SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File number 0-22146
APPLIED BIOMETRICS, INC.
(Exact name of registrant)
Minnesota 41-1508112
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 E. Highway 13, Burnsville, MN 55337
(Address of principal executive office and zip code)
Issuer's telephone number, including area code (612) 890-1123
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities and Exchange Act of 1934 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 at least 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.
At August 7, 1998, there were outstanding 4,325,617 shares of common
stock, $0.01 par value.
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APPLIED BIOMETRICS, INC.
Form 10-Q Index
June 30, 1998
Page
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Part I: Financial Information..............................................3
Item 1. Financial Statements...............................................3
Balance Sheets Unaudited at June 30, 1998 and
Audited at December 31, 1997.......................................3
Unaudited Statements of Operations for the
Three Month and Six Month Periods ended
June 30, 1998 and 1997.............................................4
Audited Statements of Shareholders' Equity for the year
Ended December 31, 1997 and for the Unaudited Six Month
Period ended June 30, 1998.........................................5
Unaudited Statement of Cash Flows for the Six
Month Periods Ended June 30, 1998 and 1997.........................6
Notes to Unaudited Financial Statements............................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation.......................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk.........10
Part II: Other Information.................................................10
Item 1. Legal Proceedings.................................................10
Item 2. Changes in Securities and Use of Proceeds.........................10
Item 3. Defaults Upon Senior Securities...................................10
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................11
Item 6. Exhibits and Reports on Form 8-K..................................11
Signatures ..................................................................12
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Part I: Financial Information
Item 1. Financial Statements
APPLIED BIOMETRICS, INC.
Balance Sheets
June 30,
1998 December 1,
(Unaudited) 1997
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 866,612 $ 821,673
Short-term investments 2,571,996 3,598,507
Accounts Receivable 21,942 --
Inventory 191,224 150,493
Prepaid expenses and other current assets 69,128 86,166
------------ ------------
TOTAL CURRENT ASSETS 3,720,902 4,656,839
Property and equipment, net 517,438 571,374
Patents, net 187,201 200,125
Other assets 9,585 9,585
------------ ------------
TOTAL ASSETS $ 4,435,126 $ 5,437,923
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 94,149 $ 76,042
Accrued expenses and other liabilities 76,718 90,679
------------ ------------
TOTAL CURRENT LIABILITIES 170,867 166,721
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares
authorized: 4,316,117 and 4,276,117 shares
issued and outstanding at June 30, 1998 and
December 31, 1997, respectfully 43,161 42,761
Additional paid-in capital 20,463,559 20,278,959
Accumulated deficit (16,242,461) (15,050,518)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,264,259 5,271,202
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,435,126 $ 5,437,923
============ ============
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APPLIED BIOMETRICS, INC.
Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net Sales $ 16,950 $ 8,870 $ 37,440 $ 64,940
Cost of sales 3,390 5,325 7,488 32,175
----------- ----------- ----------- -----------
Gross profit 13,560 3,545 29,952 32,765
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and Development 306,955 390,825 625,991 710,273
Sales and Marketing 218,633 110,225 364,295 182,422
General and Administrative 165,222 196,260 341,227 359,853
----------- ----------- ----------- -----------
Total Operating Expenses 690,810 697,310 1,331,513 1,252,548
----------- ----------- ----------- -----------
OPERATING LOSS (677,250) (693,765) (1,301,561) (1,219,783)
Interest income 52,214 80,242 109,618 164,418
----------- ----------- ----------- -----------
NET LOSS $ (625,036) $ (613,523) $(1,191,943) $(1,055,365)
=========== =========== =========== ===========
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.15) $ (0.15) $ (0.28) $ (0.25)
=========== =========== =========== ===========
Weighted average common
Shares outstanding 4,300,732 4,169,587 4,291,034 4,169,537
=========== =========== =========== ===========
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APPLIED BIOMETRICS, INC.
Statement of Shareholders' Equity
Common Stock Additional
-------------------- Paid-In Accumulated
Shares Amount Capital Deficit
--------- ------- ----------- ------------
December 31, 1996 4,168,987 $41,690 $19,703,468 $(12,458,048)
Shares issued for purchase
Of Transcatheter Closure
Product Line 85,000 850 509,150
Exercise of stock options 22,130 221 66,341
1997 Net Loss (2,592,470)
--------- ------- ----------- ------------
December 31, 1997 4,276,117 42,761 20,278,959 (15,050,518)
Exercise of stock options
(unaudited) 40,000 400 184,600
Net loss six months ended
June 30, 1998 (unaudited) (1,191,943)
--------- ------- ----------- ------------
June 30, 1998 (unaudited) 4,316,117 43,161 20,463,559 $(16,242,461)
========= ======= =========== ============
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APPLIED BIOMETRICS, INC.
Statement of Cash Flows
(Unaudited)
Six Months Ended
---------------------------
June 30, June 30,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,191,943) $(1,055,365)
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Depreciation and amortization 117,792 82,812
Cash flows provided by (used for) changes in:
Accounts receivable (21,942) (1,513)
Inventory (40,731) 6,233
Prepaid expenses and other assets 17,038 91,210
Accounts payable 18,107 20,684
Accrued expenses and other liabilities (13,961) 2,969
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Net cash flows used by operating activities (1,115,640) (852,970)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments 1,026,511 2,329,009
Purchases of short-term investments -- (1,600,043)
Purchase of property and equipment (50,932) (100,350)
----------- -----------
Net cash provided by investing activities 975,579 628,616
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 185,000 3,000
----------- -----------
Net cash provided by financing activities 185,000 3,000
----------- -----------
Net (decrease) increase in cash and cash equivalents 44,939 (221,354)
CASH AND CASH EQUIVALENTS:
Beginning of period 821,673 741,661
----------- -----------
End of period $ 866,612 $ 520,307
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APPLIED BIOMETRICS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Unaudited Interim Results
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year of 1998.
These statements should be read in conjection with the audited financial
statements and related notes for the year ended December 31, 1997 included in
the Company's Form 10-KSB for the year ended December 31, 1997.
Note 2. Purchase of Product Line
In November 1997, the Company acquired the technology and assets (including the
in-process research and development) of the transcatheter closure product line
of Schneidt Implantate, GmbH of Frankfurt, Germany. The total purchase price was
$541,457, which included 85,000 shares of common stock and $31,457 of
acquisition related costs. The assets acquired consisted exclusively of patents
and other intangibles. The in-process research and development costs of $441,457
were charged against income in 1997, as the underling research and development
projects had not yet reached technologic feasibility.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
For the three and six months ended June 30, 1998 and 1997.
NET SALES. For the three and six months ended June 30, 1998 the Company had net
sales of $16,950 and $37,440 compared to $8,870 and $64,940 in the same periods
of 1997. Sales in 1998 resulted entirely from initial shipment of the
transcatheter product line that was acquired in November 1997. The Company
expects limited but growing sales of this new product line in the second half of
1998. The sales in 1997 were from the Company's cardiac output monitoring
system. There were no sales of this system in 1998 as a result of the Company
making a strategic decision in the third quarter of 1997 not to continue
marketing its cardiac output monitoring system until completion of the
development of the next generation system. The development of the new system is
essentially complete and is undergoing clinical testing and evaluation before
being released to the market place. The Company believes that, because of the
early stage of its sales, its revenue will continue to fluctuate in future
periods.
GROSS PROFIT. The Company's gross profit margin as a percentage of sales were
80.0% for the three and six months ended June 30, 1998 compared to 40.0% and
50.5% in the same periods of 1997. The increase in gross margins in 1998
resulted because all the Company's sale in 1998 were from the transcatheter
closure product line which has a higher gross margin than its cardiac output
monitoring system. The 1997 sales were exclusively from the Company's cardiac
output monitoring system. The Company believes that these margins are not
necessarily representative of the margins it will realize in future periods.
RESEARCH AND DEVELOPMENT. For the three and six months ended June 30, 1998
research and development expenses decreased $83,870 and $84,282 or 21.5% and
11.9%, respectively, as compared to the same periods in 1997. This decrease
resulted from completion of development of the cardiac output monitoring system
in 1998. The system is presently undergoing clinical testing and evaluation
before beginning production and releasing the product to the market. The Company
spent approximately $150,000 in new direct costs in 1998 on the development of
the new transcatheter product line that was purchased in November 1997. The
Company expects these expenditures on the transcatheter products to continue in
the second half of 1998.
SALES AND MARKETING. For the three and six months ended June 30, 1998 sales and
marketing expenses increased $108,408 and $181,873 or 98.4% and 99.7%,
respectively, as compared to the same periods in 1997. The increase is the
result of the following: (1) increased personnel expenditures, (2) commencement
of marketing of the transcatheter closure product line in Europe (3)
expenditures to obtain ISO 9000 certification and the CE mark in Europe and, (4)
expenditures to begin clinical trials of the transcatheter product line in the
United States. The Company expects its sales and marketing expenditures to
continue to increase in 1998 as it continues its expenditures in these areas.
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GENERAL AND ADMINISTRATIVE. For the three and six months ended June 30, 1998
general and administrative expenses decreased $31,038 and $18,626 or 15.8% and
5.2%, respectively, as compared to the same periods in 1997. This decrease is
the result of a general leveling off of the administrative activity and an
effort to control costs. The Company expects these costs to remain stable for
the balance of 1998.
INTEREST INCOME. For the three and six months ended June 30, 1998, interest
income decreased $28,028 and $54,800, respectively over the same period in 1997
primarily as a result of fewer funds available for investment.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and short-term investments of $3,438,608
and working capital of $3,550,035. The Company used cash of $1,115,640 in
operating activity during the first six months of 1998 including a net loss of
$1,191,943. The Company generated funds to support this loss primarily through
sales and maturities of short-term investments in the amount of $1,026,511 and
$185,000 generated from the exercise of options and warrants.
The Company believes that its existing cash, cash equivalents and short-term
investments together with funds generated from operations will enable the
Company to meet its liquidity and capital resources needs for approximately the
next twelve months.
YEAR 2000 COMPLIANCE
The Company has commenced an assessment of its major information technology
systems and believes that all necessary modifications or replacements of
existing systems have been completed. The Company's progress in this area is
being monitored by senior management. Based upon current expenditures and
estimates, the Company does not believe the costs of addressing the Year 2000
issues to be material to the financial results or operations of the Company. At
this time, the impact on the Company if significant vendor or suppliers are not
in compliance cannot be reasonably estimated. The Company intends to develop
plans to mitigate the impact of vendors or suppliers who are not in compliance
with the Year 2000 issue.
PURCHASE OF PRODUCT LINE
In November 1997, the Company acquired the technology and assets (including the
in-process research and development) of the transcatheter closure product line
of Schneidt Implantate, GmbH of Frankfurt, Germany. Transcatheter closure
devices are a new generation of small, implantable devices which are delivered
through a catheter to permanently repair certain cardiac defects in children and
adults. The total purchase price was $541,457, which included 85,000 shares of
common stock, and $31,457 of acquisition related costs. The assets acquired
consisted exclusively
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of patents and other intangibles.
The Company began limited sales of this product line in Europe in 1998 and
through June 30, 1998, had generated sales of $37,440. The Company intends to
further develop and expand this product line in 1998 and 1999 and is also
pursuing the steps required to obtain ISO certification and the CE mark in 1998
to allow the Company to sell the product line throughout Europe. The Company
also intends to obtain market clearance from the United States Food and Drug
Administration ("FDA") to market the product in the United States. The Company
intends to file an Investigation Device Exemption (IDE) for the United States
clinical trials with a view to commencing clinical trials in 1999. The Company
expects expenditures for research and development and sales and marketing for
this product line to total approximately $500,000 for 1998 and 1999.
FORWARD LOOKING STATEMENTS
Statements included in this Form 10-Q that are not historical in nature or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995 and are subject to
certain risks and uncertainties that could cause actual results to differ
materially. Among these risks and uncertainties are (1) the Company's limited
revenues, history of losses and uncertainty of future results, (2) the
uncertainty of market acceptance of the Company's products, and (3) the fact
that the Company has limited experience in manufacturing its products in
commercial quantities.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Change in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
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Item 4. Submission of Matters to a Vote of Security Holders
On June 12, 1998, Applied Biometrics, Inc. held its annual
shareholders meeting. There were 4,296,117 shares of common stock
eligible to vote.
(1) The votes cast for the four directors to service until the
next annual meeting or until their successors are elected and
qualified were:
FOR WITHHELD
--- --------
Joseph A. Marino 3,981,678 66,200
Patrick Delaney 4,043,078 4,800
Demetre Nicoloff, M.D. Ph.d. 4,043,578 4,300
Jeffrey Green 4,043,578 4,300
(2) The votes cast to ratify and approve the Company's 1998 Stock
plan were:
FOR 2,342,668 AGAINST 239,655 ABSTAIN 20,960
(3) The votes cast to ratify and approve the appointment of Price
Waterhouse as independent public accountants for the Company
for the year ended December 31, 1998 were:
FOR 4,048,841 AGAINST 4,250 ABSTAIN 22,216
Item 5. Other Information
The deadline for submission of shareholder proposals pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
for inclusion in the Company's proxy statement for its 1999 Annual
Meeting of Shareholders is January 1, 1999. Additionally, if the
Company receives notice of a shareholder proposal after March 16,
1999, such proposal will be considered untimely pursuant to Rules
14a-4 and 14a-5(e) and the persons names in proxies solicited by
the Board of Directors of the Company for its 1999 Annual Meeting
of Shareholders may exercise discretionary voting power with
respect to such proposal.
Item. 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1998
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SIGNATURES
----------
In accordance with 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.
Applied Biometrics, Inc.
------------------------
Registrant
/s/ Joseph A. Marino
------------------------
Joseph A. Marino
President, CEO
/s/ Gerald J. Prescott
------------------------
Gerald J. Prescott
Vice President and
Chief Financial Officer
Date: August 10, 1998
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