- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 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 0-22146
---------------------------------------------------
APPLIED BIOMETRICS, INC.
(Exact name of Registrant as specified in its charter)
State of Incorporation: Minnesota
I.R.S. Employer Identification No.: 41-1508112
Principal Executive Offices: 501 East Highway Thirteen, Suite 108
Burnsville, Minnesota 55337
Telephone Number: (952) 890-1123
---------------------------------------------------
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 ___
On April 30, 2000, there were 5,881,504 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
ITEM 1. FINANCIAL STATEMENTS
APPLIED BIOMETRICS, INC.
CONDENSED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
- --------------------------------------------------------------------------------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 1,131,969 $ 1,910,356
Inventories, net .................................................... 182,780 167,109
Prepaid expenses and other current assets ........................... 72,755 90,577
------------ ------------
Total current assets ............................................. 1,387,504 2,168,042
Equipment and leasehold improvements, net ........................... 517,988 550,675
Patents and other intangibles, net .................................. 87,972 99,437
Other assets ........................................................ 9,585 9,585
------------ ------------
Total assets ..................................................... $ 2,003,049 $ 2,827,739
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 90,766 $ 95,255
Accrued expenses and short-term debt obligations .................... 162,298 195,849
Current maturities of capital lease obligations ..................... 8,623 8,333
------------ ------------
Total current liabilities ........................................ 261,687 299,437
Non-current liabilities:
Capital lease obligation ............................................ 9,409 11,677
------------ ------------
Total liabilities ................................................ 271,096 311,114
------------ ------------
Shareholders' equity:
Undesignated stock: authorized 5,000,000 shares of $.01 par value;
None issued or outstanding at March 31, 2000 and December 31, 1999 -- --
Common stock: authorized 20,000,000 shares of $.01 par value;
5,356,504 issued and outstanding at March 31, 2000 and
5,229,004 at December 31, 1999 ................................... 53,565 52,990
Additional paid-in capital .......................................... 23,535,901 23,362,233
Accumulated deficit ................................................. (21,857,513) (20,898,598)
------------ ------------
Total shareholders' equity ....................................... 1,731,953 2,516,625
------------ ------------
Total liabilities and shareholders' equity ....................... $ 2,003,049 $ 2,827,739
============ ============
The accompanying notes are an integral part of the interim unaudited
financial statements.
2
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited)
Operating expenses:
Selling, general and administrative ...... $ 457,740 $ 177,892
Research and development ................. 521,486 206,284
----------- -----------
Operating loss ........................... (979,226) (384,176)
Other income, net ........................ 20,311 24,243
----------- -----------
Net loss ................................. $ (958,915) $ (359,933)
=========== ===========
Basic and diluted net loss per share ..... $ (0.18) $ (0.08)
=========== ===========
Weighted average common shares outstanding 5,333,949 4,359,262
=========== ===========
The accompanying notes are an integral part of the interim unaudited
financial statements.
3
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 AND
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
December 31, 1997 ....................... 4,276,117 $ 42,761 $ 20,278,959 $(15,050,518)
Exercise of stock options ............... 61,000 610 281,890
1998 Net loss ........................... (3,402,138)
------------ ------------ ------------ ------------
December 31, 1998 ....................... 4,337,117 43,371 20,560,849 (18,452,656)
Exercise of stock options ............... 146,887 1,469 1,076,143
Issuance of stock, net of offering costs 815,000 8,150 2,059,412
Distribution of the net assets of
Cardia, Inc. ......................... (334,171)
1999 Net loss ........................... (2,445,942)
------------ ------------ ------------ ------------
December 31, 1999 ....................... 5,299,004 $ 52,990 $ 23,362,233 $(20,898,598)
Exercise of stock options ............... 7,500 75 21,018
Non-employee stock awards ............... 50,000 500 152,650
Net loss for the three-month period ended
March 31, 2000 ....................... (958,915)
------------ ------------ ------------ ------------
March 31, 2000 (unaudited) .............. 5,356,504 $ 53,565 $ 23,535,901 $(21,857,513)
============ ============ ============ ============
The accompanying notes are an integral part of the interim unaudited financial
statements.
4
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (958,915) $ (359,933)
Net loss from discontinued operations .......................................... -- --
----------- -----------
Loss from continuing operations ................................................ (958,915) (359,933)
Adjustments to reconcile net loss from continuing operations to net cash used by
operating activities:
Depreciation and amortization of capital leases ................................ 57,199 43,611
Amortization of patents and other intangible assets ............................ 20,202 6,239
Value of common stock issued in lieu of cash compensation ...................... 153,150 --
Changes in operating assets and liabilities:
Inventories .................................................................... (15,671) --
Prepaid expenses and other current assets ...................................... 17,822 (30,800)
Accounts payable and accrued expenses .......................................... (38,040) (2,812)
----------- -----------
Net cash used in continuing operations ......................................... (764,253) (343,695)
Net cash used in discontinued operations ....................................... -- (120,548)
----------- -----------
Net cash used in operating activities .......................................... (764,253) (464,243)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities .............................................. -- 500,000
Purchase of equipment and improvements ......................................... (24,512) (4,261)
Investments in patents and trademarks .......................................... (8,737) --
Discontinued operations, net ................................................... -- (10,981)
----------- -----------
Net cash provided by (used in) investing activities ............................ (33,249) 484,758
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ........................................ 21,093 25,000
Repayment of capital lease obligations ......................................... (1,978) --
----------- -----------
Net cash provided by financing activities ...................................... 19,115 25,000
----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... (778,387) 45,515
Cash and cash equivalents at beginning of year ................................. 1,910,356 1,869,413
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 1,131,969 $ 1,914,928
=========== ===========
The accompanying notes are an integral part of the interim unaudited financial
statements.
5
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements of Applied Biometrics,
Inc. ("Applied Biometrics" or the "Company") have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
In the opinion of management all adjustments considered necessary, consisting
only of items of a normal recurring nature, for a fair presentation of the
financial position, results of operations and cash flows of the Company as of
and for the interim periods presented have been included. Operating results and
cash flows for the three months ended March 31, 2000 are not necessarily
indicative of the results of operations and cash flows of the Company that may
be expected for the year ending December 31, 2000.
(2) RECENT EQUITY FINANCING:
During April 2000, the Company completed two private placements of 525,000 units
at an aggregate price of $1,706,250, or $3.25 per unit, resulting in net
proceeds of approximately $1,500,000 after deducting agents' commissions of
$170,625 and other estimated expenses. Each unit consisted of one share of our
common stock and one five-year warrant to purchase one share of common stock at
an exercise price of $3.625. In connection with the private placement the
Company also issued the placement agent five-year warrants to purchase 52,500
shares of Common Stock at an exercise price of $3.25 per share.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q INCLUDE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS
"EXPECT," ANTICIPATE," "PLAN," "MAY," "ESTIMATE" OR OTHER SIMILAR EXPRESSIONS.
SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULT TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FACTORS INCLUDE THE COMPANY'S DEPENDENCE ON AND NEED FOR
FURTHER DEVELOPMENT OF THE BASIS SYSTEM, ITS SOLE PRODUCT, THE COMPANY'S LIMITED
EXPERIENCE AND FINANCIAL RESOURCES AND UNCERTAINTY OF FUTURE RESULTS, THE NEED
FOR FURTHER DEVELOPMENT ON AND THE UNCERTAINTY OF MARKET ACCEPTANCE OF THE BASIS
SYSTEM, THE COMPANY'S NEED FOR ADDITIONAL FINANCING, THE REGULATED NATURE OF THE
MEDICAL DEVICE MARKET, COMPETITIVE FACTORS AND OTHER RISK FACTORS DISCUSSED IN
EXHIBIT 99.1 TO THIS REPORT AND FROM TIME TO TIME IN THE COMPANY'S OTHER FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
Applied Biometrics, Inc. ("Applied Biometrics" or the "Company") is a
late-development stage medical device company engaged in the research,
development, manufacture and marketing of advanced cardio-vascular and
hemodynamic diagnostic and monitoring systems. The Company believes that its
core competencies in ultrasound technology, signal processing, cardiac anatomy
and hemodynamics position it to develop and commercialize a range of cardiac
diagnostic and patient monitoring products. The Company's Basis(TM) Cardiac
Output Monitor and RealFlow(TM) Cardiac Output Probe (collectively, the "Basis
System") are designed to provide real-time cardiac output monitoring in surgical
and post-operative, intensive care unit settings.
During the first quarter of 2000, the Company continued its product evaluations
of the Basis System at one adult and one pediatric clinical site in the U.S. To
date, approximately twenty-five cases have been completed. This latest round of
product evaluations constitutes a renewal of the evaluations conducted during
the last quarter of 1999, in which certain further modifications to the Basis
System were indicated. The Company has since completed these modifications, has
resumed the evaluations and is studying the new customer feedback.
To date, the Company has been satisfied with the performance of the Basis System
during these renewed evaluations; management believes that the system has
demonstrated good overall clinical performance and has received positive
feedback from surgeons. The Company intends to conduct approximately twenty-five
additional cases at the two current sites. Pending resolution of any new issues
or needs that may arise, the Company will then expand these evaluations to a
number of additional U.S. clinical sites prior to commercial release. The
Company believes that the surgeon and clinical use feedback from these
additional product evaluations will help identify the Company's marketing,
clinical and distribution strategy.
As part of the Company's quality testing and evaluation activities, the Company
identified a potential mechanical weakness in the RealFlow Probe during the
first quarter of 2000, which will require resolution prior to commercial
release. At the time of this report, the Company anticipates that its probe and
monitor modifications and product evaluations will continue during 2000 with
commercialization of the Basis System taking place in the second half of the
year. These forward-looking statements will be impacted however, by the outcome
of end-user product evaluations, the ability to timely and successfully complete
product development and testing, including the incorporation of necessary
product modifications, commence manufacture of commercial quantities, establish
adequate sales, marketing and customer support activities and obtain additional
financial resources.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 WITH THE
THREE MONTHS ENDED MARCH 31, 1999
Selling, general and administrative expenses increased $280,000 in the first
quarter, from $178,000 during the 1999 period, to $458,000 during the 2000
period. The Company incurred a non-cash compensation charge of $153,000 during
the current period related to stock granted to the Company's three non-employee
directors for prior and current board service. Non-employee directors of the
Company serve without cash compensation. Also during the 1999 period,
approximately $160,000 of selling, general and administrative costs was
allocated to the Company's discontinued business, Cardia, Inc., which was
spun-off to the Company's shareholders in February 1999. Prior to the spin-off,
these costs were allocated to Cardia as operating expenses of the discontinued
business. After the spin-off, Cardia reimbursed the Company for its prorated
portion of shared operating expenses.
Research and development expenses increased $315,000, from $206,000 in 1999, to
$521,000 in 2000, due to increased costs for engineering, operations and quality
assurance personnel, animal testing, manufacturing pilot costs and product
evaluations. The Company hired a significant number of additional personnel
during the second half of 1999 in order to complete development, begin
manufacturing and conduct market product evaluations on the Basis System. In
addition to increased personnel costs, the Company conducted animal tests and
worked with surgeons at two U.S. clinical sites to obtain product feedback on
the Basis System. The Company has also begun to allocate some resources to the
research and development of new products and next generation products.
Currently, the Company is developing a new cardiac output probe designed for
"beating heart" procedures. This probe, which has been named CO-Flex(TM), is an
off-shoot of its RealFlow Probe and incorporates flexible cabling to facilitate
its use during "off-pump" or "beating heart" cases.
The Company believes that its operating costs will remain at the current level
though the completion of Basis System development and then begin to increase as
the Company adds further personnel and equipment and incurs other costs in
bringing the Basis System to market and increasing its development activities
for new and next generation products. This forward looking statement will be
influenced primarily by the Company's estimate of time and resources needed to
complete development of the Basis System (including the necessary modifications
discussed above), establish sales and customer support systems necessary to
support the product in the field and achieve success in end-user product
evaluations and market acceptance of the Basis System.
Other income, primarily interest income, decreased $4,000 from $24,000 in the
1999 quarter to $12,000 in the 2000 quarter. The decrease is due to lower
average investment balances in the 2000 quarter than in the 1999 quarter. The
2000 first quarter net loss was $959,000, or $0.18 per share, compared to a net
loss of $360,000, or $0.08 per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,132,000 at March 31, 2000 as compared to
$1,910,000 of cash and cash equivalents at December 31, 1999, a decrease of
$778,000. Operating activities during the period used cash of $764,000,
consisting primarily of the net loss for the three-month period offset by
approximately $231,000 of non-cash expenses. Cash was also used in operations by
an increase in inventory and a decrease in accounts payable and accrued
expenses. Investing activities used $33,000 for the purchase of equipment and
legal costs related to the preparation and filing of patent applications.
Financing activities in the three-month period provided $19,000 of cash
primarily from the exercise of employee stock options.
During April 2000, the Company completed two private equity financings resulting
in net proceeds of approximately $1,500,000 million. Based on its expected rate
of spending the Company believes that its existing
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
cash and cash equivalents, including the net proceeds from the April equity
financings, will enable the Company to meet its cash requirements for
approximately the next nine months. The Company believes that is has sufficient
cash to complete development of the Basis System but will need additional
financing in order to successfully meet its market commercialization plans.
These forward-looking statements will be influenced by the Company's ability to
meet its operational and development plans, as well as the impact of any
unanticipated changes to these plans requiring the Company to commit additional
cash. The Company continues to pursue alternatives for obtaining additional
working capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
9
APPLIED BIOMETRICS, INC.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During April 2000, the Company issued an aggregate of 525,000 units in two
private placement financings, with each unit consisting of one share of the
Company's common stock, $.01 par value, and one five-year warrant to purchase a
share of common stock at an exercise price of $3.625. The units were sold at a
price of $3.25 per unit, resulting in gross proceeds of $1,706,250 and net
proceeds of approximately $1,500,000 after deducting agent's commissions of
$170,625 and other estimated expenses. Miller Johnson & Kuehn, Inc. of
Minneapolis, Minnesota acted as the Company's agent in the private placement.
The units were offered and sold solely to "accredited investors" as defined in
Rule 501(a) and were issued without registration in reliance on Regulation D and
Section 4(2) under the Securities Act of 1933, as amended. In relying upon these
exemptions the Company made certain inquiries and received certain assurances to
establish that the exemptions were available for the issuance. In particular,
the Company confirmed that: (i) the offers of sales and sales were made without
general solicitation; (ii) each investor made representations that he or she was
"accredited," was sophisticated in relation to the investment, and had reviewed
certain information made available by the Company; (iii) each purchaser gave
assurance of investment intent and the certificates for the shares and the
warrants bear an appropriate legend restricting transfer; and (iv) offers and
sales were made to a limited number of persons.
In consideration of its services in connection with the April 2000 private
placements, the Company also issued the agent five-year warrants to purchase an
aggregate of 52,500 shares of its common stock at an exercise price of $3.25 per
share.
In consideration of a $425,000 capital lease commitment by Dexxon Capital
Corporation in April 2000, the Company issued a five-year warrant to Dexxon to
purchase up to 13,500 shares of its common stock at an exercise price of $3.00
per share, with the exact number of shares issuable under the warrant determined
by the Company's aggregate borrowings under the capital lease.
All of the foregoing warrants were also issued without registration in reliance
on Regulation D and Section 4(2), based, among other things, upon the fact that:
(i) the warrants were issued without general solicitation; (ii) each recipient
was determined to be sophisticated in relation to the investment; (iii) each
recipient gave assurance of investment intent and the warrants bear an
appropriate legend restricting transfer; and (iv) offers and sales were made to
a limited number of persons.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
10
APPLIED BIOMETRICS, INC.
PART II. OTHER INFORMATION - CONTINUED
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits to this quarterly report on Form 10-Q are listed
in the exhibit index beginning on page 15.
(b) Form 8-K. None.
11
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report signed on its behalf by the undersigned
hereunto duly authorized.
APPLIED BIOMETRICS, INC.
Dated: May 5, 2000
/s/ Camille M. Meyer
----------------------------------------------------
Camille M. Meyer
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
12
APPLIED BIOMETRICS, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
99.1 Important Factors (incorporated by reference to Exhibit 99.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999).
27.1 Financial Data Schedule for the three-month period ended March 31, 2000
(filed herewith electronically).
13