<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
----------------------------------
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: 0-19814
-------------------------------------------------------
ABS Group Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0462198
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
818 East South Temple Street, Salt Lake City, Utah 84102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 521-8000
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
The number of shares outstanding of each of the registrant's classes of common
stock, as of May 18, 1998 is 4,331,674 shares, all of one class of $.0001 par
value common stock.
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<PAGE> 2
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Financial Statements 3-10
Item 2. Management's Discussion and Analysis 11-13
PART II
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a
Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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[LETTERHEAD OF JONES, JENSEN & COMPANY]
The Board of Directors
ABS Group Inc.
Salt Lake City, Utah
The accompanying consolidated balance sheet of ABS Group Inc. (a
development stage company) as of March 31, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the three months ended March 31, 1998 and 1997 and from inception on October
3, 1988 through March 31, 1998 were not audited by us and, accordingly, we do
not express an opinion on them. The accompanying consolidated balance sheet
as of December 31, 1997 was audited by us and we expressed an unqualified
opinion on it in our report dated April 9, 1998.
/s/ JONES, JENSEN & COMPANY
- ---------------------------
Jones, Jensen & Company
Salt Lake City, Utah
May 18, 1998
3
<PAGE> 4
ABS GROUP INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 19,286 $ 1,906
Accounts receivable 19,831 5,782
Inventories 164,453 168,951
Prepaid expenses 6,834 4,080
Employee advances -- 1,227
---------- ----------
Total Current Assets 210,404 181,946
---------- ----------
FIXED ASSETS 166,745 174,921
---------- ----------
OTHER ASSETS
Investment in joint venture (Note 2) 801,279 841,204
Patents/intellectual property 673,730 683,851
Deposits 17,649 19,769
Goodwill 179,871 185,009
---------- ----------
Total Other Assets 1,672,529 1,729,833
---------- ----------
TOTAL ASSETS $2,049,678 $2,086,700
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ABS GROUP INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 306,656 $ 339,487
Accrued expenses 65,249 46,368
Related party payable 17,251 22,322
Capital lease obligation, current portion 932 1,145
Notes payable, current portion 325,000 140,000
------------ ------------
Total Current Liabilities 715,088 549,322
------------ ------------
LONG-TERM LIABILITIES
Capital lease obligation 2,256 2,261
Notes payable 100,000 105,000
------------ ------------
Total Long-Term Liabilities 102,256 107,261
------------ ------------
Total Liabilities 817,344 656,583
------------ ------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES 76,120 93,637
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, 10,000,000 shares authorized
at $0.0001 par value; 4,206,474 and 4,165,363
shares issued and outstanding, respectively 421 417
Capital in excess of par value 12,811,362 12,776,480
Foreign currency translation (1,572) (6,915)
Deficit accumulated during the development stage (11,653,997) (11,433,502)
------------ ------------
Total Stockholders' Equity 1,156,214 1,336,480
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,049,678 $ 2,086,700
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ABS GROUP INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
on October 3,
For the Three 1988 Through
Months Ended March 31, March 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
SALES $ 43,727 $ 104,937 $ 428,862
COST OF SALES 27,477 61,753 333,293
----------- ----------- ------------
GROSS MARGIN 16,250 43,184 95,569
----------- ----------- ------------
EXPENSES
Depreciation and amortization 21,959 18,202 115,558
Rent 16,322 23,835 109.745
Research and development -- -- 28,953
General and administrative 164,205 187,446 2,957,028
----------- ----------- ------------
Total Expenses 202,486 229,483 3,211,284
----------- ----------- ------------
LOSS FROM OPERATIONS (186,236) (186,299) (3,115,715)
----------- ----------- ------------
OTHER INCOME (EXPENSE)
Interest income 75 -- 4,837
Interest expense (8,728) (23) (40,038)
Loss on investment (39,925) -- (173,721)
----------- ----------- ------------
Total Other Income (Expense) (48,578) (54,633) (208,922)
----------- ----------- ------------
LOSS BEFORE DISCONTINUED
OPERATIONS AND MINORITY
INTEREST (234,814) (240,932) (3,324,637)
LOSS ON DISCONTINUED
OPERATIONS -- -- (8,425,042)
MINORITY INTEREST IN LOSS 14,319 5,692 95,682
----------- ----------- ------------
NET LOSS $ (220,495) $ (235,240) $(11,653,997)
=========== =========== ============
NET LOSS PER SHARE $ (0.05) $ (0.07)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,199,568 3,527,047
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ABS GROUP INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
on October 3,
For the Three 1988 Through
Months Ended March 31, March 31,
1998 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss from operations $(220,495) $(235,495) $(11,653,997)
Adjustments to reconcile net
loss to net cash provided by operating
activities:
Depreciation and amortization 23,435 18,189 120,077
Bad Debt expense -- -- 7,729
Stock and options issued for services
rendered 3,386 -- 1,431,419
Loss on investment in joint venture 39,925 54,610 173,721
Stock issued in settlement of debt -- -- 1,413,320
Loss on disposition of assets -- -- 3,206,791
Foreign currency translation -- -- (6,924)
Minority interest (17,517) -- (97,271)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (14,049) (78,723 (13,600)
(Increase) decrease in inventory 4,498 (18,245) (117,136)
(Increase) decrease in prepaids and
assets (1,527) (29,739) (4,774)
(Increase) decrease in deposits 2,120 (1,370) (4,652)
Increase (decrease) in accounts payable (27,488) (194,873) 230,739
Increase (decrease) in accrued expenses 13,810 -- 127,428
--------- --------- ------------
Net Cash Provided (Used) by
Operating Activities $(193,902) $(504,892) $ (5,187,130)
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
ABS GROUP INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
on October 3,
For the Three 1988 Through
Months Ended March 31, March 31,
1998 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES
Investments in joint venture $ -- $(250,000) $ (550,000)
Cash acquired through investment in
subsidiary -- -- 2,022
Purchase of subsidiaries -- -- (108,731)
Purchase of product marketing rights -- -- (1,250)
Purchase of fixed assets -- (50,923) (99,700)
Purchase of promotional video -- -- (50,000)
--------- --------- -----------
Net Cash Provided (Used) by
Investing Activities -- (300,923) (807,659)
--------- --------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital contributed by shareholder -- -- 25,000
Proceeds from loans 190,000 -- 855,462
Repayment of loans (218) (76,169) (76,503)
Proceeds from sale of common stock 21,500 966,281 5,210,116
--------- --------- -----------
Net Cash Provided (Used) by
Financing Activities 211,282 890,112 6,014,075
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 17,380 84,297 19,286
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,906 65,977 --
--------- --------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 19,286 $ 150,274 $ 19,286
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
ABS GROUP INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception
on October 3,
For the Three 1988 Through
Months Ended March 31, March 31,
1998 1997 1998
------- -------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Interest paid $ -- $ - $ 31,310
Income taxes paid $ -- $ - $ --
NON-CASH FINANCING ACTIVITIES
Stock issued for notes payable $10,000 $ - $2,733,750
Purchase of Bioreactors through
assignment of note $ -- $ - $2,150,000
Acquisition of product marketing rights
through issuance of notes and stock $ -- $ - $2,200,000
Stock issued in settlement of debt $ -- $ - $1,560,818
Stock and options issued for services
rendered $ -- $ - $1,431,416
Stock issued for acquisition of
subsidiary $ -- $ - $ 500,138
Stock issued for investment in joint venture $ -- $ - $ 425,000
Stock issued for accrued interest $26,000 $ - $ 26,000
Accrued salaries contributed by a
shareholder to the Company $ -- $ - $ 41,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
ABS GROUP INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1998 and December 31, 1997
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It
is suggested that these financial statements be read in
conjunction with the Registrant's December 31, 1997 Annual Report
on Form 10-KSB. The results of operations for the periods ended
March 31, 1998 and 1997 are not necessarily indicative of
operating results for the full years.
The consolidated financial statements and other information
furnished herein reflect all adjustments which are, in the opinion
of management of the Registrant, necessary for a fair presentation
of the results of the interim periods covered by this report.
NOTE 2 - INVESTMENT IN JOINT VENTURE
During the 3 months ended March 31, 1998, the Company advanced no
additional funds to DBD Company, Inc. (DBD). The Company is
committed to advancing an additional $600,000 to DBD during 1998,
on an as needed basis. The financial statements reflect the
Company's share of DBD's loss which is $39,925.
NOTE 3 - NOTES PAYABLE
As of December 31, 1997, the Company had an obligation to pay
$130,000 in notes due in January 1998 together with accrued
interest at ten percent per annum to two otherwise unaffiliated
lenders. During January 1998, the Company restructured its debt
with both of such parties and issued new notes bearing interest at
ten percent per annum and due May 1, 1998. In addition, one of
such parties advanced an additional $120,000 to the Company during
January 1998. Both parties waived accrued interest on the original
notes and as partial consideration for the restructuring, the
Company issued two year unregistered warrants to the lenders to
acquire 225,000 shares of the Company's common stock at an
exercise price of $.375 per share. An additional 216,000 two year
unregistered warrants exercisable at $.375 per share were issued
as partial consideration for the aforesaid $120,000 loan made in
January 1998. As of May 18, 1998, the notes had not yet been paid
in whole or in part.
Additionally, the Company issued 8,111 shares of its common stock
in settlement of a note in the amount of $10,000.
10
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's intentions as heretofore expressed in its Form 10-KSB for
year ended December 31, 1997 is to become a diversified public company through
the acquisition or financing of opportunities with emerging bio-medical
technology firms where (a) research and development stages have been basically
completed, (b) intellectual property is protected by patents, licenses,
registration and/or proprietary formulas or processes, (c) products and/or
services are deemed unique and/or desirable and (d) Company's management and
marketing skills and financial resources are envisioned to be a valuable asset
to the overall operation(s) (present and/or proposed) of the acquired firm(s) -
all with the ultimate objective of benefitting the Company's stockholders.
Reference is herewith made to Item 1 to aforesaid Form 10-KSB as well as to the
consolidated financial statements and notes thereto as contained therein which
summarizes relevant information with respect to the Company's initial joint
venture with Biopharmaceutics, Inc. (entered into in September 1996) and its
subsequent acquisitions in November and December 1996 (of the subsidiaries
hereinafter referred to) as well as the various monetary and other obligations
assumed as a result thereof.
The consolidated financial statements include those of ABS Group Inc.
and its subsidiaries, Future Medical Technologies, Inc. ("FMT"), Marine Research
USA, Inc. ("MRUSA") and Marine Research Pty. Ltd. ("MRPL").
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity/cash flows of
the Company as at quarter ended March 31, 1998 and year ended December 31, 1997
with respect to the Company's consolidated balance sheets and the comparative
three month periods ended March 31, 1998 and March 31, 1997 (as well as the
period from inception in October 1988 through March 31, 1998) based upon
information appearing in the Company's consolidated statements of operations and
related financial statements and should be read in conjunction with such
unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND MARCH 31, 1997:
Sales for the three month period ended March 31, 1998 were $43,727 as
compared to sales of $104,937 for the comparative three month period ended March
31, 1997, while cost of sales decreased from the comparative three month period
ended March 31, 1997 from $61,753 to $27,477 resulting in a gross margin for the
three month period ended March 31, 1997 of $16,250 (representing approximately
37% of sales) as compared to $43,184 for the comparative three month period
ended March 31, 1997 (representing approximately 41% of sales). Accordingly,
gross margin for the comparative periods decreased by $26,934 (a decrease of
approximately 62% from the comparative three month period ended March 31, 1997).
Total expenses decreased by $26,977 (from $229,483 at March 31, 1997 to
$202,486 at March 31, 1998) while the single largest item of operating expenses
continued to be represented by "general and administrative" expenses, which
represented approximately 81% of all operating expenses for the three month
period ended March 31, 1998 and represented approximately 82% of
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<PAGE> 12
all operating expenses for the three month period ended March 31, 1997.
Depreciation and amortization expenses for the three month period ended March
31, 1998 represented approximately 11% of total operating expenses as compared
to approximately 8% of total operating expenses for the comparative three month
period ended March 31, 1997. Rental expenses for the three month period ended
March 31, 1998 represented approximately 8% of total operating expenses as
compared to approximately 10% for the comparative three month period ended March
31,1997. Primarily as a result of the above, net losses decreased from
$(235,240) for the three month period ended March 31, 1997 to $(220,495) for the
three month period ended March 31, 1998; a decrease in losses of $14,745.
CONSOLIDATED BALANCE SHEETS:
Total assets of the Company at the three month period ended March 31,
1998 and calendar year ended December 31, 1997 were $2,049,678 and $2,086,700
respectively, a decrease of $37,022, with total current assets increasing from
$181,946 at December 31, 1997 to $210,404 at March 31, 1998 - an increase of
$28,458. The principal reason for the aforesaid increase in total current assets
resulted from an aggregate increase in cash and accounts receivable of $31,429
while the principal reason for the decrease in total assets resulted from a
$39,925 decrease in "investment in joint venture". Investment in joint venture
and patents/intellectual property accounted for 39% and 33% respectively of
total assets as at March 31, 1998 as compared to approximately 40% and 33% as at
December 31, 1997.
Total current liabilities of the Company at the three month period
ended March 31, 1998 and calendar year ended December 31, 1997 were $715,088 and
$549,322 respectively, an increase of $165,766, principally due to an increase
of $185,000 in notes payable, current portion. Total liabilities as at March 31,
1998 amounted to $817,344 as compared to $656,583 at December 31, 1997.
The Company's working capital deficit as at March 31, 1998 was
$(504,684) as compared to a working capital deficit of $(367,376) at December
31, 1997.
As at March 31, 1998 the Company's deficit accumulated during
development stage increased to $(11,653,997) as compared to $(11,433,502) as at
December 31, 1997 (reflecting the aforesaid net loss of $220,495 incurred during
the three month period ended March 31,1998). Total stockholders' equity at March
31, 1998 decreased by $180,266 from $1,336,480 at December 31, 1997 to
$1,156,214 at March 31, 1998.
CASH REQUIREMENTS AND LIQUIDITY
As heretofore indicated in the consolidated statements of stockholders'
equity in the Company's 10-KSB for calendar year ended December 31, 1997, the
Company has been able to satisfy its cash requirements and raise the necessary
capital in order to finance its proposed growth and acquisition program through
the sale and issuance of 556,428 shares of its common stock for an aggregate
gross cash consideration of $1,278,605.50 during 1997. During the first quarter
of 1998
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<PAGE> 13
the Company sold an additional 41,111 shares for gross cash consideration of
$31,638.71 (of which $10,000 was originally advanced to the Company in December
1997 and thereafter such indebtedness (plus accrued interest) was canceled in
exchange for issuance of 8,111 shares in January 1998) and 13,000 shares were
issued to a non related party who exercised his option to acquire 13,000 shares
at $.50 per share. Other than the 13,000 shares issued pursuant to the option,
the remaining shares of Company common stock referred to above were sold in
accordance with certain terms and conditions contained in Off-Shore Securities
Subscription Agreements and, accordingly, were sold outside the U.S., not as a
registered public offering but rather in reliance upon Regulation S of the
General Rules and Regulations under the Securities Act of 1933. All sales of
securities pursuant to Regulation S made during 1997 and January 1998 as
referred to directly above have been reported in Forms 8-K with dates of reports
of January 16, 1997, February 5, 1997, March 10, 1997, April 14, 1997, June 13,
1997, August 6, 1997, August 20, 1997 and January 20, 1998 - each of which Forms
8-K were filed in a timely manner.
See Note 3 to March 31,1 998 financial statements regarding notes
payable aggregating $250,000 which notes payable primarily represent loans made
and/or debt financing.
The consolidated financial statements to the Company's Form 10-KSB for
calendar year ended December 31, 1997 indicate (in Note 9 thereto) certain
factors which create an uncertainty about the Company's ability to continue as a
going concern; such factors primarily relating to the Company having sustained
significant operating losses while not having had a proven source of revenues.
Notwithstanding the concerns expressed by the Company's auditors in such Note 9
as well as in their report dated April 9, 1998 accompanying such consolidated
financial statements and the loss most recently incurred during the calendar
year December 31, 1997 of $1,708,905 (and the further loss of $220,495 during
the first quarter of 1998), Company management nevertheless continues to believe
that the Company will be able to continue its operations through (a) the raising
of additional capital through debt and/or equity financing if necessary and/or
(b) the belief that its operations (through activities of its joint venture
and/or operating subsidiaries) will improve sufficiently so as to eventually
generate sufficient revenues so as to justify anticipated and on-going
expenditures. No assurance can, however, be given that such will be the case.
Other than as indicated herein or in its aforesaid Form 10-KSB for
calendar year ended December 31, 1997, the Company is not engaged (on its own)
in any product research and development nor does management currently
contemplate the purchase or sale of any plant or significant equipment. Any
significant change in the number of Company employees will be dependent, to a
significant degree, upon the status of its on-going joint venture and the
operations of its subsidiaries heretofore referred to as having been acquired in
late 1996.
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<PAGE> 14
PART II
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a
Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K as follows:
Form 8-K with date of report January 20, 1998 - filed January 30, 1998
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABS GROUP INC.
By /s/ EMANUEL A. FLOOR
-----------------------------
Emanuel A. Floor, President
Dated: May 19, 1997
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,286
<SECURITIES> 0
<RECEIVABLES> 37,362
<ALLOWANCES> 17,531
<INVENTORY> 164,453
<CURRENT-ASSETS> 210,404
<PP&E> 202,443
<DEPRECIATION> 35,698
<TOTAL-ASSETS> 2,049,678
<CURRENT-LIABILITIES> 715,088
<BONDS> 0
0
0
<COMMON> 421
<OTHER-SE> 1,155,793
<TOTAL-LIABILITY-AND-EQUITY> 2,049,678
<SALES> 43,727
<TOTAL-REVENUES> 43,727
<CGS> 27,477
<TOTAL-COSTS> 202,486
<OTHER-EXPENSES> 39,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,728
<INCOME-PRETAX> 220,495
<INCOME-TAX> 0
<INCOME-CONTINUING> 220,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,495
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
