- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 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
---------------------------------------------------
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
---------------------------------------------------
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 May 1, 1999, there were 4,467,337 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
APPLIED BIOMETRICS, INC.
CONDENSED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 1,914,928 $ 1,869,413
Marketable securities, short-term ................................... -- 500,000
Inventories, net .................................................... 175,078 175,078
Other ............................................................... 68,633 37,833
------------ ------------
Total current assets ............................................ 2,158,639 2,582,324
Equipment and leasehold improvements, net ........................... 387,736 427,086
Patents, net ........................................................ 68,835 75,074
Other ............................................................... 9,585 9,585
Net assets of discontinued operations ............................... -- 202,642
------------ ------------
Total assets .................................................... $ 2,624,795 $ 3,296,711
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 55,548 $ 56,186
Accrued expenses .................................................... 85,026 87,200
------------ ------------
Total current liabilities ....................................... 140,574 143,386
Liability for pending issuance of common stock ...................... -- 1,001,761
Shareholders' equity:
Common stock: authorized 10,000,000 shares of $.01 par value;
4,467,337 issued and outstanding at March 31, 1999 and
4,337,117 at December 31, 1998 .................................. 44,673 43,371
Additional paid-in capital .......................................... 21,586,308 20,560,849
Accumulated deficit ................................................. (19,146,760) (18,452,656)
------------ ------------
Total shareholders' equity ...................................... 2,484,221 2,151,564
------------ ------------
Total liabilities and shareholders' equity ...................... $ 2,624,795 $ 3,296,711
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
2
<PAGE>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Operating expenses:
General and administrative ........................................ $ 177,892 $ 205,911
Research and development .......................................... 206,284 252,854
------------ ------------
Operating loss .................................................... (384,176) (458,765)
Other income, net ................................................. 24,243 57,404
------------ ------------
Net loss from continuing operations ............................... (359,933) (401,361)
Discontinued operations:
Loss from operations of transcatheter closure business ...... -- (165,546)
------------ ------------
Net loss .......................................................... $ (359,933) $ (566,907)
============ ============
Basic and diluted loss per share:
Continuing operations ....................................... $ (0.08) $ (0.09)
Discontinued operations ..................................... (0.00) $ (0.04)
------------ ------------
Net loss .................................................... $ (0.08) $ (0.13)
============ ============
Weighted average common shares outstanding ........................ 4,359,262 4,281,228
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
3
<PAGE>
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1997, DECEMBER 31, 1998 AND MARCH 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
Shares Amount Paid in Capital Deficit
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
-----------------------------------------------------------------
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)
-----------------------------------------------------------------
December 31, 1998 4,337,117 43,371 20,560,849 (18,452,656)
Exercise of stock options 130,220 1,302 1,025,459
Distribution of the net assets of Cardia, Inc. (334,171)
Net loss for the three months ended
March 31, 1999 (359,933)
-----------------------------------------------------------------
March 31, 1999 4,467,337 $ 44,673 $ 21,586,308 $(19,146,760)
=================================================================
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
4
<PAGE>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (359,933) $ (566,907)
Net loss from discontinued operations .......................................... -- 165,546
------------ ------------
Loss from continuing operations ................................................ (359,933) (401,361)
Adjustments to reconcile net loss from continuing operations to net cash
used by operating activities:
Depreciation ................................................................... 43,611 52,434
Amortization ................................................................... 6,239 2,295
Changes in operating assets and liabilities:
Inventory ...................................................................... -- 23,724
Prepaid expenses and other current assets ...................................... (30,800) (10,411)
Accounts payable and accrued expenses .......................................... (2,812) (10,315)
------------ ------------
Net cash used by continuing operations ...................................... (343,695) (343,634)
Net cash used by discontinued operations .................................... (120,548) (183,796)
------------ ------------
Net cash used by operating activities ....................................... (464,243) (527,430)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments ................................. 500,000 653,539
Purchase equipment and improvements ............................................ (4,261) (42,742)
Discontinued operations ........................................................ (10,981) (3,855)
------------ ------------
Net cash provided (used) by investing activities ............................ 484,758 606,942
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ........................................ 25,000 92,500
------------ ------------
Net cash provided by financing activities ................................... 25,000 92,500
------------ ------------
Net increase in cash and cash equivalents ...................................... 45,515 172,012
Cash and cash equivalents at beginning of year ................................. 1,869,413 821,673
------------ ------------
Cash and cash equivalents at end of the period ................................. $ 1,914,928 $ 993,685
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
5
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements of Applied Biometrics,
Inc. ("Applied Biometrics" or "the Company") have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's 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 three months ended March 31, 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. 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 breakeven.
Net assets attributable to Cardia of $334,171 were distributed at their net book
value and were reflected as a dividend and no gain or loss was recorded by the
Company as a result of the distribution.
6
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Denominator for basic earnings per share
Weighted-average common shares ..................................... 4,359,262 4,281,228
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 ...................................................... 4,359,262 4,281,228
========== ==========
<CAPTION>
As of March 31,
1999 1998
---- ----
(Unaudited)
Options outstanding ................................................ 638,167 755,037
Exercise prices .................................................... $3.00 - $12.62 3.00 - 12.625
Expiration dates ................................................... 2000 - 2009 1999 - 2008
Options outstanding with exercise prices greater than the average
market price of the Company's common stock for the three-month
period ended March 31 .............................................. 288,000 443,370
</TABLE>
For the three-month periods ended March 31, 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q INCLUDE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE HEREOF AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT. 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 EXPRESS OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS
MAY INCLUDE THE COMPANY'S LIMITED FINANCIAL RESOURCES AND UNCERTAINTY OF FUTURE
RESULTS, THE UNCERTAINTY OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCT, THE
REGULATED NATURE OF THE MEDICAL DEVICE MARKET AND THE POTENTIAL FOR THE
REGULATORY ENVIRONMENT TO AFFECT THE COMPANY'S ABILITY TO MARKET ITS PRODUCTS,
THE POTENTIAL FOR OTHER MEDICAL DEVICE COMPANIES TO DEVELOP COMPETITIVE
PRODUCTS, THE COMPANY'S LIMITED EXPERIENCE IN THE DEVELOPMENT, MANUFACTURING AND
COMMERCIALIZATION OF ITS PRODUCT AND OTHER RISK FACTORS LISTED 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
late-development stage medical device company in the business of development and
commercialization of advanced medical diagnostic and monitoring systems. The
Company's core competencies in ultrasound transducer technology, signal
processing, cardiac anatomy and pathology, and the fluid dynamics of blood flow
position it to develop and commercialize a range of diagnostic and patient
monitoring products. The Company is currently involved with the development of a
new product that monitors the blood pumping capability of a patient's heart for
use during and after open-heart surgery.
During the quarter ended March 31, 1999, the Company completed the distribution
of Cardia, Inc. common stock to the shareholders on February 11, 1999. The
completion of the Cardia distribution allows the Company to now focus all its
resources on completing the development of its cardiac output monitoring system.
The Company made substantial development progress on the cardiac output
monitoring system during the quarter, including such critical items as hiring of
key management and technical personnel, and assessing the requirements needed
for manufacturing, quality systems and clinical validation. The Company plans to
continue adding technical and other staff to meet its development and
commercialization objectives.
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three Months Ended March 31, 1999 with
the Three Months Ended March 31, 1998
General and administrative expenses decreased $28,000 in the first quarter of
1999 from $206,000 to $178,000 over the same quarter last year, due to lower
personnel and related costs that were eliminated with the distribution of Cardia
during 1999 quarter. Lower personnel costs were partially offset by increased
costs related to the Cardia distribution. Research and development expenses
decreased $46,000 from $253,000 in 1998 to $206,000 in 1999, primarily due to
the timing of greater clinical testing activity in the 1998 quarter and reduced
personnel and related costs in the 1999 quarter eliminated with the Cardia
distribution. Operating costs are expected to increase as the Company adds
personnel, equipment and other costs to complete the development and bring to
market its cardiac output monitoring system. This forward looking statement will
be influenced primarily by the Company's estimate
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
of time and resources needed to complete development, the Company's ability to
establish manufacturing and quality systems necessary to produce the product and
market acceptance of the cardiac output monitoring system.
Other income, primarily interest income decreased $33,000 from $57,000 in the
first quarter of 1998 to $24,000 in the 1999 quarter. The decrease is due to
lower average investment balances in the 1999 quarter than the 1998 quarter.
Investment resources were used throughout the 1998 year 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.
The first quarter 1999 net loss from continuing operations was $360,000, or
$0.08 per share, compared to a net loss of $567,000, or $0.13 per share in 1998,
including a $166,000 loss from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,900,000 at March 31, 1999 as compared to
$2,400,000 of cash, cash equivalents and marketable securities at December 31,
1998, a reduction of $500,000.
Continuing operating activities used cash of $344,000 in the first three months
of 1999 and the first three months of fiscal 1998. Discontinued operations used
cash of $121,000 during the current quarter as compared to $184,000 in the prior
year.
Investing activities provided $485,000 in the 1999 quarter as compared $607,000
in the 1998 quarter, primarily due to the maturity of short-term investments.
$4,000 was used in 1999 for the purchase of equipment as compared to $43,000 in
1998. Discontinued operations used $11,000 and $3,900 in the 1999 and 1998
quarters respectively. Financing activities in the current quarter provided
$25,000 of cash from the exercise of stock options. $92,500 of cash was
generated in the prior 1998 quarter from stock option exercises.
The Company believes that based on its expected rate of spending, that its
existing cash and cash equivalents will enable the Company to meet its cash
requirements for approximately the next nine to twelve months. The Company will
need additional financing in order to successfully meet its current product
development and market commercialization plans for its cardiac output monitor
system. The Company is exploring 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, no other new accounting pronouncements have been issued
that will have a impact on the Company's financial statements.
YEAR 2000 READINESS - UPDATE
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
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, Y2K 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 has instituted a Year 2000 readiness program (the "Y2K
Plan") in order to identify, evaluate and address its exposure to these
problems.
For purposes of its Y2K Plan, 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. The
goal of the Y2K Plan is to ensure that the Company's products, equipment,
systems and processes and those of its significant business partners are
sufficiently Year 2000 compliant such that no date/time issue will have any
adverse impact on the services or products that the Company provides its
customers or the timely and accurate processing of transactions.
STATE OF READINESS. The Company has tested and validated that its cardiac output
monitoring system is Y2K compliant. In addition, as part of the Company's Y2K
Plan, management is in the process of evaluating of its information technology
("IT") and non-information technology ("non-IT") systems, including
manufacturing equipment, telephone and mechanical systems and other equipment
and systems having embedded, date sensitive technology for Year 2000 compliance.
The Company's Y2K Plan is focused on assessing and assuring compliance in the
following areas: IT and non-IT hardware, operating systems, and software.
Additionally, the Company is in the process of reviewing the Year 2000
compliance status of its customers, vendors and other service providers.
HARDWARE. The Company is in the process of completing its assessment of its IT
and non-IT hardware for Y2K compliance. The Company estimates that most of its
IT hardware has either been upgraded for Y2K compliance or has been certified
internally or through the appropriate vendor to be compliant. The Company
expects that all IT and non-IT hardware systems will be upgraded or certified as
Y2K compliant by October 31, 1999.
OPERATING SYSTEMS. The Company's operating systems are Microsoft NT, Novell
Netware, Microsoft Windows 95 and Microsoft Windows NT. Novell has certified
Netware to be Y2K compliant. Microsoft has certified Windows 95 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. The Company is in the process of obtaining from its vendors
certification that each software package is compliant. None of these software
programs are critical to the Company's ability to accurately and timely process
transactions. The Company expects that all software applications will either be
assessed to be not dependent on date/time accuracy, certified by the vendor to
be Y2K compliant or replaced by October 31, 1999.
THIRD PARTY RELATIONSHIPS. Because Y2K issues may also impact the Company by
affecting the business and operations of the Company's vendors, customers and
other business partners, the Company is in the process of communicating with
these parties in order to determine their Y2K compliant status. The Company is
in the process of communicating with these parties in order to determine their
compliance status. This communication is in the early stage and accordingly, the
Company has not been able to determine if the failure of a third-party to be Y2K
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
- --------------------------------------------------------------------------------
compliant will have a material adverse affect on the Company. The Company
anticipates that this part of its Y2K plan will be substantially complete by
October 31, 1999.
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
external costs will not be material. These costs will be funded from operations.
The Company does not track internal personnel time spent on IT projects,
including the Y2K project. To date, no IT projects have been delayed as a result
of the Company's Y2K project. In the event the Company's Y2K Plan is not
successful or timely implemented, the Company may need to devote more resources
to the process and additional costs may be incurred. Such a situation could have
a material adverse effect on the Company's financial condition and results of
operations.
The costs of Year 2000 compliance and the expected completion dates are the best
estimates of Company management. Estimated costs of the Company's Y2K project
and projected completion dates are forward-looking statements that may be
affected by the Company's current belief as to the extent of its internal
exposure to the Y2K problem, the timeliness and accuracy of information provided
by the Company's vendors, customers and other business partners in response to
Y2K compliance inquiries by the Company, 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 to assist with its Y2K Plan.
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, customers or business partners to become Year 2000
complaint 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, customer 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. Even though the Company is undertaking
its Y2K Plan in an effort to mitigate its risks, 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, as it is still
in the process of gathering data from its customers, vendors and other business
partners regarding their Year 2000 compliance and otherwise implementing its Y2K
Plan. 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.
11
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
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 14.
Form 8-K. None.
12
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report signed on its behalf by the undersigned
hereunto duly authorized.
APPLIED BIOMETRICS, INC.
DATED: MAY 14, 1999 /S/ Camille M. Meyer
-----------------------------------------
Camille M. Meyer
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
APPLIED BIOMETRICS, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
10.1 Amendment No. 1 to Lease Agreement dated December 31, 1998 between the
Company and The Trustees under the Will and of the Estate of James
Campbell, Deceased (filed herewith electronically).
10.2 Employment letter dated February 19, 1999, between the Company and Mr.
Weiss (filed herewith electronically).
27.1 Financial Data Schedule for the three-month period ended March 31, 1999
(filed herewith electronically).
14
EXHIBIT 10.1
AMENDMENT NO. 1 TO LEASE AGREEMENT
THE AMENDMENT NO. 1 TO LEASE AGREEMENT (the "AMENDMENT NO. 1") is made as of the
31 day of December, 1998, by and between THE TRUSTEES UNDER THE WILL AND OF THE
ESTATE OF JAMES CAMPBELL, DECEASED, acting in their fiduciary and not their
individual capacities ("Landlord") and APPLIED BIOMETRICS, INCORPORATED, a
Minnesota corporation ("Tenant").
RECITALS:
WHEREAS, Landlord's predecessor in interest, as lessor, and Tenet, as
lessee, are parties to that certain office Warehouse Lease and Rider to Lease
(the "RIDER") (collectively, the "ORIGINAL LEASE") dated February 8, 1994,
concerning the leasing of approximately 11,859 square feet of space (the
"PREMISES") in the building located at 501 East Highway 13, Burnsville,
Minnesota; and
WHEREAS, Landlord and Tenant desire to set forth their agreement concerning
certain amendments to the Lease, including their agreement to further extend the
term of the Lease.
NOW THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Interpretation of Amendment No. 1. The lease is hereby modified and
supplemented. Wherever there exists a conflict between this Amendment No. 1 and
the Lease, the provisions of this Amendment No. 1 shall control. Except as
otherwise indicated herein, capitalized terms shall be defined in the manner set
forth in the Lease. Except as modified and supplemented hereby, the Lease is
unamended and in full force and effect.
2. Extension of Term. The term of Tenant's tenancy under the Lease is hereby
extended for a period of thirty-six (36) months, commencing April 1, 1999, and
ending March 31, 2002 (the "EXTENSION TERM"). Except as amended hereby, all
terms of the Lease shall be applicable during the Extension Term; provided,
Landlord shall have no obligation to construct, or contribute to the cost of
constructing, leasehold improvements to be the Premises during the Extension
Term.
<PAGE>
3. Base Rent During Extension Term. Tenant shall pay Base Rent with respect to
the Premises during the Extension Term as follows:
(a) During the period of April 1, 1999, through March 31, 2001, Base Rent shall
be due in the annual amount of $80,285.43 and shall be payable, in advance, in
monthly installments equal to $6,690.45.
(b) During the period of April 1, 2001, through March 31, 2002, Base Rent shall
be due in the annual amount of $83,013.00 and shall be payable, in advance, in
monthly installments equal to $6,917.75.
THIS AMENDMENT NO.1 TO LEASE AGREEMENT is executed and delivered as of the
date first above written.
LANDLORD:
THE TRUSTEES UNDER THE WILL AND OF THE
ESTATE OF JAMES CAMPBELL, DECEASED,
acting in their fiduciary and not their
individual capacities
By: /s/ Dorine Holsey Streeter
--------------------------------------
Dorine Holsey Streeter
Its: Director Mainland Properties
By: /s/ Timothy J. Brauer
--------------------------------------
Timothy J. Brauer
Its: Asset Manager
TENENT:
APPLIED BIOMETRICS, INCORPORTED, a Minnesota
corporation
By: /s/ Joseph Marino
--------------------------------------
Joseph Marino
Its: President
EXHIBIT 10.2
February 19, 1999
Dear Andy,
Based on our meeting yesterday and my previous discussions with the Board of
Directors, we are please to offer you the position of President, CEO and
Director of Applied Biometrics Inc. The significant terms and conditions of this
position are as follows:
DUTIES: This position provides overall leadership and management of
the Company. As President and CEO, you will direct the affairs of the
Company in concert with the Board of Directors. As a Director, you
will share in the responsibility for all facets of corporate activity.
The president and CEO reports directly to the Board of Directors.
COMPENSATION: An annual base salary of $175,000.00 is provided as well
as a $50,000.00 annual bonus issued at the discretion of the Board of
Directors and based on the achievement of predetermined goals and
milestones.
STOCK OPTION: The Board of Directors will issue a stock option for
250,000 shares of Applied Biometrics stock. The exercise price of this
option will be the NASDAQ market close price on the date of this
letter. The option vests at the rate of 1/3 immediately, 1/3 after
twelve months and 1/3 after 24 months.
STARTING DATE: March 1, 1999
PAID DAYS OFF / HOLIDAY: You will have 20 days of paid time available
per year, which you may use for vacation or illness. Paid days off may
be used in the year earned or carried forward for up to one year. The
Company provides six major holidays, plus two floating holidays per
year.
MEDICAL INSURANCE: The Company provides comprehensive major medical
coverage for employees and dependents. The Company pays 85% of the
monthly premium, with the employee paying 15%.
EXPENSES: You will be entitled to a $500.00 per month car allowance.
All other reasonable business expenses for travel, etc. will be
reimbursed.
SEVERANCE: Your employment agreement will include a provision for six
months of severance pay in the event the Board of Directors terminates
your employment for reasons other than cause or lack of performance.
This offer should not be constructed as an employment contract or agreement.
Your employment at Applied Biometrics under the terms and conditions outlined
above should be regarded as an at-will relationship with the Company. The
above-mentioned conditions and benefits reflect our current corporate policies
and are subject to change. You will be expected to sign a formal employment
agreement, which will include confidential information and intellectual property
provisions.
I am looking forward to having you join the team here at Applied Biometrics.
Your experience and enthusiasm will be instrumental to our success. Please
acknowledge your acceptance by signing where indicated below and returning one
copy. Please treat these terms as confidential and call should you have any
questions.
/s/ Joseph A Marino /s/ Andrew M. Weiss February 19, 1999
- --------------------------- -------------------------- -----------------
Joseph A Marino, President Andrew M. Weiss Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FROM THE FINANCIAL STATEMENTS AND RELATED NOTES FOR THE PERIOD ENDED MARCH 31,
1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,914,928
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 175,078
<CURRENT-ASSETS> 2,158,639
<PP&E> 1,053,852
<DEPRECIATION> (666,116)
<TOTAL-ASSETS> 2,624,795
<CURRENT-LIABILITIES> 140,574
<BONDS> 0
0
0
<COMMON> 44,673
<OTHER-SE> 2,439,548
<TOTAL-LIABILITY-AND-EQUITY> 2,624,795
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 384,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (359,933)
<INCOME-TAX> 0
<INCOME-CONTINUING> (359,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359,933)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
