UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0-26455
ADVANCED BUSINESS SCIENCES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 87-0347787
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3345 No.107th STREET
OMAHA, NEBRASKA 68134
(402) 498-2734
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(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
The number of issuer's shares outstanding as of September 30, 2000, was
16,173,032.
Transitional Small Business Disclosure Form (Check One): YES [ ] NO [X]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
----------------------------
ASSETS
Current Assets
Cash ................................................................... $ 394 $ 7,843
Receivables:
Trade accounts, less allowance for doubtful accounts 2000 $2,100,
1999 none ......................................................... 27,150 32,782
Employees ........................................................... -- 21,778
Inventories ............................................................ 692,365 777,432
----------------------------
Total current assets .............................................. 719,909 839,835
----------------------------
Leasehold Improvements and Equipment .......................................... 895,075 790,232
Less accumulated depreciation .......................................... 622,594 463,518
----------------------------
272,481 326,714
----------------------------
Other Assets .................................................................. 419,278 322,359
----------------------------
Total assets ...................................................... $ 1,411,668 $ 1,488,908
============================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Notes payable .......................................................... $ 6,696,637 $ 5,158,206
Current maturities of long-term debt ................................... 12,765 26,251
Excess of outstanding checks over bank balance ......................... 49,279 18,352
Accounts payable ....................................................... 701,103 589,958
Accrued expenses ....................................................... 289,586 192,360
----------------------------
Total Current Liabilities ......................................... 7,749,370 5,985,127
----------------------------
Long-term debt, less current maturities ....................................... 93,108 103,636
----------------------------
Commitments and contingency
Stockholders' Equity (Deficit)
Preferred stock, $.01 par value; authorized 1,000,000 shares; issued
September 30, 2000 none; December 31, 1999 1,000 shares ............. -- 10
Common stock, $.001 par value; authorized 50,000,000 shares;
issued September 30, 2000 16,173,032 shares; December 31, 1999
13,508,958 shares and outstanding respectively retroactively restated 16,173 13,510
Additional paid-in capital ............................................. 9,843,240 8,978,667
Deficit accumulated during the development stage ....................... (16,290,223) (13,592,042)
----------------------------
Total stockholders' equity (deficit) ............................... (6,430,810) (4,599,855)
----------------------------
Total liabilities and stockholders' equity (deficit) .............. $ 1,411,668 $ 1,488,908
============================
See Notes to Condensed Consolidated Financial Statements.
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------
Revenues ...................................... $ 36,030 $ 33,952 $ 147,630 $ 124,909
Cost of sales ................................. 13,736 19,825 47,802 84,384
------------------------------------------------------------
Gross profit ........................... 22,294 14,127 99,828 40,525
------------------------------------------------------------
Expenses:
Research and development ............... 118,312 492,219 222,587 876,208
Sales and marketing .................... 25,516 118,382 115,317 326,735
General and administrative ............. 936,683 967,523 2,000,991 2,151,040
------------------------------------------------------------
1,080,511 1,578,124 2,338,895 3,353,983
------------------------------------------------------------
Operating (loss) ....................... (1,058,217) (1,563,997) (2,239,067) (3,313,458)
------------------------------------------------------------
Other income (expenses):
Interest expense ....................... (186,013) (90,784) (459,208) (217,642)
Income ................................. 1 (2,578) 94 (2,578)
------------------------------------------------------------
(186,012) (93,362) (459,114) (220,220)
------------------------------------------------------------
(Loss) before provision for income taxes (1,244,229) (1,657,359) (2,698,181) (3,533,678)
Provision for income taxes .................... -- -- -- --
------------------------------------------------------------
Net (loss) ............................. $ (1,244,229) $ (1,657,359) $ (2,698,181) $ (3,533,678)
============================================================
Net (loss) per share - basic and diluted ...... ($ 0.08) ($ 0.15) ($ 0.16) ($ 0.31)
============================================================
Weighted average shares outstanding ........... 16,352,615 11,320,281 16,352,615 11,320,281
============================================================
See Notes to Condensed Consolidated Financial Statements.
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
September 30
--------------------------
2000 1999
--------------------------
Net cash flows (used in) operating activities ....................... $(1,654,627) $(3,686,431)
--------------------------
Net cash (used in) investing activities ............................. (61,707) (113,836)
--------------------------
Cash flows from financing activities:
Increase in notes payable ....................................... 1,538,431 2,442,038
Other ........................................................... 170,454 981,065
--------------------------
Net cash provided by financial activities ............. 1,708,885 3,423,103
--------------------------
Increase (decrease) in cash and cash equivalents ...... (7,449) (377,164)
Cash and cash equivalents, beginning of period ...................... 7,843 377,592
--------------------------
Cash and cash equivalents, end of period ............................ $ 394 $ 428
==========================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest ...................................................... $ 337,548 $ 187,566
Taxes ......................................................... -- --
Supplemental Schedule of Noncash, Investing and Financing Activities:
Other assets purchased on account ............................... $ 141,188 $ --
See Notes to Condensed Consolidated Financial Statements.
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed balance sheet of Advanced Business Sciences, Inc. ("ABS" or the
"Company") at December 31, 1999 has been taken from audited consolidated
financial statements at that date and condensed. The condensed consolidated
financial statements for the three and nine months ended September 30, 2000 and
for the three and nine months ended September 30, 1999 are unaudited and reflect
all normal and recurring accruals and adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position,
operating results and cash flows for the interim periods presented in this
quarterly report. The condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999. The results of operations and cash flows
for the nine months ended September 30, 2000 are not necessarily indicative of
the results for the entire fiscal year ending December 31, 2000. Where
appropriate, items within the condensed consolidated financial statements have
been reclassified from the previous periods' presentation.
The accompanying financial statements of Advanced Business Sciences, Inc., have
been prepared on a going-concern basis, which contemplates profitable operations
and the satisfaction of liabilities in the normal course of business. There are
uncertainties that raise substantial doubt about the ability of the Company to
continue as a going concern. As shown in the statements of operations, the
Company has not yet achieved profitable operations. As of September 30, 2000,
the Company has insufficient working capital. These items raise substantial
doubt about the ability of the Company to continue as a going concern.
Management presently believes that the Company is in the final development stage
of its electronic tracking and monitoring devices and the delivery of services
relating to these devices. Although there has been substantial progress in the
development of this technology, the Company does not have any significant sales
and there can be no assurance that the Company will have any significant sales.
Management plans to continue financing development of the Company's technology
through the plan described herein.
The Company's continuation as a going concern is dependent upon its ability to
satisfactorily meet its debt obligations, meet its product development goals,
secure new financing and generate sufficient cash flows from operations. The
financial statements do not include any adjustments that might result from
outcome of these uncertainties.
2. INVENTORIES
The composition of inventories as of September 30, 2000 and December 31, 1999,
are as follows:
September 30, December 31,
2000 1999
------------------------------
Parts .................................. $394,960 $381,044
Finished goods ......................... 297,405 396,388
-------------------------
$692,365 $777,432
=========================
3. CURRENT STOCKHOLDERS' EQUITY TRANSACTIONS
Board members were compensated in total with 50,237 shares of stock valued at
$4,939 for attending the third quarter board meetings. Ken Macke, retired
Chairman and CEO of Dayton Hudson Corp., was also compensated for being an
Advisor to the Board of Directors. He received 37,170 shares of stock valued at
$4,333 for attending (2) third quarter board meetings.
On August 16, 2000, the Company issued 10,000 shares of its common stock to an
individual per his consulting agreement for services provided valued at $1,072.
On September 20, 2000, the Company issued 1,200,000 shares of its common stock
to a financial consulting firm for services valued at $152,100.
During the quarter ended September 30, 2000, the Company issued 419,010 warrants
to purchase 419,010 shares of its common stock to stockholders for loans to the
Company and charged $62,156 to expense.
4. FINANCIAL STATEMENTS SINCE INCEPTION
Below are ABS's condensed statement of operations from inception through
September 30, 2000.
Statement of Operations
Inception to
September 30, 2000
------------------
Revenues ................................................. $ 450,197
Cost of sales ............................................ 298,567
------------
Gross profit (loss) .............................. 151,630
------------
Expenses:
Research and development ......................... 2,703,229
Sales and marketing .............................. 1,497,658
General and administrative ....................... 11,206,201
------------
15,407,088
------------
(Loss) from operation ............................ (15,255,458)
------------
Other income (expenses):
Interest expense ................................. (1,259,857)
Other ............................................ 26,989
------------
(1,232,868)
------------
(Loss) before provision for income taxes
and extraordinary item ................... (16,488,326)
Provision for income taxes ............................... --
------------
(Loss) before extraordinary item ............ (16,488,326)
Extraordinary item
Gain from extinguishment of debt ................. 569,901
------------
Net loss .................................... $(15,918,425)
============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of operations
information as a percentage of revenues during the periods indicated:
THREE MONTHS ENDED
September 30,
-----------------------------------------------
2000 1999
-----------------------------------------------
Revenues .............................................. $ 36,030 100.0% $ 33,952 100.0%
Cost of sales ......................................... 13,736 38.1 19,825 58.4
-----------------------------------------------
Gross profit .................................... 22,294 61.9 14,127 41.6
-----------------------------------------------
Expenses:
Research and development ........................ 118,312 328.4 492,219 1449.7
Sales and marketing ............................. 25,516 70.8 118,382 348.7
General and administrative ...................... 936,683 2599.7 967,523 2849.7
----------------------------------------------
1,080,511 2998.9 1,578,124 4648.1
----------------------------------------------
Operating (loss) ................................ (1,058,217) (2937.0) (1,563,997) (4606.5)
----------------------------------------------
Other income and (expenses):
Interest expense ................................ (186,013) (516.3) (90,784) (267.4)
Other ........................................... 1 -- (2,578) (7.6)
----------------------------------------------
(186,012) (516.3) (93,362) (275.0)
----------------------------------------------
Net (loss) before provision for income taxes .... (1,244,229) (3453.3) (1,657,359) (4881.5)
Provision for income taxes ............................ -- -- -- --
----------------------------------------------
Net (loss) ...................................... $(1,244,229) (3453.3)% $(1,657,359) (4881.5)%
==============================================
NINE MONTHS ENDED
September 30,
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2000 1999
----------------------------------------------
Revenues .............................................. $ 147,630 100.0% $ 124,909 100.0%
Cost of sales ......................................... 47,802 32.4 84,384 67.6
----------------------------------------------
Gross profit .................................... 99,828 67.6 40,525 32.4
----------------------------------------------
Expenses:
Research and development ........................ 222,587 150.8 876,208 701.5
Sales and marketing ............................. 115,317 78.1 326,735 261.6
General and administrative ...................... 2,000,991 1355.4 2,151,040 1722.1
----------------------------------------------
2,338,895 1584.3 3,353,983 2685.1
----------------------------------------------
Operating (loss) ................................ (2,239,067) (1516.7) (3,313,458) (2652.27)
-----------------------------------------------
Other income and (expenses):
Interest expense ................................ (459,208) (311.1) (217,642) (174.2)
Other ........................................... 94 0.1 (2,578) (2.1)
----------------------------------------------
(459,114) (311.0) (220,220) (176.3)
-----------------------------------------------
Net (loss) before provision for income taxes .... (2,698,181) (1827.7) (3,533,678) (2829.0)
Provision for income taxes ........................... -- -- -- --
-----------------------------------------------
Net (loss) ...................................... $(2,698,181) (1827.7)% $(3,533,678) (2829.0)%
===============================================
Discussions of certain matters contained in this Quarterly Report on Form 10-QSB
may constitute forward-looking statements under Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These
statements may involve risks and uncertainties. These forward-looking statements
relate to, among other things, the Company's ability to secure financing, the
results of the Company's product development efforts, future sales levels, the
Company's future financial condition, liquidity and business prospects
generally, perceived opportunities in the marketplace for the Company's products
and its products under development and the Company's other business plans for
the future. The actual outcomes of these matters may differ significantly from
the outcomes expressed or implied in these forward-looking statements and other
risks detailed in "ITEM 1. Description of Business contained in the Company's
Form 10-KSB filed with the SEC March 31, 2000.
The following discussion is intended to provide a better understanding of the
significant changes in trends relating to the Company's financial condition and
results of operations. Management's Discussion and Analysis should be read in
conjunction with the accompanying Condensed Consolidated Financial Statements
and Notes thereto.
ABS is a developmental stage company. As such, the financial results of
operations reflect the primary activities of the Company directed toward
development and testing of its GPS products, principally for offender monitoring
in the criminal justice marketplace. The following table sets forth the number
of tracking units monitored or leased for the period indicated. The Company
monitored and leased 280 units in the third quarter of 2000. The remainder of 5
units in the third quarter of 2000 were monitored units only.
Year 3rd Quarter Year-to-date
-------------------------------------------------------
1999 411 1,720
2000 285 1,506
Revenues
The Company derives revenue from sale of products, billable services for
monitoring, software license fees, equipment and software leasing, and charges
for maintenance and repair of equipment. For the three and nine months ended
September 30, 2000, Revenues increased 6% to $36,030 and 18% to $147,630,
compared to $33,952 and $124,909 during the same periods in 1999. The reason for
the increases in both comparable periods is more units being monitored and
leased in the three months ended September 30, 2000 (280 units), as compared to
135 units in the same periods in 1999. And also more units being monitored and
leased in the first nine months of 2000 (1,271 units), as compared to 505 units
in the same period in 1999.
Cost of Sales
Cost of Sales represents the direct costs associated with the generation of
revenue, and includes cost of goods for products which are sold, direct costs of
distribution of software and equipment, maintenance expenses on equipment
repaired under service agreements, and the direct variable communications
expenses associated with the monitoring services provided by the Company. For
the three and nine months ended September 30, 2000, Cost of Sales decreased 31%
to $13,736 and 43% to $47,802, compared to $19,825 and $84,384 during the same
periods in 1999. The primary reason for the lower cost of sales was increased
utilization of the Company assets in service.
Gross Profit
For the three and nine months ended September 30, 2000, Gross Profit for the
Company was $22,294 and $99,828 compared to $14,127 and $40,525 during the same
periods of 1999. The reasons for this increase were higher revenues and
proportionately lower Cost of Sales in the 1999 periods, as discussed above.
Research and Development
Research and Development expenses are the direct costs associated with the
Company's development of its proprietary products. Expenses in this category
include the cost of outside contracted engineering and design, staffing expenses
for the Company's own engineers and software developers, and the actual costs of
components, prototypes, and testing equipment and services used in the product
development functions. The Research and Development expenses decreased to
$118,312 and $222,587 for the three and nine months ended September 30, 2000,
from $492,219 and $876,208 during the same periods in 1999. The primary reason
for this decrease was the temporary delay of development of its Series 2000
product due to the Company's need for additional operating capital.
Sales and Marketing
Sales and Marketing expenses represent the costs of the Company's sales and
marketing staff, travel and related expenses associated with sales to the
Company's customers and prospects, the costs of advertising in magazines and
periodicals, attendance at trade shows, and production of marketing and related
collateral material. Sales and Marketing expenses were $25,516 and $115,317 for
the three and nine months ending September 30, 2000 compared to $118,382 and
$326,735 during the same periods in 1999. The decrease is the result of less
advertising and trade show expenses, as well as a decrease in Sales and
Marketing staff incurred in the first three quarters of 2000 when compared to
the first three quarters of 1999.
General and Administrative
General and Administrative expenses are all the indirect and overhead expenses
associated with the operations of the Company, outside of those expenses
described above. These expenses include executive, administrative and accounting
staff payroll, taxes and benefits, rent on property, all travel not included in
the Sales and Marketing expense, fixed telephone expenses, office leases and
supplies, and recruiting and training expense. For the three months ended
September 30, 2000, General and Administrative expense decreased $30,840 to
$936,683, from $967,523 in the comparable period of 1999. The main reason for
the decrease was due to smaller stock and warrant compensation expense in the
third quarter of 2000, as compared to third quarter 1999. For the nine months
ended September 30, 2000, General and Administrative expense decreased $150,049
to $2,000,491 from $2,151,040 in the same period of 1999. The primary reasons
for the decrease were decreases in outside services, travel, executive staff,
and communications expenses, along with the decrease in stock and warrant
compensation expense.
Operating (Loss)
For the three months ended September 30, 2000, operating (loss) was
$(1,058,217), compared to $(1,563,997) for the same period in 1999. The reason
for this decrease was lower expenses in the period, as explained above, offset
by higher gross profits. For the nine months ended September 30, 2000, operating
(loss) was $(2,239,067), compared to $(3,313,458) for the same period in 1999.
The reason for the nine month decrease is the same as the three month decrease
listed above.
Interest Expense
For the three months ended September 30, 2000, Interest expense increased
$95,229 to $186,013, compared to Interest expense of $90,784 in the comparable
period of 1999. This interest expense increase was due to larger outstanding
balances in Company borrowings in 2000 over 1999. For the nine months ended
September 30, 2000, Interest expense increased $241,566 to $459,208, compared to
Interest expense of $217,642 in the comparable period of 1999. The reason for
the nine month increase is also larger outstanding balances in Company
borrowings in 2000 over 1999.
Liquidity and Capital Resources
For the nine months ended September 30, 2000, the Company used $(1,654,627) of
cash in operating activities and another $(61,707) in investing activities. It
generated $1,708,885 in cash from financing activities. The total of all cash
flow activities resulted in a decrease in the balance of cash and cash
equivalents for the nine month period of $(7,449). For the same period of 1999,
the Company used $(3,686,431) of cash in operating activities and another
$(113,836) in investing activities. It generated $3,423,103 in cash from
financing activities. The total of all cash flow activities resulted in a
decrease in the balance of cash and cash equivalents of $(377,164).
As of September 30, 2000, the Company had the following borrowing facilities in
place:
The Company has a $750,000 note payable from U.S. Bank N.A. of Omaha, Nebraska.
The Company shall repay this loan in 35 monthly payments of $16,557 and one last
payment estimated at $369,376 beginning on July 15, 2000. The interest rate is a
variable rate based on the U.S. Bank N.A. Reference Rate (the "Index Rate") plus
two (2) percent. As of September 30, 2000, the Index Rate was currently nine and
one-half (9.50) percent. This loan is secured by a security interest in the
Company's tangible and intangible assets.
The Company has a $999,767 note payable from Commercial Savings Bank of Carroll,
Iowa. The interest rate is nine (9.50)% per annum. This loan is secured by a
security interest in the Company's tangible and intangible assets. The Company
has significantly renewed this note on October 5, 2000 maturing on April 5,
2001.
The Company has a note payable of $499,021 through Firstar Bank from Mary
Collison, a director of the Company, and $327,224 from Martin Halbur, also a
director of the Company. Principal on both notes, $8,320 and $5,457
respectively, along with interest of 0.250% plus prime (9.50% at September 30,
2000), are payable on a monthly basis.
The Company has a $1,000,000 note payable from United Bank of Iowa of Carroll,
Iowa. The loan had an original maturity date of December 30, 1999 and has since
been extended until November 20, 2000. The interest rate is ten (10.00)% per
annum.
The Company has a $500,000 note payable from Templeton Savings Bank of
Templeton, Iowa. The loan is due January 31, 2001 and carries an interest rate
of nine (9.00)% per annum.
The Company has a $350,000 note payable from Carroll County State Bank of
Carroll, Iowa. The loan has a maturity date of July 6, 2001 and an interest rate
of eleven and one-half (11.50) percent. Interest only payments are due beginning
January 6, 2001.
The Company has a $37,326 note payable from Nebraska State Bank of Omaha. The
loan matures on August 24, 2001 and carries an interest rate of ten and one-half
(10.50) percent. Payments of $1,245 for principal and interest are due monthly
with the unpaid balance due at maturity.
The Company is a development stage business and has not yet achieved profitable
operations. The Company lacks sufficient operating capital, and intends to fund
its ongoing development and operations through a combination of additional
equity capital and further borrowings. As of September 30, 2000, the Company did
not have commitments for either debt or share purchases to meet its planned 2000
operating capital requirements.
The Company entered into an agreement on September 29, 2000 with Prism Resources
Inc. to provide the Company new Internet based iSecureTrack(TM) enterprise
software. ISecureTrack(TM) will facilitate satellite tracking and monitoring of
people and assets, worldwide, using global positioning system (GPS) and Internet
technology.
The Company announced that it was awarded its second patent, 6,100,806, which
issued 8/8/2000. The patent compliments the previous patent 6,072,396. The
patent covers the Company's proprietary GPS based tracking product. The patent
was written broadly enough to allow ABS to aggressively protect its position in
the criminal justice market, as well as cover AVL, asset, and other tracking
markets.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no outstanding pending litigation against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(B) REPORTS ON FORM 8-K
The registrant filed a Form 8-K on October 17, 2000. The Company
engaged the Des Moines, Iowa, office of McGladrey & Pullen, LLP, to act as its
certifying accountant commencing with the Company's fiscal year ending December
31, 2000. This was due to the death of the Company's previous auditor, Darrell
Schvaneveldt of Schvaneveldt and Company.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED BUSINESS SCIENCES, INC.
Date: October 27, 2000 By: /s/ John Gaukel
---------------- --------------------------------------
John Gaukel
President and Chief Executive Officer