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets -Continued-
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Liabilities
Current Liabilities
- -------------------
Cash in Bank Overdraft $ 18,352 $ 206,230
Accounts Payable 589,958 392,016
Payroll Taxes Accrued and Withheld (note 6) 52,794 220,440
Accrued Interest 93,496 19,795
Accrued Wages 33,570 45,600
Settlement Costs 12,500 -0-
Note Payable Short Term Debt (note 12) 5,158,206 2,034,768
Current Portion of Long-Term Debt (note 12) 26,251 25,978
------------ ------------
Total Current Liabilities 5,985,127 2,944,827
------------ ------------
Long-Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (note12) 103,636 123,675
------------ ------------
Total Liabilities 6,088,763 3,068,502
------------ ------------
Commitments and Contingency (note 17)
Stockholders' Equity (Deficit) (note 14)
- ----------------------------------------
Preferred Stock 1,000,000 Shares Authorized at
$.01 Par Value; 1,000 Issued and Outstanding 10 -0-
Common Stock 50,000,000 Shares Authorized at
$.001 Par Value; 13,508,958 and 12,633,494
Shares Issued and Outstanding Respectively
Retroactively Restated 13,510 12,634
Paid-In Capital 8,948,027 8,306,546
Paid-In Capital Unexpired Options 30,640 -0-
Deficit Accumulated During the Development Stage (13,592,042) ( 9,127,116)
------------ ------------
Total Stockholders' Equity (Deficit) ( 4,599,855) ( 807,936)
------------ ------------
Total Liabilities and
Stockholders' Equity (Deficit) $ 1,488,908 $ 2,260,566
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Years Ended December 31,1999, 1998 and 1997 and the
Period from January 5, 1992 (Inception) to December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Inception)
December December December to December
31, 1999 31, 1998 31, 1997 31, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 178,074 $ 49,353 $ 26,100 $ 302,567
- --------
Cost of Sales 103,234 90,146 22,867 250,765
- -------------
Gross Profit (Loss) 74,840 ( 40,793) 3,233 51,802
- ------------------- ------------- ------------- ------------- --------------
Expenses
- --------
Research and Development 1,096,357 500,628 283,429 2,480,642
Sales and Marketing 403,933 427,120 384,052 1,382,341
General and Administrative 2,738,607 2,530,796 1,548,396 9,205,210
------------- ------------- ------------- --------------
Total Expenses 4,238,897 3,458,544 2,215,877 13,068,193
------------- ------------- ------------- --------------
Loss from Operations ( 4,164,057) ( 3,499,337) ( 2,212,644) ( 13,016,391)
Other Income and (Expense)
- --------------------------
Interest Income 43,707 -0- 4,172 58,451
Other Income 10 -0- -0- 84,538
Loss on Sale of Property
& Equipment ( 9,610) ( 349) ( 2,876) ( 18,946)
Interest Expense ( 332,128) ( 206,426) ( 183,812) ( 800,649)
Asset Abandonment (note 4) ( 2,849) ( 94,300) -0- ( 97,149)
------------- ------------- ------------- --------------
Total Other Income
& Expense ( 300,869) ( 301,075) ( 182,516) ( 773,754)
------------- ------------- ------------- --------------
Loss Before Extraordinary
Item & Provision for
Income Taxes ( 4,464,926) ( 3,800,412) ( 2,395,160) ( 13,790,145)
Extraordinary Item
- ------------------
Gain from Extinguishment
of Debt, Net of Income
Taxes (note 16) -0- -0- 569,901 569,901
------------- ------------- ------------- --------------
Loss Before Provisions
for Income Taxes ( 4,464,926) ( 3,800,412) ( 1,825,259) ( 13,220,244)
Provision for Income
Taxes -0- -0- -0- -0-
------------- ------------- ------------- --------------
Net Loss ($4,464,926) ($ 3,800,412) ($ 1,825,259) ($ 13,220,244)
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Years Ended December 31,1998 and 1997
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December December December
31, 1999 31, 1998 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Loss Per Share Before
Extraordinary Items ($ 0.38) ($ 0.40) ($. 0.44)
Loss Per Share After
Extraordinary Items ( 0.38) ( 0.40) ( 0.33)
Weighted Average Shares
Outstanding as
Retroactively Restated 11,609,390 9,391,265 5,405,367
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
For the Period from January 5, 1992 to December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 5, 1992 -0- $ -0- -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
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
</Page>
<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, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
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
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
</Page>
<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, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
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
</TABLE>
The accompanying notes are an integral part of these financial statements
F-10
</Page>
<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, 1999
<TABLE>
<CAPTION> Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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" 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)
Shares Issued for
Comguard Leasing
and Financial,
Inc., Acquisition 2,191,145 2,191
</TABLE>
The accompanying notes are an integral part of these financial statements
F-11
</Page>
<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, 1999
<TABLE>
<CAPTION> Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consultation Fees
Comguard Acquisition
at $0.44 Per Share 242,500 243 106,457
Shares Issued for
Employee Bonuses at
$0.30 Per Share 457,750 458 136,867
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
$0.25 Per Share 1,000,000 1,000 249,000
Shares Sold
Pursuant to
Warrant Exercise
at $1.00 Per Share 5,000 5 4,995
Loss for Year Ended
December 31, 1998 ( 3,800,412)
-----------------------------------------------------------------
Balance, December
31, 1998 12,633,494 12,634 8,306,546 ( 9,127,116)
Shares Issued for
1998 Employee
Bonuses at $0.30
Per Share 152,000 152 45,448
Shares Issued for
Line of Credit
Guarantor Fees at
$0.17 Per Share 500,000 500 84,500
Shares Returned
from Rescission of
Comguard
Acquisitions (2,191,145) ( 2,191)
Shares Issued for
Cash at $0.60 Per
Share 101,667 102 60,898
</TABLE>
The accompanying notes are an integral part of these financial statements
F-12
</Page>
<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, 1999
<TABLE>
<CAPTION> Deficit
Accumulated
During the
Preferred Stock Common Stock Paid In Development
Shares Amount Shares Amount Capital Stage
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Issued for
Services at $0.14
Per Share 1,108,275 1,108 154,050
Shares Issued for
Loan Guarantees at
$0.15 Per Share 850,000 850 126,650
Shares Issued for
Services at $0.15
Per Share 185,000 185 27,565
Shares Issued for
Services at $0.205
Per Share 150,000 150 30,600
Paid In Capital for
Cost of Options
Issued 30,640
Shares Issued for
Cash at $0.60 Per
Share 19,667 20 11,780
Shares Issued for
Cash at $100 Per
Share 1,000 10 99,990
Loss for
Year Ended
December 31, 1999 ( 4,464,926)
-----------------------------------------------------------------
Balance,
December 31, 1999 1,000 $ 10 13,508,958 $ 13,510 $ 8,978,667 ($ 13,592,042)
=================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-13
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997 and
Accumulated from January 5, 1992 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Inception) to
December December December December
31, 1999 31, 1998 31, 1997 31, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
- ----------------------------
Net Loss ($4,464,926) ($ 3,800,412) ($ 1,825,259) ($ 13,220,244)
Adjustments to Reconcile Net
Loss to Net Cash Used in
Operating Activities;
Loss on Assets Write Off -0- 94,300 -0- 94,300
Loss on Inventory Obsolence 29,959 202,996 -0- 232,955
Depreciation & Amortization 352,835 172,221 130,917 747,790
Loss on Sale of Property &
Equipment 9,610 349 2,876 18,946
Expenses Paid by Issuance of
Stock in Lieu of Cash 500,207 494,025 5,567 717,312
Gain from Forgiveness of
Debt -0- -0- ( 569,901) ( 569,901)
Reserve for Bad Debt 2,100 -0- -0- -0-
Changes in Operating Assets &
Liabilities;
(Increase) Decrease in
Trade Accounts Receivable ( 18,787) ( 2,534) ( 5,984) ( 32,782)
(Increase) Decrease in
Employee Receivables 4,531 ( 25,964) 4,655 ( 21,778)
(Increase) Decrease in
Inventory ( 259,848) 47,053 ( 115,467) ( 777,432)
(Increase) Decrease in
Prepaid Expenses 16,212 11,212 6,314 -0-
Increase (Decrease) in
Accounts Payable 197,942 ( 47,430) 110,827 589,958
Increase (Decrease) in
Payroll Taxes Accrued ( 167,646) ( 8,299) 206,744 52,794
Increase (Decrease) in
Accrued Interest 73,701 ( 5,224) ( 18,653) 93,496
Increase (Decrease) in
Accrued Wages ( 12,030) 3,831 ( 24,113) 33,570
(Increase) Decrease in
Advances to Stockholders -0- -0- ( 14,748) -0-
Increase (Decrease) in
Accrued Settlement Costs 12,500 -0- -0- 12,500
------------- ------------- ------------- --------------
Net Cash Used In
Operating Activities ( 3,723,640) ( 2,863,876) ( 2,106,225) ( 12,028,516)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-14
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997 and
Accumulated from January 5, 1992 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Inception) to
December December December December
31, 1999 31, 1998 31, 1997 31, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash Flows from Investing
Activities
- -------------------------
Proceeds from Sale of
Property and Equipment 2,100 -0- 30,510 33,260
Purchase of Leased Equipment ( 39,192) -0- -0- ( 276,276)
Purchase of Property &
Equipment ( 48,338) ( 130,466) ( 29,039) ( 660,544)
(Increase) Decrease in Rent
& Utility Deposits 600 7,877 ( 3,780) ( 3,473)
(Increase) in Patents -0- -0- ( 4,390) ( 15,145)
Purchase of Intellectual
Property -0- ( 169,000) -0- ( 169,000)
Funds Advanced to Comguard ( 19,642) ( 66,992) -0- ( 86,634)
Increase in Product
Development ( 229,683) -0- -0- ( 229,683)
------------- ------------- ------------- --------------
Net Cash Used in
Investing Activities ( 334,155) ( 358,581) ( 6,699) ( 1,407,495)
Cash Flows from Financing
Activities
- -------------------------
Increase (Decrease) in
Notes Payable 3,123,438 1,970,473 120,100 5,158,206
Proceeds from Long-Term
Debt -0- ( 87,453) 2,397,000 4,447,548
Repayment of Long-Term Debt ( 19,766) -0- ( 342,286) ( 362,052)
Proceeds from Issuance of
Common Stock 72,800 2,505,000 -0- 4,081,800
Increase (Decrease) in Banks
Overdraft ( 187,878) ( 188,819) ( 63,990) 18,352
(Increase) Decrease in Notes
Receivable Stockholders 599,452 ( 599,452) -0- -0-
Proceeds from Issuance of
Preferred Stock 100,000 -0- -0- 100,000
------------- ------------- ------------- --------------
Net Cash Provided by
Financing Activities 3,688,046 3,599,749 2,110,824 13,443,854
------------- ------------- ------------- --------------
Increase (Decrease) in
Cash & Cash Equivalents ( 369,749) 377,292 ( 2,100) 7,843
------------- ------------- ------------- --------------
Cash & Cash Equivalents,
Beginning of Period 377,592 300 2,400 -0-
------------- ------------- ------------- --------------
Cash & Cash Equivalents,
End of Period $ 7,843 $ 377,592 $ 300 $ 7,843
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-15
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997 and
Accumulated from January 5, 1992 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended (Inception) to
December December December December
31, 1999 31, 1998 31, 1997 31, 1999
------------- ------------- ------------- --------------
<S <C> <C> <C> <C>
Disclosure from Operating
Activities
- -------------------------
Interest $ 332,128 $ 206,426 $ 183,812 $ 767,235
Taxes -0- -0- -0- -0-
</TABLE>
The accompanying notes are an integral part of these financial statements
F-16
</Page>
<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.
F-17
</Page>
<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 did not 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 did
not have a material impact on the Company's financial statements.
In February 1998, SFAS No. 132, "Employer's Disclosure about Pensions
and Other Post-Retirement Benefits" was issued for fiscal years
beginning after December 15, 1998. Adoption of SFAS 132 did not have
a material impact on the Company financial statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued for fiscal years beginning after June
15, 1999. It is anticipated that SFAS No. 133, will have no effect
upon 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.
F-18
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #3 - Reverse Takeover and Recapitalization -Continued-
- -----------------------------------------------------------
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.
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.
F-19
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
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:
<TABLE>
<CAPTION>
Estimated
Property & Equipment Useful Life
------------------------ ----------------
<S> <C>
Furniture & Equipment 5 to 7 Years
Leasehold Improvements 3 Years
Leased Equipment 2 to 3 Years
</TABLE>
<TABLE>
<CAPTION>
Property and equipment at cost are as follows: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Furniture & Equipment $ 540,478 $ 571,779 $ 549,514
Leasehold Improvements 16,326 16,326 77,585
Intellectual Property -0- 169,000 -0-
Leased Equipment 233,428 194,236 29,039
---------- ---------- ----------
Total Cost 790,232 951,341 656,138
Less Accumulated Depreciation 463,518 346,277 237,402
---------- ---------- -----------
Net Book Value $ 326,714 $ 605,064 $ 418,736
========== ========== ==========
Depreciation and Amortization Expenses $ 352,835 $ 172,221 $ 130,917
</TABLE>
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.
F-20
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
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.
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 1999, the Company considered the intellectual property
described above as technologically impaired and fully amortized it as
current years expense and removed it from its assets schedule.
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. Subsequent to December 31, 1999, the Company
accepted an offer of Settlement from Comguard Leasing to settle the amount
owed for $77,086. In 1999, the Note Receivable was adjusted to the amount
received upon settlement.
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, Paragraph 13, that states "a majority-owned
subsidiary shall not be consolidated if control is likely to be temporary".
F-21
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #10 - Litigation
- ---------------------
The Company was 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 requested 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.
In 1999, the Court awarded the Plaintiff $25,000 as settlement for the
complaint. The Company paid $12,500 in 1999 and accrued as settlement cost
the balance of $12,500 to be paid in 2000.
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.
<TABLE>
<CAPTION>
Short Term Debt 1999 1998 1997
- ------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Term note payable to a commercial bank #1,
due March 31, 2000, 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. 999,767 998,768 -0-
Term note payable to a commercial bank #3,
due January 31, 2000 entered at prime rate,
announced by the bank, plus 2.5%. 998,043 -0- -0-
Note payable to shareholder, non interest,
due on demand. -0- 36,000 87,453
Note payable to a Commercial Bank #4, due
April 15, 2000, at a prime rate of 8.25%
plus a variable factor of 5.00 over
prime rate. 850,000 -0- -0-
Note payable to Two Individuals, due on
demand at 0% interest rate 116,400 -0- -0-
Note payable to an Officer - Due on Demand
at 0% Interest 493,996 -0- -0-
Note payable to an Individual - Due on Demand
at an annual interest rate of 9%. 200,000 -0- -0-
Note payable to a Commercial Bank #5, due
June 14, 2000, Interest at 9% Per Annum, 500,000 -0- -0-
------------- ------------- -------------
Total Short Term Debt $ 5,158,206 $ 2,034,768 $ 87,453
============= ============= =============
</TABLE>
F-22
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Short Term and Long Term Debt -Continued-
- -----------------------------------------------------
On April 1, 1998, the Company issued 1,000,000 shares to certain
individuals as consideration for these individuals giving their
unconditional guarantee 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.
<TABLE>
<CAPTION>
Long-Term Debt 1999 1998 1997
- ------------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
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. 49,887 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 129,887 149,653 213,948
Less Current Portion 26,251 25,978 133,948
---------- ---------- ----------
Long-Term Debt $ 103,636 $ 123,675 $ 80,000
========== ========== ==========
</TABLE>
The aggregate maturities of long-term debt for the years ending after
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------- ----------
<S> <C>
2000 $ 26,251
2001 13,148
2002 90,488
----------
Total $ 129,887
==========
</TABLE>
F-23
</Page>
<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:
<TABLE>
<CAPTION>
Year of Loss Amount of Loss Expiration Date
------------------------ --------------- ---------------
<S> <C> <C>
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
December 31, 1999 4,464,926 2019
</TABLE>
Net deferred taxes in the accompanying balance sheets include the following
components as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Deferred Tax Asset $ 4,490,658 $2,972,583 $ 1,800,939
Net Operating Loss Carryforward
Valuation Allowance ( 4,490,658) (2,972,583) ( 1,800,939)
----------- ----------- ------------
Net Deferred Tax Asset $ -0- $ -0- $ -0-
=========== =========== ============
Current Tax Expense $ -0- $ -0- $ -0-
</TABLE>
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.
F-24
</Page>
<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.
In 1999, the Company issued 1,000 shares of Preferred Stock at $100
per share for proceeds of $100,000.
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.
F-25
</Page>
<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 $137,325.
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 $250,000.
In 1999, the Company issued 152,000 shares of common stock as payment
of accrued 1998 bonuses to employees valued at $45,600.
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 $85,000.
In the third quarter of 1999, the Company issued to Officers and
others 1,108,275 shares valued at $0.14 per shares for services valued
at $155,158. Loan guarantors (bank #4) were issued 850,000 shares at
$0.15 per share for a value of $127,500. Services valued at $27,750
were paid for by the issuance of 185,000 shares at $0.15 per share and
services valued at $30,750 were paid for by the issuance of 150,000
shares valued at $0.205 per share.
The value per share of shares issued in 1999 was computed using the
market price per share of the shares issued multiplied by the number
of shares issued and discounted at a marketability discount of 34% and
a financial risk value discount of 50%, consistent with an independent
valuation service obtained by the Company for shares issued in 1998.
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.
F-26
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
- --------------------------------------------
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.
In the third quarter of 1999, the Company issued 1,332,000 options to
purchase 1,332,000 shares over a three year period of time. The
options may be exercised at $0.10 per share after December 31, 1999 or
when the closing bid price of the shares exceed $3.00 per share for at
least five consecutive days. 200,000 options were granted to a
consultant to purchase 200,000 shares of common stock. The vesting of
the shares occurs as follows; 50,000 vested on July 8, 1999 and
exercisable on July 1, 1999, 50,000 shares vested in July, exercisable
on February 8, 2000 and 100,000 shares are exercisable on February 8,
2000. The value of the options was arrived at by the market value of
the shares on the grant day, $0.875 per share minus the present value
of the options, for a three year period at a 5% discount. $0.755 per
share, discounted by a marketability discount on the share of 34% and
a financial risk discount of 50% consistent with independent valuation
service.
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.
F-27
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
- -------------------------------------------
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 $13,592,042. 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 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.
F-28
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
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:
<TABLE>
<CAPTION>
Years Ending Lease
December 31, Amount
------------ ----------
<S> <C>
2000 76,735
2001 70,340
----------
Total $ 147,075
==========
</TABLE>
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 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.
F-29
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #18 - Contingencies and Commitments -Continued-
- ----------------------------------------------------
The Contract commenced on February 1, 1999 and continues 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 was compensated for his services at the rate of $150,000
annually to be paid in accordance with the Company's normal payroll
practices.
The executive received 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.
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).
In August 1999, the Company signed an employment agreement with an
individual to act as corporate controller. The Agreement provides for
annual compensation of $85,000.
In January 2000, this individual was appointed by the Board of Directors to
serve as President and CEO of the Company.
NOTE #19 - Subsequent Events
- ----------------------------
On January 11, 2000, the Agreement with the President and Chief Executive
Officer described in Note #18, was terminated under terms of the Agreement.
F-30
</Page>
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
Note #20 - Correction of Errors
- -------------------------------
The Company has made changes to the financial statements at December 31,
1998 as follows;
Non Cash Expenses paid by Issuance of Shares of Common Stock.
<TABLE>
<CAPTION>
Corrected Original
Statement Statement
------------ ------------
<S> <C> <C>
Consultation Fees - Comguard Acquisition Issued 242,500
Shares at $0.10 Per Share Corrected to $0.44 Per Share $ 106,700 $ 24,250
Issued 457,750 Shares for Employee Bonuses at $0.10
Per Share Corrected $0.30 Per Share 137,325 45,775
Issued 1,000,000 Shares for Guarantor Fees at $0.10 Per
Share Corrected to $0.25 Per Share 250,000 100,000
Accrued Wages for Employee Bonuses to be Paid In Stock
in 1999 Accrued at $0.10 Per Share Corrected to $0.30
Per Share 45,600 15,200
------------ ------------
Totals $ 539,625 $ 185,225
============ ============
Net Increase to Operating Expenses $ 354,400
Net Loss Year Ended December 31, 1998 as Originally Reported 3,446,012
------------
Net Loss Year Ended December 31, 1998 as Corrected $ 3,800,412
============
</TABLE>
The increase in prior per share of the stock issued was adjusted as
follows;
<TABLE>
<CAPTION>
Discount
Comguard Date Price Factor Cost
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Acquisitions Fees 08/24/98 $ 2.75 $ 2.31 $ 0.44
Employees Bonuses 04/09/98 1.88 1.58 0.30
Loan Guarantor 04/01/98 1.56 1.31 0.25
</TABLE>
The discount factor is a result of an independent valuation of the stock's
financial and equity risk at 50% and the lack of marketability at 34%.
F-31
</Page>
<PAGE>
Supplemental Information
</Page>
<PAGE>
/Letterhead/
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
Salt Lake City, Utah
March 19, 2000
F-33
</Page>
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Schedules of Expenses
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
December December December
31, 1999 31, 1998 31, 1997
----------- ----------- -----------
<S> <C> <C> <C>
Expenses
- --------
Salaries and Wages $ 891,378 $ 788,600 $ 712,370
Bad Debt 2,100 -0- 4,011
Bank Charges 2,144 1,041 4,549
Consulting Fees 439,909 612,549 41,103
Cost of Options 30,640 -0- -0-
Contract Labor 126,675 43,392 -0-
Depreciation and Amortization 352,835 172,221 130,917
Donations 53,972 325 -0-
Dues and Subscriptions 6,172 3,456 9,410
Employee Hiring Costs 30,140 2,908 -0-
Equipment Rental 17,347 14,190 14,830
Freight 3,615 13,001 -0-
Insurance:
General 62,240 48,103 45,684
Health 51,765 38,145 41,687
Meals and Entertainment 2,305 16,391 4,027
Miscellaneous 4,944 5,382 18,851
Office Supplies 19,414 24,296 3,961
Penalties -0- 58,391 2,556
Postage 2,466 3,115 -0-
Professional Fees 190,218 154,510 92,040
Rent 78,669 70,337 84,002
Repairs and Maintenance 6,085 3,266 -0-
Security Expense -0- 1,140 8,749
Supplies -0- 8,429 -0-
Taxes:
Payroll 71,349 51,988 82,356
Other 5,329 25,195 3,539
Telephone 172,242 92,590 92,078
Training 1,520 -0- 1,035
Travel 35,136 36,933 42,972
Utilities 11,356 14,507 17,003
Vehicle Expense 2,135 23,399 16,699
Inventory Obsolescence -0- 202,996 46,789
Settlement Costs 34,548 -0- 27,178
Damaged/Scrapped Components 29,959 -0- -0-
----------- ----------- -----------
Total Expenses $2,738,607 $2,530,796 $1,548,396
=========== =========== ===========
</TABLE>
See Independent Accountant's Audit Report on Supplemental Information
F-34
</Page>
<PAGE>
Advanced Business Sciences, Inc.
Expense Schedule
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Research & Development
- ----------------------
Salaries $ 106,870 $ 95,219 $ 180,185
Telephone -0- 55,527 71,179
Materials & Supplies 12,297 299,900 32,065
Testing 977,190 49,982 -0-
----------- ----------- -----------
Total Research & Development $1,096,357 $ 500,628 $ 283,429
=========== =========== ===========
Sales & Marketing
- -----------------
Consultant Fees $ -0- $ -0- $ 98,443
Salaries 177,561 165,985 197,351
Payroll Taxes 15,063 13,796 -0-
Contract Labor 46,425 16,650 -0-
Commissions -0- 948 -0-
Sales Shows Expenses 13,449 17,222 10,581
Marketing/Sales Brochures -0- 46,999 -0-
Advertising 64,902 31,305 10,582
Entertainment & Meals 7,913 2,715 -0-
Telephone 5,710 18,130 7,672
Office Supplies 2,855 1,814 -0-
Travel 51,750 68,731 28,287
Supplies & Miscellaneous 18,305 42,825 31,136
----------- ----------- -----------
Total Sales & Marketing $ 403,933 $ 427,120 $ 384,052
=========== =========== ===========
</TABLE>
See Independent Accountant's Audit Report on Supplemental Information
F-35
</Page>
<PAGE>
Exhibit 23.01
/Letterhead/
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.
Consent of Darrell T. Schvaneveldt
Independent Auditor
I consent to the use, of our report dated March 19, 2000, on the
financial statements of Advanced Business Sciences, Inc., dated December
31, 1999, included herein and to the reference made to me.
/S/ Schvaneveldt & Company
Salt Lake City, Utah
March 30, 2000
</Page>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001088120
<NAME> ADVANCED BUSINESS SCIENCES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,843
<SECURITIES> 0
<RECEIVABLES> 54,560
<ALLOWANCES> 0
<INVENTORY> 77,432
<CURRENT-ASSETS> 839,835
<PP&E> 790,232
<DEPRECIATION> 463,518
<TOTAL-ASSETS> 1,488,908
<CURRENT-LIABILITIES> 5,985,127
<BONDS> 0
0
10
<COMMON> 13,510
<OTHER-SE> (4,613,375)
<TOTAL-LIABILITY-AND-EQUITY> 1,488,908
<SALES> 178,074
<TOTAL-REVENUES> 178,074
<CGS> 103,234
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,238,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 332,128
<INCOME-PRETAX> (4,464,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,464,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,464,926)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
