UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0-26455
ADVANCED BUSINESS SCIENCES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 87-0347787
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3345 No.107th STREET
OMAHA, NEBRASKA 68134
(402) 498-2734
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of issuer's shares outstanding as of September 30, 1999, was
12,946,624.
Transitional Small Business Disclosure Form (Check One): YES [ ] NO [X]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998 (in thousands)
<TABLE>
<CAPTION>
(unaudited)
September, 30 December 31
ASSETS 1999 1998
---------------- --------------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents .................................................... $ 428 $ 377,592
Receivables
Trade Accounts ............................................................. 53,736 13,995
Employees .................................................................. 15,411 26,309
Stock Subscription Receivable .............................................. -0- 599,452
Inventory .................................................................... 706,215 535,055
Prepaid Expenses ............................................................. 53,440 16,212
------ ------
Total Current Assets ..................................................... 829,230 1,568,615
------- ---------
Property and Equipment
Furniture and Equipment ...................................................... 625,916 571,779
Leasehold Improvements ....................................................... 16,326 16,326
Leased Equipment ............................................................. 237,084 194,236
Intellectual Property ........................................................ 169,000 169,000
------- -------
Total Cost ............................................................... 1,048,326 951,341
Less Accumulated Depreciation and Amortization ........................... 590,387 346,277
------- -------
Net Book Value ........................................................... 457,939 605,064
------- -------
Other Assets
Rent and Utility Deposits .................................................... 3,473 4,073
Patents ...................................................................... 13,631 13,631
Advance to Comguard .......................................................... 86,634 66,992
Investment in Comguard ....................................................... -0- 2,191
------- -------
Total Other Assets ....................................................... 103,738 86,887
------- -------
Total Assets ............................................................. $ 1,390,907 $ 2,260,566
=========== ===========
LIABILITIES
Current Liabilities
Cash in Bank Overdraft ....................................................... $ 82,976 $ 206,230
Accounts Payable ............................................................. 340,492 392,016
Payroll Taxes Accrued and Withheld ........................................... 55,294 220,440
Accrued Interest ............................................................. 49,871 19,795
Accrued Wages ................................................................ 41,922 45,600
Note Payable Short Term Debt ................................................. 4,476,806 2,034,768
Current Portion of Long-Term Debt ............................................ 20,039 25,978
------- -------
Total Current Liabilities ................................................ 5,067,400 2,944,827
--------- ---------
Long-Term Liabilities
Long-Term Debt, Less Current Portion ......................................... 103,914 123,675
------- -------
Total Liabilities ....................................................... 5,171,314 3,068,502
--------- ---------
Commitments and Contingency
Stockholders' Equity (Deficit)
Common Stock 50,000,000 Shares Authorized at $.001
Par Value; 11,196,016 and 12,633,494 Shares Issued
and Outstanding Respectively Retroactively Restated ........................ 11,197 12,634
Paid-in Capital .............................................................. 8,866,897 8,306,546
Deficit Accumulated During the Development Stage ............................. ( 12,660,794) ( 9,127,116)
------------ -----------
Total Stockholders' Equity (Deficit) ..................................... ( 3,780,407) ( 807,936)
------------ -----------
Total Liabilities and Stockholders' Equity (Deficit) ..................... $ 1,390,907 $ 2,260,566
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three and nine months
ended September 30, 1999 and 1998 (in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------------
September 30, September 30,
--------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................... $ 33,952 $ 14,187 $ 124,909 $ 30,307
Cost of Sales .............................. 19,825 32,038 84,384 85,234
-----------------------------------------------------
Gross Profit (Loss) ................... 14,127 -17,851 40,525 -54,927
-----------------------------------------------------
Expenses
Research and Development .............. 492,219 56,499 876,208 162,975
Sales and Marketing ................... 118,382 133,971 326,735 287,549
General and Administrative ............ 967,523 524,114 2,151,040 1,306,444
-----------------------------------------------------
Total Expenses ..................... 1,578,124 714,584 3,353,983 1,756,968
-----------------------------------------------------
Loss from Operations ............... (1,563,997) (732,435) (3,313,458) (1,811,895)
Other Income and Expense
Loss on Sales of Property and Equipment (2,578) - (2,578) -
Interest Expense ...................... (90,784) (14,854) (217,642) (44,859)
Asset Abandonment - - - -
-----------------------------------------------------
Total Other Income and Expense ..... (93,362) (14,854) (220,220) (44,859)
-----------------------------------------------------
Net Loss Before Income Taxes ....... (1,657,359) (747,289) (3,533,678) (1,856,754)
Provision for Income Taxes - - - -
-----------------------------------------------------
Net Loss ........................... ($ 1,657,359) ($ 747,289) ($ 3,533,678) ($1,856,754)
===========================================================
Net Loss Per Share - Basic and Diluted ..... ($ 0.15) ($ 0.10) ($ 0.31) ($ 0.25)
===========================================================
Weighted Average Shares Outstanding
As Retroactively Restated .................. 11,320,281 7,487,009 11,320,281 7,487,009
===========================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30, 1999 and 1998 (unaudited) (in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
-------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ................................................................... ($3,533,678) ($1,856,754)
Cash Used in Operating Activities .......................................... 730,132 115,619
Changes in Operating Assets and Liabilities ................................ (408,549) (604,640)
-------------------------------
Net Cash Flows Used in Operating Activities ............................ (3,212,095) (2,345,775)
Cash Flows from Investing Activities
Purchase of Leased Equipment ............................................... (42,848) (180,367)
Purchase of Property and Equipment ......................................... (56,715) (113,968)
(Increase) Decrease in Rent and Utility Deposits ........................... 600 7,876
Funds Advanced to Comguard ................................................. (19,642) 0
-------------------------------
Net Cash Used in Investing Activities .................................. (118,605) (286,459)
Cash Flows from Financing Activities
Increase (Decrease) in Notes Payable Banks ................................. 2,442,038 1,346,547
Repayment of Long-Term Debt ................................................ (25,700) (133,948)
Proceeds from Issuance of Common Stock ..................................... 61,000 1,413,789
Increase (Decrease) in Banks Overdraft ..................................... (123,254) 5,546
Decrease in Notes Receivable Stockholders .................................. 599,452 0
-------------------------------
Net Cash Provided by Financing Activities .............................. 2,953,536 2,631,934
Increase (Decrease) in Cash and Cash Equivalents ............................... (377,164) (300)
-------------------------------
Cash and Cash Equivalents, Beginning of Period ................................. 377,592 300
-------------------------------
Cash and Cash Equivalents, End of Period ....................................... $ 428 $ 0
===============================
Disclosure from Operating Activities
Interest ....................................................................... $ 217,642 $ 44,859
Taxes .......................................................................... 0 0
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
ADVANCED BUSINESS SCIENCES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
1. GENERAL
The condensed consolidated balance sheet of Advanced Business Sciences, Inc.
("ABS" or the "Company") at December 31, 1998 has been taken from audited
consolidated financial statements at that date and condensed. The condensed
consolidated financial statements for the three and nine months ended September
30, 1999 and for the three and nine months ended September 30, 1998 are
unaudited and reflect all normal and recurring accruals and adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, operating results and cash flows for the interim periods
presented in this quarterly report. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report on Form 10-SB for the year ended December 31, 1998. The results of
operations and cash flows for the nine months ended September 30, 1999 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 1999. Where appropriate, items within the condensed consolidated financial
statements have been reclassified from the previous periods' presentation.
2. ORGANIZATION AND CONSOLIDATION
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. 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.
<PAGE>
3. PRORPERTY AND EQUIPMENT AND DEPRECIATION EXPENSES
The following is a summary of property and equipment and depreciation expenses
at September 30, 1999 and December 31, 1998:
September 30, 1999 December 31, 1998
Furniture & Equipment $ 625,916 $571,779
Leasehold Improvements 16,326 16,326
Intellectual Property 169,000 169,000
Leased Equipment 237,084 194,236
--------- ----------
Total Cost 1,048,326 951,341
--------- ----------
Less Accumulated Depreciation 590,387 346,277
---------- ----------
Net Book Value $457,939 $605,064
========== =========
Depreciation and Amortization Expenses $254,226 $172,221
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.
4. COMMITMENTS AND CONTINGENCIES
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.
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 commenced on February 1, 1999 and
continues through the third anniversary of that date. Thereafter the contract
may be renewed annually and continue on the same terms and conditions for an
indefinite term until termination in accordance with the terms of the Agreement.
The executive 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
received 1,000,000 shares of common stock as a hiring incentive.
5. SUBSEQUENT EVENTS
The Company announced that James E. Stark has been promoted to President and
Chief Financial Officer of the Company. Mr. Stark joined ABS September 1, 1999
as the Corporate Controller and also serves as the Secretary of the Company. Mr.
Stark will report directly to the Chairman of the Board of Directors of ABS. Mr.
Stark's promotion is the result of the resignation of Benjamin J. Lamb as the
Company's President, CEO and a member of the Board of Directors.
6. 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
----------------------------------
$ 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
Date Price Factor Cost
---------------------------------
Comguard Acquisition Fees ................ 8/24/98 $ 2.75$ 2.31 $ 0.44
Employee Bonuses ......................... 4/9/98 1.88 1.58 0.3
Loan Guarantor ........................... 4/1/98 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%.
7. 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 September 30, 1999, e
Company has insufficient working capital. These items raise substantial doubt
about the ability of the Company to continue as a going concern.
<PAGE>
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.
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.
7. FINANCIAL STATEMENTS SINCE INCEPTION
Below are ABS's condensed consolidated statement of operations and statement of
cash flows from inception through September 30, 1999.
Statement of Operations
Inception to
September 30, 1999
------------------
Revenues ................................... $ 249,402
Cost of Sales .............................. 231,915
------------
Gross Profit (Loss) ................... 17,487
------------
Expenses
Research and Development .............. 2,260,493
Sales and Marketing ................... 1,305,143
General and Administrative ............ 8,617,643
------------
Total Expenses ..................... 12,183,279
------------
Loss from Operations ............... (12,165,792)
------------
Other Income and Expense
Interest Income ....................... 14,744
Other Income .......................... 84,528
Loss on Sales of Property and Equipment (11,914)
Interest Expense ...................... (686,163)
Asset Abandonment
(94,300)
------------
Total Other Income and Expense ..... (693,105)
------------
Net Loss Before Income Taxes ....... (12,858,897)
Extraordinary Item
Gain from Extinguishment of Debt ....... 569,901
Provision for Income Taxes ................. -
------------
Net Loss ........................... ($12,288,996)
============
<PAGE>
Statement of Cash Flows
Cash Flows from Operating Activities
Net Loss ....................................... ($12,288,996)
Cash Used in Operating Activities .............. 1,078,893
Changes in Operating Assets and Liabilities .... (470,950)
-----------
Net Cash Flows Used in Operating Activities (11,681,053)
Cash Flows from Investing Activities
Proceeds from Sales of Property and Equipment .. 31,160
Purchase of Leased Equipment ................... (237,084)
Purchase of Property and Equipment ............. (612,206)
(Increase) Decrease in Rent and Utility Deposits (3,473)
(Increase) in Patents .......................... (15,145)
Purchase of Intellectual Property .............. (169,000)
Funds Advanced to Comguard ..................... (86,634)
-----------
Net Cash Used in Investing Activities ...... (1,092,382)
Cash Flows from Financing Activities
Increase (Decrease) in Notes Payable Banks ..... 4,476,806
Proceeds from Long-term Debt ................... 4,144,081
Repayment of long-term Debt .................... 0
Proceeds from Issuance of Common Stock ......... 4,070,000
Increase (Decrease) in Banks Overdraft ......... 82,976
Decrease in Notes Receivable Stockholders ...... 0
-----------
Net Cash Provided by Financing Activities .. 12,773,863
-----------
Increase (Decrease) in Cash and Cash Equivalents ... 428
-----------
Cash and Cash Equivalents, Beginning of Period ..... 0
-----------
Cash and Cash Equivalents, End of Period ........... $ 428
===========
Disclosure from Operating Activities
Interest ........................................... $ 652,749
Taxes .............................................. 0
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 135 units
in the third quarter of 1999. The remainder of 276 units in the third quarter of
1999 were monitored units only.
Year 3rd Quarter Year-to-date
-------------------------------------------------------
1998 49 100
1999 411 1,720
The following table sets forth certain consolidated statements of operations (in
thousands) information as a percentage of revenues during the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30,
-------------------------------------------------
1999 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................... $ 33,952 100.0% $ 14,187 100.0%
Cost of Sales .............................. 19,825 58.4% 32,038 225.8%
-------------------------------------------------
Gross Profit (Loss) ................... 14,127 41.6% -17,851 -125.8%
-------------------------------------------------
Expenses
Research and Development .............. 492,219 1449.7% 56,499 398.2%
Sales and Marketing ................... 118,382 348.7% 133,971 944.3%
General and Administrative ............ 967,523 2849.7% 524,114 3694.3%
-------------------------------------------------
Total Expenses ..................... 1,578,124 4648.1% 714,584 5036.9%
-------------------------------------------------
Loss from Operations ............... (1,563,997) -4606.5% (732,435) -5162.7%
Other Income and Expense
Loss on Sales of Property and Equipment (2,578) -7.6% -- 0.0%
Interest Expense ...................... (90,784) -267.4% (14,854) -104.7%
Asset Abandonment ..................... -- 0.0% -- 0.0%
-------------------------------------------------
Total Other Income and Expense ..... (93,362) -275.0% (14,854) -104.7%
-------------------------------------------------
Net Loss Before Income Taxes ....... (1,657,359) -4881.5% (747,289) -5267.4%
Provision for Income Taxes -- -- -- --
-------------------------------------------------
Net Loss ........................... ($1,657,359) -4881.5% ($747,289) -5267.4%
=================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------
September 30,
-------------------------------------------------
1999 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................... $ 124,909 100.0% $ 30,307 100.0%
Cost of Sales .............................. 84,384 67.6% 85,234 281.2%
-------------------------------------------------
Gross Profit (Loss) ................... 40,525 32.4% -54,927 -181.2%
-------------------------------------------------
Expenses
Research and Development .............. 876,208 701.5% 162,975 537.7%
Sales and Marketing ................... 326,735 261.6% 287,549 948.8%
General and Administrative ............ 2,151,040 1722.1% 1,306,444 4310.7%
-------------------------------------------------
Total Expenses ..................... 3,353,983 2685.1% 1,756,968 5797.2%
-------------------------------------------------
Loss from Operations ............... (3,313,458) -2652.7% (1,811,895) -5978.5%
Other Income and Expense
Loss on Sales of Property and Equipment (2,578) -2.1% -- 0.0%
Interest Expense ...................... (217,642) -174.2% (44,859) -148.0%
Asset Abandonment ..................... -- 0.0% -- 0.0%
-------------------------------------------------
Total Other Income and Expense ..... (220,220) -176.3% (44,859) -148.0%
-------------------------------------------------
Net Loss Before Income Taxes ....... (3,533,678) -2829.0% (1,856,754) -6126.5%
Provision for Income Taxes -- -- -- --
-------------------------------------------------
Net Loss ........................... ($3,533,678) -2829.0% ($1,856,754) -6126.5%
==================================================
</TABLE>
<PAGE>
Discussions of certain matters contained in this Quarterly Report on Form 10-Q
may constitute forward-looking statements under Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These
statements may involve risks and uncertainties. These forward-looking statements
relate to, among other things, the Company's ability to secure financing, the
results of the Company's product development efforts, future sales levels, the
Company's future financial condition, liquidity and business prospects
generally, perceived opportunities in the marketplace for the Company's products
and its products under development and the Company's other business plans for
the future. The actual outcomes of these matters may differ significantly from
the outcomes expressed or implied in these forward-looking statements and other
risks detailed in "ITEM 1. Description of Business contained in the Company's
Form 10-SB filed with the SEC February 9, 2000.
The following discussion is intended to provide a better understanding of the
significant changes in trends relating to the Company's financial condition and
results of operations. Management's Discussion and Analysis should be read in
conjunction with the accompanying Consolidated Financial Statements and Notes
thereto.
Revenues
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 three and nine months ended
September 30, 1999, Revenues increased 139.3% to $33,952 for the third quarter
of 1999 and 312.1% to 124,909 during the first nine months of 1999, compared to
$14,187 and $30,307 respectively during the same periods in 1998. The reason for
the increases in both comparable periods are more units being monitored and
leased in the three months ended September 30, 1999 (411 units) and for the
first nine months of 1999 (1,720 units) as compared to the same periods in 1998
(49 and 100 units respectively).
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 three and nine months ended September 30, 1999, Cost of Sales decreased
38.1% to $19,825 for the third quarter of 1999 and 1.0% to $84,384 for the first
nine months of 1999, compared to $32,038 and 85,234 respectively during the same
periods in 1998. The primary reason for the lower cost of sales in the 1999
periods was increased utilization of the Company assets in service.
Gross Profit
For the three months and nine months ended September 30, 1999, Gross Profit for
the Company increased $31,978 to $14,127 and increased $95,452 to $40,525,
compared to a Gross Profit of $(17,851) and $(54,927) for the comparable periods
of 1998. The reasons for this increase were higher revenues and proportionately
lower Cost of Sales in the 1999 periods, as discussed above.
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 Research and development expenses increased to
$492,219 and $876,208 for the three and nine months ended September 30, 1999,
respectively, from $56,499 and $162,975 for the same periods in 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.
<PAGE>
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. Sales and Marketing expenses increased decreased $15,589 or
(11.6%) in the third quarter of 1999 to $118,382 when compared to the third
quarter of 1998. The decrease is the result of less advertising and trade show
expenses incurred in the third quarter of 1999 when compared to the third
quarter of 1998. For the first nine months of 1999, Sales and Marketing expenses
increased $39,186 to $326,735, compared to $287,549 in the comparable period of
1998. The primary reason for this increase was that the Company experienced an
increase in sales and marketing staff over the comparable period in 1998.
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 three months ended
September 30, 1999, General and administrative expense increased $443,409 to
$967,523, from $524,114 in the comparable period of 1998. The primary reason for
the increase was an increase in administrative and executive staff. For the nine
months ended September 30, 1999, General and Administrative expense increased by
$844,596 to $2,151,040, from $1,306,444 in the comparable period of 1998. The
primary reason for this increase was an increase in administrative and executive
staff.
Profit (loss) from Operations
For the three months ended September 30, 1999, Loss from Operations increased
$831,562 to $(1,563,997), compared to $(732,435) 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 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 the nine
month increase is the same as for the three month period increase as indicated
above.
Loss on Sale of Property and Equipment
For the three months ended September 30, 1999, the Company incurred a loss on
the sale of certain computer equipment of $2,578 as compared to no expense for
the same comparable period in 1998. For the first nine months of 1999 the loss
on sale of Property and equipment is the same as for the three months ended
September 30, 1999.
Interest Expense
For the three months ended September 30, 1999, Interest expense increased
$75,930 to $90,784, compared to Interest expense of $14,854 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 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.
Net Loss
For the three months ended September 30, 1999, the Company had a Net Loss of
$1,657,359 or $.15 per share, compared to a Net Loss of $747,289 or $.10 per
share, in the comparable period of 1998, for the reasons described above. 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 $(.25)
per share, in the comparable period of 1998, for the reasons described above.
<PAGE>
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 same period of
1998, the Company used $(2,345,775) of cash in operating activities and another
$(286,459) in investing activities. It generated $2,631,934 in cash from
financing activities. The total of all cash flow activities resulted in a
decrease in the balance of cash and cash equivalents of $300.
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, 1999,
together with accrued interest. The interest rate is a variable rate based on
the U.S. Bank National Association Reference Rate (the "Index Rate") plus two
(2) percent. As of 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.
The Company has borrowed the principal sum of $850,000 from United Bank of Iowa
of Carroll, Iowa. The loan had an original maturity date of December 30, 1999
and has been extended until April 15, 2000. The interest rate is eight and
one-quarter (8.25)% per annum.
The Company has borrowed the principal sum of $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.
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.
<PAGE>
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 product 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of pending litigation, see NOTE 4. COMMITMENTS AND
CONTINGENCIES above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.01 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The registrant filed no reports on Form 8-K during the quarter ended
September 30, 1999.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED BUSINESS SCIENCES, INC.
Date: February 25, 2000 By: /S/ James E. Stark
James E. Stark
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
BUSINSESS SCIENCES, INC.'S CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED CONDENSED BALANCE SHEETS CONTAINED IN ITS QUARTERLY REPORT UNDER
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<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
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0
<COMMON> 11,197
<OTHER-SE> 8,866,897
<TOTAL-LIABILITY-AND-EQUITY> 1,390,907
<SALES> 124,909
<TOTAL-REVENUES> 124,909
<CGS> 84,384
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<OTHER-EXPENSES> 3,353,983
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