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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1999
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
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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: (612) 890-1123
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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 November 12, 1999, there were 5,299,004 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 SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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September 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 2,709,718 $ 1,869,413
Marketable securities, short-term ............................ -- 500,000
Inventories, net ............................................. 169,374 175,078
Other ........................................................ 48,020 37,833
------------ ------------
Total current assets ..................................... 2,927,112 2,582,324
Equipment and leasehold improvements, net .................... 608,934 427,086
Intangibles, net ............................................. 70,568 75,074
Other ........................................................ 9,585 9,585
Net assets of discontinued operations ........................ -- 202,642
------------ ------------
Total assets ............................................. $ 3,616,199 $ 3,296,711
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 102,557 $ 56,186
Accrued expenses ............................................. 241,872 87,200
------------ ------------
Total current liabilities ................................ 344,429 143,386
------------ ------------
Non-current liabilities:
Liability for pending issuance of common stock ............... -- 1,001,761
Capital lease obligation ..................................... 14,121 --
------------ ------------
Total non-current liabilities ............................ 14,121 1,001,761
------------ ------------
Shareholders' equity:
Common stock: authorized 10,000,000 shares of $.01 par value;
5,299,004 issued and outstanding at September 30, 1999 and
4,337,117 at December 31, 1998 ........................... 52,990 43,371
Additional paid-in capital ................................... 23,685,933 20,560,849
Accumulated deficit .......................................... (20,481,274) (18,452,656)
------------ ------------
Total shareholders' equity ............................... 3,257,649 2,151,564
------------ ------------
Total liabilities and shareholders' equity ............... $ 3,616,199 $ 3,296,711
============ ============
The accompanying notes are an integral part of
the interim unaudited financial statements.
2
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
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Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Operating expenses:
Selling, general and administrative ....... $ 287,625 $ 336,469 $ 778,949 $ 739,430
Research and development .................. 417,192 120,435 972,210 599,777
----------- ----------- ----------- -----------
Operating loss ............................ (704,817) (456,904) (1,751,159) (1,339,207)
Other income, net ......................... 10,554 44,171 56,711 153,789
----------- ----------- ----------- -----------
Net loss from continuing operations ....... (694,263) (412,733) (1,694,448) (1,185,418)
Discontinued operations:
Loss from operations of transcatheter
closure business .................... -- (195,109) -- (614,367)
----------- ----------- ----------- -----------
Net loss .................................. $ (694,263) $ (607,842) $(1,694,448) $(1,799,785)
=========== =========== =========== ===========
Basic and diluted loss per share:
Continuing operations ............... $ (0.15) $ (0.10) $ (0.38) $ (0.28)
Discontinued operations ............. (0.00) (0.05) (0.00) (0.14)
----------- ----------- ----------- -----------
Net loss ............................ $ (0.15) $ (0.14) $ (0.38) $ (0.42)
=========== =========== =========== ===========
Weighted-average common shares outstanding 4,501,721 4,329,264 4,443,723 4,303,917
=========== =========== =========== ===========
The accompanying notes are an integral part of
the interim unaudited financial statements.
3
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1997, 1998 AND SEPTEMBER 30, 1999
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Common Stock Additional Accumulated
Shares Amount Paid in 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
Net loss ............................... (2,592,470)
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December 31, 1997 ...................... 4,276,117 42,761 20,278,959 (15,050,518)
Exercise of stock options .............. 61,000 610 281,890
Net loss ............................... (3,402,138)
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December 31, 1998 ...................... 4,337,117 43,371 20,560,849 (18,452,656)
Issuance of stock, net of offering costs 815,000 8,150 2,049,791
Exercise of stock options .............. 146,887 1,469 1,075,293
Distribution of the net assets of
Cardia, Inc. ........................... (334,170)
Net loss for the nine months ended
September 30, 1999 ..................... (1,694,448)
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September 30, 1999 (unaudited) ......... 5,299,004 $ 52,990 $ 23,685,933 $(20,481,274)
=============================================================
The accompanying notes are an integral part of
the interim unaudited financial statements.
4
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
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Nine Months Ended
September 30,
1999 1998
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(1,694,448) $(1,799,785)
Net loss from discontinued operations .................................. -- 614,367
----------- -----------
Loss from continuing operations ........................................ (1,694,448) (1,185,418)
Adjustments to reconcile net loss from continuing operations to net cash
used by operating activities:
Depreciation ........................................................... 145,585 153,142
Amortization ........................................................... 10,848 6,885
Changes in operating assets and liabilities:
Inventory .............................................................. 5,704 (12,223)
Prepaid expenses and other current assets .............................. (10,187) 12,801
Accounts payable and accrued expenses .................................. 193,016 10,999
----------- -----------
Net cash used by continuing operations .............................. (1,349,482) (1,013,814)
Net cash used by discontinued operations ............................ (120,548) (635,628)
----------- -----------
Net cash used by operating activities ............................... (1,470,030) (1,649,442)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments ......................... 500,000 664,647
Purchase equipment and improvements .................................... (303,824) (46,907)
Investments in patents and trademarks .................................. (6,323)
Discontinued operations, purchase of equipment ......................... (10,981) (22,142)
----------- -----------
Net cash provided by investing activities ........................... 178,872 595,598
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ................................. 2,057,941 --
Proceeds from exercise of stock options ................................ 75,001 277,500
Repayment of capital lease obligations ................................. (1,479) --
----------- -----------
Net cash provided by financing activities ........................... 2,131,463 277,500
----------- -----------
Net increase (decrease) in cash and cash equivalents ................... 840,305 (776,344)
Cash and cash equivalents at beginning of year ......................... 1,869,413 821,673
----------- -----------
Cash and cash equivalents at end of the period ......................... $ 2,709,718 $ 45,329
=========== ===========
The accompanying notes are an integral part of
the interim unaudited financial statements.
5
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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(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 1999 Annual Report to
Shareholders and incorporated by reference in the Company's Form 10-K for the
year ended December 31, 1998.
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 nine months ended September 30, 1999 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, 1999.
(2) DISCONTINUED OPERATIONS:
In December 1998, the Board of Directors of the Company approved a plan to
distribute its transcatheter closure business through a wholly owned subsidiary,
Cardia, Inc. ("Cardia") to the shareholders. The distribution was completed on
February 11, 1999 to shareholders of record on January 25, 1999. Shareholders
received one share of Cardia, Inc. common stock for every 11.563 common shares
of Applied Biometrics held. The Company's financial statements report Cardia as
a discontinued operation.
Cardia's 1999 operating results through the distribution date were break-even.
Net assets attributable to Cardia of $334,171 were distributed at their net book
value and were reflected as a dividend and the Company recorded no gain or loss
as a result of the distribution.
6
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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(3) EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, during fiscal year 1998. Earnings per share for the periods
presented have been prepared in accordance with the provisions of SFAS No. 128.
The following table sets forth the computation of shares outstanding used in the
calculation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Denominator for basic earnings per share:
Weighted-average common shares ........ 4,501,721 4,329,264 4,443,723 4,303,917
Effect of dilutive securities:
Shares associated with option plans ... -- -- -- --
Dilutive potential common shares ...... -- -- -- --
--------- --------- --------- ---------
Denominator for diluted earnings per share:
Adjusted weighted-average common shares
and dilutive potential common shares .. 4,501,721 4,329,264 4,443,723 4,303,917
========= ========= ========= =========
As of September 30,
1999 1998
---- ----
(Unaudited)
Options outstanding 616,650 884,537
Exercise prices ....................................... $3.00-12.625 $3.00 - 12.625
Expiration dates ...................................... 2000 - 2009 1999 - 2008
For the three and nine-month periods ended September 30, 1999 and 1998, none of
the options outstanding were included in the computation of diluted earnings per
share for those periods because the Company had incurred net losses, and the
inclusion of options would have been anti-dilutive.
(4) COMPREHENSIVE INCOME:
Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"),
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in the financial statements. The Company currently has no items that
would be included as a component of other comprehensive income.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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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 MAY INCLUDE, THE COMPANY'S DEPENDENCE ON AND NEED FOR
FURTHER DEVELOPMENT OF 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 COMPANY'S
PRODUCT, 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 FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
Applied Biometrics, Inc. ("Applied Biometrics" or "the Company") is a
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 transducer technology, signal processing, cardiac anatomy, pathology
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 are U.S. Food and Drug
Administration ("FDA") cleared medical devices designed to provide real time,
beat-to-beat, cardiac output monitoring in surgical and post-operative,
intensive care unit settings.
During the nine months ended September 30, 1999, the Company continued
development of its Basis Cardiac Output Monitoring System and RealFlow Probe,
focusing on product refinement, upgrading its manufacturing facility, beginning
production, and completing an equity financing to provide necessary capital for
the Company's development and commercialization plans for Basis and RealFlow.
The Company's plans currently call for product evaluations to be conducted at a
number of adult and pediatric clinical sites in the U.S. prior to commercial
release of the system. These product evaluations were commenced in October 1999
at one clinical site in the U.S.
While the early results from these evaluations indicated that the product
performed well in a number of respects, the results also indicated the need for
modifications to the Basis Cardiac Output Monitoring System in order to meet the
Company's product performance expectations. The Company intends to make these
modifications before continuing with further product evaluations at its clinical
sites. As a result, the Company anticipates that its planned product evaluations
will continue into the first half of 2000. The Company intends to commercialize
the Basis Cardiac Output Monitoring System following the successful completion
of these product evaluations. The Company's ability to meet the timelines in
these forward-looking statements will depend upon the Company's ability to
timely and successfully develop the necessary product modifications, begin
manufacturing modified products, and the outcome of evaluations of the modified
products.
The Company's recent private equity-financing was completed on September 29,
1999 and resulted in net proceeds of $2.1 million. The Company issued 815,000
shares of Common Stock at an offering price of $3.00 per share. The infusion of
additional capital will be used to complete the development of the Company's
Basis and RealFlow products and prepare for the market launch of these products
in 2000.
Earlier in the year, the Company completed the distribution of Cardia, Inc.
("Cardia") to the Company's shareholders. The distribution was effective on
February 11, 1999 to shareholders of record on January 25, 1999. The completion
of the Cardia distribution allows the Company to focus all of its resources on
completing the development of its cardiac output monitoring system.
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 WITH
THE THREE MONTHS ENDED SEPTEMBER 30, 1998
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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Selling, general and administrative expenses decreased $48,000 in the third
quarter of 1999 from $336,000 during the 1998 period to $288,000 during the 1999
period. Selling, general and administrative costs for the 1998 period were
generally allocated between continuing and discontinued operations, while these
costs for the 1999 period were fully absorbed by continuing operations. The
decrease in costs in the 1999 quarter compared to the 1998 quarter are primarily
related to higher than usual costs in the third quarter of 1998 for legal and
ISO certification services related principally to the Cardia transcatheur
closure product but not fully absorbed by discontinued operations.
Research and development expenses increased $297,000 from $120,000 in 1998 to
$417,000 in 1999 due to increased engineering, operations and quality personnel
costs, mammal testing and manufacturing pilot costs in the 1999 period related
to the Company's Cardiac Output Monitoring System and due to the allocation of
1998 period costs to discontinued operations.
Operating costs are expected to continue to increase as the Company adds
personnel, equipment and other costs to complete the development and bring to
market its Basis Cardiac Output Monitoring System. This forward looking
statement will be influenced primarily by the Company's estimate of time and
resources needed to complete development (including the necessary modification
discussed above), the Company's ability to establish manufacturing and quality
systems necessary to produce the product, success of the Company's field product
evaluations and market acceptance of the cardiac output monitoring system.
Other income, primarily interest income, decreased $34,000 from $44,000 in the
third quarter of 1998 to $10,000 in the 1999 quarter. The decrease is due to
lower average investment balances in the 1999 quarter than in the 1998 quarter.
The 1999 third quarter net loss was $694,000, or $0.15 per share, compared to a
net loss of $608,000, or $0.14 per share in 1998, including a $195,000, or $.05
per share, loss from discontinued operations.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Selling, general and administrative expenses increased $40,000 from $739,000
during the 1998 nine-month period to $779,000 in the 1999 period. Costs during
the 1999 period were generally higher than the 1998 period due to 1998 costs
allocated between continuing and discontinuing operations. The 1999 selling,
general and administrative costs are expected to end the year higher than the
1998 period due to continued operations fully absorbing these costs since the
spin-off of Cardia in the first quarter of 1999 and due to staff added during
the 1999 year in connection with the Company's plans for commercialization of
the Basis Cardiac Output Monitoring System.
Research and development expenses increased $372,000 from $600,000 in 1998 to
$972,000 in 1999 as increased spending for engineering, operations and quality
personnel, prototype testing, mammal testing and pilot manufacture costs related
to the Company's Cardiac Output Monitoring System exceeded research and
development costs that were allocated to discontinued operations in the 1998
period.
Other income, primarily interest income, decreased $97,000 from $154,000 in the
nine-months of 1998 to $57,000 in the 1999 period. The decrease is due to lower
average investment balances in the 1999 period than in the 1998 period.
Investment resources were used throughout 1998 and the first quarter of 1999 for
development efforts toward both the Company's Cardiac Output Monitoring System
and the transcatheter closure device, which comprised the core technology
distributed with Cardia, Inc. Investment resources during the second and third
quarters of 1999 have continued to fund the Basis Cardiac Output Monitoring
System and RealFlow Probe development.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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The net loss for the nine months ended September 30, 1999 was $1,694,000, or
$0.38 per share, compared to a net loss of $1,800,000, or $0.42 per share, in
1998, which included a $614,000, or $0.14 per share, loss from discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $2,700,000 at September 30, 1999 as compared to
$2,400,000 of cash, cash equivalents and marketable securities at December 31,
1998, an increase of $300,000. During the third quarter the Company completed a
private equity-financing resulting in net proceeds of $2.1 million. The cash
inflow from the equity-financing was offset by the year to date loss from
operations and cash used for leasehold improvements and equipment purchases.
Continuing operating activities in 1999 used cash of $1,349,000 as compared to
$1,014,000 used during the 1998 nine-month period. Discontinued operations used
cash of $121,000 during the 1999 period as compared to $636,000 in the prior
nine-month period.
Investing activities provided $179,000 in the 1999 period as compared to
$596,000 in the 1998 period. Short-term investments of $500,000matured in the
1999 period and were offset by $300,000 of leasehold improvements and equipment
purchases. The 1998 period also had $665,000 of short-term investments maturing,
offset by $47,000 of equipment purchases. Discontinued operations used $11,000
and $22,000 in the 1999 and 1998 periods, respectively. The Company intends to
spend approximately $100,000 on capital expenditures in the fourth quarter of
the year. These expenditures will continue to expand the manufacturing and
information technology capabilities of the Company and directly support the
commercialization of the Company's Basis Cardiac Output Monitoring System. The
Company has financing for these expenditures that will be secured by the
equipment and requires the Company to issue the lenders a warrant to purchase
the Company's common stock.
Financing activities in the nine-month period provided $2,131,000 of cash,
resulting primarily from the issuance of Common Stock.
Based on its expected rate of spending the Company believes, , that its existing
cash and cash equivalents will enable the Company to meet its cash requirements
for approximately the next six months. As a result the Company will need
additional financing in order to successfully meet its current product
development, market commercialization plans for its Basis Cardiac Output
Monitoring System and capital expenditure needs. This forward-looking statement
will be influenced by the Company's ability to meet its operational and
development plans, as well as unanticipated changes to commit cash primarily for
additional personnel and capital expenditures. The Company continues to pursue
alternatives for obtaining additional working capital.
NEW ACCOUNTING STANDARDS
Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"),
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in the financial statements. The Company currently has no items that
would be included as a component of other comprehensive income.
Other than the above statement, no other new accounting pronouncements have been
issued that will have an impact on the Company's financial statements.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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YEAR 2000 READINESS - UPDATE
The following Year 2000 disclosure update is required by the rules and
regulations of the Securities and Exchange Commission and constitutes a "Year
2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness
Disclosure Act.
The "Year 2000" or "Y2K" problem references the problem caused by computer
systems that have historically been written using two digits rather than four
digits to define the applicable year. Additionally, the Y2K problem includes a
problem calculating leap year if a computer system does not correctly identify
the year 2000 as being a leap year. Company computer systems and other equipment
and technology having date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000 and may not recognize the year 2000 as a
leap year. The Company defines "Year 2000 compliant" to mean that a product or
service accurately process dates and times into and between the twentieth and
twenty-first centuries, into and between the years 1900 and 2000, performs
correct leap year calculations and properly exchanges date and time information
with other products or services when used in combination.
STATE OF READINESS. The Company has tested and validated that its Basis Cardiac
Output Monitoring System is Y2K compliant. The Company is in the process of
documenting this validation process and the underlying components in the system.
The Company has not as of the date of this report initiated a formal Y2K Plan as
it had earlier intended with regard to IT and non-IT hardware, operating
systems, software and the Year 2000 compliance status of its vendors and other
service providers. However, the Company information technology ("IT") and
non-information technology ("non-IT") systems are minimal and non-critical.
HARDWARE. The Company believes that its IT hardware have been upgraded for Y2K
compliance and are compliant.
OPERATING SYSTEMS. The Company's operating systems are Microsoft NT, Novell
Netware, Microsoft Windows 98 and Microsoft Windows NT. Novell has certified
Netware to be Y2K compliant. Microsoft has certified Windows 98 and Windows NT
to be Y2K compliant. Microsoft has also certified its NT 4.x network operating
system is Y2K compliant upon installation of service release four. The Company
has completed all such operating system upgrades.
SOFTWARE APPLICATIONS. The Company's software systems consist of "off-the-shelf"
software. None of these software programs are critical to the Company's ability
to accurately and timely process transactions. The Company believes that all
software applications are either Y2K compliant or not dependent on date/time
accuracy.
THIRD PARTY RELATIONSHIPS. Because Y2K issues may also impact the Company by
affecting the business and operations of the Company's vendors and other
business partners, the Company has begun to communicate with these parties
regarding their Y2K compliance status as part of its ongoing normal day-to-day
business communications. The Y2K compliant status of the Company's vendors will
be part of the Company's vendor qualification program. These communications will
not be completed by the end of 1999 and accordingly, the Company will not been
able to determine if the failure of a third-party to be Y2K compliant will have
a material adverse affect on the Company.
COSTS TO ADDRESS YEAR 2000 ISSUES. Although the ultimate cost of attaining Year
2000 compliance is not fully known at this time, management anticipates that any
external costs will not be material. Any costs incurred will be funded from
operations. The Company does not track internal personnel time spent on IT
projects. To date, no IT projects have been delayed as a result of the Y2K
problem. If the Company needs to devote more resources to the Y2K problem than
currently anticipated, additional costs may be incurred. Such a situation could
have a material adverse effect on the Company's financial condition and results
of operations.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
The costs of Year 2000 compliance and the anticipated impact of the Y2K problem
are the best estimates of Company management. Estimated costs and the
anticipated impact of the Y2K problem are forward-looking statements that may be
affected by the Company's current assessment of its internal exposure to the Y2K
problem, the timeliness and accuracy of information provided by the Company's
vendors and other business partners, the cost and availability of upgrades,
corrections or replacements for IT and non-IT systems identified as
non-compliant, and the cost of and the Company's ability to procure the services
of consultants or qualified personnel if needed to assist with any unexpected
Y2K problems.
WORST CASE SCENARIO. The Company believes that its most reasonably likely, worst
case scenario as a result of the Year 2000 problem will be the failure of one or
more significant vendors or business partners to become Year 2000 compliant and
the inability of the Company to determine or react on a timely basis in order to
mitigate the effects on the Company. If the operations of any significant vendor
or other business partner are disrupted due to the Year 2000 problem and the
Company is unable to develop and implement an effective contingency plan, the
Company's ability to carry on essential activities could be materially affected.
There can be no assurance that this scenario or any other impact of the Y2K
problem will not have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTINGENCY PLANS. To date, the Company has not yet developed any detailed
contingency plans to address Year 2000 compliance deficiencies. To the extent
that the Company identifies Year 2000 compliance issues that cannot be addressed
on a timely basis, it will seek to develop appropriate contingency plans in
order to mitigate its risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 29, 1999, the Company completed a private placement of 815,000
shares of its Common Stock at an aggregate price of $2,445,000, resulting in net
proceeds of $2.1 million after deducting agents' commissions of $244,500 and
other expenses. The sale of securities was made to "accredited investors" as
defined in Rule 501(a) of Regulation D and in reliance on Regulation D and
Section 4(2) under the Securities Act of 1933, as amended. Miller Johnson &
Kuehn, Inc. of Minneapolis, MN and Fleming Securities, Inc. of Scottsdale, AZ
acted as the Company's agents in the private placement. In connection with the
private placement the Company issued the agents together warrants to purchase an
aggregate of 81,500 shares of Common Stock at an exercise price of $3.00 per
share.
The Company intends to use the net proceeds from this offering to fund research
and development activities, build manufacturing capacity, develop a sales and
marketing organization, increase working capital and for other general corporate
purposes.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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.
13
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: November 15, 1999 /s/ Camille M. Meyer
---------------------------------------------------
Camille M. Meyer
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
14
APPLIED BIOMETRICS, INC.
INDEX TO EXHIBITS
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27.1 Financial Data Schedule for the nine-month period ended September
30, 1999 (filed herewith electronically).
99.1 Important Factors (filed herewith electronically).
15