SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 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 No. 0-15192
AMERICAN BIOGENETIC SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2655906
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1375 Akron Street, Copiague, New York 11726
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(Address of principal executive offices, including zip code)
(516) 789-2600
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(Registrant's telephone number, including area code)
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
Below are indicated the number of shares outstanding of each of the registrant's
classes of common stock as of November 13, 1998.
Class Outstanding at November 12, 1998
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Class A Common Stock, par value $.001 35,510,538
Class B Common Stock, par value $.001 3,000,000
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American Biogenetic Sciences, Inc.
Form 10-Q/A
For the Quarter Ended September 30, 1998
PART I. FINANCIAL INFORMATION Page
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 3
Part II. OTHER INFORMATION
SIGNATURES....................................................... 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's results of operations include the results of operations
of Stellar Bio Systems, Inc. ("Stellar") from April 23, 1998, the date of its
acquisition by the Company.
Results of Operations
Three Months ended September 30, 1998
The Company's net loss of $1,659,000 for the third quarter ended
September 30, 1998 was $45,000 higher than the net loss of $1,614,000 for the
third quarter ended September 30, 1997. The increase in the net loss was
primarily due to an increase in interest expense ($255,000), an increase in
selling, general and administrative expense ($109,000) and a reduction in
investment income ($36,000) offset, in large part, by the gross profit
($239,000) of Stellar and of TpP, the Company's Thrombus Precursor Protein
diagnostic test, and a reduction in research and development expenses
($117,000).
Sales during the three months ended September 30, 1998 were $412,000,
consisting of sales of Stellar products for a full three months and continued
sales of TpP. Stellar was acquired in April 1998 and TpP sales commenced in the
fourth quarter of 1997. Accordingly, there were no product sales by the Company
in the comparable 1997 period.
Cost of sales for the three months ended September 30, 1998 was
$173,000 or 42% of sales.
Research and development expenses decreased $117,000 from $704,000 to
$587,000, primarily as a result of reductions in research and development
personnel and consulting costs offset, in part, by increases in the cost of TpP
clinical studies and point of care (POC) development costs and the inclusion of
Stellar for the entire three months of 1998.
Selling, general and administrative expenses increased $109,000 from
$973,000 to $1,082,000, primarily as a result of the inclusion of Stellar for
the entire three months of 1998 and increased costs associated with the
marketing and promotional effort for TpP.
Interest expense increased by $255,000 from $65,000 in the 1997 period
to $320,000 in the 1998 period, resulting from an increase in the amortized debt
issuance and debenture discount cost component of interest expense ($240,000 and
$19,000 during the third quarters of 1998 and 1997, respectively). Upon
conversion of the Company's convertible debentures ($83,000 and $150,000 during
the third quarters of 1998 and 1997, respectively), the related unamortized debt
issuance costs ($9,000 and $4,000 during the third quarters of 1998 and 1997,
respectively) were charged to paid-in capital. As a result of the November 1998
repurchase of the Company's 5% Convertible Debentures, ongoing interest expense
related to these debentures ceased. The Company will record a one time charge to
earnings of approximately $1,140,000 in the fourth quarter of 1998, relating to
the early extinguishment of the 5% Convertible Debentures.
Investment income decreased $36,000 from $127,000 in the 1997 period to
$91,000 in the 1998 period as a result of lower average cash balances offset, in
part, by slightly higher interest rates on U.S. Government obligations in which
most of the Company's available cash is invested.
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Nine Months Ended September 30, 1998
The Company's net loss decreased $1,469,000 during the nine months
ended September 30, 1998 from a loss of $6,041,000 during the 1997 period to a
loss of $4,572,000 in the 1998 period. The reduction in the net loss is
attributable to the reduced research and development expenses ($1,013,000),
gross profit ($538,000 or 63%) on sales of Stellar products and TpP kits and
reduced interest expense ($382,000) offset, in part, by increased selling,
general and administrative expenses ($263,000) and reduced investment income
($191,000).
Sales during the nine months ended September 30, 1998 were $853,000,
consisting of sales of Stellar products since the date of acquisition of Stellar
in late April 1998 and sales of TpP, which commenced in the fourth quarter of
1997. Accordingly, there were no product sales by the Company in the comparable
1997 period. Revenues during the nine months of 1997 ($9,000) were from the sale
of reagents, research materials and services relating to collaborative
agreements.
Cost of sales for the nine months ended September 30, 1998 was $315,000
or 37% of sales.
Research and development expenses decreased $1,013,000 from $2,676,000
to $1,663,000 in the 1998 period primarily due to the absence of costs incurred
during the first six months of 1997 relating to the relocation of the Company's
research laboratories from South Bend, Indiana to Boston, Massachusetts and
reduced consulting costs offset, in part, by increases in the cost of TpP
clinical studies and POC development costs. The costs of such relocation
included severance, relocation and moving costs as well as duplicate facility
costs.
Selling, general and administrative expenses increased $263,000 from
$2,950,000 in the 1997 period to $3,213,000 in the 1998 period as a result of
increased personnel costs, selling expenses relating to the marketing and
promotion of TpP and the inclusion of Stellar from April 23, 1998.
Interest expense decreased $382,000 from $878,000 in the 1997 period to
$496,000 in the 1998 period due to a reduction of $238,000 in amortization of
the debt discount ($492,000 related to the Company's 7% Convertible Debentures
included in the first quarter of 1997 as compared to $254,000 of amortization
related to the Company's 5% Convertible Debentures issued May 20, 1998) and
lower outstanding Debentures during the first five months of 1998. Upon the
conversion of the Company's Convertible Debentures ($1,783,000 and $8,450,000
during the nine months of 1998 and 1997, respectively), the related unamortized
debt issuance costs ($33,000 and $357,000 during the nine months of 1998 and
1997, respectively) were charged to paid-in capital. As a result of the November
1998 repurchase of the Company's 5% Convertible Debentures, ongoing interest
expense related to these debentures ceased. The Company will record a one time
charge to earnings of approximately $1,140,000 in the fourth quarter of 1998,
relating to the early extinguishment of the 5% Convertible Debentures.
Investment income decreased $191,000 from $453,000 in the 1997 period
to $262,000 in the 1998 period as a result of lower average cash balances
offset, in part, by slightly higher interest rates on U.S. Government
obligations in which most of the Company's available cash is invested.
Liquidity and Capital Resources
As of September 30, 1998, the Company had working capital of $5,802,000
compared to $6,961,000 at December 31, 1997. The Company's management believes
that current working capital will be sufficient to fund its liquidity needs
beyond 1998.
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During the nine months ended September 30, 1998, the Company's cash,
position decreased by $1,426,000 to $5,695,000. Operating activities used
$3,839,000 in cash, resulting primarily from a cash loss of $3,825,000, net of
non cash expenses of $747,000, and cash used by a net change in operating assets
and liabilities of $14,000. Investing activities used $336,000 in cash
(primarily related to the acquisition of Stellar and payments for patent costs
and fixed assets). Financing activities provided a net of $2,779,000 in cash,
principally from the sale of $4,000,000 principal amount 5% Convertible
Debentures for $3,727,000, after expenses, offset, in part, primarily by
payments made in lieu of issuing shares of Class A Common Stock to holders of
the Company's 7% Convertible Debentures upon conversion thereof. During the nine
months ended September 30, 1998, $83,000 of the 5% Convertible Debentures,
$1,350,000 of the 7% Convertible Debentures and $350,000 of the 8% Convertible
Debentures were converted into an aggregate of 1,036,142 Class A Common Stock.
On October 27, 1998, the Company agreed to issue an aggregate of
10,800,000 shares of its Class A Common Stock to a group of accredited investors
at a price of $.25 per share, a price above the market price of the Company's
Class A Common Stock at the time. Of such shares, 4,000,000 shares were
purchased by Alfred J. Roach, the Company's Chairman of the Board of Directors
and Chief Executive Officer, for an aggregate price of $1,000,000. The Company
has agreed to register the shares issued in the private placement under the
Securities Act of 1933, as amended (the "Securities Act"), within six months
after the issuance of the shares. The $2,700,000 proceeds thereof, together with
$1,152,000 of the Company's funds, were used to repurchase the remaining
$3,248,000 outstanding principal amount plus accrued interest and a 16% premium
of the Company's 5% Convertible Debentures and Warrants to purchase 261,228
shares of the Company's Class A Common Stock, each of which had been issued in
May 1998 as part of a private placement of $4,000,000 of such debentures, of
which $752,000 has been converted into an aggregate of 4,000,000 shares of the
Company's Class A Common Stock. As a result, in the fourth quarter of fiscal
1998, the Company will record a one time charge to earnings of approximately
$1,140,000 for the loss on the early extinguishment of the 5% Convertible
Debentures.
The Company expects to continue to incur substantial expenditures
relating to new diagnostic and therapeutic product development, ongoing clinical
studies for TpP, marketing and manufacturing of TpP and the Company's FiF(TM)
reagents and kits, developing point of care (POC) formats for TpP, additional
preclinical development of neurological compounds (ABS 103 and ABS 205),
additional investment in Stellar's product line by filing 510K's for FDA
approval and developing new monoclonal antibodies and products based on the
proprietary antigen free mouse technology. In addition, the Company is seeking
strategic acquisitions of products and/or companies which may entail the use of
cash, issuance of stock or debt. While the Company has begun marketing its
products directly, its product development plans still include entering into
collaborative, licensing and co-marketing arrangements with other diagnostic and
pharmaceutical 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. There can be no assurance that such
arrangement will be entered into or, if entered into, that the terms thereof
will be favorable to the Company. Without such collaborative, licensing or
co-marketing arrangements, additional sources of funding will be required to
finance the Company. There can be no assurance that such financing will be
available or, if available, the terms thereof.
Year 2000
State of Readiness
The Year 2000 problem is the result of 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
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miscalculation. The Company has been assessing the impact of the Year 2000 issue
on its information systems. The Company uses software developed and supported by
third parties for various applications including financial reporting, sales,
purchasing and inventory, which will require upgrade.
In addition, the Company may face some risk to the extent that
suppliers of products and others with whom the Company has a material business
relationship will not be Year 2000 compliant. Accordingly, the Company has
initiated formal communications with significant suppliers and third parties in
order to determine the extent to which the Company may be vulnerable to the
failure of these suppliers and third parties to remediate their own Year 2000
issues. The Company will review and evaluate the responses it receives and
periodically monitor the progress of these suppliers and third parties in
addressing their own Year 2000 issues.
The Company is also reviewing 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 the Company progresses in its Year 2000 project
and obtains additional information and conducts further testing.
Risks
The Company is not aware, at this time, of any Year 2000 non-compliance
that will not be fixed by the Year 2000 and that will materially affect the
Company. However some risks that the Company faces include: the failure of
internal information systems, a slow down in receipt of manufactured product and
in customer's ability to make payments.
Contingency Plans
As an additional precaution, the Company intends to develop contingency
plans to mitigate the possible disruption in business operations that could
result. These plans, which are dependent in large part to the responses the
Company receives from third parties with whom the Company has a business
relationship, are also 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.
Information on Forward-Looking Statements.
Certain statements in the foregoing Management's Discussion and
Analysis (the "MD&A") are not historical facts or information and certain other
statements in the MD&A are forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995 (the "Act"). In particular,
when used in the preceding discussion, the words "believes, expects, or intends
to" and similar conditional expressions are intended to identify forward-looking
statements within the meaning of the Act and are subject to the safe harbor
created by the Act. Such statements are subject to certain risks and
uncertainties and actual results could differ materially from those expressed in
any of the forward-looking statements. Such risks and uncertainties include, but
are not limited to, conditions in the general acceptance of our products and
technologies, competitive factors, the ability to successfully complete
additional financings and other risks described in our SEC reports and filings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN BIOGENETIC SCIENCES, INC.
Date: February 25, 1999 By: /s/ Josef C. Schoell
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Josef C. Schoell
Vice President, Finance Principal
(Financial and Accounting Officer)
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