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 MARCH 31, 2001
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.
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(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 May 04, 2001, was 19,589,959.
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)
March 31, December 31,
ASSETS 2001 2000
----------------------------
Current Assets
Cash ..................................... $ 65,683 $ 55,027
Trade accounts receivable ................ 14,829 22,159
Inventories .............................. -- 192,333
Prepaid Expenses and other ............... 12,961 5,725
----------------------------
Total current assets ............... 93,473 275,244
----------------------------
Leasehold Improvements and Equipment ....... 624,350 1,283,171
Less accumulated depreciation ............ 506,687 977,079
----------------------------
117,663 306,092
----------------------------
Product Development Costs .................. 421,954 381,770
Other Assets ............................... 13,680 27,280
----------------------------
Total assets ....................... $ 646,770 $ 990,386
============================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Notes payable ............................ 6,947,901 6,206,506
Current maturities of long-term debt ..... 671,692 632,685
Accounts payable and accrued expenses ....
Accrued interest payable ................. 286,730 254,115
----------------------------
Total Current Liabilities .......... 8,441,045 7,542,747
Long-term debt, less current maturities .... 619,155 752,362
----------------------------
Commitments and contingency
Stockholders' (Deficit)
Preferred stock .......................... -- --
Common stock ............................. 19,062 18,747
Additional paid-in capital ............... 13,423,024 12,532,907
Deficit accumulated during the development
stage .................................. (21,855,516) (19,856,377)
----------------------------
Total stockholders' (deficit) ...... (8,413,430) (7,304,723)
----------------------------
Total liabilities and stockholders'
(deficit) ........................ $ 646,770 $ 990,386
============================
See Notes to Condensed Consolidated Financial Statements.
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
----------------------------
2001 2000
----------------------------
Revenues ....................................... 29,234 61,914
Cost of sales .................................. 88,671 42,810
----------------------------
Gross profit (loss) .................... (59,437) 19,104
----------------------------
Expenses:
Research and development ..................... 185,858 52,236
Sales and marketing .......................... 24,997 58,146
General and administrative ................... 885,347 391,763
----------------------------
Total expenses ......................... 1,096,202 502,145
----------------------------
Operating (loss) ....................... (1,155,639) (483,041)
----------------------------
Other income (expense):
Interest income .............................. 24 93
Interest expense ............................. (187,712) (90,460)
Loan acquisition expense ..................... (655,812) --
----------------------------
Total other income (expense) ........... (843,500) (90,367)
----------------------------
(Loss) before provision for income taxes (1,999,139) (573,408)
Provision for income taxes ............. -- --
----------------------------
Net (loss) ..................................... $ (1,999,139) $ (573,408)
============================
Net (loss) per share - basic and diluted ....... $ (0.11) $ (0.04)
============================
Weighted average shares outstanding ............ 18,788,813 13,543,958
============================
See Notes to Condensed Consolidated Financial Statements.
ADVANCED BUSINESS SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
March 31
----------------------
2001 2000
----------------------
Net cash flows (used in) operating activities ........ $(545,996) $(471,714)
----------------------
Net cash (used in) investing activities .............. (158,793) (14,924)
----------------------
Cash flows from financing activities:
Increase in notes payable .......................... 741,395 294,618
Other .............................................. (25,950) 184,569
----------------------
Net cash provided by financing activities .... 715,445 479,187
----------------------
Increase (decrease) in cash .................. 10,656 (7,451)
Cash and cash equivalents, beginning of period ....... 55,027 7,843
----------------------
Cash and cash equivalents, end of period ............. $ 65,683 $ 392
======================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest ......................................... $ 155,097 $ 90,460
Taxes ............................................ -- --
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Issuance of common stock in lieu of payment on
long-term debt ................................... $ 62,875 $ --
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, 2000 has been taken from audited consolidated
financial statements at that date and condensed. The condensed consolidated
financial statements for the three months ended March 31, 2001 and for the three
months ended March 31, 2000 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, 2000. The results of operations and cash flows for the three months
ended March 31, 2001 are not necessarily indicative of the results for the
entire fiscal year ending December 31, 2001. 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 March 31, 2001, the
Company has insufficient working capital to execute its business plan. These
items raise substantial doubt about the ability of the Company to continue as a
going concern. Management plans to continue financing development of the
Company's technology through the plan described herein.
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.
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. CURRENT STOCKHOLDERS' EQUITY TRANSACTIONS
Board members were compensated in total with 42,345 shares of stock valued at
$15,000 for attending the first 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 73,783 shares of stock valued at
$26,022 for attending (3) first quarter board meetings.
On February 22, 2001, the Company issued 295,276 shares of its common stock
valued at $62,875 to (2) different companies for exercising their warrants by
way of retiring their promissory notes held by the Company.
During the quarter ended March 31, 2001, the Company issued 12,500 shares of its
common stock valued at $5,375 to (2) different warrant holders for exercising
their warrants.
In March 2001, common stock in the amount of 56,106 shares valued at $20,832 was
issued to an executive of the Company per his employee agreement.
During the quarter ended March 31, 2001, the Company issued 2,241,080 warrants
to purchase 2,241,080 shares of its common stock to stockholders for loans to
the Company and charged $663,291 to expense. The Company also granted options to
purchase 6,000,000 shares of its common stock to two executives pursuant to
their employment agreements. The exercise prices are at 85% of fair value of the
Company's common stock and vest ratably over two years. Compensation cost
charged to expense was $97,036.
3. FINANCIAL STATEMENTS SINCE INCEPTION
Below is ABS's condensed statement of operations from inception through March
31, 2001.
Statement of Operations
Inception to
March 31, 2001
--------------
Revenues ....................................................... $ 507,038
Cost of sales .................................................. 964,393
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Gross (loss) ........................................... (457,355)
------------
Expenses:
Research and development ..................................... 3,038,358
Sales and marketing .......................................... 1,591,530
General and administrative ................................... 11,633,103
------------
16,262,991
------------
Operating (Loss) ....................................... (16,720,346)
------------
Other income (expense):
Interest income .............................................. 56,365
Interest expense ............................................. (1,660,905)
Loan acquisition expense ..................................... (4,071,823
Other, net ................................................... (28,708)
------------
(5,705,071)
------------
(Loss) before provision for income taxes and
extraordinary item .................................. (22,425,417)
Provision for income taxes ..................................... --
------------
(Loss) before extraordinary item ....................... (22,425,417)
Extraordinary item
Gain from extinguishment of debt ............................. 569,901
------------
Net (loss) ................................................... $(21,855,516)
============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 27, 2001.
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.
The Company experienced a decline in number of individuals being monitored in
the first three months of 2001 when compared to the previous year activity for
the same time period. The primary reason for this downward trend is that the
Company's development efforts were focused on the iSecureTrack platform. As a
result, support for the current products in the field will be phased out and
replaced with the Company's new products and services. This product change
resulted in the Company incurring significant asset write-offs as discussed
herein.
This management decision will allow the Company to replace its current
monitoring operations with a computerized center for communication and data
management, staffed only to maintain the system. The iSecureTrack platform will
be operated as an Application Service Provider (ASP) service, allowing agents at
existing monitoring centers to access and use the system to provide the human
monitoring services. The Company intends to complete the final design and begin
production of the series 2000 tracking unit in the third quarter of 2001. As the
Company rolls out this new product offering, its customers will have control and
responsibility to monitor the movement of their individuals or assets. Utilizing
the Company's GPS tracking products, customers, through a secure Internet
connection, will access their information via the Company's host website,
iSecureTrackTM. This product changeover will allow customers' greater
flexibility, ease of use and reduced operating costs when compared to the
Company's and competitors current product offerings and pricing. At the same
time, it will allow the Company to partner with industry-specific service
providers, wherein they will provide the staffing and end-user interaction, and
the Company will supply the tracking technology and information reporting.
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 310 units in the first quarter of 2001. In the first
quarter of 2000, the Company monitored and leased 468 units. The remainder of
159 units in the first quarter 2000 were monitored units only.
Year 1st Quarter Year-to-date
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2000 627 627
2001 310 310
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 months ended March 31,
2001, Revenues decreased 53% to $29,234 compared to $61,914 during the same
period in 2000. The reason for the decrease in the comparable period is less
units being monitored and leased in the three months ended March 31, 2001 (310
units), as compared to (468 units) in the same period in 2000.
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 months ended March 31, 2001, Cost of Sales increased 107% to $88,671
compared to $42,810 during the same period in 2000. The primary reason for the
higher cost of sales was increased amortization of the monitoring units in the
field.
Gross Profit (Loss)
For the three months ended March 31, 2001, Gross Loss for the Company was
$(59,437) compared to a Gross Profit of $19,104 during the same period of 2000.
The reasons for this decrease were lower revenues and higher Cost of Sales in
the 2001 period, 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 increased to
$185,858 for the three months ended March 31, 2001, from $52,236 during the same
period in 2000. The primary reason for this increase was the write off of
$131,831 of capitalized product development costs due to the business plan
change discussed herein.
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 $24,997 for the three
months ending March 31, 2001 compared to $58,146 during the same period in 2000.
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 quarter of 2001
when compared to the first quarter of 2000.
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 March
31, 2001, General and Administrative expense increased $493,584 to $885,347,
from $391,763 in the comparable period of 2000. The main reasons for the
increase was due to losses incurred of $296,052 from disposal of parts inventory
and leased equipment related to the business plan change discussed herein, as
well as $117,868 of compensation costs incurred related to employee agreements.
Operating (Loss)
For the three months ended March 31, 2001, operating (loss) was $(1,155,639),
compared to $(483,041) for the same period in 2000. The main reason for this
decrease was higher expenses in the period, as explained above.
Interest Expense
For the three months ended March 31, 2001, Interest expense increased $97,252 to
$187,712, compared to Interest expense of $90,460 in the comparable period of
2000. This interest expense increase was due to larger outstanding balances in
Company borrowings in 2001 over 2000.
Loan Acquisition Expense
For the three months ended March 31, 2001, loan acquisition expense totaled
$655,812 compared to $0 for the comparable period of 2000. This expense was due
to stock warrants and common stock issued to various stockholders for lending
the Company money and personally guaranteeing the notes payable from banks.
Net (Loss)
For the three months ended March 31, 2001, the Company had a Net Loss of
$(1,999,139) or $(0.11) per share, compared to a Net Loss of $(573,408) or
$(0.04) per share, in the comparable period of 2000, for the reasons described
above.
Liquidity and Capital Resources
For the three months ended March 31, 2001, the Company used $(545,996) of cash
in operating activities and another $(158,793) in investing activities. It
generated $715,445 in cash from financing activities. The total of all cash flow
activities resulted in an increase in the balance of cash and cash equivalents
for the three month period of $10,656. For the same period of 2000, the Company
used $(471,714) of cash in operating activities and another $(14,924) in
investing activities. It generated $479,187 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 $(7,451).
As of March 31, 2001, the Company had the following borrowing facilities in
place, all of which are guaranteed by various directors of the Company:
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 March 31, 2001, the Index Rate was currently eight (8.00)
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 eight and one-half (8.50)% per annum. This loan is
secured by a security interest in the Company's tangible and intangible assets.
The Company renewed this note on April 5, 2001. The Company shall make 5 monthly
payments of $12,399.43 beginning May 5, 2001, with a final payment of unpaid
principal and accrued interest due on October 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 (8.00% at March 31,
2001), 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 June 10, 2001. The interest rate is nine and one-fourth
(9.25)% per annum.
The Company has a $500,000 note payable from Templeton Savings Bank of
Templeton, Iowa. The loan is due August 16, 2001 and carries an interest rate of
nine and three-fourths (9.75)% per annum.
The Company has a $1,000,000 note payable from Carroll County State Bank of
Carroll, Iowa. The loan has a maturity date of September 6, 2001 and an interest
rate of ten and one-half (10.50) percent. Interest only payments are due
beginning June 6, 2001 and continue on a quarterly basis.
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 obtained a $1,000,000 line of credit with Wells Fargo Bank in April
2001 and has drawn $450,000 against the note as of May 1, 2001. Interest only
payments due monthly beginning May 23, 2001. The note matures on April 23, 2002
and carries an interest rate per annum equal to the prime rate. As of April 19,
2001, the prime rate is seven and one-half (7.50)%.
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 March 31, 2001, the Company did not
have commitments for either debt or share purchases to meet its planned 2001
operating capital requirements.
The Company entered into an agreement on March 27, 2001 with Telemarket
Resources International 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 entered into an agreement on February 04, 2001 with Electronics
Manufacturing Technology for the final design and production of the Company's
global positioning system (GPS) Personal Tracking Unit (PTU) and asset tracking
unit.
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
On December 20, 2000, ABS, A Nebraska corporation, filed a patent infringement
lawsuit against the Defendant, Pro Tech Monitoring, Inc, (Pro Tech), a Delaware
corporation located in Palm Harbor, Florida. The case was filed in Omaha,
Nebraska in the United States Federal District Court, Case No. 8:00-CV-624. ABS
contends that Pro Tech, who provides product to the criminal justice industry,
is infringing on the ABS patents covering the Company's proprietary GPS based
tracking system. On January 31, 2001, Pro Tech filed a declaratory judgement
action ABS in the United States Federal District Court for the Middle District
of Florida, Tampa Division, Case No. 8:01-CV-216-T-17MSS. Pro Tech claims in
this action that its product and methods do not infringe upon the ABS patents.
ABS and Pro Tech dispute the proper venue between Nebraska and Florida for
purposes of determining infringement of the ABS patents. ABS will vigorously
defend against the complaint filed by Pro Tech and will aggressively protect its
Intellectual Property.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.09 Employment Agreement by and between the Company and Michael P. May
10.10 Employment Agreement by and between the Company and James E. Stark
11 - Computation of Earnings Per Share
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the First Quarter of 2001.
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: May 14, 2001 By: /s/ James E. Stark
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James E. Stark
Vice President and Chief Financial Officer