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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission File Number 0-22146
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APPLIED BIOMETRICS, INC.
(Exact name of Registrant as specified in its charter)
State of Incorporation: Minnesota
I.R.S. Employer Identification No.: 41-1508112
Principal Executive Offices: 501 East Highway Thirteen, Suite 108
Burnsville, Minnesota 55337
Telephone Number: (952) 890-1123
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No ______
On July 31, 2000, there were 5,883,404 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 JUNE 30, 2000 AND DECEMBER 31, 1999
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<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 2,021,655 $ 1,910,356
Inventories, net .................................................... -- 167,109
Prepaid expenses and other current assets ........................... 49,347 90,577
------------ ------------
Total current assets ............................................. 2,071,002 2,168,042
Equipment and leasehold improvements, net ........................... 478,955 550,675
Patents and other intangibles, net .................................. 94,639 99,437
Other assets ........................................................ 13,764 9,585
------------ ------------
Total assets ..................................................... $ 2,658,360 $ 2,827,739
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 28,129 $ 95,255
Accrued expenses and short-term debt obligations .................... 168,873 195,849
Current maturities of capital lease obligations ..................... 41,282 8,333
------------ ------------
Total current liabilities ........................................ 238,284 299,437
Non-current liabilities:
Capital lease obligation ............................................ 49,724 11,677
------------ ------------
Total liabilities ................................................ 288,008 311,114
------------ ------------
Shareholders' equity:
Undesignated stock: authorized 5,000,000 shares of $.01 par value;
None issued or outstanding at June 30, 2000 and December 31, 1999 -- --
Common stock: authorized 20,000,000 shares of $.01 par value;
5,883,404 issued and outstanding at June 30, 2000 and 5,229,004 at
December 31, 1999 ................................................ 58,834 52,990
Additional paid-in capital .......................................... 25,038,419 23,362,233
Accumulated deficit ................................................. (22,726,901) (20,898,598)
------------ ------------
Total shareholders' equity ....................................... 2,370,352 2,516,625
------------ ------------
Total liabilities and shareholders' equity ....................... $ 2,658,360 $ 2,827,739
============ ============
</TABLE>
The accompanying notes are an intregral part of the interim
unaudited financial statements.
2
<PAGE>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating expenses:
Selling, general and administrative......... $ 213,338 $ 313,432 $ 671,079 $ 491,324
Research and development.................... 685,456 349,834 1,206,941 555,018
----------- ----------- ------------- ------------
Operating loss.............................. (898,794) (662,166) (1,878,020) (1,046,342)
Other income, net........................... 29,406 21,914 49,717 46,157
---------- ---------- ------------ -----------
Net loss.................................... $ (869,388) $ (640,252) $ (1,828,303) $ (1,000,185)
========== ========== ============= ============
Basic and diluted net loss per share........ $ (0.15) $ (0.14) $ (0.34) $ (0.23)
========== ========== ============= ============
Weighted-average common shares outstanding.. 5,821,455 4,468,619 5,299,599 4,414,895
========== ========== ============= ============
</TABLE>
The Accompanying notes are an intregal part of the interim
unaudited financial statements.
3
<PAGE>
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 AND
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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<TABLE>
<CAPTION>
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit
-------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997 ........................... 4,276,117 $ 42,761 $ 20,278,959 $(15,050,518)
Exercise of stock options ................... 61,000 610 281,890
1998 Net loss ............................... (3,402,138)
--------------------------------------------------------
December 31, 1998 ........................... 4,337,117 43,371 20,560,849 (18,452,656)
Exercise of stock options ................... 146,887 1,469 1,076,143
Issuance of stock, net of offering costs .... 815,000 8,150 2,059,412
Distribution of the net assets of
Cardia, Inc. ............................. (334,171)
1999 Net loss ............................... (2,445,942)
--------------------------------------------------------
December 31, 1999 ........................... 5,299,004 $ 52,990 $ 23,362,233 $(20,898,598)
Stock option activity ....................... 9,400 94 33,440
Non-employee stock awards ................... 50,000 500 152,650
Warrant issued in capital lease transaction . 4,506
Issuance of stock, net of offering costs .... 525,000 5,250 1,485,590
Net loss for the six-month period ended
June 30, 2000 ............................ (1,828,303)
--------------------------------------------------------
June 30, 2000 (unaudited) ................... 5,883,404 $ 58,834 $ 25,038,419 $(22,726,901)
========================================================
</TABLE>
The accompanying notes are an intregral part of the interim
unaudited financial statements.
4
<PAGE>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 AND 1999
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<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ (1,828,303) $(1,000,185)
Adjustments to reconcile net loss from continuing
operations to net cash used by operating activities:
Depreciation and amortization of capital leases ................. 114,359 88,585
Amortization of patents and other intangible assets ............. 24,561 8,553
Value of common stock issued in lieu of cash compensation ....... 153,150 --
Value of stock options and warrants issued in lieu of cash ...... 11,901 --
Gain on disposal of assets ...................................... (1,857) --
Changes in operating assets and liabilities:
Inventories ..................................................... 167,109 75,480
Prepaid expenses, other current assets and other assets ......... 37,051 (20,871)
Accounts payable and accrued expenses ........................... (94,102) (25,571)
----------- -----------
Net cash used in continuing operations .......................... (1,416,131) (874,009)
Net cash used in discontinued operations ........................ -- (120,548)
----------- -----------
Net cash used in operating activities ........................... (1,416,131) (994,557)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities ............................... -- 500,000
Purchase of equipment and improvements .......................... (40,782) (31,280)
Investments in patents and trademarks ........................... (19,763) --
Discontinued operations, net .................................... -- (10,981)
----------- -----------
Net cash provided by (used in) investing activities ............. (60,545) 457,739
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net of expenses ..... 1,490,840 --
Proceeds from exercise of stock options ......................... 26,139 75,001
Proceeds from capital lease obligations, net of repayments
70,996 (266)
----------- -----------
Net cash provided by financing activities ....................... 1,587,975 74,735
----------- -----------
Net increase (decrease) in cash and cash equivalents ............ 111,299 (462,083)
Cash and cash equivalents at beginning of year .................. 1,910,356 1,869,413
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 2,021,655 $ 1,407,330
=========== ===========
</TABLE>
The accompanying notes are an intregral part of the interim
unaudited financial statements
5
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements of Applied Biometrics,
Inc. ("Applied Biometrics" or the "Company") have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
In the opinion of management all adjustments considered necessary, consisting
only of items of a normal recurring nature, for a fair presentation of the
financial position, results of operations and cash flows of the Company as of
and for the interim periods presented have been included. Operating results and
cash flows for the six months ended June 30, 2000 are not necessarily indicative
of the results of operations and cash flows of the Company that may be expected
for the year ending December 31, 2000.
(2) EQUITY FINANCINGS:
During April 2000, the Company completed two private placements of 525,000 units
at an aggregate price of $1,706,250, or $3.25 per unit, resulting in net
proceeds of approximately $1,500,000 after deducting agents' commissions of
$170,625 and other estimated expenses. Each unit consisted of one share of our
common stock and one five-year warrant to purchase one share of common stock at
an exercise price of $3.625. In connection with the private placement the
Company also issued the placement agent five-year warrants to purchase 52,500
shares of Common Stock at an exercise price of $3.25 per share.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q INCLUDE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. ALL FORWARD-LOOKING STATEMENTS IN THIS REPORT 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.
OVERVIEW
Applied Biometrics, Inc. ("Applied Biometrics" or the "Company") is a
development stage medical device company in advanced cardio-vascular and
hemodynamic diagnostic and monitoring systems.
In July 2000, the Company announced due to significant technical issues facing
the Company's Basis (TM) Cardiac Output Monitoring System (the "Basis System" or
the "System") that commercialization of the System was unlikely in the near
term.
The Company determined that upon analysis of a number of recent procedures with
its Basis System, two significant technical issues were identified. The first
issue is the System's ability to work successfully in the event of considerable
variability or turbulence in a patient's blood flow. As the System's central
purpose is to sense and interpret blood flow, the Company has been working
steadily throughout the development process to resolve a number of issues
relating to blood flow dynamics. Previously, the Company believed that it had
made sufficient progress with the System's signal processing to satisfy its
quality and performance objectives.
The second issue involves errors arising from the positioning of the
RealFlow(TM) probe during and after the surgical procedure. Degradation of the
probe's attachment or position on the patient's aorta will introduce data errors
into the System and result in inaccurate cardiac output. The Company has
determined that further investigation is warranted to resolve this issue and may
require design changes to the probe.
Both of these problems impact the System's performance, reliability and
ultimately, market potential. The Company's initial investigation has concluded
that both of these issues require significantly more research and design time.
The Company believes that the ultimate commercialization of the Basis System is
beyond the Company's current financial resources. Accordingly, the Company has
taken steps to reduce its operating costs and focus the majority of its
resources and efforts on pursuing strategic and financing alternatives. As of
the date of this report, this process is still underway.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 WITH THE
THREE MONTHS ENDED JUNE 30, 1999
Selling, general and administrative expenses decreased $100,000 in the second
quarter, from $313,000 during the 1999 period, to $213,000 during the 2000
period. The difference between periods is primarily due to expenses in the 1999
period relating to employee severance cost, hiring costs, increased legal
activity and corporate logo and image costs.
Research and development expenses increased $337,000, from $349,000 in 1999, to
$685,000 in 2000. $210,000 of the increase is due to the write-off of monitor
and probe component inventory, consistent with the determination that near-term
commercialization of the Company's Basis System is unlikely. The Company also
incurred $50,000 of consulting costs in the current quarter related to the
analysis of its probe design related to a mechanical weakness. The balance of
the quarter-to-quarter increase is due to increased costs for engineering,
operations and quality assurance personnel over the prior year three-month
period.
As discussed above, the Company is taking steps to reduce its operating costs as
it pursues strategic and financing alternatives. In the short-term, costs will
increase as the Company incurs expenses related to the termination of its
workforce and settles other operating contracts, commitments and obligations.
This forward-looking statement will be influenced primarily by the Company's
estimate of the costs to settle its outstanding operating commitments and
obligations.
Other income, primarily interest income, increased $7,000 from $22,000 in the
1999 quarter to $29,000 in the 2000 quarter. The increase is due to higher
average investment balances in the 2000 quarter than in the 1999 quarter. The
2000 first quarter net loss was $869,000, or $0.15 per share, compared to a net
loss of $640,000, or $0.14 per share in 1999.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 WITH THE
SIX MONTHS ENDED JUNE 30, 1999
Selling, general and administrative expenses increased $180,000 in the first
six-months, from $491,000 during the 1999 period, to $671,000 during the 2000
period. The Company incurred a non-cash compensation charge of $153,000 during
the current period related to stock granted to the Company's three non-employee
directors for prior and current board service. Non-employee directors of the
Company serve without cash compensation.
Research and development expenses increased $652,000, from $555,000 in 1999, to
$1,207,000 in 2000, due to increased spending on engineering, operations and
quality assurance personnel, animal testing, manufacturing pilot costs and
product evaluations. The Company hired a significant number of additional
personnel during the second half of 1999 in order to complete development, begin
manufacturing and conduct market product evaluations on the Basis System. As
discussed above, the Company wrote-off $210,000 of its monitor and probe
component inventory in the current period.
Other income, primarily interest income, increased $4,000 from $46,000 in the
1999 six-month period to $50,000 in the 2000 period. The 2000 six-month net loss
was $1,828,000, or $0.34 per share, compared to a net loss of $1,000,000, or
$0.23 per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $2,022,000 at June 30, 2000 as compared to
$1,910,000 of cash and cash equivalents at December 31, 1999, an increase of
$112,000. Operating activities during the period used cash of
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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$1,416,000, consisting primarily of the net loss for the six-month period offset
by approximately $304,000 of non-cash expenses and a decrease in inventory and
accounts payable. Investing activities used $60,000 for the purchase of
equipment and legal costs related to the preparation of patent applications.
Financing activities provided $1,588,000 of cash primarily from two private
equity financings in April, 2000.
The Company has determined that the current technical issues facing its sole
product, the Basis System, are beyond its current financial resources. The
Company is taking steps to reduce its operating costs and focus its remaining
resources on investigating strategic and financing alternatives, including
locating another party with greater resources to further development of its core
technology and maximize its commercial potential.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
9
<PAGE>
APPLIED BIOMETRICS, INC.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During April 2000, the Company issued an aggregate of 525,000 units in two
private placement financings, with each unit consisting of one share of the
Company's common stock, $.01 par value, and one five-year warrant to purchase a
share of common stock at an exercise price of $3.625. The units were sold at a
price of $3.25 per unit, resulting in gross proceeds of $1,706,250 and net
proceeds of approximately $1,500,000 after deducting agent's commissions of
$170,625 and other estimated expenses. Miller Johnson & Kuehn, Inc. of
Minneapolis, Minnesota acted as the Company's agent in the private placement.
The units were offered and sold solely to "accredited investors" as defined in
Rule 501(a) and were issued without registration in reliance on Regulation D and
Section 4(2) under the Securities Act of 1933, as amended. In relying upon these
exemptions the Company made certain inquiries and received certain assurances to
establish that the exemptions were available for the issuance. In particular,
the Company confirmed that: (i) the offers of sales and sales were made without
general solicitation; (ii) each investor made representations that he or she was
"accredited," was sophisticated in relation to the investment, and had reviewed
certain information made available by the Company; (iii) each purchaser gave
assurance of investment intent and the certificates for the shares and the
warrants bear an appropriate legend restricting transfer; and (iv) offers and
sales were made to a limited number of persons.
In consideration of its services in connection with the April 2000 private
placements, the Company also issued the agent five-year warrants to purchase an
aggregate of 52,500 shares of its common stock at an exercise price of $3.25 per
share.
In consideration of a $425,000 capital lease commitment by Dexxon Capital
Corporation in April 2000, the Company issued a five-year warrant to Dexxon to
purchase up to 13,500 shares of its common stock at an exercise price of $3.00
per share, with the exact number of shares issuable under the warrant determined
by the Company's aggregate borrowings under the capital lease.
All of the foregoing warrants were also issued without registration in reliance
on Regulation D and Section 4(2), based, among other things, upon the fact that:
(i) the warrants were issued without general solicitation; (ii) each recipient
was determined to be sophisticated in relation to the investment; (iii) each
recipient gave assurance of investment intent and the warrants bear an
appropriate legend restricting transfer; and (iv) offers and sales were made to
a limited number of persons.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10
<PAGE>
APPLIED BIOMETRICS, INC.
PART II. OTHER INFORMATION - CONTINUED
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The following is a report of the voting results of the Company's annual
shareholders meeting held on May 9, 2000.
1. The proposal to elect four directors was approved. Andrew M. Weiss,
Demetre Nicoloff, Norman Dann and Jeffrey W. Green were elected until
the next annual meeting of shareholders or until their successors are
duly elected and qualified. The tabulation is as follows:
Director Votes For Votes Against
-------- --------- -------------
Andrew M. Weiss 4,699,666 29,502
Demetre Nicoloff 4,699,666 29,502
Normann Dann 4,699,666 29,502
Jeffrey W. Green 4,699,666 29,502
2. The proposal to amend the Company's 1998 Stock Plan to (i) increase the
number of shares of the Company's common stock, $.01 par value per
share, specifically reserved for issuance under the 1998 Plan by
750,000 shares, (ii) to additionally increase the number of shares of
the Company Common Stock available for issuance under the 1998 Plan to
include the number of shares remaining available under the Company's
1994 and 1996 Stock Plans or later becoming available under the 1994 or
1996 Plans as a result of forfeiture or cancellation, (iii) to include
non-employee directors as eligible participants under the 1998 Plan and
(iv) to increase the number of options that my be granted in any one
year to any one person under the 1998 Plan from 150,000, 200,000 was
approved. There were 2,586,412 votes cast in favor and 239,002 votes
cast against the proposal, with 63,280 shares abstaining.
3. The proposal to approve the appointment of Ernst & Young LLP as
independent accountants of the Company was approved. There were
4,695,428 votes cast in favor and 600 votes cash against the proposal,
with 33,140 shares abstaining.
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 13.
(b) Form 8-K. On April 17, 2000 the Company filed a report on Form 8-K
reporting its issuance of 375,000 units, with each unit consisting of
one share of the Company's common stock, $.01 par value, and one
five-year warrant to purchase a share of common stock at an exercise
price of $3.625 under item 5, other information.
11
<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: August 14, 2000
/s/ Camille M. Meyer
----------------------------------------------------
Camille M. Meyer
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
12
<PAGE>
APPLIED BIOMETRICS, INC.
INDEX TO EXHIBITS
--------------------------------------------------------------------------------
10.1 Applied Biometrics Amended 1998 Stock Plan, amended January 1, 2000
(filed herewith electronically).
10.2 Master Lease dated October 18, 1999 by and between the Company and
Dexxon Capital Corporation (filed herewith electronically).
10.3 Amendment to Master Lease dated April 10, 2000 by and between the
Company and Dexxon Capital Corporation (filed herewith electronically).
27.1 Financial Data Schedule for the six-month period ended June 30, 2000
(filed herewith electronically).
13
