1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X[X] QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 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, 2000 Commission File NumberFOR THE QUARTER ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 0-19041
American Biogenetic Sciences, Inc.AMERICAN BIOGENETIC SCIENCES, INC.
(Exact name of registrant as specified in its charter)
DelawareDELAWARE 11-2655906
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
incorporation or organization)
1375 Akron StreetAKRON STREET 631-789-2600
Copiague, New YorkCOPIAGUE, 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 3, 2000
Class A Common Stock, par value $.001 41,027,255
Class Outstanding at May 9, 2001
- ------------------------------------- --------------------------
Class A Common Stock, par value $.001 41,339,222
Class B Common Stock, par value $.001 3,000,000
Page 1
2
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
Form 10-Q for the Quarter Ended September 30, 2000March 31, 2001
INDEX
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements: Page No.
--------
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2000
and September 30, 1999 and For the Period from
Inception (September 1, 1983)
Through September 30, 2000 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000
and September 30, 1999 and For the Period from
Inception (September 1, 1983)
Through September 30, 2000 5
Consolidated Statements of Stockholders' Equity -
For the Period from Inception (September 1, 1983)
Through September 30, 2000 6 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 -
March 31, 2001 and December 31, 2000 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and March 31, 2000
and For the Period from Inception (September 1, 1983)
Through March 31, 2001 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and March 31, 2000
and For the Period from Inception (September 1, 1983)
Through March 31, 2001 5
Consolidated Statements of Stockholders' Equity -
For the Period from Inception (September 1, 1983)
Through March 31, 2001 6 - 9
Notes to Consolidated Financial Statements 10 - 12
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 12 - 17
Item 3: Quantitative and Qualitative Disclosures about Market Risk 17
Part II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 18
Signature 18
Item 3: Quantitative and Qualitative Disclosures about
Market Risk 18
Part II - OTHER INFORMATION
Item 2: Changes in Securities 19
Item 6: Exhibits and Reports on Form 8-K 19
Signature 19
Page 2
AMERICAN BIOGENETIC SCIENCES, INC.3
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
September 30,March December
31, Assets2001 31, 2000
1999
------------ -------------------- --------
(Unaudited)
Current Assets:ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,083,000 $93,000$ 396,000 $ 1,194,000
Accounts receivable 340,000 211,000
Inventory 562,000 511,000273,000 146,000
Inventories 554,000 531,000
Other current assets 54,000 76,00023,000 74,000
------------ ------------
Total current assets 3,039,000 891,0001,246,000 1,945,000
------------ ------------
Fixed assets, at cost, net of accumulated depreciation of $1,985,000 and
amortization of $1,919,000 and $1,840,000,$1,958,000, respectively 427,000 476,000452,000 477,000
Patent costs, net of accumulated amortization of $605,000$685,000 and
$502,000,$633,000, respectively 1,926,000 1,895,0002,005,000 1,967,000
Intangible assets, net 619,000 657,000579,000 599,000
Other assets 159,000 19,00031,000 98,000
------------ ------------
$6,170,000 $3,938,000$ 4,313,000 $ 5,086,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $444,000 $1,581,000483,000 $ 368,000
Current portion of capital lease obligation 16,000 16,000
Current portion of notes payable 39,000 746,000177,000 184,000
------------ ------------
Total current liabilities 483,000 2,327,000676,000 568,000
------------ ------------
Long Term Liabilities:LONG TERM LIABILITIES:
Notes payable, less current portion 13,000 33,000-- 7,000
Capital lease obligation 71,000 71,000
------------ ------------
Total liabilities 496,000 2,360,000747,000 646,000
------------ ------------
Stockholders' Equity:STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value $.001 per share;share 10,000,000
shares authorized; 7,000 and 0
shares issued and outstanding respectively - -(liquidation
preference of $3,500,000) -- --
Class A common stock, par value $.001 per share; 100,000,000 shares authorized;
40,989,75541,102,255 and 36,918,51041,027,255 shares issued and outstanding, respectively 41,000 37,00041,000
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 72,923,000 63,852,00072,954,000 72,935,000
Deficit accumulated during the development stage (67,293,000) (62,314,000)(69,432,000) (68,539,000)
------------ ------------
Total stockholders' equity 5,674,000 1,578,0003,566,000 4,440,000
------------ ------------
$6,170,000 $3,938,000
============ ============$ 4,313,000 $ 5,086,000
------------ ------------
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
4
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period From
Inception (September
Three Months Ended Nine Months Ended (Septembermonth period ended 1,
-------------------------- ------------------------------ 1983) Through
September 30, September 30, September 30, September 30, September 30,March 31, 2001 March 31, 2000 1999 2000 1999 2000
------------ ------------March 31, 2001
-------------- -------------- --------------
Revenues:REVENUES:
Sales $367,000 $353,000 $1,211,000 $988,000 $3,919,000$ 488,000 $ 383,000 $ 4,825,000
Royalties / license fees - -1,000 500,000 - 1,500,0001,503,000
Collaborative agreements 51,000 3,000 142,000 82,000 526,00034,000 76,000 575,000
----------- ------------ ------------
-------------- -------------- --------------
418,000 356,000 1,853,000 1,070,000 5,945,000
Expenses:523,000 959,000 6,903,000
COSTS AND EXPENSES:
Cost of sales 159,000 154,000 447,000 419,000 1,542,000192,000 156,000 1,904,000
Research and development 351,000 385,000 940,000 1,423,000 31,471,000331,000 261,000 32,188,000
Selling, general and administrative 938,000 957,000 3,096,000 3,412,000 36,677,000901,000 1,059,000 38,723,000
Facility consolidation cost - - - --- -- 252,000
----------- ------------ ------------ -------------- -------------- --------------
Loss from operations (1,030,000) (1,140,000) (2,630,000) (4,184,000) (63,997,000)(901,000) (517,000) (66,164,000)
----------- ------------ ------------
-------------- -------------- --------------
Other Income (Expense)OTHER INCOME (EXPENSE):
Interest expense (4,000) (2,000) (16,000) (7,000) (4,388,000)(11,000) (4,393,000)
Net gain on sale of fixed assets - - - - 11,0002,000 -- 13,000
Investment income, 37,000 1,000 117,000 29,000 4,671,000net 8,000 30,000 4,702,000
----------- ------------ ------------ -------------- -------------- --------------
Loss before extraordinary charge (997,000) (1,141,000) (2,529,000) (4,162,000) (63,703,000)(893,000) (498,000) (65,842,000)
Extraordinary charge for early retirement of
debentures, net - - - --- -- (1,140,000)
----------- ------------ ------------
-------------- -------------- --------------
Net loss ($997,000) ($1,141,000) ($2,529,000) ($4,162,000) ($64,843,000)NET LOSS (893,000) (498,000) (66,982,000)
Preferred stock dividend related to warrants - --- (2,450,000) - (2,450,000)
----------- ------------ ------------ -------------- -------------- --------------
Net loss attributable to common stockholders ($997,000)893,000) ($1,141,000)2,948,000) ($4,979,000) ($4,162,000) ($67,293,000)69,432,000)
=========== ============ ============
============== ============== ==============
Per Share Information (NotePER SHARE INFORMATION (NOTE 2):
Basic and Diluted net loss per share ($0.02).02) ($0.03) ($0.12) ($0.11).07)
=========== ============ ============ ============== ==============
Common shares used in computing per share amounts:
Basic and Diluted 43,967,000 39,318,000 43,290,000 39,056,000
============ ============ ============== ==============44,089,000 42,129,000
=========== ============
The accompanying notes are an integral part of these consolidated statements.
Page 4
5
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period From
Inception (September 1,
NineThree Months Ended 1983) -------------------------- Through
September 30, September 30, September 30,March 31, 2001 March 31, 2000 1999 2000
------------ ------------December 31,2000
-------------- -------------- ----------------
Cash Flows From Operating Activities:CASH FLOWS FROM OPERATING ACTIVITIES:
Net lossincome (loss) ($2,529,000)893,000) ($4,162,000)498,000) ($64,843,000)66,982,000)
Adjustments to reconcile net (loss) to net cash
provided by or (used)used in operating activities:
Depreciation and amortization 240,000 240,000 3,280,00099,000 78,000 3,467,000
Net gain(gain) loss on sale of fixed assets - - (11,000)(2,000) -- (13,000)
Net gain(gain) loss on sale of marketable securities - --- -- (217,000)
Other noncash expenses accrued primarily for stocks and warrants 239,000 405,000 2,783,00057,000 68,000 2,926,000
Amortization of debt discount included in interest expense - --- -- 2,160,000
Extraordinary loss on repurchase of debt - --- -- 1,140,000
Write offWrite-off of patent costs - --- -- 93,000
Changes in operating assets and liabilities:CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivable (129,000) (50,000) (232,000)(127,000) (73,000) (165,000)
(Increase) decrease in inventory (51,000) (13,000) (404,000)inventories (23,000) (2,000) (396,000)
(Increase) decrease in other current assets 22,000 (94,000) (54,000)51,000 8,000 (23,000)
(Increase) decrease in other assets 3,000 3,000 83,00010,000 -- 68,000
Increase (decrease) in accounts payable and accrued expenses (1,137,000) 284,000 679,000115,000 (886,000) 867,000
Increase in interest payable to stockholder -- 8,000 - 120,000
------------ ------------ ----------------------------------------------------------------------
Net cash provided by (used in)used in operating activities (3,334,000) (3,387,000) (55,423,000)
------------ ------------ --------------
Cash Flows From Investing Activities:(713,000) (1,297,000) (56,955,000)
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (30,000) (19,000) (2,086,000)(2,000) (2,000) (2,090,000)
Proceeds from sale of fixed assets - - 22,0002,000 -- 24,000
Payments for patent costs and other assets (134,000) (408,000) (2,601,000)(90,000) (62,000) (2,760,000)
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 (164,000) (427,000) (4,567,000)
------------ ------------ --------------
Cash Flows From Financing Activities:(90,000) (64,000) (4,728,000)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to debentureholders - --- -- (2,246,000)
Proceeds from issuance of common stock, net 2,723,000 660,000 42,867,00019,000 2,551,000 42,898,000
Proceeds from issuance of Series A convertible preferred stock -- 3,000,000 - 3,000,000
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 (25,000) (37,000) (139,000)(14,000) (7,000) (164,000)
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 -- 81,000 176,000 3,452,000
Repayment of loans payable to stockholder and/ affiliates
(remainder contributed to capital by the stockholder) (291,000) --- (200,000) (1,591,000)
------------ ------------ ----------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,488,000 799,000 62,073,000
------------ ------------ --------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,990,000 (3,015,000) 2,083,000
Cash and Cash Equivalents at Beginning of Period5,000 5,425,000 62,079,000
--------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (798,000) 4,064,000 396,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,194,000 93,000 3,047,000 -
------------ ------------ --------------
Cash and Cash Equivalents at End of Period $2,083,000 $32,000 $2,083,000
============ ============ ==============
Supplemental Disclosure of Noncash Activities:--
--------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 396,000 $ 4,157,000 $ 396,000
--------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Capital expendituresexpenditure made under capital lease obligation - - $20,000
============ ============ ==============-- -- $ 107,000
--------------------------------------------------------
Convertible debentures converted into 0, 0 and 10,470,583
shares of Common Stock, respectively - - $14,658,000
============ ============ ==============-- -- $ 14,658,000
--------------------------------------------------------
Warrants issued $2,792,000 $264,000 $3,644,000
============ ============ ==============-- $ 2,792,000 $ 3,644,000
--------------------------------------------------------
Conversion of stockholder loan to preferred stock or paid-in
capital $500,000 - $1,981,000
============ ============ ==============-- $ 500,000 $ 1,981,000
--------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
Page 5
6
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (unaudited)
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Class A Class B
Per Common Stock Common Stock
Share
--------------------------- ------------------------
Amount Shares Dollars Shares Dollars
------ ------ ------- ------------ ------------- ----------- ----------------- -------
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 1,000 - -
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 $4,000$ 4,000 2,331,500 $2,000
------------ ------------- ----------- -----------
CONTINUED
Page 6
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
------------ ------------- ----------- -----------
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 5,250 - - -
Expense for warrants issued - - - -
Class A Common Stock issued 0.50 913,704 1,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, DECEMBER 31, 1999 36,918,510 37,000 3,000,000 3,000
------------ ------------- ----------- -----------
Sale of Series A Convertible Preferred Stock - - - -
Warrants issued with the Convertible Preferred Stock - - - -
Preferred stock dividend related to warrants - - - -
Exercise of stock options and warrants 0.99 1,241,175 1,000 - -
Expense for warrants issued - - - -
Class A Common Stock issued 0.55 2,830,070 3,000 - -
Net (loss) for the period - - - -
------------ ------------- ----------- -----------
BALANCE, SEPTEMBER 30, 2000 40,989,755 $41,000 3,000,000 $3,000
============ ============= =========== ===========
The accompanying notes are an integral part of these consolidated statements.
Page 8-------------------------------------------------------
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------------ ------------- ------------------ ----- -----
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 - 93,000
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) $1,795,000
------------ ------------- -----------
CONTINUED$ 1,795,000
-------------------------------------------------------
Page - 6 (column continuation)
7
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(unaudited) (continued)
Class A Class B
Per Common Stock Common Stock
Share
Amount Shares Dollars Shares Dollars
------ ------ ------- ------ -------
BALANCE, DECEMBER 31, 1990 $8,177,000$ 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 - -
Fair Value 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 - - -
Fair Value for warrants/options issued - - - -
Net (loss) for the period - - - -
---------------------------------------------------------
BALANCE, DECEMBER 31, 1995 13,431,364 $13,000 1,375,500 $1,000
---------------------------------------------------------
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------- ----- -----
BALANCE, DECEMBER 31, 1990 $ 8,177,000 ($6,388,000) $1,795,000$ 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
ExpenseFair Value 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
ExpenseFair Value 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) $4,145,000
------------ ------------- -----------
CONTINUED$ 4,145,000
------------------------------------------------------------------
Page 7
8
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(unaudited) (continued)
Class A Class B
Per Common Stock Common Stock
Share
Amount Shares Dollars Shares Dollars
------ ------ ------- ------ -------
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 - 7 (column continuation)
-
Exercise of stock options 2.53 569,875 1,000 - -
Fair Value 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 - - -
Fair Value 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 .32 4,851,618 5,000 - -
Sale of Class B Common Stock to Chairman for cash .37 - - 1,274,500 1,000
Exercise of stock options 1.75 4,000 - - -
Fair Value 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 .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 .61 5,250 - - -
Fair Value for warrants issued - - - -
Class A Common Stock issued .50 913,704 1,000 - -
Net (loss) for the period - - - -
-------------------------------------------------------
BALANCE, DECEMBER 31, 1999 36,918,510 $37,000 3,000,000 $3,000
-------------------------------------------------------
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------- ----- -----
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
ExpenseFair Value 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 47,793,0007,793,000 (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
ExpenseFair Value 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 56,077,0006,077,000 (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
ExpenseFair Value 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 62,520,0002,520,000 (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
ExpenseFair Value for warrants issued 376,000 - 376,000
Class A Common Stock issued 458,000 - 459,000
Net (loss) for the period - (5,351,000) (5,351,000)
------------ ------------- ---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 63,852,000 (62,314,000)$ 3,852,000 ($62,314,000) $ 1,578,000
------------ ------------- ---------------------------------------------------------------------
Page 8
9
AMERICAN BIOGENETIC SCIENCES, INC AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(unaudited) (continued)
Class A Class B
Per Common Stock Common Stock
Share
Amount Shares Dollars Shares Dollars
------ ------ ------- ------ -------
BALANCE, DECEMBER 31, 1999 $ 36,918,510 $37,000 3,000,000 $3,000
Sale of Series A Convertible Preferred Stock (7,000 shares) - - - -
Warrants issued with the Convertible Preferred Stock - - - -
Preferred stock dividend related to warrants - - - -
Exercise of stock options and warrants .97 1,278,675 1,000 - -
Fair Value for warrants issued - - - -
Class A Common Stock issued .55 2,830,070 3,000 - -
Net (loss) for the period - - - -
-------------------------------------------------
BALANCE, DECEMBER 31, 2000 41,027,255 41,000 3,000,000 3,000
-------------------------------------------------
Exercise of stock options .25 75,000 -
Net (loss) for the period
-------------------------------------------------
BALANCE, MARCH 31, 2001 41,102,255 $41,000 3,000,000 $3,000
-------------------------------------------------
Deficit
Accumulated
Additional During the
Paid-in Development
Capital Stage Total
------- ----- -----
BALANCE, DECEMBER 31, 1999 $ 1,852,000 ($62,314,000) $ 1,578,000
Sale of Series A Convertible Preferred Stock (7,000 shares) 3,500,000 - 3,500,000
Warrants issued with the Convertible Preferred Stock 2,450,000 - 2,450,000
Preferred stock dividend relatingrelated to warrants - (2,450,000) (2,450,000)
Exercise of stock options and warrants 1,222,0001,234,000 - 1,223,000
Expense1,235,000
Fair Value for warrants issued 342,000 - 342,000
Class A Common Stock issued 1,557,000 - 1,560,000
Net (loss) for the period - (2,529,000) (2,529,000)
------------ ------------- -----------(3,775,000) (3,775,000)
-------------------------------------------------------
BALANCE, SEPTEMBER 30,DECEMBER 31, 2000 $72,923,00072,935,000 (68,539,000) 4,440,000
-------------------------------------------------------
Exercise of stock options 19,000 19,000
Net (loss) for the period (893,000) (893,000)
-------------------------------------------------------
BALANCE, MARCH 31, 2001 $72,954,000 ($67,293,000) $5,674,000
============ ============= ===========
The accompanying notes are an integral part of these consolidated statements.
CONTINUED
Page - 8 (column continuation)69,432,000) $ 3,566,000
-------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
Page 9
10
AMERICAN BIOGENETIC SCIENCES, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000March 31, 2001
(1) INTERIM FINANCIAL STATEMENTS
The interim unaudited consolidated financial statements of American
Biogenetic Sciences, Inc. (together with its subsidiaries, the "Company"
or "ABS") 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, 2000March 31, 2001 and
results of operations for the three and nine months ended September 30, 2000March 31, 2001 and September 30,
1999.March 31,
2000. 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, 1999.2000. The results of operations for the three and nine months
ended September 30, 2000March 31, 2001 are not necessarily indicative of the results for the full
year.
(2) LIQUIDITY AND FINANCING
As of March 31, 2001, ABS had working capital of $570,000 compared to a working
capital of $1,377,000 as of December 31, 2000. Additionally, the Company had
cash and cash equivalents of $396,000 at March 31, 2001. As of April 30, 2001
the Company's cash and cash equivalents had decreased to approximately $175,000.
In April and May 2001, the Company began to implement a cash conservation
program, which includes executive officers deferring 50% to 100% of their
salaries and certain consultants deferring their compensation. As a result of
the Company's continuing to incur cash expenses in excess of cash receipts, the
Company will require the receipt of additional financing, the receipt of
additional licensing fees and milestone payments and the disposition of
nonstrategic assets. If this does not occur, the Company will be required to
carry out a significant cash conservation program to carry it beyond the next
few months. Due
Page 10
11
to the uncertainties involved in the receipt of milestone payments and
additional licensing fees or receipt of additional financing, many of which are
outside the control of the Company, the Company's independent public accountants
have qualified their year-end December 31, 2000 audit opinion with regard to the
Company's ability to continue as a going concern.
In order to address the need for additional capital, ABS is actively seeking to
license certain of its products and is aggressively working on those matters
within its control with respect to achievement of contractual milestones for
milestone payments. The Company's current products, which it is aggressively
seeking to license, include TpP, MH1, and the ABS-205 neurobiology compound. If
it is successful in licensing some of these products, the licensees might
provide additional funding or might perform additional testing necessary to
obtain regulatory approvals or provide clinical, manufacturing and marketing
expertise, which will indirectly lead to revenue for the Company. The Company is
also discussing collaborations and contract services involving its patented
Antigen-Free technology. The Company cannot guaranty that it will be successful
in generating funding from these sources.
In addition the Company is continuing discussions with certain potential
investors and private placement agents concerning additional financing. However,
in the current economic environment, financing has become more difficult to
obtain, including within the biotechnology industry, and there is no guaranty
that the Company will be able to obtain additional financing on reasonable
terms, or that it will be able to obtain financing at all. The Company's failure
to raise sufficient additional funds, either through licensing, milestone
payments or co-marketing activities or additional financing, will have a
material adverse effect on its financial condition and ability to continue as a
going concern.
(3) NET LOSS PER COMMON SHARE
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128 Earnings"Earnings Per Share Share". In accordance with SFAS No.
128, basic net loss per common share ("Basic EPS") is computed by dividing net
loss attributable to common stockholders by the weighted average number of
common shares outstanding. Diluted net loss per common share ("Diluted EPS") is
computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares and
Page 11
12
dilutive potential common shares then outstanding. The provisions of SFAS No.
128 require the
Page 9
presentation of both Basic EPS and Diluted EPS on the face of
the consolidated statements of operations. Diluted EPS for 20002001 and 19992000 is the
same as Basic EPS because the inclusion of stock options, warrants and the
conversion of series A preferred stock outstanding would be antidilutive.
(3)(4) INVENTORY
Inventory consists of the following:
September 30, December 31,
2000 1999
Raw Materials $339,000 $334,000
Work in Process 113,000 71,000
Finished Goods 110,000 106,000
-------- --------
$562,000 $511,000
(4)
March 31, December 31,
2001 2000
---- ----
Raw Materials $330,000 $328,000
Work in Process 120,000 132,000
Finished Goods 104,000 171,000
-------- --------
$554,000 $531,000
======== ========
(5) STOCKHOLDERS' EQUITY
Private Placement
On December 31, 1999 the Company and Biotechnology Value Fund, L.P.
( BVF ) signed a letter agreement, subject to negotiation of definitive
agreements, authorization of preferred stock and certain other matters,
for BVF to invest between $2 and $3 million for the purchase of between
4,000 and 6,000 shares of Series A Convertible Preferred Stock (the
Preferred Stock ) and related Warrants.
When the Company and BVF began negotiating the definitive
agreements for the sale transaction in January 2000, in order to induce
BVF to purchase the full $3 million, at the suggestion of BVF, the
Company s Chairman Mr. Roach agreed that rather than demand repayment of
his demand notes, he would convert $500,000 of the approximately
$776,000 plus accrued interest owed to him into an additional investment
in the Company on terms identical to the terms previously negotiated
with BVF and that the balance of the amount owed him (approximately
$276,000 of principal) could be repaid at the rate of $100,000 of
principal and interest per month until repaid in full. Accordingly,
$500,000 of the amount owed Mr. Roach was converted into 1,000 shares of
Preferred Stock and 1,000,000 Warrants.
Page 10
The Company entered into a Securities Purchase Agreement dated as
of February 3, 2000 with BVF and Mr. Roach relating to the issuance of
the 7,000 shares of Preferred Stock and Warrants for 7,000,000 shares of
Class A Common Stock. On February 7, 2000, BVF loaned $3,000,000 to the
Company, equaling the purchase price for 6,000 shares of Preferred Stock
and 6,000,000 Warrants. On March 3, 2000, after receiving stockholder
consent to the proposed sale, the Company repaid BVF's loan and $500,000
of the Company's indebtedness to Mr. Roach by issuing 6,000 shares of
Preferred Stock and 6,000,000 Warrants to BVF and 1,000 shares of
Preferred Stock and 1,000,000 Warrants to Mr. Roach.
The Shares of Preferred Stock: (i) have the right to participate
with dividends declared on the Common Stock, if, as and when declared,
on an as-converted basis; (ii) contain customary anti-dilution
adjustments for mechanical adjustments in the event of stock splits and
similar transactions; (iii) contain restrictions on subsequent issuances
of other preferred stock ranking equal to or superior to the Preferred
Stock without the consent of the holders of a majority of such Preferred
Stock; (iv) have a liquidation preference equal to the original issue
price of the Preferred Stock, plus any accrued and unpaid dividends;
(v) will not be entitled to vote except as a separate class when its
rights are affected; and (vi) will be convertible at any time after the
original issue date at the option of the holder. Each share of
Preferred Stock initially will be convertible into 1,000 shares of Class
A Common Stock, or a conversion price of $.50 per share of Class A
Common Stock.
Under the terms of the Securities Purchase Agreement, the Company
also entered into a Registration Agreement under which it agreed to file
a registration statement within 60 days after closing, registering the
Class A Common Stock issuable upon conversion of the Preferred Stock or
exercise of the Warrants and to use its best efforts to cause that
registration to become effective within 120 days after closing. The
Company agreed to bear the expenses of such registration. The Company
filed the Form S-3 registration statement on May 2, 2000, which became
effective on June 30, 2000.
The 7,000,000 warrants are exercisable for a period of no more than
five years at $1.00 per share. The fair value of these warrants was
determined using an option-pricing model ($2,450,000), was treated as
Page 11
a noncash preferred dividend for purposes of computing the net loss
attributable to common stockholders. The following assumptions were
used for this fair value computation: dividend yield of 0%, volatility
of 106%, risk-free interest rate of 5.0% and expected lives of 5 years.
Stock Options - The following summarizes the stock option activity in all stock
option plans for the three months ended September 30, 2000.
Weighted Avg.
Option
Shares Price
Granted 30,000 $1.56
Exercised 62,333 $0.52March 31, 2001.
Weighted Avg.
Option
Shares Price
------ -----
Granted 329,000 $ .69
Exercised 75,000 $ .25
Expired 75,000 $2.00
Cancelled 340,000 $ .91
Each option entitles the holder to purchase one share of Class A Common Stock of
the Company.
Other Shares and Warrants -
On January 27, 2000, the Company entered into an Exclusive License
Agreement with Abbott Laboratories ( Abbott ) under which the Company
granted to Abbott an exclusive worldwide license to its ABS-103
compound, related technology and patent rights. The Exclusive License
Agreement gives Abbott the exclusive right to develop and market the
compound, which presently is in the pre-clinical stage. In consideration
for the license grant and in addition to customary royalties on sales,
Abbott paid the Company an initial license fee of $500,000 and agreed to
pay additional milestone payments aggregating up to $17 million,
depending upon successfully reaching development milestones, generally
by indication. In connection with the entering into of the Exclusive
License Agreement, the Company and Abbott also entered into a Stock
Purchase Agreement dated January 27, 2000 pursuant to which Abbott
purchased 2,782,931 shares (the Abbott Shares ) of the Company's Class
A Common Stock for $1,500,000.
The Company also entered into a Registration Rights Agreement with
Abbott pursuant to which, among other things, the Company agreed to
register the Abbott Shares under the Securities Act of 1933, as amended,
upon Abbott's request at any time after the first anniversary of the
sale and to include the Abbott Shares in any other registration of the
Company's securities under the Securities Act after that date. AllITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Page 12
expenses of registration of the Abbott Shares, other than underwriting
discounts, selling commissions and fees and disbursements of counsel for
Abbott, are to be borne by the Company.
Pursuant to an investor relations agreement renewed in March 2000,
the Company issued a warrant to the investor relations firm to purchase
up to 300,000 shares of Class A Common Stock at $3.00 per share for two
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 $342,000 which is being amortized over the
one year service period of the agreement. The following assumptions
were used for this fair value computation: dividend yield of 0%,
volatility of 106%, risk-free interest rate of 6.5% and expected lives
of 2 years.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations13
The matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties, including the timely development,
introduction and acceptance of new products, dependence on collaborators and
licensees, the impact of competitive products, third party reimbursement issues,
changing market conditions and other risks. These forward-looking statements
represent management's judgement as of the date of filing of this Form 10-Q and
should be considered with the risk factors discussedset forth in the Annual Report on Form 10-K forCompany's various
filings with the year
ended December 31, 1999.Securities and Exchange Commission. The Company disclaims any
intent or obligation to update these forward-looking statements.
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.
Page 13
OverviewOVERVIEW
ABS is a development stage company incorporated in September 1983. To
date, ABS has launched two commercial products (TpP,( TpP, ABS' Thrombus Precursor
Protein diagnostic test, and FiF, ABS' Functional Intact Fibrinogen diagnostic
test), although it has not yet 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 at
the market value on the acquisition date (398,406 shares), plus future
contingent payments of $650,000 in Class A Common Stock to be 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.
On April 23, 1999, the Company made the first contingent payment of $150,000 in
Class A Common Stock (131,118 shares). On April 24, 2000 (second fiscal
quarter), the Company made the second contingent payment of $20,000 in Class A
Page 13
14
Common Stock (10,811 shares). On April 24, 2001 (second fiscal quarter) the
Company made the third and final contingent payment of $150,000 in Class A
Common Stock (236,967 shares).
On January 27, 2000, ABS granted to Abbott Laboratories ("Abbott") an
exclusive worldwide license to its ABS-103 neurocompound. In consideration for
the license, Abbott paid ABS received an initial license fee of $500,000 and agreedis to payreceive
up to $17 million of milestone payments depending upon successfully reaching development
milestones plus customaryand royalties on commercial sales. In addition, Abbott purchased
2,782,931 shares of Class A Common Stock for $1.5 million.
On February 3, 2000, ABS entered into a Securities Purchase
Agreement with Biotechnology Value Fund and the Company s Chairman Mr.
Roach relating to the issuanceissued 7,000,000 shares of Series A
Convertible Preferred Stock plusand warrants to purchase 7,000,000 shares of Class A
Common Stock to Biotechnology Value Fund and the Company's Chairman, Mr. Roach
for a totalan aggregate purchase price of $3.5 million.
See Note 4 of the Notes to
Consolidated Financial Statements on page 10 of this Form 10-Q for a
more detailed description of this transaction.
Page 14
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
The Company has funded its research and development activities to date
principally from (i) the sale of Common Stock issued in an initial public
offering, (ii) the exercise of the Class A and Class B Warrants issued in the
initial public offering, (iii) private placements of Convertible Debentures,
Convertible Preferred Series A Convertible Preferred Stock and Class A Common Stock, (iv) the exercise
of stock options and warrants, (v) capital contributions to ABS by it's CEO and
Chairman of the Board, (vi) initial license fee payments and fees from
collaborative contract services and (vii) the income on funds invested in bank
deposits, United States Treasury bills and notes and other high grade liquid
investments.
ABS expects to continue to incur substantial expenditures in research
and product development in the neurobiology program and monoclonal antibody
programs and in the development and commercialization of a rapid assay format
for TpP, as well as in the FDA approval process relating to additional 510(k)
filings for TpP and Stellar's products.
Page 14
15
As of September 30, 2000,March 31, 2001, ABS had working capital of $2,556,000,$570,000 compared to a
negative working capital of $1,436,000$1,377,000 as of December 31, 1999. ABS' management believes that current working capital, together
with2000. Additionally, the Company
had cash and cash equivalents of $396,000 at March 31, 2001. As of April 30,
2001 the Company's cash and cash equivalents had decreased to approximately
$175,000. In April and May 2001, the Company began to implement a cash
conservation program, which includes executive officers deferring 50% to 100% of
their salaries and certain consultants deferring their compensation. As a result
of the Company's continuing to incur cash expenses in excess of cash receipts,
the Company will require the receipt of additional financing, the receipt of
additional licensing fees and milestone payments projectedand the disposition of
nonstrategic assets. If this does not occur, the Company will be required to
be received withincarry out a significant cash conservation program to carry it beyond the next
twelve months, will be
sufficientfew months. Due to fundthe uncertainties involved in the receipt of milestone
payments and additional licensing fees or receipt of additional financing, many
of which are outside the control of the Company, the Company's independent
public accountants have qualified their year-end December 31, 2000 audit opinion
with regard to the Company's ability to continue as a going concern.
In order to address the need for additional capital, ABS is actively
seeking to license certain of its planned activitiesproducts and is aggressively working on those
matters within its control with respect to achievement of contractual milestones
for the next twelve months.
Currently, product development plansmilestone payments. The Company's current products, which it is aggressively
seeking to license, include licensing TpP, FiF, MH-1MH1, and the ABS-205 neurobiology compound to large pharmaceutical companies
who wouldcompound. If
it is successful in licensing some of these products, the licensees might
provide additional funding or might perform additional testing necessary to
obtain regulatory approvals andor provide clinical, manufacturing and marketing
expertise.expertise, which will indirectly lead to revenue for the Company. The Company is
also discussing collaborations and contract services involving its patented
Antigen-Free technology. Without suchThe Company cannot guaranty that it will be successful
in generating funding from these sources.
In addition the Company is continuing discussions with certain
potential investors and private placement agents concerning additional
financing. However, in the current economic environment, financing has become
more difficult to obtain, including within the biotechnology industry, and there
is no guaranty that the Company will be able to obtain additional financing on
reasonable terms, or that it will be able to obtain financing at all. The
Company's failure to raise sufficient additional funds, either through
Page 15
16
licensing, fees, milestone payments collaboration fees or co-marketing arrangements,activities or additional
sources of
funding may be requiredfinancing, will have a material adverse effect on its financial condition and
ability to finance ABS activities beyond the first
quarter of 2001.continue as a going concern.
The Company's cash and cash equivalents increaseddecreased by $1,990,000$798,000 to
$2,083,000$396,000 during the nine months ended September 30, 2000,first quarter of 2001. This decrease was primarily from financing activities ($5,488,000) offset bydue to
net cash used in operations ($3,334,000)713,000) and used in investing activities
($164,000)90,000) which was partly offset by financing activities ($5,000). Net cash of
Page 15
$3,334,000$713,000 was used in operations to fund the Company sCompany's cash loss from operations of $2,050,000$739,000
(net of noncashnon-cash expenses of $240,000$99,000 for depreciation and amortization, and $239,000$57,000
incurred in connection with the issuance of stock and warrants)warrants and $2,000 net
gain from the sale of a fixed asset). Net cash of $1,284,000$26,000 was usedprovided by
changes in operating assets and liabilities primarily as a result of a
decreasean increase
in accounts payable and accrued expenses ($1,137,000)115,000), an
increase in accounts receivable ($129,000), an increase in inventory
($51,000), partially offset by a decrease in other current
assets ($22,000)51,000), a decrease in other assets ($3,000)10,000) offset by an increase in
accounts receivable ($127,000), and an increase in interest payable to stockholderinventory ($8,000)23,000). Cash
used in investing activities was for capitalized patent costs ($134,000), primarily for
neurobiology compounds and the purchase of equipment ($30,000).
Financing activities provided $5,488,000 as a result of2,000) and
capitalized patent costs ($90,000) partially offset by the cash proceeds from the
sale of Series A Convertible Preferred Stockfixed assets ($3,000,000), the sale of Class A Common Stock to Abbott ($1,500,000),2,000). Financing activities provided $5,000 from the
exercise of stock options and warrants ($1,223,000), additional
loans from the Company s Chairman ($81,000)19,000), offset by the repayment of
loans to the Company s Chairman of $291,000 ($500,000 of the loan
payable to the Chairman was converted into Series A Convertible
Preferred Stock) and payments of other notes payable
($25,000)14,000).
Results of OperationsRESULTS OF OPERATIONS
Three Months Ended September 30, 2000March 31, 2001
The Company's net loss of $997,000 for the third quarter ended
September 30, 2000 decreased by $144,000 fromCompany had a net loss of $1,141,000$893,000 for the thirdfirst quarter ended
September 30, 1999.March 31, 2001 compared to a net loss of $498,000 for the first quarter ended
March 31, 2000. The decreaseincrease in the net loss was dueis attributable primarily to increased sales ($14,000)the
Company not receiving a license fee of $500,000 in the first quarter of 2001, as
it had in the first quarter of 2000, and collaborationsecondarily to reduced revenue from
collaborative agreements ($48,000),and investment income, an increase in R&D expenses
offset by reduced research and developmentSG&A expenses, ($34,000), reduced
selling, general and administration expenses ($19,000)interest expense and increased investment income ($36,000).
Revenuegross margin on
increased sales.
The increase in sales during the thirdfirst quarter of 20002001 was primarily
from sales of Stellar products. Stellar sales increased 11% primarily from U.S.
sales of reagents. Sales ofproducts and an increase in TpP diagnostic kits were slightly lower
during the third quarter of 2000 as compared to the third quarter of
1999. Collaborative agreement revenue of $51,000 reflects an increase
in contracted research projects.sales.
Page 16
Cost of Sales17
Research and development expenses increased $5,000 during the third quarter of 2000by $70,000, from the 1999 quarter$261,000
to $331,000, primarily due to the increase in sales. Cost of Sales as a
percentage of sales remained flat at 43% during the third quarter of
2000 and 1999.
Research and development expenses decreased by $34,000, from
$385,000 to $351,000, primarily from reduced personnel costs, reduced
consulting and travel costs, partially offset by increases in TpP point
of care development costs and increased costs associated with ABS-205.neurobiology research program.
Selling, general and administrative expenses decreased by $19,000,$158,000,
from $957,000$1,059,000 to $938,000, as a result of a decrease in personnel, a
decrease in travel and meeting expenses during the quarter offset by
increases in shareholder relations costs and consulting and professional
service costs.
Investment income increased by $36,000, from $1,000 in the third
quarter of 1999 to $37,000 in 2000, as a result of higher average cash
balances.
Nine Months Ended September 30, 2000
The Company's net loss of $2,529,000 for the nine months ended
September 30, 2000 decreased by $1,633,000 from a net loss of $4,162,000
for the nine months ended September 30, 1999. The decrease in the net
loss is attributable to the license fee of $500,000 received under the
Abbott license agreement, reduced R&D and SG&A expenses and increased
sales and collaborative agreement revenues.
The increase in sales during the nine months of 2000 of $223,000
was primarily from sales of Stellar products. Sales of TpP diagnostic
kits remained flat.
Cost of Sales increased $28,000 during the nine months of 2000 over
the same period in 1999, as a result of increased sales. Cost of Sales
as a percentage of sales improved from 42% during the nine months of
1999 to 37% during the nine months of 2000 resulting from the increase
in sales and manufacturing efficiency at the Stellar facility on both
Stellar products and in house production of TpP kits.
Page 17
Research and development expenses decreased by $483,000, from
$1,423,000 to $940,000, primarily from cost savings implemented in 1999
and continued during the three quarters of 2000, as well as the cost
savings associated with the consolidation of operations at Stellar.
Selling, general and administrative expenses decreased by $316,000,
from $3,412,000 to $3,096,000,$901,000, as a result of reduced professional service costs,
reduced personnel costs and other general costs associated with the cost savings implemented in
1999, a decrease in investor relations cost, which were
offset in part by increased professional service costs relating to the Abbott license
agreementdepreciation and other contracts.amortization costs.
Interest expense increaseddecreased by $9,000, from $7,000$11,000 to $16,000,$2,000, resulting
primarily from the repayment of loans payable to the Company s Chairman.Company's Chairman in the first
quarter of 2000.
Investment income increaseddecreased by $88,000,$22,000, from $29,000$30,000 in nine monthsthe first
quarter of 19992000 to $117,000$8,000 in nine monthsfirst quarter of 2000,2001, as a result of higherlower average
cash balances.
Preferred stock dividend related to warrants of $2,450,000
represents the noncash fair value of the warrants issued to BVF and Mr.
Roach, determined by using an option-pricing model, in the private
placement. See Note 4 of the Notes to Consolidated Financial Statements
starting on page 10 of this Form 10-Q for a more detailed description of
this transaction.
Item 3 Quantitative and Qualitative Disclosures about Market RiskITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company sCompany'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. ABSThe Company does not have operations
subject to risks of foreign currency fluctuations, nor does it use derivative
financial instruments in its operations. ABSThe Company does not have exposure to
market risks associated with changes in interest rates as it has no variable
interest rate debt outstanding. ABSThe Company does not believe it has any other
material exposure to market risks associated with interest rates.
Page 17
18
PART II
OTHER INFORMATION
Item 2. Changes in Securities
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data ScheduleNone
(b) Reports on Form 8-K
No reportsThe Company filed a report on Form 8-K were filed during the quarter
covered by this report.dated January 11, 2001
(date of earliest event reported) on January 16, 2001,
reporting under Item 5, Other Events, relating to certain
changes in management.
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, 2000May 14, 2001 /s/ Josef C. Schoell
------------------ ---------------------------------------
Josef C. Schoell
Vice President, FinanceChief Operating Officer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 19
18