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 March 31, 1999 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 of incorporation (I.R.S. Employer
or organization) Identification No.)
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 May 7, 1999
Class A Common Stock, par value $.001 36,041,841
Class B Common Stock, par value $.001 3,000,000
Page 1
<PAGE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
Form 10-Q for the Quarter Ended March 31, 1999
INDEX
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements: Page No.
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and March 31, 1998
and For the Period from Inception (September 1, 1983)
Through March 31, 1999 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and March 31, 1998
and For the Period from Inception (September 1, 1983)
Through March 31, 1999 5
Consolidated Statements of Stockholders' Equity -
For the Period from Inception (September 1, 1983)
Through March 31, 1999 6 - 8
Notes to Consolidated Financial Statements 9 - 11
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 12
Item 3: Quantitative and Qualitative Disclosures about Market
Risk 16
Part II - OTHER INFORMATION
Item 2: Changes in Securities 17
Item 6: Exhibits and Reports on Form 8-K 18
Signature 18
Page 2
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<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
Assets 1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,785,000 $3,047,000
Accounts receivable 175,000 177,000
Inventory 590,000 545,000
Other current assets 115,000 40,000
------------ ------------
Total current assets 2,665,000 3,809,000
------------ ------------
Fixed assets, at cost, net of accumulated depreciation and
amortization of $1,760,000 and $1,718,000, respectively 607,000 631,000
Patent costs, net of accumulated
amortization of $415,000 and $390,000,
respectively 1,684,000 1,468,000
Intangible assets, net 564,000 580,000
Other assets 219,000 26,000
------------ ------------
Total assets $5,739,000 $6,514,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $695,000 $797,000
Current portion of capital lease obligation - 8,000
Current portion of notes payable 55,000 57,000
------------ ------------
Total current liabilities 750,000 862,000
------------ ------------
Long Term Liabilities:
Notes payable, less current portion 50,000 56,000
------------ ------------
Total liabilities 800,000 918,000
------------ ------------
Stockholders' Equity:
Class A common stock, par value $.001 per
share; 50,000,000 shares authorized;
36,023,841 and 35,559,556 shares issued
and outstanding, respectively 36,000 36,000
Class B common stock, par value $.001 per share;
3,000,000 shares authorized; 3,000,000 shares
issued and outstanding, respectively 3,000 3,000
Additional paid-in capital 63,334,000 62,520,000
Deficit accumulated during the development stage (58,434,000) (56,963,000)
------------ ------------
Total stockholders' equity 4,939,000 5,596,000
------------ ------------
$5,739,000 $6,514,000
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
Page 3
</TABLE>
<PAGE>
<TABLE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Period
From Inception
Three Months Ended (September 1,
-------------------------- 1983) Through
March 31, March 31, March 31,
1999 1998 1999
------------ ------------ --------------
<S> <C> <C> <C>
Revenues:
Sales $292,000 $114,000 $1,639,000
Royalties / license fees - - 1,000,000
Collaborative agreements 40,000 - 342,000
------------ ------------ --------------
332,000 114,000 2,981,000
Costs and expenses:
Cost of sales 118,000 36,000 615,000
Research and development 518,000 496,000 29,324,000
Selling, general and administrative 1,186,000 1,036,000 30,279,000
Facility consolidation cost - - 252,000
------------ ------------ --------------
Loss from operations (1,490,000) (1,454,000) (57,489,000)
------------ ------------ --------------
Other Income (Expense):
Interest expense (1,000) (49,000) (4,357,000)
Net gain on sale of fixed assets - - 7,000
Investment income 20,000 86,000 4,545,000
------------ ------------ --------------
Loss before extraordinary charge (1,471,000) (1,417,000) (57,294,000)
Extraordinary charge for early
retirement of debentures, net - - (1,140,000)
------------ ------------ --------------
Net loss ($1,471,000) ($1,417,000) ($58,434,000)
============ ============ ==============
Per Share Information (Note 2):
Basic and Diluted net loss per share
Net loss ($0.04) ($0.07)
============ ============
Common shares used in computing
per share amounts:
Basic and Diluted 38,683,000 21,280,000
============ ============
The accompanying notes are an integral part of these consolidated statements.
Page 4
</TABLE>
<PAGE>
<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,
Three Months Ended 1983)
-------------------------- Through
March 31, March 31, March 31,
1999 1998 1999
------------ ------------ --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss ($1,471,000) ($1,417,000) ($58,434,000)
Adjustments to reconcile net (loss) to net cash
provided by or (used) in operating activities:
Depreciation and amortization 83,000 110,000 2,805,000
Net gain on sale of fixed assets - - (7,000)
Net gain on sale of marketable securities - - (217,000)
Other non-cash expenses accrued primarily for stocks and warrants 167,000 27,000 2,209,000
Amortization of debt discount included in interest expense - - 2,160,000
Extraordinary loss on repurchase of debt - - 1,140,000
Write off of patent costs - - 93,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 2,000 (93,000) (67,000)
(Increase) decrease in inventory (45,000) 21,000 (432,000)
(Increase) decrease in other current assets (75,000) (22,000) (115,000)
(Increase) decrease in other assets 5,000 - 78,000
Increase (decrease) in accounts payable and accrued expenses (151,000) 16,000 825,000
Increase in interest payable to stockholder - - 112,000
------------ ------------ --------------
Net cash provided by (used in) operating activities (1,485,000) (1,358,000) (49,850,000)
------------ ------------ --------------
Cash Flows From Investing Activities:
Capital expenditures (18,000) (7,000) (2,061,000)
Proceeds from sale of fixed assets - - 18,000
Payments for patent costs and other assets (241,000) (55,000) (2,169,000)
Business acquisition, net of stock issued and cash acquired - - (119,000)
Proceeds from maturity and sale of marketable securities - - 67,549,000
Purchases of marketable securities - - (67,332,000)
------------ ------------ --------------
Net cash provided by (used in) investing activities (259,000) (62,000) (4,114,000)
------------ ------------ --------------
Cash Flows From Financing Activities:
Payments to debentureholders - (427,000) (2,246,000)
Proceeds from issuance of common stock, net 498,000 7,000 39,982,000
Proceeds from issuance of 5% convertible debentures, net - - 3,727,000
Proceeds from issuance of 7% convertible debentures, net - - 8,565,000
Proceeds from issuance of 8% convertible debentures, net - - 7,790,000
Principal payments under capital lease obligation and notes payable (16,000) - (86,000)
Redemption of 8% convertible debentures - - (500,000)
Repurchase of 5% convertible debentures - - (3,852,000)
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 482,000 (420,000) 55,749,000
------------ ------------ --------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,262,000) (1,840,000) 1,785,000
Cash and Cash Equivalents at Beginning of Period 3,047,000 7,121,000 -
------------ ------------ --------------
Cash and Cash Equivalents at End of Period $1,785,000 $5,281,000 $1,785,000
============ ============ ==============
Supplemental Disclosure of Noncash Activities:
Capital expenditures made under capital lease obligation - - $20,000
============ ============ ==============
Convertible Debentures converted into 0, 271,252,
and 10,470,583 shares of Common Stock, respectively - $320,000 $14,658,000
============ ============ ==============
Warrants $264,000 - $852,000
============ ============ ==============
Conversion of stockholder loan to paid-in capital - - $1,481,000
============ ============ ==============
The accompanying notes are an integral part of these consolidated 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 31, 1996 16,270,994 16,000 1,375,500 1,000
------------ ------------- ----------- -----------
Conversion of 7% and 8% Convertible Debentures
into Class A Common Stock 2.93 2,995,006 3,000 - -
Sale of Class B Common Stock to Chairman for cash 2.23 - - 350,000 1,000
Exercise of stock options 2.00 27,500 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 3.12 48,117 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1997 19,341,617 19,000 1,725,500 2,000
------------ ------------- ----------- -----------
Conversion of 5%, 7% and 8% Convertible Debentures
into Class A Common Stock 0.32 4,851,618 5,000 - -
Sale of Class B Common Stock to Chairman for cash 0.37 - - 1,274,500 1,000
Exercise of stock options 1.75 4,000 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 1.06 163,915 - - -
Class A Common Stock issued for Stellar 1.76 398,406 1,000 - -
Class A Common Stock issued for Private Placement 0.25 10,800,000 11,000 - -
Discount on 5% convertible debentures - - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1998 35,559,556 36,000 3,000,000 3,000
------------ ------------- ----------- -----------
Sale of Class A Common Stock to Chairman for cash 1.13 440,000 - - -
Exercise of stock options 0.61 5,000 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 1.19 19,285 - - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, MARCH 31, 1999 36,023,841 $36,000 3,000,000 $3,000
============ ============= =========== ===========
The accompanying notes are an integral part of these consolidated statements.
Page 8
</TABLE>
<PAGE>
<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 7,152,000 - 7,155,000
Sale of Class B Common Stock to Chairman for cash 778,000 - 779,000
Exercise of stock options 55,000 - 55,000
Expense for warrants issued 149,000 - 149,000
Class A Common Stock issued 150,000 - 150,000
Net (loss) for the period - (7,147,000) (7,147,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1997 56,077,000 (49,415,000) 6,683,000
------------ ------------- -----------
Conversion of 5%, 7% and 8% Convertible Debentures
into Class A Common Stock 1,442,000 - 1,447,000
Sale of Class B Common Stock to Chairman for cash 465,000 - 466,000
Exercise of stock options 7,000 - 7,000
Expense for warrants issued 205,000 - 205,000
Class A Common Stock issued 174,000 - 174,000
Class A Common Stock issued for Stellar 699,000 - 700,000
Class A Common Stock issued for Private Placement 2,689,000 - 2,700,000
Discount on 5% convertible debentures 762,000 - 762,000
Net (loss) for the period - (7,548,000) (7,548,000)
------------ ------------- -----------
BALANCE, DECEMBER 31, 1998 62,520,000 (56,963,000) 5,596,000
------------ ------------- -----------
Sale of Class A Common Stock to Chairman for cash 495,000 - 495,000
Exercise of stock options 3,000 - 3,000
Expense for warrants issued 293,000 - 293,000
Class A Common Stock issued 23,000 - 23,000
Net (loss) for the period - (1,471,000) (1,471,000)
------------ ------------- -----------
BALANCE, MARCH 31, 1999 $63,334,000 ($58,434,000) $4,939,000
============ ============= ===========
The accompanying notes are an integral part of these consolidated statements.
CONTINUED
Page - 8 (column continuation)
</TABLE>
<PAGE>
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
(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 March 31, 1999 and results of
operations for the three months ended March 31, 1999 and March 31, 1998.
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, 1998. The results
of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results for the full year.
(2) NET LOSS PER COMMON SHARE
Basic net loss per common share ("Basic EPS") is computed by dividing
net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share ("Diluted EPS") is computed by
dividing net loss by the weighted average number of common shares and
dilutive potential common shares then outstanding. The provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128 requires
the presentation of both Basic EPS and Diluted EPS on the face of the
consolidated statements of operations. Diluted EPS for 1999 and 1998
is the same as Basic EPS because the inclusion of stock options and
warrants outstanding would be antidilutive.
Page 9
<PAGE>
(3) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
------------------------
1999 1998
----- -----
<S> <C> <C>
Raw Materials $313,000 $339,000
Work in Process 79,000 91,000
Finished Goods 198,000 115,000
------------------------
$590,000 $545,000
========================
</TABLE>
(4) STOCKHOLDERS' EQUITY
Stock Options - The following summarizes the stock option activity in
all stock option plans for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
Weighted Avg
Option
Shares Price
------------------------
<S> <C> <C>
Granted 205,000 $1.14
Exercised 5,000 $0.61
Cancelled 82,166 $3.76
</TABLE>
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 the
Company's Boston research facility, 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 is computed using the
average market price of the Company's Class A Common Stock during the
ten days prior to issuance. The warrants are to be exercisable at a
price equal to the closing price of the underlying Class A Common Stock
on the date the warrant is issued and for a period of four years from
the date of issuance. With respect to the three months ended February
26, 1999, the Company calculated 29,850 shares of Class A Common Stock
to be issued, as well as warrants to purchase 29,850 shares of Class A
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Common Stock at an exercise price of $1.28 per share. These shares and
warrants will be issued during the second quarter of 1999. The fair
value of the warrants were calculated using an option-pricing model as
of February 26, 1999 and recorded a charge to operations of $24,000.
Pursuant to an investor relations agreement, the Company is to
issue a warrant to the investor relations firm to purchase up to 300,000
shares of Class A Common Stock at $1.00 per share for five years, with
vesting based on the achievement of certain goals. Included in Other
assets is the fair value of these warrants as determined using an
option-pricing model of $264,000 which is being amortized over the
service period of the agreement.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis provides information which ABS'
management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and notes appearing elsewhere herein.
Liquidity and Capital Resources
ABS, a development stage company incorporated in September 1983,
launched two commercial products (TpP , ABS' Thrombus Precursor Protein
diagnostic test, and FiF , ABS' Functional Intact Fibrinogen diagnostic
test) in the fourth quarter of 1997. Although, to date, ABS has not
derived any significant revenues from the sale of these products. On
April 23, 1998, the Company acquired Stellar Bio Systems, Inc.
( Stellar ) a manufacturer and distributor of in vitro diagnostic
products and research reagents. Reagents are individual components of
diagnostic products, such as antibodies, calibrators and serum used in
the biotechnology industry. The purchase price was $120,000 in cash and
$700,000 in Class A Common Stock (398,406 shares were issued), plus
future contingent payments of $650,000 in Class A Common Stock to be
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paid over three years based upon future sales levels of Stellar, with
the Class A Common Stock to be valued at its market value on the
acquisition agreement anniversary dates. The Company recorded a
contingent payment of $150,000 in Class A Common Stock (131,118 shares)
on April 23, 1999 (second fiscal quarter) representing the first
contingent payment.
ABS expects to continue to incur substantial expenditures in
research and product development in the neurobiology program and in the
development and commercialization of a point of care format for TpP , as
well as in the FDA approval process relating to additional 510(k)
filings for TpP , FiF and Stellar s products.
As of March 31, 1999, ABS had working capital of $1,915,000,
compared to $2,947,000 at December 31,1998. ABS' management believes
that current working capital along with additional financing, projected
receipt of licensing fees and/or other contingency plans, will be
sufficient to fund its planned activities through the first quarter of
2000. The Company is seeking to license TpP and its neurobiology
compound ABS 103, to large pharmaceutical companies in order to provide
additional funding and clinical expertise, to perform additional testing
necessary to obtain regulatory approvals, to provide manufacturing
expertise and to market ABS' products. Without such licensing or co-
marketing arrangements, additional sources of funding will be required
to finance ABS. There can be no assurances that such funding will be
available or, if available, the terms thereof.
The Company's cash and cash equivalents decreased by $1,262,000 to
$1,785,000 during the first quarter of 1999, primarily because cash used
in operations ($1,485,000) and investing activities ($259,000) exceeded
net cash provided by financing activities ($482,000). Net cash of
$1,485,000 was used in operations to fund the Company s cash loss from
operations of $1,221,000 (net of non cash expenses of $83,000 for
depreciation and amortization, and $167,000 incurred in connection with
the issuance of stock and warrants). Net cash of $264,000 was used by
changes in operating assets and liabilities primarily as a result of
decrease in accounts payable and accrued expenses ($151,000), an
increase in inventory ($45,000) to cover expected increased shipments in
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the second quarter of 1999, an increase in other current assets
($75,000) primarily a receivable from a National Institutes of Health
("NIH") grant, partially offset by an increase in accounts receivable
($2,000) and other assets ($5,000). Cash used in investing activities
was for the purchase of equipment ($18,000) and capitalized patent costs
($241,000) primarily for neurobiology compounds. Financing activities
provided $482,000 as a result of the purchase by the Company's Chairman
of 440,000 shares of Class A Common Stock for $495,000, the exercise of
stock options, offset by payments under capital lease obligations and
notes payable.
Results of Operations
The Company's net loss of $1,471,000 for the first quarter ended
March 31, 1999 increased by $54,000 from a net loss of $1,417,000 for
the first quarter ended March 31, 1998. The increase in the net loss is
primarily due to increased selling, general and administrative expenses
of $150,000, increased research and development expenses of $22,000,
lower investment income of $66,000, offset by an increase in gross
profit of $96,000, an earned NIH grant of $40,000 and reduced interest
expense of $48,000.
Revenue during the first quarter of 1999 was primarily from sales
of Stellar products. Sales of TpP and FiF diagnostic kits were lower
during the first quarter of 1999 compared to 1998 due to a slow market
acceptance of the current test format. In addition, the sales of TpP
during the first quarter of 1998 was the result of distributors' initial
stocking of the product. The revenue of $40,000 reflects the earned
portion of an NIH grant. The Company obtained a grant of $135,000 from
the NIH National Institute on Aging for additional studies of the
Company's neurobiology compound ABS 205 of which $40,000 was earned in
the first quarter of 1999. This study will be completed by the end of
June 1999.
Research and development expenses increased by $22,000, from
$496,000 to $518,000, primarily due to the cost of TpP point of care
development and the inclusion of Stellar's research and development
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costs which related primarily to work supporting FDA 510K filings.
Results of Stellar are included in the Company's results of operations
only since its April 23, 1998 acquisition by the Company.
Selling, general and administrative expenses increased by $150,000,
from $1,036,000 to $1,186,000, as a result of the inclusion of Stellar's
selling and general expenses, increases in the cost of investor
relations offset in part by a reduction in other consulting costs.
Interest expense decreased by $48,000, from $49,000 to $1,000,
resulting from the absence of convertible debentures outstanding which
were repurchased in the fourth quarter of fiscal 1998.
Investment income decreased by $66,000, from $86,000 in 1998 to
$20,000 in 1999, as a result of lower average cash balances.
Year 2000
State of Readiness: The Year 2000 problem is the result of some
computer programs being written using two-digits rather than four to
define the applicable year. Therefore, it is possible that programs
that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in a system
failure or miscalculation. ABS has been assessing the impact of the
Year 2000 issue on its information systems. ABS uses software developed
and supported by third parties for various applications, including
financial reporting, sales, purchasing and inventory, which will require
upgrade.
In addition, ABS may face some risk to the extent that suppliers of
products and others with whom ABS has a material business relationship
will not be Year 2000 compliant. Accordingly, ABS has initiated formal
communications with significant suppliers and third parties in order to
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determine the extent to which ABS may be vulnerable to the failure of
these suppliers and third parties to remediate their own Year 2000
issues. ABS is reviewing and evaluating the responses it receives and
periodically monitor the progress of these suppliers and third parties
in addressing their own Year 2000 issues. However, ABS is not dependent
upon any one supplier and believes that it could readily replace non-
compliant suppliers should that become necessary.
ABS has reviewed its non-information technology systems to
determine the extent of any changes that may be necessary and currently
believes that minimal changes are necessary for Year 2000 compliance.
Costs: The estimated cost of the Year 2000 project is
approximately $50,000. This cost estimate may change as ABS progresses
in its Year 2000 project, obtains additional information and conducts
further testing.
Risks: ABS is not aware, at this time, of any Year 2000 non-
compliance that will not be cured by the end of 1999 and that will
materially affect ABS. However some risks that ABS faces include: the
failure of internal information systems, a slow down in receipt of
manufactured product and in customers' ability to make payments.
Contingency Plans: As an additional precaution, ABS is in the
process of developing contingency plans to mitigate the possible
disruption in business operations that could result. These plans, which
are dependent in large part on the responses ABS receives from third
parties with whom ABS has a business relationship, are expected to be
completed during the first half of 1999. Once developed, contingency
plans and related cost estimates will be continually refined as
additional information becomes available.
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Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Company s available cash is invested in highly liquid
investments (primarily United States Treasury Bills) which have a
maturity, at the time of purchase, of less than three months. ABS does
not have operations subject to risks of foreign currency fluctuations,
nor does it use derivative financial instruments in its operations. ABS
does not have exposure to market risks associated with changes in
interest rates as it has no variable interest rate debt outstanding.
ABS does not believe it has any other material exposure to market risks
associated with interest rates.
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<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
In connection with a lease agreement for the Boston research
facility, the Company may at its option pay a portion of the annual
lease obligation with Class A Common Stock (the "Issued Shares") plus a
warrant (the "Warrant") to purchase shares of Class A Common Stock (the
"Warrant Shares"). The number of Issued Shares is computed using 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
during 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 thereto for the three months ended
February 26, 1999, the Company calculated 29,850 shares of Class A
Common Stock to be issued and a warrant to purchase 29,850 shares of
Class A Common Stock at an exercise price of $1.28 per share. These
shares and warrant will be issued during the second quarter of 1999. 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.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter covered
by this Report.
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 May 14, 1999 /s/ Josef C. Schoell
Josef C. Schoell
Vice President, Finance
(Principal Financial and
Accounting Officer)
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS THREE MONTH YEAR TO DATE SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AMERICAN BIOGENETIC SCIENCES, INC. 1999 10-Q FOR THE FIRST
QUARTER ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,785,000
<SECURITIES> 0
<RECEIVABLES> 175,000
<ALLOWANCES> 0
<INVENTORY> 590,000
<CURRENT-ASSETS> 2,665,000
<PP&E> 2,367,000
<DEPRECIATION> 1,760,000
<TOTAL-ASSETS> 5,739,000
<CURRENT-LIABILITIES> 750,000
<BONDS> 0
0
0
<COMMON> 39,000
<OTHER-SE> 4,900,000
<TOTAL-LIABILITY-AND-EQUITY> 5,739,000
<SALES> 292,000
<TOTAL-REVENUES> 332,000
<CGS> 118,000
<TOTAL-COSTS> 118,000
<OTHER-EXPENSES> 518,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,000
<INCOME-PRETAX> (1,471,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,471,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,471,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
