SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission File Number 0-19041
American Biogenetic Sciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2655906
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1375 Akron Street 516-789-2600
Copiague, New York 11726 (Telephone number)
(Address of principal executive offices)
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. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 6, 1997
Class A Common Stock, par value $.001 19,275,269
Class B Common Stock, par value $.001 1,475,500
<PAGE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
Form 10-Q for the Quarter Ended September 30, 1997
INDEX
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements: Page No.
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997
and September 30, 1996
and For the Period from Inception (September 1, 1983)
Through September 30, 1997 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and September
30, 1996 and For the Period from Inception (September
1, 1983) Through September 30, 1997 5
Consolidated Statements of Stockholders' Equity -
For the Period from Inception (September 1, 1983)
Through September 30, 1997 6 - 8
Notes to Consolidated Financial Statements 9 - 10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
Part II - OTHER INFORMATION
Item 2: Changes in Securities 14
Item 6: Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
Assets 1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $8,164,000 $10,760,000
Marketable securities - 3,021,000
Inventory 223,000 -
Other current assets 34,000 528,000
------------ ------------
Total current assets 8,421,000 14,309,000
------------ ------------
Fixed assets, at cost, net of accumulated
depreciation and amortization of $1,404,000
and $1,183,000, respectively 564,000 591,000
Patent costs, net of accumulated
amortization of $269,000 and $212,000,
respectively 1,286,000 983,000
Debt issuance costs, net of accumulated
amortization of $499,000 and $370,000,
respectively 83,000 569,000
Other assets 23,000 21,000
------------ ------------
$10,377,000 $16,473,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $777,000 $609,000
Current portion of capital lease obligation 3,000 3,000
------------ ------------
Total current liabilities 780,000 612,000
------------ ------------
Long Term Liabilities:
7% convertible debentures, net of unamortized
debt discount of $0 and $492,000, respectively 1,500,000 8,508,000
8% convertible debentures 850,000 1,800,000
Long-term portion of capital lease obligation 9,000 11,000
------------ ------------
Total liabilities 3,139,000 10,931,000
------------ ------------
Stockholders' Equity:
Class A common stock, par value $.001 per
share; 50,000,000 shares authorized,
19,275,269 and 16,270,994 shares issued
and outstanding, respectively 19,000 16,000
Class B common stock, par value $.001 per
share; 3,000,000 shares authorized; 1,475,500 and
1,375,500 shares issued and outstanding, respectivel 1,000 1,000
Additional paid-in capital 55,527,000 47,793,000
Deficit accumulated during the
development stage (48,309,000) (42,268,000)
------------ ------------
Total stockholders' equity 7,238,000 5,542,000
------------ ------------
$10,377,000 $16,473,000
============ ============
See notes to unaudited consolidated financial statements
Page 3
</TABLE>
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<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
<CAPTION> From Inception
Three Months Ended Nine Months Ended (September 1,
-------------------------- ------------------------------ 1983) Through
September 30, September 30, September 30, September 30, September 30,
1997 1996 1997 1996 1997
------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Royalties / license fees $ - $ - $ - $ - $1,000,000
Collaborative agreements - 8,000 9,000 34,000 302,000
------------ ------------ -------------- -------------- --------------
- 8,000 9,000 34,000 1,302,000
Expenses:
Research and development 704,000 686,000 2,676,000 1,952,000 26,079,000
General and administrative 973,000 788,000 2,950,000 2,678,000 23,944,000
------------ ------------ -------------- -------------- --------------
Loss from operations (1,677,000) (1,466,000) (5,617,000) (4,596,000) (48,721,000)
------------ ------------ -------------- -------------- --------------
Other Income (Expense):
Interest expense (65,000) (65,000) (878,000) (318,000) (3,705,000)
Net gain on sale of fixed assets 1,000 - 1,000 - 7,000
Net investment income 127,000 101,000 453,000 340,000 4,110,000
------------ ------------ -------------- -------------- --------------
Net loss ($1,614,000) ($1,430,000) ($6,041,000) ($4,574,000) ($48,309,000)
============ ============ ============== ============== ==============
Net Loss Per Common Share ($0.08) ($0.08) ($0.31) ($0.27) ($6.31)
============ ============ ============== ============== ==============
Weighted Average Number of
Common Shares Outstanding 20,694,000 17,553,000 19,774,000 17,069,000 7,652,000
============ ============ ============== ============== ==============
See notes to unaudited consolidated financial statements
Page 4
</TABLE>
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<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period
From Inception
<CAPTION> (September 1,
Nine Months Ended 1983)
-------------------------- Through
September 30, September 30, September 30,
1997 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss ($6,041,000) ($4,574,000) ($48,309,000)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 410,000 375,000 2,104,000
Net gain on sale of fixed assets (1,000) - (7,000)
Net gain on sale of marketable securities - - (217,000)
Other non-cash expenses accrued primarily for warrants 127,000 243,000 1,564,000
Amortization of debt discount included in interest expense 492,000 - 1,843,000
Write off of patent costs - - 93,000
(Increase) decrease inventory (223,000) - (223,000)
(Increase) decrease in other current assets 494,000 43,000 (34,000)
(Increase) decrease in other assets (2,000) 3,000 72,000
Increase in payables and accruals 440,000 270,000 1,105,000
Increase in interest payable to stockholder - - 112,000
------------ ------------ --------------
Net cash provided by (used in) operating activities (4,304,000) (3,640,000) (41,897,000)
------------ ------------ --------------
Cash Flows From Investing Activities:
Capital expenditures (198,000) (65,000) (1,978,000)
Proceeds from sale of fixed assets 2,000 - 18,000
Payments for patent costs and other assets (360,000) (208,000) (1,625,000)
Proceeds from maturity and sale of marketable securities 5,817,000 8,417,000 67,549,000
Purchases of marketable securities (2,796,000) (9,741,000) (67,332,000)
------------ ------------ --------------
Net cash provided by (used in) investing activities 2,465,000 (1,597,000) (3,368,000)
------------ ------------ --------------
Cash Flows From Financing Activities:
Payments to debentureholders (1,154,000) - (1,154,000)
Proceeds from issuance of common stock, net 399,000 1,306,000 35,867,000
Proceeds from issuance of 7% convertible debentures, net - 5,685,000 8,565,000
Proceeds from issuance of 8% convertible debentures, net - - 7,790,000
Principal payments under capital lease obligation (2,000) (3,000) (8,000)
Capital contributions from chairman - - 1,000,000
Increase in loans payable to stockholder / affiliates - - 2,669,000
Repayment of loans payable to stockholder and affiliates
(remainder contributed to capital by the stockholder) - - (1,300,000)
------------ ------------ --------------
Net cash provided by (used in) financing activities (757,000) 6,988,000 53,429,000
------------ ------------ --------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,596,000) 1,751,000 8,164,000
Cash and Cash Equivalents at Beginning of Period 10,760,000 5,436,000 -
------------ ------------ --------------
Cash and Cash Equivalents at End of Period $8,164,000 $7,187,000 $8,164,000
============ ============ ==============
Supplemental Disclosure of Noncash Activities:
Capital expenditures made under capital lease obligation - - $20,000
============ ============ ==============
Convertible Debentures converted into 2,944,201
2,237,684 and 5,568,160 shares of Common Stock, respectively $8,252,000 $5,386,000 $14,308,000
============ ============ ==============
Warrants issued to placement agent - $45,000 $525,000
============ ============ ==============
See notes to unaudited consolidated financial statements
Page 5
</TABLE>
<PAGE>
<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Class A Class B
Per Common Stock Common Stock
Share --------------------------- ------------------------
Amount Shares Dollars Shares Dollars
------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - - $ -
Sale of common stock to chairman for cash .33 78,000 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1983 78,000 - - -
Sale of common stock to chairman for cash .33 193,500 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1984 271,500 - - -
Sale of common stock to chairman for cash .33 276,700 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1985 548,200 1,000 - -
Sale of common stock to chairman for cash .33 404,820 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1986 953,020 1,000 - -
Sale of common stock to chairman for cash .33 48,048 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1987 1,001,068 1,000 - -
Exchange of common stock for Class B stock (1,001,068) (1,000) 1,001,068 1,000
Sale of Class B stock to chairman for cash .33 - - 1,998,932 2,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1988 - - 3,000,000 3,000
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1989 - - 3,000,000 3,000
Conversion of loans payable to stockholder into
additional paid-in capital - - - -
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses) 2.00 3,450,000 3,000 - -
Conversion of Class B stock into
Class A stock 668,500 1,000 (668,500) (1,000)
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000
------------ ------------- ----------- -----------
CONTINUED
Page 6
<PAGE>
BALANCE, DECEMBER 31, 1990 4,118,500 $4,000 2,331,500 $2,000
Exercise of Class A Warrants (net of $203,000
in underwriting expenses) for cash 3.00 3,449,955 3,000 - -
Exercise of Class B Warrants for cash 4.50 79,071 - - -
Conversion of Class B stock
into Class A stock 850,000 1,000 (850,000) (1,000)
Exercise of stock options 2.00 417,750 1,000 - -
Expense for warrants issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1991 8,915,276 9,000 1,481,500 1,000
Exercise of Class B Warrants (net of $701,000
in underwriting expenses) for cash 4.50 3,370,884 3,000 - -
Conversion of Class B stock
into Class A stock 106,000 - (106,000) -
Exercise of stock options 2.49 348,300 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1992 12,740,460 13,000 1,375,500 1,000
Sale of common stock to Medeva PLC. 7.50 200,000 - - -
Exercise of stock options 2.00 32,700 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1993 12,973,160 13,000 1,375,500 1,000
Exercise of stock options 2.16 91,250 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1994 13,064,410 13,000 1,375,500 1,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 1.85 354,204 - - -
Exercise of stock options 1.82 12,750 - - -
Expense for warrants/options issued - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
------------ ------------- ----------- -----------
CONTINUED
Page 7
<PAGE>
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 2.74 2,269,755 2,000 - -
Exercise of stock options 2.53 569,875 1,000 - -
Expense for warrants/options issued - - - -
Discount on 7% convertible debentures - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 30, 1996 16,270,994 16,000 1,375,500 1,000
------------ ------------- ----------- -----------
Conversion of 7% and 8% Convertible Debentures
into Class A Common Stock 2.92 2,944,201 3,000 - -
Sale of Class B stock for cash 3.44 - - 100,000 -
Exercise of stock options 2.00 27,500 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 3.48 32,574 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997 19,275,269 $19,000 1,475,500 $1,000
============ ============= =========== ===========
See notes to unaudited consolidated financial statements
Page 8
</TABLE>
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<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE, AT INCEPTION, (SEPTEMBER 1, 1983) $ - $ - $ -
Sale of common stock to chairman for cash 26,000 - 26,000
Net (loss) for the period - (25,000) (25,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1983 26,000 (25,000) 1,000
Sale of common stock to chairman for cash 65,000 - 65,000
Net (loss) for the period - (242,000) (242,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1984 91,000 (267,000) (176,000)
Sale of common stock to chairman for cash 92,000 - 92,000
Net (loss) for the period - (305,000) (305,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1985 183,000 (572,000) (388,000)
Sale of common stock to chairman for cash 134,000 - 134,000
Net (loss) for the period - (433,000) (433,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1986 317,000 (1,005,000) (687,000)
Sale of common stock to chairman for cash 16,000 - 16,000
Net (loss) for the period - (730,000) (730,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1987 333,000 (1,735,000) (1,401,000)
Exchange of common stock for Class B stock - - -
Sale of Class B stock to chairman for cash 664,000 - 666,000
Net (loss) for the period - (1,031,000) (1,031,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1988 997,000 (2,766,000) (1,766,000)
Net (loss) for the period - (1,522,000) (1,522,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1989 997,000 (4,288,000) (3,288,000)
Conversion of loans payable to stockholder into
additional paid-in capital 1,481,000 - 1,481,000
Sale of 1,150,000 Units to public consisting of
3,450,000 shares of Class A common stock and
warrants (net of $1,198,000 underwriting expenses) 5,699,000 - 5,702,000
Conversion of Class B stock into
Class A stock - - -
Net (loss) for the period - (2,100,000) (2,100,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000
------------ ------------- -----------
CONTINUED
Page 6 (column continuation)
<PAGE>
BALANCE, DECEMBER 31, 1990 $8,177,000 ($6,388,000) $1,795,000
Exercise of Class A Warrants (net of $203,000
in underwriting expenses) for cash 10,143,000 - 10,146,000
Exercise of Class B Warrants for cash 356,000 - 356,000
Conversion of Class B stock
into Class A stock - - -
Exercise of stock options 835,000 - 836,000
Expense for warrants issued 900,000 - 900,000
Net (loss) for the period - (4,605,000) (4,605,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1991 20,411,000 (10,993,000) 9,428,000
Exercise of Class B Warrants (net of $701,000
in underwriting expenses) for cash 14,465,000 - 14,468,000
Conversion of Class B stock
into Class A stock - - -
Exercise of stock options 865,000 - 866,000
Net (loss) for the period - (4,016,000) (4,016,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1992 35,741,000 (15,009,000) 20,746,000
Sale of common stock to Medeva PLC. 1,500,000 - 1,500,000
Exercise of stock options 65,000 - 65,000
Net (loss) for the period - (6,521,000) (6,521,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1993 37,306,000 (21,530,000) 15,790,000
Exercise of stock options 197,000 - 197,000
Net (loss) for the period - (7,431,000) (7,431,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1994 37,503,000 (28,961,000) 8,556,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 571,000 - 571,000
Exercise of stock options 23,000 - 23,000
Expense for warrants/options issued 602,000 - 602,000
Net (loss) for the period - (5,607,000) (5,607,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000
------------ ------------- -----------
CONTINUED
Page 7 (column continuation)
<PAGE>
BALANCE, DECEMBER 31, 1995 $38,699,000 ($34,568,000) $4,145,000
Conversion of 8% Convertible Debentures into
Class A Common Stock 5,483,000 - 5,485,000
Exercise of stock options 1,438,000 - 1,439,000
Expense for warrants/options issued 330,000 - 330,000
Discount on 7% convertible debentures 1,843,000 - 1,843,000
Net (loss) for the period - (7,700,000) (7,700,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1996 47,793,000 (42,268,000) 5,542,000
------------ ------------- -----------
Conversion of 7% and 8% Convertible Debentures
into Class A Common Stock 7,095,000 - 7,098,000
Sale of Class B stock for cash 344,000 - 344,000
Exercise of stock options 55,000 - 55,000
Expense for warrants issued 127,000 - 127,000
Class A Common Stock issued 113,000 - 113,000
Net (loss) for the period - (6,041,000) (6,041,000)
------------ ------------- -----------
BALANCE, SEPTEMBER 30, 1997 $55,527,000 ($48,309,000) $7,238,000
============ ============= ===========
See notes to unaudited consolidated financial statements
CONTINUED
Page 8 (column continuation)
</TABLE>
<PAGE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
(1) INTERIM FINANCIAL STATEMENTS
The interim unaudited consolidated financial statements presented herein
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-Q and Regulation S-X pertaining to interim financial statements.
Accordingly, they do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. The interim financial statements presented herein reflect
all adjustments (consisting of normal recurring adjustments and
accruals) which, in the opinion of management, are necessary for a fair
presentation of financial position as of September 30, 1997 and results
of operations for the three and nine months ended September 30, 1997 and
September 30, 1996. The Company's financial statements should be read
in conjunction with the summary of significant accounting policies and
the notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The
results of operations for the three and nine months ended September 30,
1997 are not necessarily indicative of the results for the full year.
(2) EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of
common shares outstanding and, where applicable, common equivalent
shares issuable upon exercise of stock options calculated under the
treasury stock method. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. SFAS No. 128 simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, Earnings Per Share, and is effective for financial
statements issued for periods ending after December 15, 1997, including
<PAGE>
interim periods; earlier adoption is not permitted. The Company does
not expect the adoption of SFAS No. 128 to have a significant impact to
its reported results.
(3) STOCKHOLDERS' EQUITY
Stock Options - The following summarizes the stock option activity in
all stock option plans for the three months ended September 30, 1997.
Shares Price
Granted 55,000 $2.41 - $3.81
Exercised 6,250 $1.75 - $2.13
Cancelled 4,000 $1.75 - $5.50
Each option entitles the holder to purchase one share of Class A Common
Stock of the Company.
Other Shares and Warrants - In connection with a lease agreement for
certain facilities, the Company may, at its option, pay a portion of the
annual lease obligation with Class A Common Stock plus warrants. The
number of shares of Common Stock to be issued is to be computed by
dividing the lease obligation to be paid with Common Stock by the
average market price of the Company's Class A Common Stock during the
ten days prior to issuance. The warrants are to cover an identical
number of shares of Common Stock and are to be exercisable for a period
of four years from the date of issuance at a price equal to the closing
price of the underlying Class A Common Stock on the date the warrant is
issued. The Company issued 13,683 shares of Class A Common Stock during
the quarter ended September 30, 1997, as well as a warrant to purchase
13,683 shares of Class A Common Stock at an exercise price of $2.75 per
share. The Company has recorded a noncash charge of $25,000 which
represents the fair value of the warrant.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months ended September 30, 1997
The Company's net loss of $1,614,000 for the third quarter ended
September 30, 1997 was $184,000 higher than the net loss of $1,430,000
for the third quarter ended September 30, 1996.
Research and development expenses increased $18,000 from $686,000 in the
1996 period to $704,000 in the 1997 period primarily as a result of
additional personnel and increased rent costs offset, in part, by a
reduction in payments for research/collaborative projects and reduced
travel and meeting costs during the third quarter of 1997.
General and administrative expenses increased $185,000 from $788,000 in
the 1996 period to $973,000 in the 1997 period primarily as a result of
an increase in consulting and professional services and additional
personnel during the third quarter of 1997.
Interest expense was flat during the 1997 period as compared to the 1996
period. Interest expense includes the amortization of debt issuance
cost over the term of the debentures ($19,000 and $23,000 during the
third quarters of 1997 and 1996, respectively ). Upon conversion of
the Company's 7% and 8% Convertible Debentures ($150,000 and $100,000
during the third quarters of 1997 and 1996, respectively), the related
unamortized debt issuance costs ($4,000 and $10,000 during the third
quarters of 1997 and 1996, respectively) are charged to paid-in capital.
Investment income increased $26,000 from $101,000 in the 1996 period to
$127,000 in the 1997 period as a result of higher average cash balances
and higher interest rates on U.S. Government obligations in which most
of the Company s available cash is invested.
<PAGE>
Nine Months Ended September 30, 1997
The Company s net loss increased $1,467,000 during the nine months ended
September 30, 1997 from a loss of $4,574,000 during the 1996 period to
a loss of $6,041,000 in the 1997 period.
Revenue during the nine months ended September 30, 1997 and September
30, 1996 are from the sale of reagents, research materials and services
relating to collaborative agreements.
Research and development expenses increased $724,000 from $1,952,000 in
the 1996 period to $2,676,000 in the 1997 period primarily as a result
of relocating the Company's research laboratories from South Bend,
Indiana to Boston, Massachusetts (including severance, relocation and
moving costs during the first quarter of 1997), additional personnel,
increased rent costs and increased travel and meeting costs offset, in
part, by a reduction in payments for research/collaborative projects.
General and administrative expenses increased $272,000 from $2,678,000
in the 1996 period to $2,950,000 in the 1997 period as a result of
increased consulting and other costs in connection with the publication
of research papers by the Company, and increased personnel.
Interest expense increased by $560,000 from $318,000 in the 1996 period
to $878,000 in the 1997 period, resulting primarily from $492,000 of
noncash amortization of the debt discount relating to the Company's 7%
Convertible Debentures issued in September 1996. Upon conversion of the
Company's 7% and 8% Convertible Debentures ($8,450,000 and $5,950,000
during the nine months of 1997 and 1996, respectively), the related
unamortized debt issuance costs ($357,000 and $723,000 during the nine
months of 1997 and 1996, respectively) are charged to paid-in capital.
Investment income increased $113,000 from $340,000 in the 1996 period to
$453,000 in the 1997 period as a result of higher average cash balances
and higher interest rates on U.S. Government obligations in which most
of the Company s available cash is invested.
<PAGE>
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of $7,641,000
compared to $13,697,000 at December 31, 1996. The decrease of $6,056,000
in working capital was primarily the result of losses from operating
activities of $4,305,000 and the payment of $1,154,000 to
Debentureholders upon conversions, at below the price at which the
Company was required to pay cash in lieu of issuing additional shares of
Class A Common Stock. During the nine months ended September 30, 1997,
$7,500,000 of the 7% Convertible Debentures and $950,000 of the 8%
Convertible Debentures were converted into an aggregate of 2,944,201
Class A Common Stock. The Company's management believes that its
working capital will be sufficient to finance its currently anticipated
liquidity needs through 1998.
During the third quarter of 1997, the Company began building inventory
components of TpP (the Company's Thrombus Precursor Protein) and FiF
(the Company's Functional Intact Fibrinogen) diagnostic tests. The
Company has contracted with two outside GMP (Good Manufacturing
Practices) companies to manufacture the antibodies used in the TpP and
FiF kits, and contracted with two other GMP companies to manufacture and
assemble the finished TpP and FiF kits. Delivery of the finished kits
to the Company is expected to begin in November. The Company has been
preparing for a market launch of both FDA cleared products (TpP and FiF
kits) in November 1997 at the MEDICA show in Europe.
The Company expects to continue to incur substantial expenditures in
research and product development and the FDA approval process, relating
to Phase I/II human clinical testing of the MH1 imaging product,
additional clinical studies for other medical indications for TpP,
manufacturing of additional TpP and FiF reagents and kits and marketing
efforts for both TpP and FiF. Despite the fact that the Company will
begin marketing TpP and FiF kits, its product development plans continue
to include entering into collaborative, licensing, distribution and co-
marketing arrangements with pharmaceutical and diagnostic companies to
provide additional funding and clinical expertise to perform tests
necessary to obtain regulatory approvals, provide manufacturing
expertise and market the Company's products.
In order to expand its to marketing activities for these products
without collaborative, licensing, distribution or co-marketing
arrangements with pharmaceutical and diagnostic companies, the Company
<PAGE>
will require additional sources of financing, which may entail the sale
and issuance of additional equity, including Class A Common Stock, debt
and/or securities convertible into equity. There can be no assurance
that the Company will be able to obtain any such financing or the terms
of any financing it may be able to obtain. Also, there can be no
assurance that the Company will be able to enter into any collaborative,
licensing, distribution or co-marketing agreements, or if it does, the
terms of any such arrangements, or that it will not require additional
financing to initiate or supplement any such arrangements.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
During the quarter ended September 30, 1997, holders of $150,000 of
the Company's 7% Convertible Debentures converted such debentures into
50,709 shares of the Company's Class A Common Stock, respectively. The
Company believes that the exemption from registration afforded by
Section 3(a)(9) of the Securities Act of 1933, as amended (the "Act"),
is applicable to the issuances of such shares as such issuances involved
a security exchanged by the Company with existing securityholders
exclusively where no commission or other remuneration was paid or given
directly or indirectly for soliciting such exchanges.
In connection with a lease agreement for certain facilities, the
Company may, at its option, pay a portion of the annual lease obligation
with shares of Class A Common Stock (the "Issued Shares") plus a warrant
(the "Warrant") to purchase an identical number of shares of Class A
Common Stock (the "Warrant Shares"). The number of Issued Shares are
computed by dividing the lease obligation to be paid with shares by the
average market price of the Company's Class A Common Stock during the
ten days prior to issuance. The Warrant Shares are to be exercisable
for a period of four years from the date of issuance at a price equal to
the closing price of the underlying Class A Common Stock on the date the
Warrant is issued. Pursuant to the lease agreement, on August 29, 1997,
the Company issued 13,683 shares of Class A Common Stock and a Warrant
to purchase 13,683 shares of Class A Common Stock at an exercise price
of $2.75 per share. In connection with such acquisition, the purchaser
agreed to acquire the Issued Shares, the Warrant and the Warrant Shares
for investment and not with a view to the distribution of such
securities. In connection therewith, the Company has granted the
purchaser certain rights to cause the Warrant Shares to be registered
under the Act at the Company's expense. The Company believes that the
exemption from registration afforded by Section 4(2) of the Act is
applicable to the issuance of such securities.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 1,
1997 (date of earliest event reported) on October 20,
1997, reporting under Item 5, Other Events.
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.
AMERICAN BIOGENETIC SCIENCES, INC.
(Registrant)
Date November 13, 1997 /s/ Josef C. Schoell
------------------ ------------------------
Josef C. Schoell
Vice President, Finance
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS NINE MONTHS YEAR-TO-DATE SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1997 10-Q FOR THE THIRD
QUARTER ENDED SEPTEMBER 30, 1997
</LEGEND>
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