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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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.
(Name of small business issuer in its charter)
MINNESOTA 41-1508112
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
501 EAST HIGHWAY 13, SUITE 108
BURNSVILLE, MN 55337
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (612) 890-1123
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 ____
[X] Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
The issuer had total revenues of $125,120 for its fiscal year ended December 31,
1996.
As of March 18, 1997, assuming as market value the price of 9 7/8 per share (the
last sales price of the Company's Common Stock on the Nasdaq SmallCap Market),
the aggregate market value of shares held by non-affiliates was $ 40,244,782.
As of March 18, 1997, the Company had outstanding 4,169,587 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Company's Proxy Statement
for its Annual Meeting of Shareholders to be conducted on May 14, 1997 (the
"1997 Proxy Statement") are incorporated by reference into Part III of this Form
10-KSB, to the extent described in Part III. The 1997 Proxy Statement will be
filed within 120 days after the end of the fiscal year ended December 31, 1996.
Transitional Small Business Disclosure Format (Check One) Yes ____ No __X__
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TABLE OF CONTENTS
PART I
PAGE NO.
Item 1. Description of Business............................... 3
Item 2. Description of Property............................... 12
Item 3. Legal Proceedings..................................... 12
Item 4. Submission of Matters to a Vote of
Security Holders...................................... 12
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters....................... 12
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations...... 13
Item 7. Financial Statements.................................. 14
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 15
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act..................... 15
Item 10. Executive Compensation................................ 15
Item 11. Security Ownership of Certain
Beneficial Owners and Management...................... 15
Item 12 Certain Relationships and Related Transactions........ 15
Item 13 Exhibits and Reports on
Form 8-K.............................................. 15
SIGNATURES............................................................... 16
FINANCIAL STATEMENTS..................................................... F-1
STATEMENTS INCLUDED IN THIS FORM 10-KSB THAT ARE NOT HISTORICAL OR CURRENT FACTS
ARE "FORWARD-LOOKING STATEMENTS" MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION 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 (i) THE COMPANY'S LIMITED REVENUES,
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS; (ii) THE UNCERTAINTY OF
MARKET ACCEPTANCE OF THE COMPANY'S PRODUCT, THE EXTRAVASCULAR DOPPLER ("EVD")
PROBE WHICH HAS RECENTLY BEEN REINTRODUCED TO THE COMMERCIAL MARKET; (iii) THE
FACT THAT THE COMPANY HAS LIMITED EXPERIENCE IN MANUFACTURING THE EVD PROBE IN
COMMERCIAL QUANTITIES, AND (iv) THE FACT THAT THE COMPANY HAS NOT YET DEVELOPED
ITS TRANSTRACHEAL DOPPLER ("TTD") PROBE AND THERE IS NO ASSURANCE THAT IT WILL
BE FULLY DEVELOPED OR COMMERCIALLY ACCEPTED IN THE FUTURE.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Applied Biometrics, Inc. develops, manufactures and markets cardiac output
monitoring devices for use in hospital operating rooms and intensive care units.
These devices aid medical personnel in monitoring the condition of patients
during actual operations and throughout the patient's recovery by providing
immediate and continious information concerning cardiac output and overall
efficiency of the operation of the patient's entire circulatory system, which
carries oxygen and nutrients to cells of the body. Abnormally low or high
cardiac output is an early sign that trouble has or could occur to a patient
under anesthesia during or after surgery or to a patient in the intensive care
unit.
Medical practitioners recognize the importance of measuring cardiac output (the
amount of blood pumped throughout the body) in many clinical settings, which is
illustrated by the fact that approximately 1.9 million cardiac output
catheterizations are performed each year worldwide. The knowledge of cardiac
output is important in the care of patients who are experiencing major, sudden
changes in the cardiovascular system, compromise of one or more major organ
systems, in the identification of patients who are at high risk for surgery and
in the management of patient fluid and drug levels during surgery. Because a
patient's condition and progress can change rapidly and unpredictably in the
critical care environment, there is a need for an early warning signal that can
alert the physician to a potentially dangerous situation and/or that measures
patient response to subsequent intervention. The products developed and
manufactured by the Company are designed to meet these complex needs of the
critical care environment which dictates not only that information be of high
quality and reliably delivered, but also be instantaneously received at
relatively low cost with minimum difficulty of access and interpretation.
The Company's initial target market is the pediatric surgery market. Due to the
small size of pediatric surgical patients, there is no competing product which
can measure cardiac output in infants and small children. In addition, the
number of pediatric surgeons is relatively small. The Company expects that the
lack of competition and the small number of potential customers will allow it to
quickly penetrate an important market where the utility and efficacy of the EVD
probe can be demonstrated.
COMPANY PRODUCTS
In the past three years, the Company has focused its efforts primarily in
developing the Extravascular Doppler ("EVD") probe, which uses the ABCOM 2000
Monitor. The Company intends, within the first half of 1997, to begin
redevelopment of its Transtracheal Doppler ('TTD") device, described below.
THE EXTRAVASCULAR DOPPLER PROBE
The EVD probe, which is placed into the body during open-chest operations to
monitor cardiac output during surgery and the post-operative recovery period, is
a single-use disposable product that is attached by the surgeon directly to the
ascending aorta. Two transducers mounted on the distal end of the EVD probe
transmit an ultrasound signal through the blood vessel. The cardiac output is
then computed by measuring the diameter of the blood vessel and the velocity of
the blood. This provides accurate blood flow measurement during open-chest
surgery and the post-operative period of intensive care. Because the EVD probe
is sutured to the blood vessel, it is stationary and will not move or misdirect
the ultrasound signal during use, which prevents distortion of the EVD's
accuracy.
Following placement of the EVD probe, the surgical wound is closed with the EVD
probe exiting through the abdomen. Cardiac output may be continuously measured
for several days during the patient's stay in the intensive care unit. When
monitoring is complete, the EVD probe is non-surgically removed using a patented
integrated release mechanism.
The Company has experienced several problems in the development of the EVD
Cardiac Output Monitoring System (EVD) that have resulted in delays in the
marketing and sale of this product. These problems with the EVD have generally
involved engineering, development and manufacturing issues. The Company believes
that it has addressed all the problems associated with the development of the
EVD and it is now selling and shipping the product to customers. However, there
can be no assurances that all problems have been corrected or that further
problems will not develop as the Company continues the marketing roll-out of the
EVD Cardiac Output Monitoring System.
Future applications of the EVD probe may involve placement of the ultrasound
probe on other vessels during surgical procedures such as vascular grafts and
organ transplants. Although these and other similar applications have been
considered, the method and extent of use of the EVD probe for such secondary
purposes, or the materiality of revenues from such uses, have not been
determined. The Company has focused its efforts on improving and refining the
EVD probe so that it can meet the quality, reliability and cost-effective
demands of the critical care environment. See "Research and Development".
THE TRANSTRACHEAL DOPPLER
The Company believes that its TTD system will represent a breakthrough in
cardiac output monitoring technology. The first TTD device, however, was
difficult to use so the Company discontinued active marketing of the first TTD
device in 1991. The Company plans to begin a research and development project
intended to bring the TTD device back to market in 1998, but no assurance can be
given that that project will result in the re-introduction of the TTD device or
that the TTD device will be successful if it is re-introduced. If the Company is
able to successfully redevelop the TTD device, it is expected to become a
significant contributor to sales and earnings because of the widespread
interest, need and desire for such a non-invasive means of monitoring cardiac
output in the critical care environment.
The TTD device is a single-use disposable endotracheal tube used during normal
surgery with integrated transducers, which, when inserted into the trachea
transmits an ultrasound signal through the ascending aorta to determine cardiac
output. The TTD device provides a minimally invasive means of measuring cardiac
output and is a clear and significant improvement over other methods such as
thermodilution in which cold saline injections into the heart are typically
performed every one or two hours. The TTD device can be produced in a variety of
sizes for use on a wide range of patients from small children to large adults.
Among the expected benefits that the TTD procedure will provide over other
commonly used methods of measurement of cardiac output are the following: (i) no
invasion of the vascular system or the heart (eliminates potential
complications); (ii) no surgical procedure is required; (iii) no indwelling
foreign body in the vascular system, major body cavity or major organ is
necessary; and (iv) no saline, dye or radioactive substance is necessary for
measurement.
ABCOM 2000 CARDIAC OUTPUT MONITOR
Cardiac output, as determined by both the Company's EVD probe and TTD device, is
displayed on the Company's ABCOM 2000 Monitor. The ABCOM 2000 Monitor utilizes
proprietary software developed by the Company to indicate cardiac output and
show, in wave form, the velocity of blood and blood flow direction. It can also
index cardiac output by dividing cardiac output by body surface area, has a menu
instruction or prompt sequence to lead the physician through proper operation
and it displays instructions concerning entry of data for the monitor. During
the post-operative period, the monitor provides attending physicians and other
medical personnel continuous, real-time monitoring of cardiac output. The
monitor also provides trending information and feedback for the purpose of
setting heart pacemakers and assessing the effect of drug therapies on cardiac
output.
The Company is also developing the next generation of the ABCOM 2000 Cardiac
Output Monitor. This new monitor will be used on adult patients as well as
pediatric patients and is expected to increase the functionality of the TTD
device.
USE OF ULTRASOUND TECHNOLOGY
A unique feature of both the EVD probe and the TTD device is that they use two
modes of ultrasound technology to continuously monitor cardiac output. In one
mode of operation, the diameter of the blood vessel can be measured. The
ultrasound pulse is transmitted from a transducer and the ABCOM 2000 monitor
measures the time between the sending of the pulse and its reflection from the
near and far wall of the vessel.
In the second mode, Doppler ultrasound is used to measure the velocity of blood.
This method of operation is similar to the technology underlying speed radar
used by police. In this mode, the velocity of an object is determined by
measuring "Doppler shift." Doppler shift is the amount by which the frequency of
a sound wave is changed by the velocity of the object from which it is
reflected. A common example of Doppler shift is the change in the sound of the
whistle of a passing train (i.e., the sound frequency is higher when the train
is approaching and lower when the train is departing). Thus, the ultrasound
technology employed by the Company's products is used to monitor the cardiac
output by measuring both the diameter of a blood vessel and the velocity of the
blood moving throughout it.
MARKET
Generally, potential markets for the Company's products exist in all large and
critical care hospitals. The products have application in the operating room,
post-anesthesia recovery room and in intensive/critical care units.
The anticipated market for the EVD probe is significant primarily due to the
700,000 open chest procedures performed worldwide annually. This figure
represents coronary artery bypass grafting (CABG), heart valve replacement,
repairs of congenital heart defects as well as other procedures including heart
transplants. The Company believes the primary long-term market for its EVD probe
will be in placement of the probe on the ascending aorta for measurement of
blood flow during open-chest surgery and the post-operative recovery period.
The Company is initially focusing its EVD Probe marketing efforts on the
pediatric component of the open-chest market because there currently is no
clinically acceptable method available for monitoring cardiac output in
pediatric patients. There are approximately 250- 300 pediatric cardiovascular
surgeons operating at approximately 170 centers in the United States who are
responsible for performing nearly 50,000 pediatric open-chest procedures
annually in the United States, representing a highly focused, easily identified
and accessible market. In addition to the applications identified above, the
Company believes many other applications that could open up new potential
markets exist for the EVD probe where blood flow measurements are deemed
necessary but are otherwise unavailable or cost prohibitive. Among the other
potential applications are carotid endarterectomies, liver transplants, kidney
transplants, femoral bypass, as well as many other vascular procedures. It is
impossible to predict whether and to what extent such markets will develop.
The Company believes that the TTD device will have a larger potential market
than the EVD probe because it could be used in almost every procedure where an
endotracheal tube is inserted. Intubation, as such insertion is called, is
routinely used in critical care situations, surgeries, post-operative recovery
and intensive care. The anticipated market for the TTD device is the 16 million
U.S. and 30 million worldwide procedures that include an potential endotracheal
tube. The percentage of this potential market that can be captured by the
Company is unknown. If the Company can successfully develop the TTD device, it
believes that the less invasive nature of the TTD device may result in an
increase in the number of procedures during which cardiac output is monitored.
SALES AND MARKETING
The Company has a Vice President of Sales and Marketing who is responsible for
developing independent sales representatives and direct Company salespersons.
The Company presently has three independent sales representatives and one direct
sales-person that assist in seeking sales in the U.S. market. They are located
in major metropolitan areas, including New York City, Los Angeles, Dallas, and
Chicago. The Company intends to engage direct sales persons and additional
independent representatives for the remaining market for its products in the
United States. In addition, the Company presently has relationships with sales
distribution organizations in Europe, Japan, and the Middle East.
The Company believes that the TTD device can be effectively sold through the
distribution network that it intends to further develop to sell the EVD probe.
The TTD device is expected to be reintroduced to the marketplace after it has
been redeveloped.
Several professional papers have been written and presented on the subject of
the efficacy of continuous cardiac output monitoring using a Doppler ultrasound
probe. Those papers have generally indicated ultrasound technology is an
efficacious and promising method for monitoring continuous cardiac output. The
Company believes that such papers are beneficial and it intends to continue to
encourage the publication of such papers on the Company's products by
individuals believed to be influential in their areas of specialty.
INDUSTRY ECONOMICS
Government imposed payment rates for related treatment groups and prospective
reimbursement programs provide economic incentives for health care institutions
to reduce operating costs, a major departure from the former cost-plus system.
In essence, the health care industry is now faced with a fixed reimbursement for
the treatment of a specific illness or procedure performed, which encourages
health care institutions to be more efficient and productive. Therefore, the
more cases that can be treated below the designated rate with less costly
procedures and shorter hospital stays, the higher the level of profitability
that can be attained.
As a result of these reimbursement programs, some hospitals and other health
care institutions tend to avoid expensive technology in ancillary services and
have adopted a slower, more cost conscious approach to the utilization of new
techniques and equipment. While the present health case economic environment may
make it more difficult to introduce new products such as those that the Company
intends to market, it should increase the level of acceptance of new products
that are relatively inexpensive and increase efficiency and productivity. The
Company believes, but cannot assure, that clinical studies will prove that both
the EVD probe and the TTD device will provide cost advantages over the most
frequently used method of determining cardiac output, the thermodilution method.
Those cost advantages should result from the decreased cost of actually
performing the monitoring procedure, as well as the possible benefit of
decreased patient complications and shorter time required to recover as a result
of continuous cardiac output monitoring using a less invasive device. While the
Company is not aware of any significant reluctance on the part of the government
or other health care insurers to provide reimbursement for the procedures
performed with its products, future regulation and uncertainty among health care
institutions about the direction of reimbursement rates could adversely effect
the marketing efforts of the Company. See "Competition."
The federal and state governments are presently considering comprehensive
reforms of the system of delivering medical services in the United States and
the costs involved. The Company cannot predict what the effect will be of any
particular policy which is proposed or adopted. Nonetheless, management believes
that, since its products are more cost effective in monitoring cardiac output
than competitive technologies, it may be able to benefit from a policy which
encourages lower costs.
COMPETITION
There are several companies and institutions that are larger and have more
resources than those of the Company which have developed and are developing
technologies to measure cardiac output that compete with the Company's products.
These include most prominently Edwards Critical-Care, a division of Baxter
Healthcare Corporation, the chief manufacturer of thermodilution devices;
Spectramed Inc., a division of British Oxygen Company; and Abbott Critical Care.
All of these companies make and sell catheters, thermodilution cardiac monitors
and peripheral products used to measure cardiac output by the thermodilution
method, the method used in the vast majority of cases to measure cardiac output.
Each of them has more financial resources and is better able than the Company to
distribute their products.
The Company knows of no products that have been commercially offered to the
medical community that are similar to the Company's products in their underlying
technology and application. The Company's TTD device and EVD probe are
proprietary and the subject of patents. For this reason, and the fact that
development of such products is costly and time-consuming, the Company believes
that it will have few direct competitors in the near future.
The lack of invasion of the vascular system by the EVD probe and its ability to
provide continuous cardiac output measurements on a real-time basis provide
additional potential cost benefits. Patients may require less time in the
hospital and/or the intensive care unit if their condition is not adversely
affected by the introduction of a catheter to their vascular system and if
physicians are able to use the continuous cardiac output information to make
more timely diagnoses and apply more effective therapies. Those potential cost
advantages could lead to higher profits for health care providers whose
reimbursement is limited by government or private reimbursement rates. However,
no assurance can be given that the perceived cost advantages of the EVD probe
over the thermodilution method, or any other method, will be realized. See
"Industry Economics."
RESEARCH AND DEVELOPMENT
The Company's research and development expenditures were $894,517 and $689,354
in 1996 and 1995, respectively. These funds were used primarily to develop the
EVD probe. The Company expects its research and development expenditures to
increase in 1997. Although the Company believes the development of the EVD probe
is substantially complete, the Company believes that further refinements will be
made to the probe as the Company receives feedback from the users of this
product.
The Company's current and planned research and development expenditures relate
to the refinement of the EVD probe and development of the TTD device. The
Company is also currently upgrading the electronics and software used in the
ABCOM 2000 Monitor. Those upgrades are initially intended to benefit the EVD
probe, but they are also expected to increase the functionality of the TTD
device.
The Company's immediate goal for the EVD probe is to continue to refine this
device until it is viewed by the industry as a consistently accurate and
reliable device for monitoring cardiac output. After this goal is achieved, the
Company will begin to identify other applications and potential modifications
for the EVD probe that address the needs of the critical care environment. To
bring these other applications to market, if it can be done, additional research
and development will be necessary.
The Company anticipates that the redevelopment of the TTD device will require
approximately 12 months of actual development time, during which time
approximately $l,000,000 is expected to be spent on the project. There can be no
assurance that the Company can successfully redevelop the TTD device. The TTD
device has already been cleared by the FDA for commercial sale. See --
"Government Regulation."
GOVERNMENT REGULATION
All new medical devices, including the Company's products, are subject to a
premarket notification process pursuant to Section 510(k) of the Federal Food,
Drug and Cosmetic Act. The 510(k) notification filing must contain information
that establishes that the new product is substantially equivalent to an existing
device that has been continuously marketed since May 28, 1976. The United States
Food and Drug Administration ("FDA") must either deny the 510(k) submission,
request further information or approve the submission. Products that are not
eligible to receive approval through the FDA's premarket notification process
are subject to the FDA's much lengthier and more complex premarket approval
procedures.
FDA regulations classify medical devices into three classes that determine the
degree of regulatory control to which the manufacturer of the device is subject.
In general, Class I devices involve compliance with labeling and record-keeping
requirements and are subject to other general controls. Class II devices are
subject to performance standards in addition to general controls. Class III
devices are those devices for which premarket approval (as distinct from
premarket notification) is required to assure the devices' safety and
effectiveness prior to commercial distribution. All companies subject to FDA
regulation must comply with a variety of rules, including the FDA's Good
Manufacturing Practice regulations, and are subject to periodic inspections by
the FDA and other applicable agencies. If the FDA believes that its regulations
have not been fulfilled, it may implement extensive enforcement powers which
were strengthened by the enactment of the Safe Medical Devices Act of 1990. The
FDA's powers include, but are not limited to, the ability to ban products from
the market, prohibit the operation of manufacturing facilities and effect
recalls of products from customer locations.
The Company has received 510(k) clearance to market the EVD probe and the TTD
device. The Company does not presently believe it will be required to submit new
510(k) notifications covering the redesigned TTD device. To date, all of the
Company's products have been classified as Class II devices.
In addition to requiring clearance for new products, the FDA's rules may require
a filing and waiting period prior to marketing modifications of existing
products. After clearance is given, the Company is required to advise the FDA
and offer regulatory agencies of significant modifications to its products, and
those agencies have the power to withdraw the clearance and require the Company
to change the device or its manufacturing process or labeling, to supply
additional proof of its safety and effectiveness or recall, repair, replace or
refund the cost of the medical device if it is shown to be hazardous or
defective or otherwise misbranded or adulterated.
No assurance can be given that the FDA or other regulatory authorities will
give, on a timely basis, if at all, the requisite approvals for the pediatric
version of the EVD probe, the redesigned TTD device, or any other medical
products developed by the Company in the future. Even if approvals are received,
the process of obtaining clearance to market medical products is costly and time
consuming and can delay the marketing and sale of the Company's products.
Further, federal, state, foreign and other regulations regarding the manufacture
and sale of medical devices are subject to change. The Company cannot predict
what impact such changes, if any, might have on its business.
MANUFACTURING AND OPERATIONS
The Company's EVD Probe consists of two ultrasound transducers which are
positioned at the end of an electrical connector that is attached to the
Company's ABCOM 2000 Monitor. The TTD device consists of an ultrasound
transducer which is inserted into the trachea through a single-use disposable
endotracheal tube. The Company manufactures and assembles the EVD Probe, the TTD
device and the ABCOM 2000 Monitor at its facilities in Burnsville, Minnesota.
Certain of the components of the Company's products are manufactured by a third
party vendor or are off-the-shelf components.
The Company intends to seek ISO 9001 certification, which certification shows
compliance of the Company's manufacturing facilities with European standards for
quality assurance and manufacturing process control. The Company also intends to
establish compliance with the applicable requirements that will allow it to
affix the CE Mark to its product.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company has received five U.S. patents, two Canadian patents and one
European patent which relate primarily to devices and methods used to measure
blood flow through a major mammalian artery using ultrasound technology. A
patent application has been allowed in Japan and a patent has been granted in
six European countries through the European Patent Convention (the "EPC")
relating to certain of the U.S. patents issued on the TTD device. Another TTD
device patent application is currently pending in Japan and Europe.
The Company has also received a U.S. patent relating primarily to the release
mechanism employed by the EVD probe. An international patent application related
to the issued EVD probe patent is currently pending in various countries. There
can be no assurance that patents will issue on products developed by the Company
in the future, that the patents issued to the Company in the past or in the
future will be of material benefit, or that the Company will have sufficient
resources to enforce its patent rights. Nor can there be any assurance that the
Company's products do not infringe on patents, copyrights or other proprietary
information known or claimed by others, or that others will not successfully
utilize part of or all of the Company's technologies without compensation to the
Company. If the Company is found to have infringed on the rights of a third
party, the Company may be unable to market its products without a license from
such third party. There is no assurance that the Company would be able to obtain
such a license on satisfactory terms, or at all.
The Company also relies for protection of trade secrets and proprietary know-how
on its internal security and secrecy measures and on the employment agreements
requiring employees and agents of the Company to observe the confidentiality of
Company information and to assign to the Company inventions developed in the
course of work for the Company.
EMPLOYEES
The Company currently has twenty-two full-time employees, of whom nine are
engaged in research and development, three in sales and marketing, four in
general administration and six in manufacturing. The employees are not
represented by any unions and the Company believes that relations with its
employees are satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the Company's executive
officers together with all positions and offices held with the Company by such
executive officers. Officers are appointed to serve until the meeting of the
Board of Directors following the next Annual Meeting of Shareholders and until
their successors have been elected and have qualified.
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Joseph A. Marino 45 Chairman of the Board of Directors,
Chief Executive Officer, and President
Peter Buonomo 36 Vice President of Sales and Marketing
Gerald J. Prescott 56 Vice President and Chief Financial Officer
Joseph A. Marino has served as Chairman of the Board of Directors of the Company
since April 1993 and as Chief Executive Officer and President of the Company
since January 1994. Mr. Marino served as President and Chief Executive Officer
of Biomedical Dynamics Corporation, a manufacturer of disposable medical
products, from 1980 to December 1994. From 1977 to 1983, he was Director of the
Patient Monitoring Department at the University of Minnesota Hospitals, a
clinical department that provided invasive pressure monitoring and critical care
support services. He has been a director of the Company since July 1992.
Peter Buonomo has served as the Company's Vice President of Sales and Marketing
since July 1996, Vice President of Marketing since December 1995, and Director
of Marketing from May 1994 to December 1995. For the past ten years Mr. Buonomo
has held various positions in the medical field as a National Sales Trainer,
Regional Sales Manager, Product Manager, and Director of Marketing. He has been
employed by American Management Association and Vital Signs/Biomedical Dynamics.
Gerald J. Prescott has served as Vice President and Chief Financial Officer of
the Company since March 1996 and as a consultant to the Company from December
1994 to March 1996. Prior to joining the Company, Mr. Prescott served as Vice
President, Chief Financial Officer of Biomedical Dynamics Corporation, a
manufacturer of disposable medical products, from May 1986 to December 1994. Mr.
Prescott is a CPA and has a master's degree in accounting from the Wharton
School at the University of Pennsylvania.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices and manufacturing facilities are located at 501
East Highway 13, Suite 108, Burnsville, Minnesota 55337, a suburb of
Minneapolis. The Company leases approximately 11,900 square feet of office,
manufacturing and warehouse space at such address for $4,793 per month plus
common area maintenance and real estate taxes. The lease extends through March
31, 1999. The Company believes that its present facilities will be adequate to
serve its needs for the next several years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over-the-counter market and
quoted on the Nasdaq SmallCap Market under the Symbol "ABIO." The following
table sets forth the high and low bid prices of the Company's Common Stock for
the periods indicated. The bid quotations represent interdealer prices, without
retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.
1996 1995
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First Quarter 13 7 1/2 4 3/4 2 7/8
Second Quarter 23 1/4 11 1/4 6 1/8 2 3/4
Third Quarter 17 1/2 9 3/4 7 3/4 6
Fourth Quarter 15 1/8 11 1/2 9 3/4 7 1/8
On March 18, 1997, the last sales price of the Common Stock was $ 9 7/8 per
share. At March 18, 1997, there were approximately 108 record holders and an
additional 1394 beneficial holders of the Company's Common Stock.
The Company has never paid or declared any cash dividends on its Common Stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS.
1996 Compared to 1995
NET SALES. The Company had net sales of $125,120 for the year ended December 31,
1996 compared to $0 sales in the year ended December 31, 1995. The Company
completed the development of the EVD Probe and the ABCOM 2000 monitor in the
late 1996 and began limited shipments of these products. These shipments were
made to a small group of pediatric hospitals and foreign distributors. The
Company plans to commence a full marketing rollout of the product in the first
half of 1997 as it expands its distribution network and manufacturing capacity.
GROSS PROFIT. The Company's gross profit margin as a percentage of net sales was
50.5% in 1996. The Company believes that these margins are not necessarily
representative of the margins that it will realize in the future.
RESEARCH AND DEVELOPMENT. Research and Development expenses increased 29.8% to
$894,817 for the year ended December 31, 1996 from $689,394 for the year ended
December 31, 1995. This increase resulted from the addition of several new
engineering personnel as it commenced development of a new generation ABCOM
monitor and the redevelopment of the TTD device. The Company expects research
and development expenses to increase in 1997 as it adds additional personnel and
expands the roll-out of the EVD probe.
SALES AND MARKETING. Sales and Marketing expenses decreased 15.4% to $249,180
for the year ended December 31, 1996 from $294,571 for the year ended December
31, 1995. This decrease was the result of the resignation of its Vice President
of Sales in mid 1996. The Company expects sales and marketing expenses to
increase in 1997 as it adds additional personnel and expands the rollout of the
EVD probe.
GENERAL AND ADMINISTRATIVE. General and Administrative expenses increased 38.7%
to $613,041 for the year ended December 31, 1996 from $441,960 for the year
ended December 31, 1995. This increase was the result of increased personnel,
including a Chief Financial Officer, and other administrative expenses
associated with a higher level of activity. General and administrative expenses
are expected to increase in 1997 as the Company's business activity expands.
INTEREST INCOME. Interest Income increased to $324,632 for the year ended
December 31, 1996 from $137,827 for the year ended December 31, 1995, primarily
as a result of more funds available for investment. The additional funds came
from a private placement of common stock in February 1996 and from the exercise
of stock options and warrant throughout the year.
1995 Compared to 1994
NET SALES. The Company did not actively market any products in 1995 or 1994.
RESEARCH AND DEVELOPMENT. Research and Development expenses decreased 29.2% to
$689,354 for the year ended December 31, 1995 from $973,535 for the year ended
December 31, 1994. This decrease is the result of a planned reduction in
personnel.
SALES AND MARKETING. Sales and Marketing expenses increased 1.5% to $294,571 for
the year ended December 31, 1995 from $290,273 for the year ended December 31,
1994.
GENERAL AND ADMINISTRATIVE. General and Administrative expenses decreased 9.4%
to $441,960 for the year ended December 31, 1995 from $487,658 for the year
ended December 31, 1994. This decrease is the result of personnel cost
reductions.
INTEREST INCOME. Income interest income decreased slightly in 1995 as a result
of a decrease in funds available for investments.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1993 the Company funded its operation through the sale of private
securities and notes from certain shareholders. In July 1993 the Company
completed an initial public offering of common stock and raised $5,137,648 in
net proceeds.
In February 1996, The Company sold 860,000 shares of common stock at $6.00 per
share in a private placement. Net proceeds after offering expenses of $587,133
were $4,572,867. During 1996, options and warrants to purchase 365,577 shares of
common stock were exercised with net proceeds to the Company were $1,635,702.
Cash and short-term investments were $6,374,452 at December 31, 1996 and working
capital was $6,639,820. The Company used $1,652,168 of cash in its operating
activities including a net loss of $1,368,961, an increase in inventory of
$222,476 and an increase in prepaid expenses and other current assets of
$180,082.
The Company believes that its existing cash, cash equivalents and short-term
investments together with funds generated from operations will enable the
Company to meets its liquidity and capital needs for the next 12 months.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are included herein following the
signatures, beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required under this Item with respect to directors is contained in
the Section "Election of Directors" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held in May 1997 ("1997 Proxy Statement"),
a definitive copy of which will be filed with the Commission within 120 days of
the close of the past fiscal year, and is incorporated herein by reference.
Information concerning executive officers is set forth in the Section entitled
"Executive Officers of the Company" in Part I of this Form 10-KSB pursuant to
Instruction 3 to paragraph (b) of Item 401 of Regulation S-B.
ITEM 10 EXECUTIVE COMPENSATION
Information required under this item is contained in the section entitled
"Executive Compensation" in the 1997 Proxy Statement and is incorporated herein
by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the section entitled
"Security Ownership of Principal Shareholders and Management" in the Company's
1997 Proxy Statement and is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on the page following the Financial
Statements.
(b) Reports on Form 8-K. None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Applied Biometrics, Inc.
("Registrant")
Dated: March 25, 1997 By: /s/ Joseph A. Marino
---------------------------------------
Joseph A. Marino
Chairman, Chief Executive Officer, and
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed on March 25, 1997 by the following persons on behalf of the
Registrant, in the capacities indicated.
Each person whose signature appears below constitutes and appoints JOSEPH A.
MARINO and PATRICK DELANEY as his true and lawful attorneys-in-fact and agents,
each acting alone, with the full power of substitution and resubstitution , for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments to this Annual Report on Form 10-KSB and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes and he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title
- --------- -----
/s/ Joseph A Marino Chairman, Chief Executive Officer, and
- ----------------------------- President
Joseph A. Marino
/s/ William E. Engbers Director
- -----------------------------
William E. Engbers
/s/ Patrick Delaney Director
- -----------------------------
Patrick Delaney
/s/ George Kline Director
- -----------------------------
George Kline
/s/ Gerald I. Prescott Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial and Accounting Officer)
Gerald I. Prescott
APPLIED BIOMETRICS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
BALANCE SHEET
December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 741,661 $ 457,322
Short-term investments 5,632,791 1,753,265
Accounts receivable 19,417 -
Inventory 222,476 -
Prepaid expenses and other current assets 226,665 46,583
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 6,843,010 2,257,170
Property and equipment, net 528,398 246,755
Patents, net 109,307 118,981
Other assets 9,585 9,585
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,490,300 $ 2,632,491
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 126,257 $ 125,797
Accrued expenses and other liabilities 76,933 59,192
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 203,190 184,989
- -------------------------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,168,987 and 2,943,410 shares issued
and outstanding, respectively 41,690 29,434
Additional paid-in capital 19,703,468 13,507,155
Accumulated deficit (12,458,048) (11,089,087)
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,287,110 2,447,502
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,490,300 $ 2,632,491
===============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
STATEMENT OF OPERATIONS
Year Ended December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 125,120 $ -
Cost of goods sold 61,975 -
- -----------------------------------------------------------------------------------------------------------
Gross profit 63,145 -
Operating expenses:
Research and development 894,517 689,354
Sales and marketing 249,180 294,571
General and administrative 613,041 441,960
- -----------------------------------------------------------------------------------------------------------
Total operating expenses 1,756,738 1,425,885
- -----------------------------------------------------------------------------------------------------------
Loss from operations (1,693,593) (1,425,885)
Interest income 324,632 137,827
- -----------------------------------------------------------------------------------------------------------
Net loss $ (1,368,961) $ (1,288,058)
===========================================================================================================
Loss per common share $ (.35) $ (.44)
===========================================================================================================
Weighted average common shares outstanding 3,917,268 2,914,049
===========================================================================================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994 2,885,076 $ 28,851 $ 13,332,736 $ (9,801,029)
Exercise of stock options 58,334 583 174,419 -
Net loss - - - (1,288,058)
- ------------------------------------------------------------------------------------------------------------------
December 31, 1995 2,943,410 29,434 13,507,155 (11,089,087)
Private placement of common
stock, net of offering expenses
of $587,133. 860,000 8,600 4,564,267 -
Exercised of stock options
and warrants 365,577 3,656 1,632,046 -
Net Loss - - - (1,368,961)
- ------------------------------------------------------------------------------------------------------------------
December 31, 1996 4,168,987 $ 41,690 $ 19,703,468 $ (12,458,048)
==================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,368,961) $ (1,288,058)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 120,567 72,907
Cash flows provided by (used for) changes in:
Accounts receivable (19,417) -
Inventory (222,476) -
Prepaid expenses and other current assets (180,082) 30,831
Trade accounts payable 460 31,999
Accrued expenses and other liabilities 17,741 (17,062)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (1,652,168) (1,169,383)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments 3,874,633 3,584,748
Purchases of short-term investments (7,754,159) (2,461,631)
Purchases of property and equipment (392,536) (57,763)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (4,272,062) 1,065,354
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement of common stock 4,572,867 -
Proceeds from exercise of stock options and warrants 1,635,702 175,002
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,208,569 175,002
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 284,339 70,973
Cash and cash equivalents at beginning of year 457,322 386,349
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 741,661 $ 457,322
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
APPLIED BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Applied Biometrics, Inc. (the "Company") was incorporated in
November, 1984 and is engaged in the development, manufacturing, and marketing
of medical diagnostic equipment for hospital operating rooms and intensive care
units. The Company has developed and obtained patents for significant aspects of
two continuous cardiac output monitoring devices which use Doppler ultrasound to
measure cardiac output.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash equivalents are highly liquid marketable
securities with original maturities of three months or less.
SHORT-TERM INVESTMENTS - Management determines the appropriate classification of
its investments in debt and equity securities at the time of purchase. At
December 31, 1996 and 1995, all short-term investments are considered available
for sale as the Company does not have the intent or ability to hold these
securities to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. The cost of
securities sold is based on the specific identification method.
Inventory - Inventory is stated at the lower of cost (first-in-first-out basis)
or market.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost with
depreciation computed using the straight line method over the estimated useful
lives of the assets. Expenditures for additions and improvements are capitalized
while repairs and maintenance are expensed as incurred.
PATENTS - The costs of applying for patents are capitalized and amortized on a
straight-line basis over 17 years. The recoverability of unamortized patent
costs is assessed on an ongoing basis by comparing anticipated undiscounted
future cash flows from the related products to net book value.
RESEARCH AND DEVELOPMENT - The costs of Research and Development are expensed as
incurred.
INCOME TAXES - Income taxes are accounted for using the liability method. The
liability method requires the recognition of deferred tax assets and liabilities
for differences between the financial reporting and income tax bases of the
Company's assets and liabilities.
LOSS PER COMMON SHARE - Loss per common share is computed by dividing net loss
by the weighted average number of shares of common stock outstanding during the
year. Common stock equivalents, consisting of shares which might be issued upon
exercise of stock options and warrants, are not included in weighted average
common shares outstanding in years where losses are reported since their
inclusion would be anti-dilutive.
NOTE 2 - SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
The following is a summary of short-term investments: December 31,
1996 1995
-------------------------------------------------------------------------------
<S> <C> <C>
Debt securities:
U.S. Treasury obligations $ 3,315,615 $ 313,483
Certificates of deposit 650,000 539,786
U.S. Government Agency 1,165,120 598,746
Mortgage-backed securities - 89,762
Corporate debt securities 502,056 -
-------------------------------------------------------------------------------
5,632,791 1,541,777
Equity securities - 211,488
-------------------------------------------------------------------------------
Total short-term investments $ 5,632,791 $ 1,753,265
===============================================================================
</TABLE>
The estimated fair value of each investment approximates cost (amortized cost
for debt securities) and, accordingly, there are no unrealized gains or losses
as of December 31, 1996 or 1995.
The estimated fair value of debt securities available for sale by contractual
maturity as of December 31, 1996 is as follows:
Due within one year $ 3,866,268
Due after one year through five years 1,766,523
----------------------------------------------------
$ 5,632,791
====================================================
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows at December 31,
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 630,332 $ 252,439
Furniture and fixtures 72,051 66,883
Leasehold improvements 69,888 63,690
-----------------------------------------------------------------------
772,271 383,012
Less: Accumulated depreciation (243,873) (136,257)
-----------------------------------------------------------------------
$ 528,398 $ 246,755
=======================================================================
</TABLE>
NOTE 4 - PATENTS
Patents are comprised as follows at December 31,
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Patents $ 156,564 $ 156,564
Less: Accumulated amortization (47,257) (37,583)
-----------------------------------------------------------------------
$ 109,307 $ 118,981
=======================================================================
</TABLE>
NOTE 5 - COMMON STOCK OPTIONS AND STOCK WARRANTS
The Company has stock option plans (Plans) which permit granting of both
qualified and non-qualified stock options to employees, directors, officers and
others. At December 31, 1996, a total of 691,967 stock options were outstanding
under the Plans. The Board of Directors is authorized to grant an additional
57,500 shares of common stock under the Plans. Options have been granted at an
option price per share equal to or greater than the fair value at the date of
the grant. The options generally vest over a three to five year period and
expire after seven to ten years.
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 123,
"Accounting for Stock-Based Compensation" in 1996. As allowed by FAS No. 123,
the Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plans and accordingly, does not recognize compensation
expense related thereto. If the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date as
prescribed by FAS 123, net loss and net loss per share would have been increased
to the pro forma amounts indicated in the following table:
1996 1995
---- ----
Net loss - as reported $ (1,368,961) $ (1,288,058)
Net loss - pro forma $ (1,999,059) $ (1,405,861)
Net loss per share - as reported $ (0.35) $ (0.44)
Net loss per share - pro forma $ (0.51) $ (0.48)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1996 1995
---- ----
Expected dividend level 0.0% 0.0%
Expected stock price volatility 55.0% 55.0%
Risk-free interest rate 6.20% 6.20%
Expected life of options 4-6 yrs. 4-6 yrs.
The table below summarizes all stock option activity:
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average
of Shares Per Share Exercise Price
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 553,068 $ 3.00-$60.00 $ 4.77
Granted 59,500 $ 3.125-$9.00 $ 8.51
Canceled (6,100) $ 4.50-$60.00 $ 13.40
Exercised (58,334) $3.00 $ 3.00
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 548,134 $ 3.00-$60.00 $ 5.27
Granted 220,000 $11.75-$12.625 $ 12.11
Canceled (5,400) $ 6.56-$60.00 $ 10.52
Exercised (70,767) $ 3.00-$9.00 $ 5.17
--------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 691,967 $3.125-$12.625 $ 7.41
==============================================================================================================
Exercisable at December 31, 1996 472,133
==============================================================================================================
</TABLE>
The following table summarizes additional information related to stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
----------------------------------- ----------------------------
Weighted Weighted
Number Weighted Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 - $ 6.56 417,667 5.64 years $ 4.56 376,003 $ 4.50
$ 9.00 - $12.625 274,300 6.77 years $ 11.51 96,130 $11.02
</TABLE>
NOTE 6 - INCOME TAXES
The Company has available net operating loss carryforwards which begin to expire
in 2004. As a result of limitations imposed under Section 382 of the Internal
Revenue Code (IRC), both the annual amount and timing of utilization of these
carryforwards are limited. Therefore, the Company effectively has a total net
operating loss carryforward of approximately $6,250,000. Of this amount,
approximately $835,000 is subject to limitation and may be utilized at a rate of
approximately $57,000 per annum. In the event of additional common stock
issuances, the Company's net operating loss carryforward may be subject to
further limitations pursuant to Section 382 of the IRC.
At December 31, 1996 the Company has approximately $ 6,162,000 of available loss
carryforwards and net temporary differences available to offset taxable income
in future periods. At existing tax rates, the future benefit approximates
$2,465,000. A valuation allowance has been established for the entire net tax
benefit associated with all carryforwards and temporary differences at December
31, 1996 as their realization is not "more likely than not". The composition of
expected future tax benefits is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------------------------------------------------------
<S> <C> <C>
Loss carryforward $ 2,500,000 $ 1,938,000
Temporary differences:
Patent amortization (65,000) (55,000)
Other 30,000 25,000
------------------------------------------------------------------------
2,465,000 1,908,000
Less: Valuation allowance (2,465,000) (1,908,000)
------------------------------------------------------------------------
$ - $ -
========================================================================
</TABLE>
NOTE 7 - LEASE COMMITMENTS
In February, 1994, the Company entered into a five year lease arrangement for a
facility in Burnsville, Minnesota. The future minimum payments under this lease
are as follows:
Operating
Year Ending December 31, Leases
--------------------------------------------------------------
1997 $ 57,516
1998 57,516
1999 14,379
--------------------------------------------------------------
Minimum lease payments $ 129,411
==============================================================
Rental expense under operating leases, including common area maintenance and
real estate tax, was $95,376 and $91,452 during the years ended December 31,
1996 and 1995, respectively.
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Applied Biometrics, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Applied Biometrics, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Minneapolis, Minnesota
February 12, 1997
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Restated Articles of Incorporation, as amended, of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
annual report on Form 10 K for the fiscal year ended December
31, 1994).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form SB-2,
Commission File No. 33-63754C (the "Form SB-2")).
10.1 Lease dated February 8, 1994 by and between the Company and
American Industrial Properties REIT (incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
10.2 Employment Agreement between the Company and Joseph A. Marino
dated as of May 7, 1993, as amended by Amendment No. 1 to
Employment Agreement dated July 1, 1994 (incorporated by
reference to Exhibit 10.11 to the Company's Form SB-2 and
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994 (the "September 1994
Form 10-Q"), respectively).
10.3 Applied Biometrics, Inc. 1987 Stock Option Plan (incorporated
by reference to Exhibit 10.3 to the Company's Form SB-2).
10.4 Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.4 to the Company's Form SB-2).
10.5 Form of Non-Qualified Stock Option Agreement (incorporated by
reference to Exhibit 10.5 to the Company's Form SB-2).
10.6 Amendment No. 2 to Agreement Regarding Confidential
Information and Intellectual Property between the Registrant
and Claire T. Hovland dated June 15, 1993 (incorporated by
reference to Exhibit 10.10 to the Company's Form SB-2).
10.7 Applied Biometrics, Inc. 1994 Stock Plan (incorporated by
reference to Exhibit 10.1 to the September 1994 Form 10-Q).
23.1 Consent of Price Waterhouse
24.1 Powers of Attorney (included on signature page).
27 Financial Data Schedule
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference is the Registration
Statements on Form S-8 (No. 33-81486 and 333-04555) and Form S-3 (Nos. 33-80349,
33-80351, and 333-04553) of Applied Biometrics, Inc. of our report dated
February 12, 1997 which appears on page F-9 of this Form 10-KSB.
Price Waterhouse LLP
Minneapolis, Minnesota
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 741,661
<SECURITIES> 5,632,791
<RECEIVABLES> 19,417
<ALLOWANCES> 0
<INVENTORY> 222,476
<CURRENT-ASSETS> 6,843,010
<PP&E> 772,271
<DEPRECIATION> 243,873
<TOTAL-ASSETS> 7,490,300
<CURRENT-LIABILITIES> 203,190
<BONDS> 0
0
0
<COMMON> 41,690
<OTHER-SE> 7,245,420
<TOTAL-LIABILITY-AND-EQUITY> 7,490,300
<SALES> 125,120
<TOTAL-REVENUES> 125,120
<CGS> 61,975
<TOTAL-COSTS> 61,975
<OTHER-EXPENSES> 894,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,368,961)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,368,961)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,368,961)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
