SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
Advanced Business Sciences, Inc.
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(Name of Small Business Issuer in its charter)
DELAWARE 87-0347787
(State of incorporation) (IRS Employer Identification No.)
3345 No. 107th Street, Omaha, Nebraska 68134
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (402) 498-2734
Securities to be registered under Section 12(b) of the Act: None.
Securities to be registered under Section 12(g) of the Act:
Common Stock (par value $0.001 per share)
(Title of class)
TABLE OF CONTENTS
Page
PART I.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 1. Description of Business . . . . . . . . . . . . .1
(a) Business Development. . . . . . . . . . . . . . .1
(b) Business of Issuer. . . . . . . . . . . . . . . .1
(i) Introduction . . . . . . . . . . . . . . . .1
(ii) The Electronic Monitoring Market. . . .2
(iii) Competition . . . . . . . . . . . . . .3
(iv) Business Strategy . . . . . . . . . . .3
(v) The Products and Services of the Company . .4
(vi) The Technology. . . . . . . . . . . . .4
(vii) Intellectual Property Rights. . . . . .6
(viii) Regulation. . . . . . . . . . . . . . .6
(ix) Research and Development. . . . . . . .6
(x) Customers; Orders Backlog. . . . . . . . . .6
(xi) Seasonality . . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis or Plan of
Operation........................................6
(a) Revenue . . . . . . . . . . . . . . . . . . . . .8
(b) Cost of Sales . . . . . . . . . . . . . . . . . 8
(c) Gross Profit. . . . . . . . . . . . . . . . . . 8
(d) Expenses Research and Development . . . . . . . 8
(e) Sales and Marketing . . . . . . . . . . . . . . 9
(f) General and Administrative. . . . . . . . . . . 9
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(g) Profit (loss) from Operations . . . . . . . . . 9
(h) Loss on Sales of Property and Equipment. . . . 9
(i) Interest Expense. . . . . . . . . . . . . . . . 9
(j) Asset Abandonment Charge. . . . . . . . . . . . 9
(k) Extraordinary Items, Gain from Extinguishment
of Debt.........................................10
(l) Net Loss. . . . . . . . . . . . . . . . . . . . 10
(m) Liquidity and Capital Resources . . . . . . . . 10
(n) Impact of Year 2000 Issues. . . . . . . . . . . 11
Item 3. Description of Property . . . . . . . . . . . . 11
Item 4. Security Ownership of Certain Beneficial Owners
and Management..................................11
Item 5. Directors, Executive Officers, Promoters and
Control Persons.................................13
Item 6. Executive Compensation. . . . . . . . . . . . . 14
Item 7. Certain Relationships and Related Transactions. 14
Item 8. Description of Securities . . . . . . . . . . . 15
(a) General . . . . . . . . . . . . . . . . . . . . 15
(b) Common Shares . . . . . . . . . . . . . . . . . 15
(c) Preferred Stock . . . . . . . . . . . . . . . . 15
(d) No Preemptive Rights. . . . . . . . . . . . . . 16
(e) Delaware Business Combination Statute . . . . . 16
(f) Certain Charter Provisions. . . . . . . . . . . 16
(i) General. . . . . . . . . . . . . . . . . . 16
(ii) Number of Directors; Removal; Vacancies. . 16
(iii) Classified Board of Directors . . . . 16
(iv) Approval of Repurchases. . . . . . . . . . 16
(v) Amendments to Bylaws . . . . . . . . . . . 17
(vi) Amendment of the Certificate of
Incorporation ..............................17
(g) Limitation of Liability and Indemnification . . 17
(h) Transfer Agent and Registrar. . . . . . . . . . 17
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 1. Market Price of and Dividends on the Company's
Common Equity and OtherShareholder Matters. . .17
Item 2. Legal Proceedings . . . . . . . . . . . . . . . 18
Item 3. Changes in and Disagreements with Accountants . 18
Item 4. Recent Sales of Unregistered Securities . . . . 18
Item 5. Indemnification of Directors and Officers . . . 26
PART F/S . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART III.. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Item 1. Index to Exhibits . . . . . . . . . . . . . . . 51
Item 2. Description of Exhibits . . . . . . . . . . . . 51
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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PART I.
Item 1. Description of Business
(a) Business Development
ADVANCED BUSINESS SCIENCES, INC. ("ABS" or the "Company") is a development
stage company. The Company develops, produces, markets and supports a broad
product line of solutions relating to the wireless electronic tracking,
monitoring and reporting of individuals and things. ABS products are designed to
enhance productivity, reduce costs, and improve overall response using on-line
access to information previously maintained on a variety of media. Today, the
Company primarily markets to the criminal justice application for house arrest
and continuous electronic monitoring. ABS provides individual monitoring within
eleven (11) states: Arizona, Minnesota, Iowa, New Jersey, Ohio, Texas,
Wisconsin, Colorado, South Carolina, New York, and Kansas.
The Company was incorporated under the laws of the State of Colorado on
June 13, 1983 under the name "Sage Institute International, Inc." A Delaware
corporation under the name "Sage Analytics International, Inc." was incorporated
on July 17, 1986; and, on September 2, 1986, the Company was reincorporated as a
Delaware corporation by merging the Colorado corporation with and into the
Delaware corporation.
On December 17, 1997, the shareholders of Advanced Business Sciences,
Inc., a Nebraska corporation, concluded a share exchange with the Company (the
"Share Exchange") whereupon the Nebraska corporation became the wholly-owned
subsidiary of the Company and control of the Company was transferred to the
former shareholders of the Nebraska corporation. See "Security Ownership of
Certain Beneficial Owners and Management," "Directors, Executive Officers,
Promoters and Control Persons," and "Recent Sales of Unregistered Securities."
The Company changed its name to Advanced Business Sciences, Inc. on December 18,
1997.
On September 28, 1998, the Company concluded a share exchange with
Comguard Leasing and Financial, Inc., an Illinois corporation ("Comguard
Leasing"), and its shareholders (the "Comguard Acquisition"). Comguard Leasing,
through its subsidiary, Comguard, Inc., provides house arrest monitoring
services principally to the State of Illinois. When the Company came under new
management, it was determined that Comguard Leasing was not consistent with the
Company's long-term strategic goals. See "Description of Business-Business of
Issuer-Business Strategy." The Company's management therefore determined that
the Company should divest its holdings in Comguard Leasing. With the agreement
of the former shareholders of Comguard Leasing, the Comguard Acquisition was
rescinded effective June 1, 1999.
(b) Business of Issuer
(i) Introduction
The Company was initially engaged in the commercial application of a form
of decision support technology which incorporated proprietary methodology and
software. This technology involved the identification of potential failures
facing an organization or project, ranking such failures in order of
significance and determining their root causes. This technology was marketed to
both government and private industry. The Company conducted no business
operations from in or about April, 1996, until the completion of the Share
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
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e-mail and web-based reports. The Company believes use of its system can offer a
substantial cost savings over the cost of incarceration and improve the
efficiency of probation and parole officers. It also offers the backlogged
criminal justice systems a more secure solution to the problems of rapidly
growing criminal populations, overcrowded correctional facilities and more
lenient sentencing alternatives.
In addition to the criminal justice market, the Company has targeted
additional industries where it believes its products and services offer
attractive solutions to current problems. One market which the Company has
targeted is the transportation industry. This market would include (i) automatic
vehicle tracking and (2) through the installation of tracking units at strategic
locations, monitoring the status of freight cargo (whether loaded or unloaded on
the trailer or other container).
Another market which the Company has targeted is the healthcare industry.
This market would include (1) emergency response services and (2) tracking
infants and Alzheimer's patients.
The monitoring and reporting operations of the Company are conducted
through ABS Nebraska, Inc., a Nebraska corporation ("ABS Nebraska"), the direct
subsidiary of the Company. The Company has eighteen (18) full time employees and
one (1) part-time employee.
(ii) The Electronic Monitoring Market
To date, the Company has focused primarily upon electronic monitoring in
the criminal justice system. The Department of Justice reported that the 1998
prison population included 1,178,978 state prisoners and 123,041 federal
prisoners for a total of 1,302,019. That was up 59,866 or 4.8% from 1997.
Counting the local 592,000 jail inmates, there were over 1.8 million people
behind bars in the United States in 1998. In addition, there were 704,000
individuals on parole and 3,400,000 persons on probation for the same period.
The Department of Justice has projected an annual growth of 10% for persons on
parole or probation .
This growth has resulted in stresses on the correctional system in terms
of both management and costs. While this has led to increased use of probation
and parole as alternatives to incarceration, caseworkers are unable to monitor
probationers and parolees effectively. Electronic monitoring enhances the
ability of caseworkers to monitor the activities of probationers and parolees,
as well as affording house arrest as an economic alternative to incarceration.
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 September 30 , 1999, the Company
had approximately twenty (20) of its GPS-based tracking units in use in the
criminal justice system in Arizona, Texas, Ohio, Wisconsin and Iowa.
The term of the Company's typical contract ranges in duration from day to
day to annual. No maximum or minimum number of persons to be monitored is
typically specified. Rather, the Company charges a fixed fee based upon the
number of tracking units in service at any given time, which number can
frequently vary from day to day. Tracking
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units are sold or leased in conjunction with the provision of monitoring
services by the Company. The Company also sells or leases tracking units to
third party providers of monitoring services. See "Item 2. Management's
Discussion and Analysis or Plan of Operation."
(iii) Competition
Today, there are several companies providing monitoring services on a
nation-wide basis, including BI Incorporated ("BI"), SecurityLink (an Ameritech
company), and General Security Services Corp. In addition, there are many
smaller companies that provide monitoring services on a local basis for smaller
governmental agencies. BI is believed to be the largest company monitoring
offenders in the criminal justice market, with a reported 21,500 active units as
of March 31, 1999. There are also other companies which provide house arrest
equipment . BI has historically been the largest provider of the equipment in
use today. Most companies supplying house arrest monitoring services also
provide equipment. Other companies providing house arrest equipment and
monitoring services include ElmoTech, Comguard Leasing, Digital Products
Corporation, and Tracking Systems Corporation.
ABS believes that only one other company, Pro Tech Monitoring, Inc., has a
GPS-based product in the field today. BI, however, has announced plans to
introduce a GPS-based product in 1999.
(iv) Business Strategy
The key elements of the Company's business strategy are to:
* Be a leader in applying GPS technology to applications for
tracking individuals and things.
The Company has an accumulated deficit in excess of $9,500,000,
which represents the Company's efforts to date to improve its
products. Improvements in technology components and
communications systems are being constantly evaluated. The
Company intends to incorporate appropriate new or improved
capabilities into its products on an ongoing basis, and to
continue to devote significant resources to the area of product
development.
* Target application opportunities within specific market niches
and to be a supplier of equipment and software to those end
markets.
The Company intends to target to the criminal justice segment
service providers that need additional and replacement house
arrest equipment and who have a need for GPS-based systems.
GPS technology, in general, has already gained acceptance in the
automatic vehicle location segment of the transportation industry
and ABS believes that its core product can be readily adapted to
that market. The Company has identified the location of
untethered trailers as one initial application niche to serve in
the transportation industry. ABS has also identified the
healthcare industry as a market where its technology may be
useful, including newborn infant and senior care as initial
market opportunities.
Additionally, the Company will maintain the capability to
undertake special projects, funded by specific customers to meet
their unique needs. These special projects will be done to
advance ABS's knowledge in targeted markets and to fund
development within specific application areas. To date, the
Company has worked on no special projects.
* Partner with other businesses that can assist the Company in the
development and distribution of its products.
The Company has engaged the services of other companies to assist
the Company in developing its products, whereby the Company
maintains ownership of the final product design and application.
Harris Corporation assists the Company in the manufacture and
circuit design of the Company's product. SiRF Technology
Incorporated licenses the integrated circuit board and assists
the Company in the development of GPS circuit designs. INTECK
Corporation assists the Company through software development.
Innovative Manufacturing Solutions assists in the design and
manufacturing of the products' casing/housing. The Company will
maintain certain core competencies on its staff, including the
senior technology knowledge, and knowledge specific to managing
its production, distribution, and sales functions. Part of the
business strategy is to identify partner companies in the areas
of engineering, manufacturing, technology, communications and
distribution.
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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
wrist watches. The wireless cuff is waterproof and shockproof; its case and
strap are designed to be tamper resistant. The tracking unit utilizes
information from the GPS to triangulate the subject's physical position. The
tracking unit then transmits this and other information to an operations center
. In addition, the tracking unit can be used in a docking station (which is
similar to a cradle for a cordless telephone) as a house arrest monitor.
The tracking unit monitors the status of the wireless cuff and itself and
reports to the operations center (see below) the following conditions:
* Status of radiofrequency contact between tracking unit and the
house arrest monitor , including proximity violations (i.e.
failure to remain within specified proximity of the house arrest
monitor)
* Tampering with tracking unit or the house arrest monitor
* Status of communications between the house arrest monitor and the
operations center
* Status of power connection of the house arrest monitor
* Status of tracking unit battery
* Exclusion zone violations (i.e., being in an area or location
from which the subject is prohibited)
ABS Nebraska operates an operations center 24 hours per day, 7 days per
week. The operations center monitors the house arrest units and tracking units
and provides technical support to customers.
Each customer maintains a computer workstation at its site. The computer
workstation is used by the customer to build daily schedules and program
inclusion and exclusion zones. Five levels of service are provided by the
Company to meet the specific needs of its customers.
(vi) The Technology
(A) Wireless Services and their Regulation
Wireless communications are transmitted through the space via
radiofrequency radiation, one of several types of electromagnetic radiation. The
radio frequency part of the electromagnetic spectrum is generally defined as
electromagnetic radiation with frequencies in the range of 3 kilohertz to 300
gigahertz. One "hertz" equals one cycle per second. A kilohertz ("kHz") is one
thousand hertz, a megahertz ("mHz") is one million hertz and a gigahertz ("gHz")
is one billion hertz. Microwave radiation is a high-frequency form of
radiofrequency radiation usually defined as from about 300 mHz to 300 gHz.
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Familiar uses of radiofrequency radiation involving telecommunications
include AM and FM radios, television, citizens band radio, hand-held walkie
talkies, amateur radio, short-wave radio, cordless telephones and microwave
point-to-point and ground-to-satellite telecommunications links.
Non-telecommunications applications include microwave ovens and radar.
The manufacture, sale and use of devices which utilize any part of the
radiofrequency radiation spectrum are subject to regulation. The Federal
Communications Commission (the "FCC") is the principal agency responsible for
such regulation within the United States. State and local governments, however,
exercise some control respecting the siting of wireless facilities. While many
transmitters (such as radio stations) must be individually licensed, certain
low-power transmitters need not be. These would include such devices as cordless
telephones, baby monitors, garage door openers, wireless home security systems,
and keyless automobile entry systems. Before such a device may be marketed,
however, it must first be tested to determine if the device meets FCC
specifications and then receive authorization from the FCC. The devices which
the Company markets fit within this regulatory scheme.
(B) Global Positioning System
The Global Positioning System consists of at least 24 operational
satellites that orbit the earth every 12 hours. Operated by the Department of
Defense, this constellation typically permits from five to eight satellites to
be visible from any point on earth at any given moment in time. A master control
facility located at Schriever Air Force Base in Colorado monitors signals from
the satellites and uploads orbital and clock data. Users of GPS convert signals
from four different satellites to compute position and time.
Only authorized users of GPS with specially equipped receivers are
permitted to use the precise positioning system. The precise positioning system
is accurate within 22 meters for horizontal position, 27.7 meters for vertical
position and 100 nanoseconds time accuracy. On the other hand, civil users of
GPS such as the Company are permitted to use the standard positioning service .
The accuracy of the standard positioning service is intentionally degraded by
the Department of Defense using a technique referred to as selective
availability. The standard positioning service is accurate within 100 meters for
horizontal position, 156 meters for vertical position and 340 nanoseconds time
accuracy. The standard positioning service is available 24 hours per day without
charge or restrictions on a worldwide basis.
To correct the errors created by selective availability, methods have
been developed which are generally referred to as differential GPS techniques.
Differential GPS corrects errors at one location with measured bias errors at a
known position. A reference receiver (or base station) computes corrections for
each satellite signal. Corrections may then be transmitted by radio link or
other electronic means. The U.S. Coast Guard, for example, maintains a network
of differential monitors and transmits differential GPS corrections over
radiobeacons covering much of the U. S. coastline. Private differential GPS
services are also available, some of which require payment of a user fee.
Tracking unit's are configured to use the standard positioning service. Tracking
unit's may be configured to use differential GPS if customers so desire.
On March 29, 1996, a Presidential directive (the "Presidential
Directive") announced that it is the policy of the U.S. Government that the U.S.
would continue to provide GPS for peaceful civil, commercial and scientific use
on a continuous, worldwide basis, free of direct user fees, but that selective
availability would be discontinued within ten years. As a result, civil
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
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products to select GPS-based systems instead of products based on competing
technologies. Any resulting change in market demand for GPS products could have
a material adverse effect on the Company's financial results.
A recent study by the Johns Hopkins University Applied Physics Laboratory
(January, 1999) examined the susceptibility of GPS equipment to intentional or
inadvertent signal interference. This study concluded that only intentional
interference (i.e., jamming) and ionospheric errors and scintillation
represented any significant risk. Such risks, however, could be reduced using
various mitigation techniques; and, moreover, such interference would most
likely be short in duration. The Company has a patent pending regarding certain
software solutions to mitigate such interference. Nevertheless, concerns about
the integrity of GPS could translate into reduced demand for the Company's
products and services.
(vii) Intellectual Property Rights
The Company has three pending U.S. Patent Applications covering its
technology. Two of the patent applications cover a system for remotely
monitoring an individual, and for providing real time notification if that
individual fails to comply with predetermined conditions. The third application
covers a unique antenna for use with the system.
The Company has been granted a nonexclusive, nontransferable software
license from SiRF Technology Incorporated ("SiRF") . SiRF has designed GPS chip
sets and software solutions that allow ABS to embed GPS technology into its
products. This license is for an indefinite term; however, it may be terminated
if SiRF loses any of its rights as to the software products encompassed therein
or by either party upon thirty (30) days written notice in the event of a
material breach of the license by the other party.
(viii) Regulation
The manufacture, sale and use of radiofrequency radiation devices is
regulated by the FCC. See Item 1(b)(vi)(A) of this Part I. Similarly, insofar as
GPS remains funded and controlled by the U. S. government, devices utilizing GPS
must conform with government specifications. The FCC's authorization is pending
with respect to the Company's products.
The use of tracking devices as an aid to, or indeed substitute for,
physical surveillance by law enforcement personnel, is subject to federal, state
and local law. Generally stated, tracking devices may be attached to or
installed upon the monitored person or object without court order as long as the
person or object remain in public view. Once the person or object is withdrawn
from public view, a court order is required. But, where a tracking device has
been placed with contraband (e.g., stolen goods), rather than with a lawfully
possessed item, warrantless monitoring can continue to occur even after the
monitored object has been taken onto private premises. As a rule, all persons
presently monitored by the Company are subject to a court order requiring such
monitoring as a condition to their release.
The use of tracking devices by private persons is also subject to
applicable law. The monitoring of persons without their consent or of objects
without their owners' or lawful possessors' consent may be a violation of laws
protecting privacy and property rights.
(ix) Research and Development
During 1997 and 1998, the Company expended $32,065 and $468,563,
respectively, toward research and development. The costs of such research and
development are borne by the Company and not by any of its customers.
(x) Customers; Orders Backlog
Because the Company is a development stage company, it has to date
sustained significant losses. The loss of any customer could further worsen the
prospects and business of the Company. There is no material backlog of orders
for products of the Company.
(xi) Seasonality
The Company's business is not seasonal.
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Item 2. Management's Discussion and Analysis or Plan of Operation
ABS is a developmental stage company. As such, the financial results of
operations reflect the primary activities of the Company directed toward
development and testing of its GPS products, principally for offender monitoring
in the criminal justice marketplace. The following table sets forth the number
of tracking units monitored or leased for the period indicated. Prior to January
1, 1999, the Company monitored and leased were the same as they appear in the
table below. Since January 1, 1999, the Company monitored and leased 190 units
in the first quarter of 1999, monitored and leased 180 units in the second
quarter of 1999, monitored and leased 135 units in the third quarter of 1999 and
monitored and leased 390 units in the fourth quarter of 1999. The remainder of
562, 377, 276 and 150 in the first, second, third and fourth quarter of 1999,
respectively, were monitored units only.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
---- ----------- ----------- ----------- ----------- -----
1997 33 9 34 43 119
1998 24 27 49 58 158
1999 752 557 411 540 2,260
The following table provides a breakdown of selected results of
operations for the nine months ended September 30, 1999, and September 30, 1998,
and for the twelve months ended December 31, 1998 and December 31, 1997, and is
the basis for the following discussion of the results of operations:
<TABLE>
<CAPTION>
Period Year Ended Year Ended
Period Ended Ended September December December
September 30, 1999 30, 1998 31, 1998 31, 1997
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $124,909 $30,307 $49,353 $26,100
Cost of Sales 84,384 85,234 90,146 22,867
Gross Profit (Loss) 40,525 (54,927) (40,793) 3,233
Expenses
Research and Development 876,208 162,975 500,628 283,429
Sales and Marketing 326,735 287,549 427,120 384,052
General and Administrative 2,151,040 1,306,444 2,530,796 1,548,396
Total Expenses 3,353,983 1,756,968 3,458,544 2,215,877
Loss from Operation (3,313,458) (1,811,895) (3,499,337)(2,212,644)
Other Income and Expense
Interest Income - - - 4,172
Other Income - - - -
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Loss on Sales of Property
and Equipment (2,578) - (349) (2,876)
Interest Expense (217,642) (44,859) (206,426) (183,812)
Asset Abandonment - - (94,300) -
Total Other Income
and Expense (220,220) (44,859) (301,075) (182,516)
Loss Before Extraordinary
Item and Provision for
Income Taxes (3,533,678) (1,856,754) (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 (3,533,678) (1,856,754) (3,800,412)(1,825,259)
Provision for Income Taxes - - - -
Net Loss $ (3,533,678) $(1,856,754) $(3,800,412)$(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 nine months ended September 30,
1999, revenue increased $94,602, to $124,909 , an increase of 312.1% over the
comparable period of 1998 of $30,307. The reason for the increase is more units
being monitored and leased in the first nine months of 1999 (1,720 units) as
compared to the same period in 1998 (100 units) .
For the twelve months ended December 31, 1998, revenue increased $23,
253, or 89.1%, over the comparable period of 1997. The reason for the increase
was an increase in the number of units monitored and leased to 158 units in 1998
compared to 51 units for the same comparable period in 1997.
(b) Cost of Sales
Cost of Sales represents the direct costs associated with the generation
of revenue, and includes cost of goods for products which are sold, direct costs
of distribution of software and equipment, maintenance expenses on equipment
repaired under service agreements, and the direct variable communications
expenses associated with the monitoring services provided by the Company. For
the nine months ended September 30 , 1999, Cost of Sales was $84,384, or 67.6%
of revenues, compared with $85,234, or 281.2% of revenue for the comparable
period in 1998. The primary reason for the lower cost of sales as a percentage
of revenue in the 1999 period were increased utilization of the Company assets
in service.
For the twelve months ended December 31, 1998, Cost of Sales was $90,146,
or 182.7% of revenues, compared with $22,867, or 87.6% of revenue for the
comparable period in 1997. These increases were due to an increase in the number
of customer and prospect demonstrations and demonstration units deployed by the
company in 1998, as a result of its sales and marketing activities.
(c) Gross Profit
For the nine months ended September 30, 1999, Gross Profit for the
Company increased $95,452, to $40,525 , compared to a Gross Profit of $(54,927)
in the comparable period of 1998. The reasons for this increase were higher
revenues and proportionately lower Cost of Sales in the 1999 period, as
discussed above.
8
<PAGE>
In the twelve months ended December 31, 1998, Gross Profit for the
Company declined $44,026, to a loss of $40,793 compared to a positive Gross
Profit of $3,233 in the comparable period of 1997. The reason for
the decline was the proportionately higher Cost of Sales in 1998, as discussed
above.
(d) Expenses Research and Development
Research and Development expenses are the direct costs associated with
the Company's development of its proprietary products. Expenses in this category
include the cost of outside contracted engineering and design, staffing expenses
for the Company's own engineers and software developers, and the actual costs of
components, prototypes, and testing equipment and services used in the product
development functions. For the nine months ended September 30, 1999, Research
and Development expenses increased $713,233 to $876,208, compared to $162,975 in
the comparable period of 1998. The primary reason for this increase was that the
Company began the design and development work of its Series 2000 product in the
third quarter of 1999.
Research and Development expenses increased $217,199 in the twelve month
period ending December 31, 1998 to $500,628, compared to $283,429 in the
comparable period of 1997. The primary reason for this increase was the funding
for the continuing development of the Company's ABS COMTRAK unit for criminal
justice applications and for development of the Company's monitoring center
system. The new device was installed in 1998 for customers and prospects in
Arizona, Texas, Iowa, Wisconsin, New Jersey, and Ohio.
(e) Sales and Marketing
Sales and Marketing expenses represent the costs of the Company's sales
and marketing staff, travel and related expenses associated with sales to the
Company's customers and prospects, the costs of advertising in magazines and
periodicals, attendance at trade shows, and production of marketing and related
collateral material. For the nine months ended September 30 , 1999, Sales and
Marketing expenses increased $39,186 to $326,735, compared to $287,549 in the
comparable nine month period of 1998. The primary reason for this increase was
that the Company increased the sales and marketing staff over the comparable
period in 1998.
Sales and Marketing expenses increased $43,068 to $427,120 in the twelve
months ended December 31, 1998, compared to $384,052 in the comparable period of
1997. The reason for this increase was the Company's expanded efforts to market
the ABS COMTRAK unit to the criminal justice market place in 1998, and to build
a market image for that product within the criminal justice market.
(f) General and Administrative
General and Administrative expenses are all the indirect and overhead
expenses associated with the operations of the Company, outside of those
expenses described above. These expenses include executive, administrative, and
accounting staff payroll, taxes and benefits, rent on property, all travel not
included in the Sales and Marketing expense, fixed telephone expenses, office
leases and supplies, and recruiting and training expense. For the nine months
ended September 30 , 1999, General and Administrative expense increased $844,596
to $2,151,040, from $1,306,444 in the comparable period of 1998. The primary
reason for the increase was an increases in administrative and executive staff .
For the twelve months ended December 31, 1998, General and Administrative
expense increased by $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 nine months ended September 30 , 1999, Loss from Operations
increased $1,501,563 to $(3,313,458), compared to $(1,811,895) for the same
period in 1998. The reason for this increase was higher expenses in the period,
as explained above, offset by slightly higher gross profits.
For the twelve months ended December 31, 1998, Loss from Operations
increased by $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) Loss on Sales of Property and Equipment
For the nine months ended September 30, 1999, the Company incurred a loss
on the sale of certain computer equipment of $2,578 as compared to 0 for the
same comparable period in 1998.
9
<PAGE>
(i) Interest Expense
For the nine months ended September 30 , 1999, Interest expense increased
$172,783 to $217,642 , compared to Interest expense of $44,859 in the comparable
period of 1998. This interest expense increase was due to larger outstanding
balances in Company borrowings in 1999 over 1998 .
For the twelve months ended December 31, 1998, Interest expense increased
$22,614 to $206,426, compared to Interest expense of $183,812 in the comparable
period of 1997. This interest expense increase was due primarily to larger
outstanding balances in Company borrowings in 1998 over 1997.
(j) Asset Abandonment Charge
For the twelve months ended December 31, 1998, the Company incurred a
charge for Asset Abandonment of $94,300. This charge was the result of
adjustments to the Company's property and equipment assets to reflect obsolete
or unusable assets.
(k) Extraordinary Items, Gain from Extinguishment of Debt
For the twelve months ended December 31, 1997, the Company recognized a
gain from extinguishment of debt of $569,901.
(l) Net Loss
For the nine months ended September 30 , 1999, the Company had a Net Loss
of $3,533,678 or $(.31) per share, compared to a Net Loss of $1,856,754 or
$(.22) per share , in the comparable period of 1998, for the reasons described
above.
For the twelve months ended December 31, 1998, the Company had a Net Loss
of $(3,800,412) or $(.40) per share, compared to a Net Loss of $(1,825,259), or
$(.33) per share in the comparable period of 1997, for the reasons described
above.
(m) Liquidity and Capital Resources
For the nine months ended September 30 , 1999, the Company used
$(3,212,095) of cash in operating activities and another $(118,605) in investing
activities. It generated $2,953,536 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 nine month period of $(377,164) . For the twelve months
ended December 31, 1998, the Company used $2,863,876 of cash in operating
activities and another $358,581 in investing activities. It generated $3,599,749
in cash from financing activities. The total of all cash flow activities
resulted in an increase in the balance of cash and cash equivalents of $377,292
for the 1998 fiscal year. This increase was primarily the result of an increase
in cash provided by financing activities, and reduced by the increase in cash
used in operating and investing activities.
As of September 30, 1999, the Company had the following borrowing
facilities in place:
The Company has borrowed the principal sum of $1,000,000 from U.S. Bank
N.A. of Omaha, Nebraska. The loan was due in a single payment on August 15,
2000, together with accrued interest. The interest rate is a variable rate based
on the U.S. Bank National Association Reference Rate (the "Index Rate") plus two
(2) percent. As of December 15, 1999, the Index Rate was eight and one-quarter
(8.25) 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 1, 2000.
The Company has borrowed the principal sum of $999,767.13 from Commercial
Savings Bank of Carroll, Iowa. The loan is due on October 5, 1999, together with
accrued interest. The interest rate is eight percent (8%) per annum. This loan
is secured by a security interest in the Company's tangible and intangible
assets. The Company 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 Carrol, 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.
10
<PAGE>
The Company has borrowed the principal sum of $245,000 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 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 September 30, 1999, the
Company did not have commitments for either debt or share purchases to meet its
planned 1999 operating capital requirements.
(n) Impact of Year 2000 Issues
The Year 2000 issue is related to computer software utilizing two digits
rather than four to define the appropriate year. As a result, any of the
Company's computer programs or any of the Company's suppliers or vendors that
have date sensitive software may incur system failures or generate incorrect
data if "00" is recognized as 1900 rather than 2000.
The Company has been addressing Year 2000 issues throughout fiscal year
1998 and has modified or is in the process of modifying any products or services
that are affected by Year 2000 issues. The Company has a formal comprehensive
Year 2000 readiness plan in place and under the oversight of executive
management and, ultimately, the Company's board of directors.
The Company's greatest risk for a material disruption in services lies in
a potential disruption of telecommunication services due to an external
telecommunication service provider's failure to be Year 2000 compliant and the
resulting impact upon the Company's monitoring services. The Company has
contacted and obtained assurances from its telecommunications providers that
their networks are Year 2000 compliant. In addition, the Company has backup
telecommunication provider connectivity if for any reason the primary carrier
has a disruption in service.
Databases, operating systems and system hardware have been reviewed and
updated as necessary for Year 2000 readiness. A review of the model 1702 GPS
tracking unit date format revealed that the 4-digit year is being used for all
calculations and Year 2000 issues should affect the model 1702. Year 2000 issues
were known when the GPS control software was developed and code was written to
comply with these issues.
Reviews of models 100, 101 and 102 firmware of our house arrest products
show that they are not affected by Year 2000 issues due to the way the
information is processed. The internal hardware components have been reviewed
and will not be affected by Year 2000 issues. Review is currently being done on
the house arrest control software that reports violations.
In addition to the review of the system, a Year 2000 testing laboratory
was also established. In this laboratory, a monitoring environment was
established that mirrored the current operating environment. As part of our
testing, all monitoring computers and monitoring units were set to December 31,
1999 and allowed to run for three (3) days. Preliminary results show continued
unaffected processing of monitoring information.
The Company believes that, based upon changes and modifications already
made and those that are currently planned for implementation in fiscal year
1999, the impact of Year 2000 issues will not be material. However, to the
extent the Company or third parties on which it relies do not timely achieve
Year 2000 readiness, the Company's results of operations may be adversely
affected.
As of the date of this registration statement, the Company has experience
no Year 2000 problems with respect to its products and services or those of any
third party provider.
Item 3. Description of Property
The Company leases approximately 6,212 square feet of office space located
at 3345 No. 107th Street,Omaha, Nebraska. All of the Company's administrative,
sales, service and other business operations are conducted at this location.
This lease is for a term commencing on December 1, 1998, and ending on November
30, 2001. The base rent is $4,659.00 per month. The lease also requires the
Company to pay $1,099.53 per month as its pro rata share of the operating
expenses respecting the leased premises.
The Company leases computers, office equipment and furniture from several
sources. The rent for such items is in excess of $3,900.00 per month.
11
<PAGE>
In the opinion of the Company's management, the Company's properties are
adequately covered by insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock, par value $0.001 per share (the "Common
Shares"), as of January 31, 2000 , by (i) each stockholder known by the Company
to be a beneficial owner(1) of more than five percent of the Common Shares, (ii)
by each of the Company's directors and executive officers, and (iii) the
directors and executive officers as a group. Unless otherwise indicated, all
shares are owned directly and the indicated owner has sole voting and
dispositive power with respect thereto.
Name and Address Amount and Nature
of Beneficial Owner Beneficial Ownership Percent of Class
-------------------- -------------------- ----------------
Dennis Anderson 1,138,543 7.85%
135 Lois Avenue
Carroll, Iowa 51401
Roger Kanne (2) 1,018,555 7.03%
1311 Amy Avenue
Carroll, Iowa 51401
Robert Badding 928,605 6.32%
304 Timberline Road
Carroll, Iowa 51401
Benjamin J. Lamb (3) 1,000,000 6.9%
11205 Washington Street
Omaha, Nebraska 68137
John Gaukel 485,600 3.35%
3854 No. 208th Street
Elkhorn, Nebraska 68022
James E. Stark 0 0%
2540 Rathbone Rd.
Lincoln, Nebraska 68502
Ronald Muhbauer 826,714 5.70%
222 Pleasant Ridge
Carroll, Iowa 51401
James Pietig 489,330 3.38%
129 Pleasant Ridge
Carroll, Iowa 51401
Directors and Executive
Officers as a Group (7 persons) 5,887,347 40.61%
----------------------
(1) A beneficial owner of a security means
(a) Any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares: (1) voting
power, which includes the power to vote, or to direct the voting of, such
security or (2) investment power, which includes the power to dispose, or to
direct the disposition of, such security.
(b) Any person who, directly or indirectly, creates or uses a trust,
proxy, power of attorney, pooling arrangement, or any other contract,
arrangement or device with the purpose or effect of divesting such person of
beneficial ownership of a security or preventing the vesting of such beneficial
ownership.
12
<PAGE>
(2) Includes 909,055 Common Shares held directly by Mr. Kanne, 29,358 Common
Shares held by Country Stores, 50,729 Common Shares held by E. T. Videos and
29,413 Common Shares held by K & K Developers. Country, Stores, E.T. Videos and
K & K Developers are affiliates of Mr. Kanne.
(3) Mr. Lamb has options to purchase an additional 1,332,000 Common Shares at
$0.10 per share.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The executive officers and directors of the Company and their ages as of
the date of this Registration Statement are as follows:
Name Age Position
---- --- --------
James E. Stark 38 President and Chief Financial Officer
John Gaukel 54 Vice President, Director
Roger Kanne 58 Treasurer, Director
Dennis Anderson 54 Director
Robert Badding 69 Director
Ronald Muhlbauer 57 Director
James Pietig 56 Director
James E. Stark joined the Company in September 1999 as its controller and
was promoted to President and Chief Financial Officer in January 2000. Prior to
joining the Company, Mr. Stark was the director of investor relations for
Transcrypt International, Inc. from May 1998 to September 1999. From February
1997 to May 1998, Mr. Stark was associated with Quantum North America. From
January 1996 to February 1997, Mr. Stark served as the director of financial
planning and and analysis for America West Airlines. From October 1994 to
January 1996, Mr. Stark was associated with Dal-Tile Corp. From February 1990 to
September 1994, Mr. Stark was associated with Greyhound Lines, Inc. Mr. Stark
holds a Master of Business Administration from the University of Phoenix and a
Bachelor of Science Degree in Economics from the University of Texas.
John Gaukel is Vice President and Chief Technical Officer and has been a
member of the Board of Directors since 1995. He is a graduate of the University
of Nebraska at Omaha, with a BS degree in Physics and a minor in Mathematics.
Prior to joining ABS, he worked with Brumko Magnetics Corporation in Elkhorn,
Nebraska from 1985 to 1994. Mr. Gaukel is the inventor of the patent pending
technology of ABS, which has been assigned to the Company, and he holds three
other patents which are unrelated to ABS's business. He continues to devote his
time to the ever-evolving changes and enhancements to the Company's product
lines.
Ronald W. Muhlbauer is Chairman of the Board and has been a member of the
Board of Directors since 1996. He is a Certified Public Accountant and has been
a partner with the accounting firm of Olsen, Muhlbauer & Co., L.L.P., in
Carroll, Iowa , since 1970 . Mr. Muhlbauer is a graduate of Creighton University
in Omaha, Nebraska, with a BS degree in Business Administration.
Roger J. Kanne has been Treasurer and a member of the Board of Directors
of ABS since October 1997. From 1961 through the present, he has been President
of Community Oil Company in Carroll, Iowa. His business experience stems from
his involvement as owner and operator of several business entities including
retail and wholesale petroleum jobbers, real estate developments, convenience
stores and video stores in an eight state area.
Dennis L. Anderson joined the Board of Directors of ABS in October, 1997.
He is a graduate of Buena Vista University of Iowa . Mr. Anderson currently
serves as secretary-treasurer of The Farner Bocken Company of Carroll, Iowa, a
regional distributor of food, tobacco and related snack products to locations in
a multi-state area. Mr. Anderson has been active in the management of this
closely held corporation from 1973 through the present .
Robert E. Badding joined the Board of Directors of ABS in October, 1997.
He founded Badding Construction, Carroll, Iowa, in 1954 and continues as Chief
Executive Officer today. Badding Construction is a
13
<PAGE>
regional commercial and residential construction firm. Mr. Badding has been
involved in all levels of the construction management of this mufti- state firm
for the past 45 years .
James L. Pietig joined the ABS Board in December, 1997. From 1975 To
1992, Mr. Pietig served as Chief Executive officer of Pepsi Cola Company of
Carroll, Iowa. Since 1992, he has been managing his investments in a
hotel-convention complex and in private and public land companies and
developments.
Messrs. Kanne, Anderson, Badding and Pietig have no experience with
GPS-based technology nor with respect to the criminal justice system. They serve
on the Company's board of directors solely because of their substantial
investment in the Company. It is anticipated that Messrs. Anderson, Badding and
Pietig will not stand for reelection to the board of directors at the next
annual meeting of the Company's stockholders.
The Company's certificate of incorporation provides that the Company's
Board of Directors is to be divided into three classes . As a result of the
Share Exchange, however, all directorships will be open to election at the next
annual meeting of the stockholders. It is anticipated that at the next annual
meeting of stockholders such directorships will be divided into three classes
with one class having a term of one year, one class having a term of two years
and one class having a term of three years. At each annual meeting of
stockholders thereafter at which the term of each class of directors expires,
successor directors of such class will be elected for a three-year term.
Executive officers of the Company are appointed by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified.
The Board of Directors is expected to establish and designate specific
functions and areas of oversight to an Executive Committee, an Audit Committee
and a Compensation Committee on or before October 1, 1999. The Bylaws permit the
creation of additional committees.
Item 6. Executive Compensation
The following table sets forth information concerning the compensation
of each of the Company's last three completed fiscal years, at December 31,
1999, of the principal executive officer. There were no other persons serving in
an executive capacity for the Company during such time period
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation
<S> <C> <C> <C> <C> <C>
James E. Stark (1) 1999 28,334 0 30,000 0
President, Chief Financial
Officer and Secretary
1998 0 0 0 0
1997 0 0 0 0
Benjamin J. Lamb (2) 1999 137,500 1,332,000
Former President and
Chief Executive Officer
1998 0 0 0 0
1997 0 0 0 0
</TABLE>
(1) Mr. Stark joined the Company in September 1999 and was promoted to
President in January 2000.
14
<PAGE>
(2) Mr. Lamb resigned as President and Chief Executive Officer of the Company
in January 2000.
The Company has entered into an employment agreement with Mr. Stark, a
copy of which is attached as an exhibit to this registration statement.
Item 7. Certain Relationships and Related Transactions
On April 6 and 8, 1998, the Company entered into loan agreements with
Commercial Savings Bank and US Bank . See "Management's Discussion and Analysis
or Plan of Operation-Liquidity and Capital Resources." These loans were
unconditionally guarantied by Dennis Anderson, Robert Badding, Mary Collison,
John Gaukel, Martin Halibur, Roger Kanne, Ronald Muhlbauer, James Pietig, Rob
Rasmussen and James DiPrima. In consideration for giving these guaranties, each
of these individuals received 100,000 fully paid, nonassessable Common Shares.
Owing to the Company's continuing losses, it was unable to find a lending
institution willing to loan additional funds to the Company. At the suggestion
of First Star Bank of Iowa, N.A. (the "lending institution"), James Pietig, a
director of the Company, and Mary Collison, a stockholder of the Company, each
established a line of credit in the amount of $500,000 with the lending
institution. . These loans were unconditionally guarantied by Dennis Anderson,
Robert Badding and Roger Kanne, each of whom is an officer and/or director of
the Company, and by Martin Halibur, a stockholder of the Company. The amounts
drawn on these lines of credit bear interest at the lending institution's prime
interest rate plus 0.250 percent (the "Regular Rate") . Interest is payable
monthly. The entire amount of unpaid principal and accrued interest is due and
payable on January 31, 2000. On April 30, 1999, the amounts drawn under these
lines of credit were loaned by Mr. Pietig and Ms. Collison to the Company. As of
the date of this registration statement, the outstanding principal balance under
these lines of credit is $1,000,000. The Company has agreed to repay the loans
under substantially the same terms as with the lending institution. In the event
of default, however, the Company will pay interest at a rate equal to the
Regular Rate plus five percent (5%). These loans are unsecured. As consideration
for entering into this arrangement, each of the lenders and guarantors received
83,333 fully paid, nonassessable Common Shares and a warrant to purchase 83,333
Common Shares at an exercise price of $1.00 per share, exercisable at any time
on or before October 31, 2000. The loan agreements between the Company and each
of Mr. Pietig and Ms. Collison have been filed with the SEC as exhibits to its
registration statement under Form 10-SB. The board of directors determined that,
without the loans as described herein, the Company would not be able to continue
operations and, consequently, the Company's capital stock would have virtually
no value. The board therefore determined that the value of the stock issued to
each of Mr. Pietig and Ms. Collison had a nominal value of $0.10 per share. The
number of shares issued to Mr. Pietig and Ms. Collison was arbitrarily
determined by the parties as being fair compensation for the risks accompanying
their undertakings with the lending institution. For each $1.00 loaned or
guaranteed, the board determined that each lender or guarantor, as the case may
be, would receive one-half of one Common Share.
Item 8. Description of Securities
(a) General
The authorized capital stock of the Company consists of 50,000,000 Common
Shares, and 1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). As of 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.
(b) Common Shares
Holders of Common Shares are entitled to one vote per share in all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, holders of Common
Shares are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy " . In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Shares are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any outstanding Preferred
Stock. All of the outstanding shares of Common Shares are fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Shares are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
(c) Preferred Stock
The Board of Directors has the authority, without any further vote or
action by the stockholders, to provide for the issuance of up to 1,000,000
shares of Preferred Stock from time to time in one or more series with such
15
<PAGE>
designations, rights, preferences and limitations as the Board of Directors may
determine, including the consideration received therefor. The Board also has the
authority to determine the number of shares comprising each series, dividend
rates, redemption provisions, liquidation preferences, sinking fund provisions,
conversion rights and voting rights without approval by the holders of Common
Shares. Although it is not possible to state the effect that any issuance of
Preferred Stock might have on the rights of holders of Common Shares, the
issuance of Preferred Stock may have one or more of the following effects (i) to
restrict Common Shares dividends if Preferred Stock dividends have not been
paid, (ii) to dilute the voting power and equity interest of holders of Common
Shares to the extent that any Preferred Stock series has voting rights or is
convertible into Common Shares or (iii) to prevent current holders of Common
Shares from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied. In
addition, the issuance of Preferred Stock may, under certain circumstances, have
the effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Certificate of Incorporation or any reorganization, consolidation, merger or
other similar transaction involving the Company. As a result, the issuance of
such Preferred Stock may discourage bids for the Common Shares at a premium over
the market price therefor, and could have a materially adverse effect on the
market value of the Common Shares. The Board of Directors does not presently
intend to issue any shares of Preferred Stock.
(d) No Preemptive Rights
No holder of any capital stock of the Company has any preemptive right to
subscribe for or purchase securities of any class or kind of the Company, nor
any redemption or conversion rights.
(e) Delaware Business Combination Statute
The Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL") . In general, this law prohibits a
publicly held Delaware corporation from engaging in a "business combination "
with an "interested stockholder " for a period of three years after the date
that the person became an interested stockholder unless (with certain
exceptions) the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. Generally,
a "business combination " includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. An "interested
stockholder " is, generally defined as a person who, together with affiliates
and associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. This provision of Delaware law may have the effect
of delaying, deferring or preventing a change of control of the Company without
further action by the stockholder.
(f) Certain Charter Provisions
(i) General
Certain provisions of the Company's Certificate of Incorporation and
Bylaws could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise as well as the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company.
(ii) Number of Directors; Removal; Vacancies
The Certificate of Incorporation and the Bylaws provide that the number
of directors shall be determined from time to time exclusively by a vote of a
majority of the Company's Board of Directors then in office; provided, however,
that the number of Directors shall not be less than three (3) nor more than
fifteen (15). The Certificate of Incorporation also provides that the Company's
Board of Directors shall have the exclusive right to fill vacancies, including
vacancies created by an expansion of the Board. The Certificate of Incorporation
further provides that Directors may be removed with or without cause upon the
affirmative vote of at least two-thirds of all of the shares of the Company's
capital stock then entitled to vote in the election of directors; provided,
however, that if there are one or more Interested Stockholders (as defined in
Article 9 of the Certificate of Incorporation), Directors may be removed only
for cause and, in addition to such two-thirds vote, there must also be an
affirmative vote for removal of not less than a majority of the voting power of
the shares held by stockholders other than such Interested Stockholders.
(iii) Classified Board of Directors
16
<PAGE>
The Certificate of Incorporation provides for the Company's Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Company's Board of
Directors will be elected each year. See "Management- -Executive Officers and
Directors " . This provision could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. It could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company, thus increasing the likelihood that
incumbent directors will retain their position.
(iv) Approval of Repurchases
The Certificate of Incorporation prohibits repurchases by the Company
from a stockholder owning more than 5% of the Company's voting securities (a
"Significant Stockholder") (other than those stockholders currently meeting such
description) who has owned such securities of the Company for less than two
years, unless approved by an affirmative vote of at least a majority of the
total votes entitled to vote generally in the election of Directors other than
the voting power held by the Significant Stockholder.
(v) Amendments to Bylaws
The Certificate of Incorporation provides that the Board of Directors or
the holders of at least two-thirds of all shares of the Company's capital stock
then entitled to vote have the power to amend or repeal the Company's Bylaws;
provided, however, that if there are one or more Interested Stockholders, the
Bylaws may be amended, in addition to such two-thirds vote, upon the affirmative
vote for such action of not less than a majority of the voting power of the
shares held by stockholders other than such Interested Stockholders.
(vi) Amendment of the Certificate of Incorporation
Any proposal to amend, alter, change or repeal any provision of the
Certificate of Incorporation requires approval by the affirmative vote of a
majority vote of the voting power of all of the shares of the Company's capital
stock entitled to vote generally in the election of directors; provided,
however, that an affirmative vote of the holders of at least two-thirds of the
total votes eligible to be case is required to amend the provisions described
above.
(g) Limitation of Liability and Indemnification
The Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as a breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Certificate of
Incorporation and Bylaws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
(h) Transfer Agent and Registrar
The Transfer Agent and Registrar of the Common Shares is Atlas Stock
Transfer Corporation of Salt Lake City, Utah.
PART II.
17
<PAGE>
Item 1 . Market Price of and Dividends on the Company's Common Equity and Other
Shareholder Matters
Until July 2, 1999, the Common Shares of the Company were traded on the
OTC Bulletin Board under the trading symbol ABSH (or ABSHE). The following table
sets forth the high and low bid information for each quarter since January,
1998.
Year Quarter High Low
---- ------- ---- ---
1998 1st $2.6250 $1.2500
2nd $4.3750 $1.2500
3rd $4.5000 $1.5000
4th $2.6875 $0.7500
1999 1st $2.1250 $0.7500
2nd $1.1875 $0.53125
3rd $1.00 $0.125
The source of the foregoing information is Bloomberg, L.P. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Since July 2, 1999, the Common Shares have been quoted on the so-called
"pink sheets" maintained by the National Quotation Bureau. Prior to January,
1998, the Common Shares were traded under the symbol SAII; however, the Company
does not have any bid information prior to the Share Exchange.
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.
Item 2. Legal Proceedings
The Company's subsidiary, ABS Nebraska, is a defendant in an action
pending in Montana Eighteenth Judicial District Court, Gallatin County,
captioned Applied Technologies, Inc. v. Advanced Business Sciences, Inc., et
al., No. 98-285. This action was initially filed on September 11, 1998. The
Amended Complaint alleges that ABS Nebraska is in breach of contract under which
the Plaintiff, Applied Technologies, Inc., was to produce prototype and
production parolee tracking devices. The Amended Complaint alleges that the
Company is in breach of contract for failure to make payments thereunder. The
plaintiff prays for an unspecified amount of compensatory and consequential
damages . The plaintiff also seeks attorney's fees and such other relief as the
court may deem equitable and proper. ABS Nebraska has denied the allegations,
has raised certain affirmative defenses and has brought a counterclaim alleging,
among other things, that the Plaintiff failed to deliver in a timely manner all
documents schematic drawings, mechanical drawings, computer disks of designs,
vendors lists with part numbers and art work. 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 3. Changes in and Disagreements with Accountants
[Not applicable]
Item 4. Recent Sales of Unregistered Securities
18
<PAGE>
On December 17, 1997, the Company consummated a plan and agreement of
reorganization with ABS Nebraska and all of the shareholders of ABS Nebraska
(the "ABS Shareholders") . Under this agreement, the Company issued 7,050,000
Common Shares to the ABS Shareholders in exchange for all of the issued and
outstanding shares of ABS Nebraska. An additional 450,000 Common Shares were
issued to finders. Certain ABS Shareholders were also issued warrants to
purchase 574,000 Common Shares at an exercise price of $1.00 per share, which
warrants expire on December 20, 2000. As a result of this transaction, the ABS
Shareholders owned approximately 88% of the then issued and outstanding Common
Shares and ABS Nebraska became the wholly-owned subsidiary of the Company. This
transaction was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act") ,
under Section 4(2) thereof.
Effective December 31, 1997 , the Company issued 165,000 Common Shares as
payment for certain accounts payable, 82,500 Common Shares for consulting
services, and 2,063 Common Shares as payment of bonus compensation to an
employee. Each of these transactions was exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(2)
thereof.
On February 1, 1998, the Company issued 1,250,000 units at $2.00 per unit
and an aggregate purchase price of $2,500,000. A unit consisted on one Common
Share and a warrant to purchase one Common Share at an exercise price of (1)
$3.00 per share during the first year, (2) $4.00 per share during the second
year and (3) $5.00 per share during the third year. The warrants expire February
1, 2001. There were 96 purchasers, of which all but sixteen were accredited
investors. The Company failed to comply with Regulation D under the Securities
Act in that it provided its audited financial statements for the years ended
December 31, 1995 and 1996, but supplied unaudited financial statements for the
year ended December 31, 1997. A subsequent audit for the year ended December 31,
1997, revealed that the unaudited statements reflected greater losses than
actually existed. The Company's management therefore believes that this
transaction was in substantial compliance with Rule 506 under the Securities
Act; however, the Company may have a contingent liability for the entire
offering . See "Notes to Financial Statements-Note 18." The Company does not
intend to make an offer of rescission to the purchasers of this offering.
Effective April 1, 1998, the Company issued 1,000,000 shares to certain
individuals in consideration for these individuals giving their unconditional
guaranty of indebtedness incurred by the Company with Commercial Savings Bank
and US Bank. See "Certain Relationships and Related Transactions. " The loans
would not have been given without these personal guaranties. The board of
directors determined that, without the loans as described herein, the Company
would not be able to continue operations and, consequently, the Company's
capital stock would have virtually no value. The board therefore determined that
the value of the stock issued to each of the guarantors had a nominal value of
$0.25 per share. The number of shares issued to guarantors was arbitrarily
determined by the parties as being fair compensation for the risks accompanying
their undertakings with the lending institution. This transaction was exempt
from the registration and prospectus delivery requirements of the Securities Act
under Section 4(2) thereof.
On April 9, 1998, the Company authorized the issuance of 610,000 Common
Shares as employee bonuses. The board has determined that the value of such
Common Shares was $0.30 per share. This transaction was exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(2) thereof.
On August 24, 1998, the Company issued 2,191,145 Common Shares to acquire
Comguard Leasing and Financial, Inc., an Illinois corporation. This transaction
was rescinded effective June 1, 1999. However, 242,500 Common Shares remained
outstanding as consideration for services in consummating the Comguard
Acquisition. Based upon a value of $0.44 per share, the Company's board of
directors determined that this was adequate consideration for the negotiation of
the acquisition and the performance of due diligence . This transaction was
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(2) thereof.
On January 18, 1999, the Company issued 152,000 Common Shares as payment
of bonuses to employees accrued during 1998. The bid and ask price for the
Common Shares were $0.88 and $1.25 per share, respectively, on such date. Each
of these transactions was exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(2) thereof.
On February 1, 1999, the Company agreed to issue 1,000,000 shares of its
Common Shares to Benjamin J. Lamb in consideration for Mr. Lamb entering into an
employment agreement with the Company. The bid and ask price for the Common
Shares were $1.75 and $2.06 per share, respectively, on such date. This
transaction was exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(2) thereof.
On March 15, 1999, the Company issued to certain directors, officers and
stockholders of the Company in the aggregate 500,000 Common Shares and warrants
to purchase in the aggregate 500,000 Common Shares at an exercise price of $1.00
per share. The warrants are exercisable at any time on or before October 31,
2000. These securities were given in consideration for direct loans to the
Company or for giving unconditional guaranties to loans from First Star
19
<PAGE>
Bank of Iowa, N.A. which funded this indebtedness. The board has determined that
the value of the Common Shares as of such date was $.17 per share. See "Certain
Relationships and Related Transactions." This transaction was exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(2) thereof.
On June 1, 1999, the Company entered into agreements rescinding the
Comguard Acquisition. To consummate this rescission, the Company issued to
Frederick Bishop 100,000 Common Shares and issued to Michael Reeves a warrant to
purchase 50,000 Common Shares at an exercise price of $1.50 per share, expiring
on June 1, 2004. Messrs. Bishop and Reeves were former shareholders and
promoters of Comguard Leasing and facilitated the rescission of the Comguard
Acquisition. The bid and ask price for the Common Shares on June 1, 1999, were
$0.69 and $0.78 per share, respectively, on such date. This transaction was
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(2) thereof.
Item 5. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
permits indemnification by a corporation of certain officers, directors,
employees and agents. Consistent therewith, Article 12 of the Company's Restated
Certificate of Incorporation provides that the Company, to the fullest extent
permitted by law, shall indemnify a director, officer, employee or agent of the
Company or a person who is or was serving at the request of the Company as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Article VIII of the Company's Restated Bylaws provides that any
indemnification (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because such person has met
the applicable standard of conduct, as the case may be. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (i) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, or (iii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion or
(iv) by the stockholders. Such determination shall be made, with respect to
former directors and officers, by any person or persons having the authority to
act on the matter on behalf of the Company. To the extent, however, that a
present or former director or officer of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case. including service with respect to an
employee benefit plan, who was or is made (or threatened to be made) a party to
a civil, criminal, administrative or investigative proceeding.
Article VIII of the Company's Restated Bylaws further provides that
expenses incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Company as authorized in Article VIII.
PART F/S
The Company's financial statements for the years ended December 31, 1998
and 1997 have been examined to the extent indicated in their reports by
Schvaneveldt and Company, independent certified accountants, and have been
prepared in accordance with generally accounting principles and pursuant to
Regulation S-B as promulgated by the Commission. These financial statements are
included herein on the following 30 pages, in response to Part F/S of this Form
10-SB.
20
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Index
Page
Independent Accountants' Audit Report .............................. 22
Financial Statements
Balance Sheets .................................................. 23-24
Statements of Operations ........................................ 25-26
Statements of Stockholders' Equity (Deficit) .................... 27-31
Statements of Cash Flows ........................................ 32-33
Notes to Financial Statements ................................... 34-47
Supplemental Information
Independent Accountants' Audit Report on Supplemental Information 48
Schedules of Expenses ........................................... 49-50
21
<PAGE>
Independent Auditors Report
Board of Directors
Advanced Business Sciences, Inc.
I have audited the accompanying balance sheets of Advanced Business Sciences,
Inc., as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 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, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note #15 to the financial
statements, the Company has an accumulated deficit at December 31, 1998. These
factors raise substantial doubt about the 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.
Salt Lake City, Utah
June 7, 1999
22
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets
September 30, 1999 (Unaudited), December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents ....................... 428 $ 377,592 $ 300
Receivables
Trade Accounts ................................ 53,736 13,995 11,461
Employees ..................................... 15,411 26,309 345
Stock Subscription Receivable (note 11) ....... -0- 599,452 -0-
Inventory 706,215 ............................... 535,055 582,108
Prepaid Expenses53,440 .......................... 16,212 5,000
Total Current Assets ......................... 829,230 1,568,615 599,214
Property and Equipment
Furniture and Equipment (note 4) ................ 625,916 571,779 549,514
Leasehold Improvements (note 4) ................. 16,326 16,326 77,585
Leased Equipment (note 4) ....................... 237,084 194,236 29,039
Intellectual Property (notes 4 & 8) ............. 169,000 169,000 -0-
Total Cost ................................... 1,048,326 951,341 656,138
Less Accumulated Depreciation and Amortization 590,387 346,277 237,402
Net Book Value ............................... 457,939 605,064 418,736
Other Assets
Rent and Utility Deposits 3,473 .............. 4,073 11,950
Patents (note 5)13,631 ....................... 13,631 15,145
Advance to Comguard (note 9)86,634 ........... 66,992 -0-
Investment in Comguard (note 9)-0- ........... 2,191 -0-
Total Other Assets ........................ 103,738 86,887 27,095
Total Assets .............................. $1,390,907 $2,260,566 $1,045,045
</TABLE>
The accompanying notes are an integral part of these financial statements
23
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Balance Sheets -Continued-
September 30, 1999 (Unaudited), December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Liabilities
Current Liabilities
Ca$h in Bank Overdraft ................................ 82,976 $ 206,230 $ 17,411
Accounts Payable ...................................... 340,492 392,016 439,446
Payroll Taxes Accrued and Withheld (note 6) ........... 55,294 220,440 228,739
Accrued Interest ...................................... 49,871 19,795 25,019
Accrued Wages ......................................... 41,922 45,600 41,769
Note Payable Short Term Debt (note 12) ................ 4,476,806 2,034,768 87,453
Current Portion of Long-Term Debt (note 12) ........... 20,039 25,978 133,948
Total Current Liabilities .......................... 5,067,400 2,944,827 973,785
Long-Term Liabilities
Long-Term Debt, Less Current Portion (note12) ......... 103,914 123,675 80,000
Total Liabilities ................................. 5,171,314 3,068,502 1,053,785
Commitments and Contingency (note 17)
Stockholders' Equity (Deficit) (note 14)
Preferred Stock 1,000,000 Shares Authorized at $.01
Par Value; None Issued
Common Stock 50,000,000 Shares Authorized at $.001
Par Value; 13,489,291; 12,633,494 and 7,487,099
Shares Issued and Outstanding Respectively
Retroactively Restated .............................. 13,490 12,634 7,487
Paid-in Capital ....................................... 8,866,897 8,306,546 5,310,477
De(icit Accumulated During the Development Stage ...... 12,660,794) (9,127,116) ( 5,326,704)
Total Stockholders' Equity (Deficit) ............... (3,780,407) ( 807,936) ( 8,704)
Total Liabilities and Stockholders' Equity (Deficit) 1,390,907 $ 2,260,566 $ 1,045,045
</TABLE>
The accompanying notes are an integral part of these financial statements
24
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Nine Months Period January 1, 1999 to September 30, 1999
(Unaudited) and for the Nine Months Period January 1, 1998 to September
30, 1998 (Unaudited) and the Years Ended December 31,1998 and 1997 and the
Period from January 5, 1992 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended (Inception)
September September December December to September
30, 1999 30, 1998 31, 1998 31, 1997 30, 1999
<S> <C> <C> <C> <C> <C>
Revenues .............................. 124,909 $ 30,307 $ 49,353 $ 26,100 $ 249,402
Cost of Sales ......................... 84,384 85,234 90,146 22,867 231,915
Gross Profit (Loss .................... 40,525 ( 54,927) ( 40,793) 3,233 17,487
Expenses
Research and Development ........... 876,208 162,975 500,628 283,429 2,260,493
Sales and Marketing ................ 326,735 287,549 427,120 384,052 1,305,143
General and Administrative ......... 2,151,040 1,306,444 2,530,796 1,548,396 8,617,643
Total Expenses .................. 3,353,983 1,756,968 3,458,544 2,215,877 12,183,279
Loss from Operations ............ (3,313,458) (1,811,895) (3,499,337) (2,212,644) (12,165,792)
Other Income and (Expense)
Interest Income .................... -0- -0- -0- 4,172 14,744
Other Income ....................... -0- -0- -0- -0- 84,528
Loss on Sale of Property & Equipment (2,578) -0- (349) (2,876) (11,914)
Interest Expense ................... ( 217,642) ( 44,859) ( 206,426) (183,812) ( 686,163)
Asset Abandonment (note 4) ......... -0- -0- ( 94,300) -0- (94,300)
Total Other Income & Expens ..... ( 220,220) ( 44,859) ( 301,075) ( 182,516) ( 693,105)
Loss Before Extraordinary Item
& Provision for Income Taxe ..... (3,533,678) (1,856,754) (3,800,412) (2,395,160) (12,858,897)
Extraordinary Item
Gain from Extinguishment of Debt,
Net of Income Taxes (note 16) .... -0- -0- -0- 569,901 569,901
Loss Before Provisions for
Income Taxes .................... (3,533,678) (1,856,754) (3,800,412) (1,825,259) (12,288,996)
Provision for Income Taxes ...... -0- -0- -0- -0- -0-
Net Loss ........................ ($ 3,533,678) ($1,856,754) ($3,800,412) ($ 1,825,259) ($ 12,288,996)
</TABLE>
The accompanying notes are an integral part of these financial statements
25
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Operations
For the Nine Months Period January 1, 1999 to September 30, 1999
(Unaudited) and for the Nine Months Period January 1, 1998 to September
30, 1998 (Unaudited) and the Years Ended December 31,1998 and 1997
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended
September September December December
30, 1999 30, 1998 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Loss Per Share Before
Extraordinary Items ........ ($ .31) ($ .22) ($ .40) ($.44)
Loss Per Share After
Extraordinary Items ........ ( .31) ( .22) ( .40) (.33)
Weighted Average Shares
Outstanding as Retroactively
Restated ................... 11,320,281 7,487,009 9,391,265 5,405,367
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) For the
Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 5, 1992 ............ -0- $ -0- $ -0- $ -0-
Issuance of Stock for Cash at $0.0012
Per Share Retroactively Restated .... 3,300,000 3,300 700
Net Loss for Year Ended
December 31, 1992 ................... ( 5,870)
--- ---- - -----
Balance, December 31, 1992 .......... 3,300,000 3,300 700 ( 5,870)
Net Loss for Year Ended
December 31, 1993 ................... ( 7,734)
--- ---- - -----
Balance, December 31, 1993 .......... 3,300,000 3,300 700 ( 13,604)
Net Income for Year Ended
December 31, 1994 ................... 17,924
--- ---- ------
Balance, December 31, 1994 .......... 3,300,000 3,300 700 4,320
Issuance of Stock for Services and
the Assignment, Rights, Title and
Interest in an Invention Disclosed
in the Company's Patent Application
on January 1, 1995 at $.0012 Per Share
Retroactively Restated 583,688 584 123
Capital Contributed by a Shareholder 3,200
Issuance of Stock through a Private
Placement Memorandum at $3.64
Per Share Retroactively Restated 294,360 294 1,070,106
Cost of Private Placement ( 54,192)
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-For the
Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Net Loss for the Year Ended
December 31, 1995 ( 659,788)
Balance, December 31, 1995 4,178,048 4,178 1,019,937 ( 655,468)
Issuance of Stock through a Private
Placement Memorandum at $3.64 Per
Share Retroactively Restated 118,140 118 429,482
Cost of Private Placement ( 56,431)
Cancellation of Stock at $.001 Per
Share Retroactively Restated (577,500) ( 577) 577
Issuance of Stock at $.01 Per Share
in Connection with Notes Payable
Retroactively Restated 412,500 412 ( 412)
Issuance of Stock Related to the
Conversion of 10% Convertible
Sub-Ordinate Debenture at $6.06
Per Share Retroactively Restated 41,250 41 249,959
Net Loss for the Year Ended
December 31, 1996 (2,845,977)
Balance, December 31, 1996 4,172,438 4,172 1,643,112 (3,501,445)
Issuance of Stock at $.01 Per Share
in Connection with Notes Payable
Retroactively Restated 165,000 165 ( 165)
Issuance of Stock Related to
Conversion of 10% Convertible
Subordinated Debentures at $6.06
Per Share Retroactively Restated 16,500 17 99,983
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-For the
Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Cost of Private Placement ( 20,400)
Issuance of Stock for Services at $.01
Per Share Retroactively Restated 82,500 82 ( 72)
Issuance of Stock Related to
Conversion of Sub-Ordinated
Debentures, Notes and Accrued
Interest, Retroactively Restated 1,349,617 1,350 1,871,259
Issuance of Stock Related to Notes
Payable and Accrued Interest
Retroactively Restated (note 7) 799,507 800 1,682,102
Issuance of Stock Related to Notes
Payable and Accrued Interest
Retroactively Restated 12,375 12 29,988
Issuance of Stock Related to
Payments of Bonuses 2,063 2 5,107
Issuance of Shares Related to Finder
Fees for "Reverse Acquisition Takeover"
of Sage Analytical International, Inc. 450,000 450
Shares Issued to Shareholders of Sage
Analytical International, Inc., Prior to
"Reverse Acquisition Takeover" 437,099 437 ( 437)
Net Loss for the Year Ended
December 31, 1997 (1,825,259)
--- ---- ----------
Balance, December 31, 1997 7,487,099 7,487 5,310,477 (5,326,704)
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
29
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-For the
Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <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
Shares Issued for Services at
$0.14 Per Share 1,108,275 1,108 154,050
</TABLE>
The accompanying notes are an integral part of these financial statements
30
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) -Continued-For the
Period from January 5, 1992 to December 31, 1998
and the Period January 1, 1999 to September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid-in Development
Shares Par Value Capital Stage
------ --------- ------- -----
<S> <C> <C> <C> <C>
Shares Issued for 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
Loss for Period Ended
September 30, 1999 (3,533,678)
Balance, September 30, 1999 13,489,291 $ 13,490 $8,866,897 ($12,660,794)
</TABLE>
The accompanying notes are an integral part of these financial statements
31
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Nine Months Period January 1, 1999 to September 30, 1999
(Unaudited) and for the Nine Months Period January 1, 1998 to September
30, 1998 (Unaudited) and the Years Ended December 31, 1998 and 1997
Period from August 11, 1989 (Date of Inception) to September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended (Inception)
September September December December to September
30, 1999 30, 1998 31, 1998 31, 1997 30, 1999
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss ......................................... ($ 3,533,678) ($ 1,856,754) ($ 3,800,412) ($ 1,825,259) ($12,288,996)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities;
Loss on Assets Write Off ........................ -0- -0- 94,300 -0- 94,300
Loss on Inventory Obsolence ..................... 26,646 -0- 202,996 -0- 229,612
Depreciation and Amortization ................... 244,110 115,619 172,221 130,917 639,065
Loss on Sale of Property & Equipment ............ 2,578 -0- 349 2,876 11,914
Expenses Paid by Issuance of Stock in
L eu of Cash .................................. 456,798 -0- 494,025 5,567 673,903
Gain from Forgiveness of Debt ................... -0- -0- -0- (569,901) (569,901)
Changes in Operating Assets & Liabilities;
((ncrease) Decrease in Trade Accounts Receivable ( 39,741) 1,808 (2,534) (5,984) (53,736)
(Increase) Decrease in Employee Receivables ... 10,898 (47,369) ( 25,964) 4,655 (15,411)
(Increase) Decrease in Inventory .............. (197,806) (324,413) 47,053 (115,467) (835,942)
(Increase) Decrease in Prepaid Expenses ....... (37,228) ( 1,677) 11,212 6,314 ( 53,440)
Increase (Decrease) in Accounts Payable ........ (5,924) 20,847 ( 47,430) 110,827 340,492
Increase (Decrease) in Payroll Taxes Accrued .. (165,146) (228,739) ( 8,299) 206,744 55,294
Increase (Decrease) in Accrued Interest ....... 30,076 ( 25,019) ( 5,224) (18,653) 49,871
I(crease (Decrease) in Accrued Wages ........... ( 3,678) (78) 3,831 (24,113) 41,922
(Increase) Decrease in Advances to Stockholders -0- -0- -0- (14,748) -0-
- - - ------- -
Net Cash Used In Operating Activities (3,212,095) (2,345,775) (2,863,876) (2,106,225) (11,681,053)
Cash Flows from Investing Activities
Proceeds from Sale of Property and Equipment ..... -0- -0- -0- 30,510 31,160
Purchase of Leased Equipment ..................... (42,848) (180,367) -0- -0- (237,084)
Purchase of Property and Equipment ............... (56,715) (113,968) (130,466) (29,039) (612,206)
(Increase) Decrease in Rent and Utility Deposits .. 600 7,876 7,877 (3,780) (3,473)
(Increase) in Patents ............................ -0- -0- -0- (4,390) (15,145)
Purchase of Intellectual Property ................ -0- -0- (169,000) -0- (169,000)
F(nds Advanced to Comguard ....................... ( 19,642) -0- (66,992) -0- (86,634)
- ------ - ------- - -------
Net Cash Used in Investing Activities ( 118,605) ( 286,459) (358,581) ( 6,699) ( 1,092,382)
</TABLE>
The accompanying notes are an integral part of these financial statements
32
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Nine Months Period January 1, 1999 to September 30, 1999
(Unaudited) and for the Nine Months Period January 1, 1998 to September
30, 1998 (Unaudited) and the Years Ended December 31, 1998 and 1997
Period from August 11, 1989 (Date of Inception) to September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended Year Ended (Inception)
September September December December to September
30, 1999 30, 1998 31, 1998 31, 1997 30, 1999
<S> <C> <C> <C> <C> <C>
Cash Flows from Financing Activities
Increase (Decrease) in Notes Payable Banks 2,442,038 1,346,547 1,970,473 120,100 4,476,806
Proceeds from Long-Term Debt -0- -0- ( 87,453) 2,397,000 4,144,081
Repayment of Long-Term Debt (25,700) (133,948) -0- (342,286) -0-
Proceeds from Issuance of Common Stock 61,000 1,413,789 2,505,000 -0- 4,070,000
I(crease (Decrease) in Banks Overdraft (123,254) 5,546 (188,819) ( 63,990) 82,976
(Increase) Decrease in Notes Receivable
Stockholders 599,452 -0- (599,452) -0- -0-
------------ ------- --- --------- --- ---
Net Cash Provided by Financing Activities 2,953,536 2,631,934 3,599,749 2,110,824 12,773,863
--------- --------- --------- --------- ----------
Increase (Decrease) in Cash
and Cash Equivalents (377,164) ( 300) 377,292 ( 2,100) 428
-------- - --- ------- - ----- ---
Cash and Cash Equivalents,
Beginning of Period 377,592 300 300 2,400 -0-
------- --- --- ----- -
Cash and Cash Equivalents,
End of Period $ 428 $ -0- $377,592 $ 300 $ 428
======== ===== = ======== ======== =========
Disclosure from Operating Activities
Interest $217,642 $ 44,859 $206,426 $183,812 $
Taxes -0- -0- -0- -0- -0-
</TABLE>
The accompanying notes are an integral part of these financial statements
33
<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.
34
<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.
NOTE #3 - Reverse Takeover and Recapitalization
Pursuant to a Plan and Agreement of Reorganization dated November 3, 1997,
Advanced Business Sciences, Inc., a Nebraska Corporation, (the legal acquiree)
and Sage Analytics International, Inc., a Delaware Corporation, (the legal
acquirer) exchanged common stock to give the shareholders of the legal acquiree
control of the legal acquirer.
Shareholders of the legal acquiree surrendered 100% of the outstanding shares
(80,000 shares) in exchange for 6,600,000 shares of the legal acquirer. Each
share of the legal acquiree was exchanged for 82.5 shares of the legal
acquirer's previously unissued common stock. As part of the agreement the legal
acquirer issued 450,000 shares to persons as finders fees.
Following the exchange the shareholders of the legal acquiree held 6,600,000
shares of the 7,487,099 issued shares of the legal acquirer (88.2%).
On December 18, 1997, Sage Analytics International, Inc., the legal acquirer,
filed a Certificate of Amendment with the Secretary of State of the state of
Delaware changing its name to Advanced Business Sciences, Inc.
35
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #3 - Reverse Takeover and Recapitalization -Continued-
The share exchange of a private operating Company, (Advanced Business Sciences,
Inc.) into a non-operating public shell corporation (Sage Analytics
International, Inc.), with no assets or liabilities resulted in the shareholders
of the private company having actual operating control of the combined company
after the transaction, and the shareholders of the former public shell
continuing only as passive investors.
This transaction is considered to be a capital transaction in substance, rather
than a business combination. That is, the transaction is equivalent to the
issuance of stock by the private company for the net monetary assets of the
shell corporation, accompanied by a recapitalization. The accounting is
identical to that resulting from a reverse acquisition, except no goodwill or
other intangible is recorded.
APB No., 16, paragraph 70 states that, "Presumptive evidence of the acquiring
corporation in combinations effected by an exchange of stock is obtained by
identifying the former common stockholder interest of a combined company which
either retains or receives the larger portion of the voting rights of the
combined corporation. That corporation should be treated as the acquirer unless
other evidence clearly indicates that another corporation is the acquirer."
Staff accounting Bulletin Topic 2A affirms the above principle and gives
guidelines that the post reverse-acquisition comparative historical financial
statements furnished for the legal acquirer should be those of the legal
acquiree.
In accordance with this guideline the outstanding shares of Advanced Business
Sciences, Inc., have been retroactively restated on the Balance Sheet, and the
Statement of Stockholders' Equity to give effect to the 82.5 shares for 1 share
exchange. The retroactively restated shares have been used in the Computations
for Earnings (Losses) Per Share to preserve comparability of those figures.
NOTE #4 - Property and Equipment and Depreciation Expenses
The Company capitalized the purchase of equipment for merger purchases in excess
of $500 per item. Capitalized amounts are depreciated over the estimated useful
life of the assets as follows:
Estimated
Property & Equipment Useful Life
Furniture & Equipment 5 to 7 Years
Leasehold Improvements 3 Years
Leased Equipment 2 to 3 Years
36
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #4 - Property and Equipment and Depreciation Expenses -Continued-
Property and equipment at cost are as follows: 1999 1998 1997
Furniture & Equipment $625,916 $ 571,779 $ 549,514
Leasehold Improvements 16,326 16,326 77,585
Intellectual Property 169,000 169,000 -0-
Leased Equipment 237,084 194,236 29,039
Total Cost 1,048,326 951,341 656,138
Less Accumulated Depreciation 590,387 346,277 237,402
Net Book Value 457,939 $605,064 $418,736
Dep$eciation and Amortization Expenses 254,226 $ 172,221 $130,917
In 1998, the Company reduced the size of its office and warehouse space in
Omaha, Nebraska. Leasehold improvements and equipment that could not be moved
were written off.
NOTE #5 - Patents
The Company has filed three Petitions to the Commissioner of Patents and
Trademarks on an apparatus and methods for continuous Electronic Monitoring and
Tracking of individuals. The original application was filed on December 30,
1994. In 1997 a new Continuation in Part Patent Application was filed to further
pursue protection for the subject matter presented in the original applications.
NOTE #6 - Payroll Taxes
In January 1999, the Company paid the Internal Revenue Service $162,646 which
represented the balance of the withheld and accrued Federal Withholding, Social
Security and Medicare taxes for the quarterly tax periods ending September 30,
1996, December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997.
After the payment the Company owed $57,794 in penalties and interest associated
with the aforementioned quarterly payroll taxes. The Company has requested the
Internal Revenue Service to abate these penalties and interest.
NOTE #7 - Restatement of 1997 Issuance of Shares In Satisfaction of Notes
Payable
In 1997, the Company issued 799,507 shares of its common stock, for satisfaction
of debt in the amount of $1,770,355. In 1998, the Company learned that it had
obligations of $87,453 that required payments in cash and was not settled by the
issuance of the shares of stock. In 1998, the cash obligation was paid and the
issuance of the 799,507 shares of stock for $1,770,355 was restated to 799,507
shares of stock issued for satisfaction of debt of $1,682,902.
37
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #8 - Intellectual Property
In 1998, the Company paid $80,000 and incurred $89,000 as an account payable for
the design of the logics and in source code for the software that runs and
displays the support for house arrest monitoring programs. The Company will use
the intellectual property to have manufactured to its specification equipment to
be used in its sales of monitoring and tracking devises. The logics and the In
Source Code for the software will be amortized on a ratio of the current revenue
to anticipated total revenues from the sale of the product or a straight line
amortized of the product master cost over the estimated three year useful life
of the product master.
In 1998, the Company purchased a Software License Agreement with a developer
from California, a license for the software of a technology for use in the
Global Position System Market. The Company paid $4,995 for the software to
operate the license and capitalized it as software with a three-year life. The
License is of an unspecified length of time but the Company feels that the
technology will be outdated with the three-year life period.
NOTE #9 - Acquisition and Rescission of Comguard Leasing and Financial, Inc.
On August 24, 1998, the Company entered into a Plan and Agreement of
Reorganization, pursuant to which the Company acquired all of the issued and
outstanding shares of capital stock of Comguard Leasing and Financial, Inc., an
Illinois Corporation. On June 1, 1999, the Company, Comguard Leasing and
Financial, Inc., and the shareholders of Comguard Leasing and Financial, Inc.,
entered into and agreement whereby the 2,191,145 shares of the Company's shares
issued to acquire Comguard Leasing and Financial, Inc., would be returned to the
Company and the Company would receive a note from Comguard Leasing and
Financial, Inc., in the amount of $88,514 which represents the expenditures made
by the Company on behalf of Comguard Leasing and Financial, Inc.
Because the Company had control of Comguard Leasing and Financial, Inc., on a
temporary basis, accounting was done using the cost method and in compliance
with FAS 94, P. 13, that states "a majority-owned subsidiary shall not be
consolidated if control is likely to be temporary".
NOTE #10 - Litigation
The Company has been named as a Defendant in a suit filed in the Montana
Eighteenth Judicial District Court, Gallatin County, Montana. The complaint
against the Company alleges breach of a contract and requests an award of
compensatory and consequential damages in an amount to be determined at trial,
costs and attorney fees as allowed by law.
The Company answered the complaint, has denied all material allegations
contained in the complaint, has asserted eight affirmation defenses and has
asserted a counterclaim.
Insufficient discovery has taken place to make an evaluation of the potential
outcome of the litigation. The Company cannot estimate any possible loss from
the litigation.
38
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #11 -Stock Subscription Receivable
On December 30, 1998, the Company issued to a related party,
(stockholder/officer), 299,726 shares of its common stock at $2.00 per share for
a Stock Subscription Receivable of $599,452. As of June 1, 1999, the Company had
received payment in full of the stock subscription receivable.
NOTE #12 - Short Term and Long Term Debt
The Company has the following short term and long term debt.
<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. 998,767 998,768 -0-
Term note payable to a commercial bank #3, due January 31, 2000
entered at prime rate, announced by the bank, plus 2.5%.
998,043 -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 an Officer - Due on Demand at 0% Interest 184,996 -0- -0-
Note payable to an Individual - Due on Demand at an annual interest rate
of 9%. 200,000 -0- -0-
Note payable to a Commercial Bank #5, due June 14, 2000, Interest at
9% Per Annum, 245,000 -0- -0-
- - ------- - -
Total Short Term Debt $4,721,806 $ 2,034,768 $87,453
========== =========== =======
</TABLE>
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.
39
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Short Term and Long Term Debt -Continued-
<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. 56,948 69,653 -0-
10% convertible subordinated debentures, due June
2002, convertible into shares of common stock at $500
per share (pre-reverse takeover) in accordance with a
Private Placement Memorandum dated May 15, 1996. 80,000 80,000 180,000
------ ------ -------
Total Long-Term Debt 136,948 149,653 213,948
Less Current Portion 20,039 25,978 133,948
------ ------ -------
Long-Term Debt $ 116,909 $ 123,675 $ 80,000
============ ============ ==========
</TABLE>
The aggregate maturities of long-term debt for the years ending after December
31, 1998 are as follows:
Years Ending
December 31, Amount
1999 $ 25,978
2000 20,039
2001 13,148
2002 90,488
Total $ 149,653
40
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #13 - Taxes
The Company accounts for income taxes in accordance with SFAS No., 109,
Accounting for Income Taxes, which requires an asset and liability approach to a
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
The Company has net operating losses to carryforward for future tax purposes as
follows:
Year of Loss Amount of Loss Expiration Date
December 31, 1995 $ 655,468 2015
December 31, 1996 2,845,977 2016
December 31, 1997 1,825,259 2017
December 31, 1998 3,446,012 2018
Net deferred taxes in the accompanying balance sheets include the following
components as of December 31, 1998 and 1997:
1998 1997
Deferred Tax Asset $ 2,972,583 $ 1,800,939
Net Operating Loss Carryforward
Valuation Allowance (2,972,583) (1,800,939)
Net Deferred Tax Asset $ -0- $ -0-
Current Tax Expense $ -0- $ -0-
The Company has established the valuation allowance at 100% of maximum tax
benefit because it is uncertain if the net loss carryforwards will result in tax
asset benefits.
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
41
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of
such series than outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
No preferred shares are issued.
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock
$0.001 par value, per share.
Common Stock Issued for Services and Other Non-Cash Transactions
The Company issued 583,688 post reverse takeover shares to acquire the
assignment, rights, titles and interest in an invention valued at $707
disclosed in the Company's Patent Application on January 1, 1995.
In 1997, the Company issued 165,000 post reverse takeover shares as
incentive for accounts payable. No value assigned to the shares issued.
In 1997, the Company issued 82,500 post reverse takeover shares for
services rendered valued at $10. An additional 2,063 post reverse takeover
shares were issued to an employee as payment of bonus compensation valued
at $5,103.
Pursuant to the Plan and Agreement of Reorganization between the Company
and Sage Analytics International, Inc., the Company issued 450,000 shares
as finders fees value at $450.
Common shares of the Company's post reverse takeover stock, owned by the
shareholders of Sage Analytics International, Inc., are 437,099 shares.
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.
42
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
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.
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 30, 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
43
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #14 - Stockholders' Equity -Continued-
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.
Convertible Debentures and Notes Payable
In 1997, the Company issued 2,177,999 post reverse takeover shares to
settle subordinated debentures, notes payables and accrued interest
totaling $3,772,964.
Deficit Accumulated in the Development Stage
The Company is considered to be a development stage company. Operations
have not produced significant revenues and expenditures for operating
expenses exceed revenues by $9,499,948. This amount is considered to be
the deficit accumulated during the development stage.
44
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
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.
NOTE #16 - Lease Obligations
The Company conducts its operations in leased facilities and has entered into
leases for warehouse and office space. In addition the Company has an operating
lease for a telephone system and voice processing system. The future minimum
lease payments under the three operating leases as of December 31, 1999 are as
follows:
Years Ending Lease
December 31, Amount
1999 $ 76,735
2000 76,735
2001 70,340
Total $ 223,810
45
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
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.
The Contract will commence on February 1, 1999 and continue through the third
anniversary of that date. Thereafter the contract may be renewed annually and
continue on the same terms and conditions for an indefinite term until
termination in accordance with the terms of the Agreement.
The executive shall be compensated for his services at the rate of $150,000
annually to be paid in accordance with the Company normal payroll practices.
The executive shall be eligible for an annual bonus in accordance with criteria
established by the Board each year.
As discussed in note #19, the executive shall receive 1,000,000 shares of common
stock as a hiring incentive.
46
<PAGE>
Advanced Business Sciences, Inc
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #18 - Contingencies and Commitments -Continued-
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).
NOTE #19 - Subsequent Events
On February 1, 1999, the Company contractually committed to its President and
Chief Executive Officer as a hiring incentive to issue the executive 1,000,000
shares of the Company's common stock at no cost. Such shares shall be issued as
registered shares.
At the date of this report these shares have not been issued.
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;
Discount
Comguard Date Price Factor Cost
-------- ---- ----- ------ ----
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
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%.
47
<PAGE>
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.
Salt Lake City, Utah
June 7, 1999
48
<PAGE>
Advanced Business Sciences, Inc.
(A Development Stage Company)
Schedules of Expenses
For the Period January 1, 1999 to September 30, 1999 (Unaudited)
and the Years Ended December 31,1998 and 1997
<TABLE>
<CAPTION>
September December December
30, 1999 31, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
Expenses
Salaries and Wages $648,184 $ 788,600 $ 712,370
Bad Debt -0- -0- 4,011
Bank Charges 1,210 1,041 4,549
Commissions -0- -0- -0-
Consulting Fees 436,158 612,549 41,103
Cost of Options 30,640 -0- -0-
Contract Labor 94,515 43,392 -0-
Depreciation and Amortization 254,226 172,221 130,917
Donations 53,972 325 -0-
Dues and Subscriptions 5,838 3,456 9,410
Employee Hiring Costs 27,462 2,908 -0-
Equipment Rental 13,061 14,190 14,830
Freight 3,147 13,001 -0-
Insurance:
General 49,236 48,103 45,684
Health 39,900 38,145 41,687
Meals and Entertainment 1,876 16,391 4,027
Miscellaneous 4,525 5,382 18,851
Office Supplies 15,979 24,296 3,961
Penalties -0- 58,391 2,556
Postage 2,078 3,115 -0-
Professional Fees 154,998 154,510 92,040
Rent 56,335 70,337 84,002
Repairs and Maintenance 4,415 3,266 -0-
Security Expense -0- 1,140 8,749
Supplies -0- 8,429 -0-
Taxes:
Payroll 54,382 51,988 82,356
Other 4,970 25,195 3,539
Telephone 134,177 92,590 92,078
Training 1,350 -0- 1,035
Travel 21,330 36,933 42,972
Utilities 8,895 14,507 17,003
Vehicle Expense 1,535 23,399 16,699
Inventory Obsolescense 26,646 202,996 46,789
Settlement Costs -0- -0- 27,178
- - ------
Total Expenses $2,151,040 $2,530,796 $1,548,396
========== ========== ==========
</TABLE>
See Independent Accountant's Audit Report on Supplemental Information
49
<PAGE>
Advanced Business Sciences, Inc.
Expense Schedule
For the Period January 1, 1999 to September 30, 1999 (Unaudited)
and the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Research & Development
Salaries $ 79,101 $ 95,219 $ 180,185
Telephone -0- 55,527 71,179
Materials & Supplies 9,734 299,900 32,065
Testing 787,373 49,982 -0-
------- ------ -
Total Research & Development $ 876,208 $ 500,628 $ 283,429
========= ========= =========
Sales & Marketing
Con$ultant Fees -0- $ -0- $ 98,443
Salaries 146,002 165,985 197,351
Payroll Taxes 12,303 13,796 -0-
Contract Labor 25,258 16,650 -0-
Commissions -0- 948 -0-
Sales Shows Expenses 11,006 17,222 10,581
Marketing/Sales Brochures -0- 46,999 -0-
Advertising 63,211 31,305 10,582
Entertainment & Meals 6,605 2,715 -0-
Telephone 5,024 18,130 7,672
Office Supplies 2,802 1,814 -0-
Travel 41,866 68,731 28,287
Supplies & Miscellaneous 12,658 42,825 31,136
------ ------ ------
Total Sales & Marketing $ 326,735 $ 427,120 $ 384,052
========= ========= =========
</TABLE>
See Independent Accountant's Audit Report on Supplemental Information
50
<PAGE>
PART III.
Item 1. Index to Exhibits
See Item 2 of this Part III.
Item 2. Description of Exhibits
Exhibit
Number Description
------ -----------
3.01 Restated Certificate of Incorporation of the Company *
3.02 Restated Bylaws of the Company *
4.01 Form of Common Stock Certificate *
10.01 Business Office Lease *
10.02 Loan Agreement with Commercial Savings Bank *
10.03 Loan Agreement with US Bank, N.A. *
10.04 Loan Agreement with Mary Collison *
10.05 Loan Agreement with James Pietig *
10.06 License with SiRF Technology, Inc. *
10.07 Employment Agreement by and between the Company and Benjamin J. Lamb *
10.08 Employment Agreement by and between the Company and James E. Stark
21.01 Subsidiaries of the Company *
27.01 Financial Data Schedules
* Previously filed.
51
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED BUSINESS SCIENCES, INC.
By: /s/ James E. Stark
James E. Stark
President and Chief Financial Officer
Date: February 4, 2000
52
Exhibit 10.08
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 16th day of August 1999, between
Advanced Business Sciences, Inc., a Delaware corporation, ("Company") and James
E. Stark,(Employee).
WITNESSETH:
WHEREAS, Company is a development stage company, which develops, produces,
markets and supports a broad product line of solutions relating to the tracking,
monitoring and reporting of individuals and things; and
WHEREAS, the parties hereto desire to enter into an agreement for Company's
employment of Employee on the terms and conditions contained herein;
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1 . Employment and Duties. Subject to the terms and conditions of this
Agreement, Company hereby employs Employee, and Employee hereby accepts
employment with Company. Employee will have such duties of an Employee nature as
are assigned to him from time to time and will serve as Corporate Controller.
Employee shall report to the President & CEO and serve as a keyman of the
Company.
2 . Time Commitment. During the Term, Employee shall devote substantially all of
his business time, attention and energies to the diligent and faithful
performance of his duties as an Employee employee of the Company. Employee shall
not, without the prior written consent of Company, at any time during the Term:
(a) accept employment with, or render services of a business, professional or
commercial nature to, any other Person (as defined below); (b) engage in any
venture or activity which Company may in good faith consider to be competitive
with or adverse to the Company Business, whether alone or with any other Person
as a partner, officer, director, employee, agent, shareholder, consultant sales
representative or otherwise, except that the ownership of not more that 3% of
the shares or other equity interests of any Person which is publicly traded
shall not be deemed a violation of this Section 2; or (c) engage in any venture
or activity which the Board of Directors of Company may in good faith consider
to interfere with Employee's performance of his duties hereunder. As used in the
Agreement, "Person" means any individual, corporation, limited liability
company, bank, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or other entity.
3. Compensation. In consideration of Employee's services hereunder, Company
shall provide to Employee the following compensation:
3.1 Salary. Company shall pay to Employee an initial base salary for
services rendered at the rate of $ 85,000.00 per annum, to be earned and
payable in accordance with Company's normal payroll practices for similarly
situated employees.
3.2 Benefits. To the extent that Employee is not disqualified by
requirements of the applicable benefit plans, and subject to the terms and
conditions thereof, Employee shall be entitled during employment to
participate in any employee benefit plans generally provided by Company to
its employees similarly situated for so long as Company provides such benefit
plans. In addition, Employee shall be entitled to any other benefits,
allowances or remuneration as granted from time to time by the Board of
Directors.
3.3 Vacation. Employee shall be entitled to two weeks of paid vacation
(in addition to Company's regular paid holidays) in each calendar year of
Employee's employment subject to and in accordance with Company's policies
regarding vacations for employees in the state in which Employee works.
Except as otherwise required by law, or as otherwise provided under Company's
policies regarding vacations for employees in the state in which Employee
works, (i) Company shall not pay Employee any additional compensation for any
vacation time which is not used prior to the end of a calendar year, and (ii)
any vacation time which is not used prior to the end of a calendar year may
not be used in any subsequent year without prior approval of the Board of
Directors but in any advent 14 days can be carried over.
3.4 Expenses. Company shall reimburse Employee for, or pay directly, all
reasonable business expenses incurred by Employee in the performance of his
duties under this Agreement, provided that Employee incurs and accounts for
such expenses in accordance with all Company policies and directives as in
effect from time to time.
3.5 Options. Company shall grant to Employee on the date hereof options
to purchase 30,000 shares Common Stock of the Company at a share value of
twenty cents (.20) per share. An option agreement to provide for vesting and
exercise schedule for these shares shall be:
Block 1: One third of such options shall become vested and exercisable
beginning the earlier of August 16, 2000 or when the closing bid price for
the common shares of ABS exceeds $3.00 per share for at least five
consecutive trading days. The options shall remain exercisable for a
period of three years from the date of vesting.
<PAGE>
Block 2: One third of such options shall become vested and exercisable
beginning the earlier of August 16, 2001 when the closing bid price for
the common shares of ABS exceeds $4.00 per share for at least five
consecutive trading days. The options shall remain exercisable for a
period of three years from the date of vesting.
Block 3: One third of such options shall become vested and exercisable
beginning the earlier of August 16, 2002 or when the closing bid price for
the common shares of ABS exceeds $6.00 per share for at least five
consecutive trading days. The options shall remain exercisable for a
period of three years from the date of vesting.
Any blocks not yet vested would vest and be immediately exercisable upon the
occurrence of a sale or merger of ABS, which includes a transfer of control.
If Employee voluntarily resigns from the Company during the initial 18
months of this agreement, Company can repurchase all vested options at the
option strike price. The repurchase must be completed within 30 days of
Employee's resignation.
Employee will, if determined in the sole discretion of the Board of
Directors, be eligible to participate in the Company's incentive option
program(s) for key employees as they are instituted from time to time. All
options provided for under this paragraph 3.5 shall become exercisable
immediately upon a merger, consolidation or reorganization of the Company
with one or more other corporations in which the Company is not the surviving
corporation, or upon a sale of substantially all of the assets of the Company
to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
corporation) approved by the Board which results in any person or entity
(other than persons who are holders of stock of the Company at the time the
plan is approved by the stockholders and other than an Affiliate) owing 60
percent or more the combined voting power al all classes of stock of the
Company.
4 . Covenants of Employee. Employee understands and agrees that the Company
Business is one which makes it crucial for Company to develop and retain trade
secrets customer lists, proprietary techniques, information regarding customer
needs and other confidential information; and acknowledges that Employee will
develop and learn such information in the course of his employment. In light of
these facts and in consideration of Employee's employment with Company and
Company's agreement to compensate Employee on the terms set forth in Section 3
hereof, Employee covenants and agrees with Company as follows:
4.1 Covenant to Protect Confidential Information. Without limiting any
other obligation Employee may have with respect to use or nondisclosure of
any information, Employee shall protect all Company Confidential Information
(as defined below) at all times, and shall not disclose to any Person, or
otherwise use, except in connection with his duties performed in accordance
with this Agreement any Company Confidential Information. For purposes of the
Agreement, "Company Confidential Information" means technical, business and
other information of Company, whether or not in writing, which derives value
from not being generally known to the public or to other Persons who can
obtain value from its disclosure or use, including, without limitation,
technical or nontechnical data, compositions, devices, methods, techniques,
drawings, inventions, processes, financial data, financial plans, product
plans, lists or information concerning actual or potential customers or
suppliers, information regarding business plans and operations, methods and
plans of operation, marketing strategies, sales and distribution plans or
strategies, cost information, pricing strategies, and acquisition and
investment plans. Company Confidential Information includes information
disclosed by third parties that Company treats or is obligated to maintain as
confidential. The foregoing provision shall not apply to any confidential
information which is generally available to the public immediately prior to
the time of disclosure. The restrictions of this Section 4.1 shall expire one
year after the Termination Date. As used in this Agreement the "Termination
Date" means the last day Employee is employed by Company, whether separation
is voluntary or involuntary and with or without cause.
4.2 Covenants against Competition. Without limiting any other restrictive
covenant or obligation to which Employee may be subject hereunder, under any
other agreement or under applicable law, Employee shall not, except on behalf
of Company or an affiliate of Company, at any time during the period
commencing on the date of this Agreement and continuing for the period set
out below after the Termination Date, whether alone or with any other Persons
as a partner, officer, director, employee, agent, shareholder, consultant
sales representative or otherwise:
(a) for a period of one year following termination from employment, without
cause, Employee shall not engage in any business activity that is competitive
with the business the Company was engaged in at time of Employee's
termination. In consideration of the initial one-year period of
noncompetition as described in this section, Employee shall receive the
compensation equivalent to one (1) month of salary.
(b) for a period of two years following termination, for any reason, whether
with or without cause, whether voluntary or involuntary, Employee shall not
solicit or assist in the solicitation of any customer who is, at the time of
Employee's termination from employment with Company, for the purpose of
obtaining the patronage of such customer for purposes which are competitive
to those of the Company at the time of Employee's termination.
(c) for a period of one year following termination of employment, for any
reason, whether with or without cause, whether voluntary or involuntary,
Employee shall not solicit or assist in the solicitation of, any Person
employed by Company in any capacity (including without limitation as an
employee or independent contractor), to terminate such employment, whether or
not such Person is employed pursuant to a contract with Company and whether
or not such Person is employed at will.
The foregoing provisions of this Section 4.2 shall not prohibit Employee
from owning, not to exceed 3%, of the outstanding stock on any publicly
traded corporation that might be deemed a competitor of the Company.
5 . Inventions, Copyrights, Etc.
<PAGE>
5.1 Inventions. Employee shall disclose promptly to Company (which shall
receive it in confidence), and only to Company, any invention or ideas of
Employee (developed alone or with others) conceived or made during Employee's
employment by Company any such invention or idea in any way connected with
Employee's employment or related to Company's business, research or
development, or demonstrably anticipated research or development, and will
cooperate with Company and sign all documents deemed necessary by Company to
enable it to obtain, maintain, protect and defend patents covering such
inventions and ideas and to confirm Company's exclusive ownership of all
rights in such inventions, ideas and patents, and irrevocably appoints
Company as his agent to execute and deliver any assignments or documents
Employee fails or refuses to execute and deliver promptly, this power and
agency being coupled with an interest and being irrevocable. This constitutes
Company's written notification that this assignment does not apply to an
invention for which no equipment, supplies, facility or trade secret
information of Company was used and which was developed entirely on
Employee's own time, unless (a) the invention relates (i) directly to the
business of Company, or (ii) to Company's actual or demonstrably anticipated
research or development, or (b) the invention results from any work performed
by Employee for Company.
5.2 Work for Hire Acknowledgement; Assignment. Employee acknowledges that
Employee's work on and contributions to documents and other expressions in
tangible media relating to the business of the Company (collectively,
"Works") are within the scope of Employee's employment and part of Employee's
duties and responsibilities for Company and its affiliates, and are, and at
all times shall be regarded as, "work made for hire" as that term is used in
the United States Copyright Laws. Without limiting this acknowledgment
Employee assigns, grants and delivers exclusively to Company all rights,
titles, and interests in and to any such Works, and all copies and versions,
including all copyrights and renewals, Employee will execute and deliver to
Company, its successors and assigns, any assignments and documents Company
requests for the purpose of establishing evidencing, and enforcing or
defending its complete, exclusive, perpetual and worldwide ownership of all
rights, titles, and interest of every kind and nature, including all
copyrights, in and to the Works, and Employee constitutes and appoints
Company as its agent to execute and deliver any assignments or documents
Employee fails or refuses to execute and deliver, this power and agency being
coupled with an interest and being irrevocable.
5.3 Return of Company Documents and Equipment. At the end of employment,
or at any time upon Company's request, Employee shall deliver to Company all
material files, customer lists, price lists, bids, specifications, forms,
software financial data, papers and other documents, including all copies of
the foregoing (including those contained in magnetic media or other forms of
computer storage); all computers, modems, diskettes, samples, credit cards,
keys, security passes, tools, vehicles and equipment and all other materials
and other property in his possession or control that relate to the Company
Business or his employment with Company, all of which at all times shall be
the property of Company unless otherwise agreed by Company in writing.
6 . Termination.
6.1 By Either Party. Either party may terminate the Employee's employment
under this Agreement, with or without cause, by giving the other party not
less than thirty days advance written notice thereof.
6.2 Other Terminations Without Cause. Employee's employment under this
Agreement shall terminate immediately upon the occurrence of one of the
following events:
(a) the death of Employee;
(b) termination by Company on written notice of termination after Employee
becomes unable to perform his services by reason of illness or which illness
or incapacity results in his failure to discharge his duties under this
Agreement for an aggregate total of 30 days (whether consecutive or
nonconsecutive) during any 90 day period; or
6.3 By Employee for Cause. Employee shall have the right to terminate his
employment under this agreement on written notice to Company and receive the
salary compensation of two (2) months salary, if Company has: (a) failed to
make any payments due to Employee under this Agreement and such failure has
not been cured within thirty days after written notice of such failure from
Employee to Company, or (b) otherwise materially breached this Agreement and
such breach, if capable of cure, has not been cured within thirty days after
written notice of such breach from Employee to Company.
6.4 By Company for Cause. The Employee's employment may be terminated
effective immediately by the Company for "cause" by notice of termination to
the Employee. "Cause" for such termination shall include, but not be limited
to, the following: (i) Dishonesty of the Employee with respect to the Company
or any of its subsidiaries; (ii) Willful misfeasance or nonfeasance of duty
intended to injure or having the effect of injuring the reputation, business
or business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or employees; (iii) Conviction of the
Employee upon a charge of any crime involving moral turpitude or which could
reflect unfavorably upon the Company or any of its subsidiaries; (iv) Willful
or prolonged absence from work by the Employee (other than by reason of
disability due to physical or mental illness) or failure, neglect or refusal
by the Employee to perform his duties and responsibilities without the same
being corrected upon ten (10) days prior written notice: or (v) Breach by the
Employee of any of the covenants contained in this agreement.
7 . Other Employees. Nothing in this Agreement shall limit Company's discretion
to employ other personnel on such terms and conditions and for such position as
may be satisfactory to Company.
8 . Insurance. Company may obtain, in the name and for the benefit of Company,
such life, disability, and other insurance policies on Employee as Company may
from time to time determine to be in the interest of Company. Employee shall
take such
<PAGE>
medical and physical examinations which Company may from time to time reasonable
request, including any examination required to obtain such insurance policies.
9 . No Conflicting Obligations. Employee represents and warrants that he is not
subject to any noncompetition agreement, nondisclosure agreement, employment
agreement, or any other contract of any nature whatsoever, oral or written, with
any Person other than Company, which will cause a breach of or default in or
which is in any way inconsistent with, the terms and provisions of this
Agreement except as noted in Section 3.
10 . Notice to Future Employers. If Employee leaves the employ of Company for
any reason, (a) Employee shall, during the two years following termination of
Employee's employment with Company, inform any subsequent employers or business
partners of the existence and provisions of this Agreement and, if requested,
provide a copy of this Agreement to such employer or business partner, and (b)
Company may, at any time, notify any future employer or business partner of
Employee of the existence and provisions at the Agreement.
11 . Miscellaneous. This Agreement shall inure to the benefit of and be binding
upon Company, and its successors and assigns, and Employee and his heirs,
executors, administrators and personal representatives. This Agreement may not
be assigned by Employee or by Company, except that Company may assign its rights
under this Agreement without the written consent of Employee to any affiliate of
Company providing services to Company or in connection with any transfer of
Company or of any substantial part of the Company Business (and such assignment
shall not constitute a termination of Employee's employment by Company for
purposes of the Agreement); provided, however, that such affiliate or transferee
shall be obligated to perform this Agreement in accordance with its terms.
11.1 Entire Agreement. This Agreement, including any attachments, contains
the entire agreement between the parties and no statement, promises or
inducements made by either party hereto, or agent of either party hereto, or
agent of either party, which is not contained in this Agreement, shall be
valid or binding; and this Agreement may not be enlarged, amended, modified
or altered except in a writing signed by Company and Employee and
specifically referencing this Agreement. Commencement of Employee's
employment hereunder shall constitute, automatically and without further
action by the parties, a termination of any existing employment agreement
between Employee and Company effective on the date of such event, provided
that salary and other rights and obligations of the parties accrued under any
such agreement prior to the effective date hereof shall not, except as
otherwise expressly provided herein, be affected by such termination and
shall be paid or satisfied when due in the ordinary course. The provisions of
this Agreement do not in any way limit or abridge any rights of Company or
any affiliate under the laws of unfair competition, trade secret, copyright,
patent, trademark or any other applicable laws, all of which are in addition
to and cumulative of the rights of Company under this Agreement.
11.2 Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal
or unenforceable, either in whole or in part, then such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of the remaining provisions or covenants, or any part thereof,
of this Agreement, all of which shall remain in full force and effect.
Without limiting the foregoing, although the parties have, in good faith,
used their best efforts to make the covenants in Section 4 reasonable in all
respects and do not anticipate or intend that any court of competent
jurisdiction would conclude otherwise or would find it necessary or
appropriate to reform any such covenant, if any such covenant is held by a
court of competent jurisdiction to be unreasonable, arbitrary or against
public policy, such covenant will be considered to be divisible with respect
to scope, time and geographic area, and such lesser scope, time, and
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy,
will be effective, binding and enforceable against Employee.
11.3 Remedies. Employee acknowledges that if he breaches or threatens to
breach his covenants and agreements in this Agreement, then his actions may
cause irreparable harm and damage to Company which could not be adequately
compensated in damages. Accordingly, if Employee breaches or threatens to
breach this Agreement, then Company shall be entitled to injunctive relief,
in addition to any other rights or remedies of Company hereunder or
otherwise. Upon any breach of this Agreement by Company, Employee shall be
entitled to such rights and remedies as may be allowed by law or in equity.
11.4 Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment
of any right granted in this Agreement or of the future performance of any
such term or condition or of any other term or condition of this Agreement,
unless such waiver is contained in a writing signed by the party making the
waiver and specifically referencing this Agreement.
11.5 Notices. All notices and other communications required or permitted
to be given or made hereunder shall be in writing and sent by pre-paid first
class certified or registered mail, return receipt requested, or by facsimile
transmission, to the intended recipient thereof at his or its address or
facsimile number set forth below or last designated address and facsimile
number:
If to Company: If to Employee:
Advanced Business Sciences, Inc. James E. Stark
Attention: Benjamin J. Lamb 2540 Rathbone Road
3345 North 107th Street Lincoln, Nebraska 68502
Omaha, Nebraska 68134
Facsimile No:(402) 498-8812
<PAGE>
Any such notice or communication shall be deemed to have been duly given
immediately (if given by facsimile confirmed by mailing a copy thereof to the
recipient in accordance with this Section 11.5 on the date of such
facsimile), or three days after mailing (if given or made by mail), and in
proving same it shall be sufficient to show that the envelope containing the
same was delivered to the delivery or postal service and duly addressed, or
that recipient of a facsimile was confirmed by the recipient as provided
above. Any Person entitled to notice may change the address(es) or facsimile
number(s) to which notices or other communications to such Person shall be
delivered, mailed or transmitted by giving notice thereof to the parties
hereto in the manner provided herein. No notice or communication to Company
shall be deemed complete unless also made to Advanced Business Sciences,
Inc., in accordance with this Section 11.5.
11.6 Survival. Employee's obligations pursuant to Sections 4 and 5 shall
survive the Termination Date and any termination of this Agreement for the
period(s) therein provided. Except as expressly provided above in Section
6.2(b) or as required by law or the express terms of any employee benefit
plan in which Employee participates, neither Employee nor his heirs,
executors, administrators or personal representatives, shall be entitled to
any salary, bonus or other compensation or any benefits during or for any
period after the Termination date.
11.7 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than on such counterpart.
11.8 Headings. Section and other headings contained in this Agreement are
for reference purposes only and are in no way intended to define, interpret,
describe or otherwise limit the scope, extent or intent of this Agreement or
any of its provisions.
11.9 Witholding. Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by Company hereunder to
Employee shall be subject to the withholding of such amounts relating to
taxes as Company may reasonably determine it should withhold pursuant to any
applicable law or regulation.
11.10 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed and enforced in
accordance with the laws of the State of Nebraska, without regard to its
principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
EMPLOYEE:
Name:
/s/ James E. Stark
Signature Date
COMPANY:
Advanced Business Sciences, Inc.
BY /s/ Benjamin J. Lamb
Chief Executive Officer
Title Date
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADVANCED
BUSINSESS SCIENCES, INC. REGISTRATION STATEMENT UNDER FORM 10-SB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 428
<SECURITIES> 0
<RECEIVABLES> 69,147
<ALLOWANCES> 0
<INVENTORY> 706,215
<CURRENT-ASSETS> 829,230
<PP&E> 1,048,326
<DEPRECIATION> 590,387
<TOTAL-ASSETS> 1,390,707
<CURRENT-LIABILITIES> 5,067,400
<BONDS> 0
0
0
<COMMON> 11,197
<OTHER-SE> 8,497,392
<TOTAL-LIABILITY-AND-EQUITY> 1,390,907
<SALES> 124,909
<TOTAL-REVENUES> 124,909
<CGS> 84,384
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,982,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,642
<INCOME-PRETAX> (3,161,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,161,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,161,880)
<EPS-BASIC> (0.029)
<EPS-DILUTED> (0.029)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADVANCED
BUSINSESS SCIENCES, INC. REGISTRATION STATEMENT UNDER FORM 10-SB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 377,592
<SECURITIES> 0
<RECEIVABLES> 13,995
<ALLOWANCES> 0
<INVENTORY> 535,055
<CURRENT-ASSETS> 1,568,615
<PP&E> 951,341
<DEPRECIATION> 346,277
<TOTAL-ASSETS> 2,260,566
<CURRENT-LIABILITIES> 2,914,427
<BONDS> 0
0
0
<COMMON> 12,634
<OTHER-SE> (790,170)
<TOTAL-LIABILITY-AND-EQUITY> 2,260,566
<SALES> 49,353
<TOTAL-REVENUES> 49,353
<CGS> 90,146
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<OTHER-EXPENSES> 3,104,144
<LOSS-PROVISION> 0
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