<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
AMENDED
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from to
---------------------- ------------------------
Commission File Number: 0-19606
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AMERICAN BIOMED, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 76-0136574
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
10077 Grogans Mill Road, Suite 100, The Woodlands, Texas 77380
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(address of principal executive offices) (Zip Code)
(713) 367-3895
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(Registrant's telephone number, including area code)
N.A.
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(Former name, former address and former fiscal year if changed since last report)
</TABLE>
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 and 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. X Yes No
The total number of shares outstanding of common stock, $.001 par value as of
November 5, 1996 is 13,013,395.
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AMERICAN BIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 125,743 $ 9,177
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $45,000 and $45,480 in 1996 and 1995, respectively 190,697 158,713
Other 28,404 32,064
Inventories 488,009 370,130
Other current assets 421,588 60,667
---------- -----------
Total current assets 1,254,441 630,751
--------- -----------
Property and equipment 118,932 200,736
Patents, net of accumulated amortization of $866,534
and $799,043 in 1996 and 1995, respectively 160,244 204,812
Goodwill, net of accumulated amortization of $566,602
and $451,308 in 1996 and 1995, respectively 705,096 779,528
Other assets 76,263 67,451
----------- ----------
Total assets $2,314,976 $1,883,278
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 235,000
Notes payable to stockholders and others $ 1,265,764 1,831,322
Current maturities of capital lease obligations 170,347 512,712
Current maturities, long term debt 34,846 -
Accounts payable 401,427 1,283,020
Accrued liabilities 551,034 595,984
Other current liabilities 3,000 -
-------------- ----------
Total current liabilities 2,426,418 4,458,038
------------ ----------
Long-term debt, net of current maturities 119,641 -
Capital lease obligations, net of current maturities 455,720 7,095
Deferred revenue 175,000 220,000
Commitments and contingencies:
Stockholders' deficit:
Preferred stock, $.001 par value, 2,000,000 shares authorized,
1,390 shares and no shares issued and outstanding in 1996 and
1995,respectively 1
Common stock, $.001 par value, 25,000,000 shares authorized
in 1996 and 1995, 12,981,720 shares and 9,505,274 shares issued
and outstanding at September 30, 1996 and December 31, 1995,
respectively 12,982 9,505
Additional paid-in capital 23,003,108 19,190,146
Deficit accumulated during the development stage (23,626,294) (21,749,906)
Less treasury stock at cost, 68,323 shares (251,600) (251,600)
----------- -----------
Total stockholders' deficit (861,803) (2,801,855)
----------- -----------
Total liabilities and stockholders' deficit $ 2,314,976 $ 1,883,278
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<PAGE> 4
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Three Months Ended Nine Months Ended September 4, 1984,
September 30, September 30, to
1996 1995 1996 1995 September 30, 1996
---------------------------- ---------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Sales, net $ 187,761 $ 123,180 $ 417,197 $ 414,413 $ 3,152,311
Operating costs and expenses:
Cost of sales (89,248) (103,569) (295,721) (365,369) (3,107,789)
Selling, general and administrative
expenses (522,370) (453,205) (1,283,258) (1,750,268) (15,021,598)
Research and development expenses (139,792) (122,652) (492,478) (435,994) (7,101,679)
Distributor settlement (1,080,915)
----------- ---------- ------------ ------------ ------------
Loss from operations (563,649) (556,246) (1,654,260) (2,137,218) (23,159,670)
----------- ---------- ----------- ----------- ------------
Other income (expense):
Interest income 2,921 2,233 3,613 5,807 109,094
Interest expense (85,634) (80,810) (283,318) (192,106) (2,664,841)
Other income (2,630) 1,515,560 57,577 1,530,366 2,089,123
----------- ----------- ------------ ----------- ------------
Other income (expense) net (85,343) 1,436,983 (222,128) 1,344,067 (466,624)
----------- ----------- ----------- ----------- ------------
Net income (loss) $ (648,992) $ 880,737 $(1,876,388) $ (793,151) $(23,626,294)
=========== ========== =========== =========== ============
Net income (loss) per common share $ (.05) $ .08 $ (.18) $ (.09)
=========== ========== =========== ===========
Weighted average number of shares
outstanding 12,299,078 11,331,100 10,688,212 9,252,363
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
<PAGE> 5
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984,
September 30, to
1996 1995 September 30, 1996
----------- -------------- ------------------
<S> C> <C> <C>
Net cash used by operating activities $(1,205,283) $( 543,663) $(16,884,538)
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (23,615) (412,068)
Investment in patents (22,923) (39,082) (428,497)
Other investing activities (2,167) 243,816
----------- ----------- ------------
Net cash used by investing activities (46,538) (41,249) (596,749)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable to banks 2,333,880
Proceeds from notes payable to stockholders 34,750 26,800 1,225,921
Proceeds from notes payable to others 835,576 1,536,998 3,196,625
Principal payments on notes payable to banks (5,000) (33,880) (2,070,000)
Principal payments on notes payable to stockholders (123,522) (16,071) (660,254)
Principal payments on notes payable to others (1,135,002) (528,541) (2,355,349)
Principal payments on long-term debt (2,777) (14,566) (79,117)
Principal payments on capital lease obligation (42,055) (108,500) (572,944)
Proceeds from patent assignment and leaseback 500,000
Proceeds from equipment assignment and leaseback 305,000
Proceeds from sale of subordinated
convertible debentures 640,000
Net proceeds from sale of preferred stock 1,251,319 4,297,465
Net proceeds from sale of common stock and warrants
in connection with initial public offering, secondary
offering and private placements 268,535 500 8,608,501
Proceeds from exercise of stock purchase warrants and
stock options 286,563 60,000 3,126,543
Treasury stock acquired (500,000)
Other financing activities (389,241)
----------- ----------- -----------
Net cash provided by financing activities 1,368,387 922,740 17,607,030
----------- ----------- -----------
Net increase in cash and cash equivalents 116,566 337,828 125,743
Cash and cash equivalents at beginning
of period 9,177 21,246
----------- ----------- -----------
Cash and cash equivalents at end of period $ 125,743 $ 359,074 $ 125,743
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements
5
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AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the requirements of Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, the
unaudited consolidated condensed financial statements reflect all adjustments
that are necessary for a fair statement of the results of the periods
presented, and all such adjustments are of a normal recurring nature.
The unaudited consolidated condensed financial statements include the
accounts of American BioMed, Inc. and its wholly-owned subsidiaries, Freedom
Machine, Inc. and Cathlab Corporation, (jointly referred to as the "Company")
after elimination of all intercompany transactions and accounts.
These unaudited consolidated condensed financial statements should be read
in connection with the financial statements for the year ended December 31,
1995 included in the Company's Annual Report filed on Form 10-K. Results for
the period are not necessarily indicative of year-end results.
2. CAPITAL STOCK
During 1996 management, in order to resolve outstanding financial
obligations, negotiated debt to equity conversions of approximately $1.2
million with various stockholders, vendors and a bank which was paid with the
issuance of approximately 832,000 shares of common stock. In conjunction with
this the Company filed a Form S-3 Registration Statement ("S-3") which became
effective August 23, 1996.
On July 17, 1996, the Board of Directors approved the issuance of options to
purchase 10,000 shares of common stock at $.50 per share in connection with an
employment agreement. The Board also authorized issuance of options to
purchase 10,000 shares at $.50 per share to an employee. In connection with
his hiring as Vice President Sales and Marketing, Arthur Przybyl was granted
options to purchase 100,000 shares of common stock at $1.00 per share.
The Company filed a Form S-8 Registration Statement ("Registration
Statement") on April 16, 1996. The Registration Statement relates to an
aggregate of 600,000 shares of the Company's common stock which are to be
offered upon the terms and subject to the conditions set forth in the
agreements referenced in the Registration Statement.
In lieu of interest on a stockholder note payable, the Company issued 30,000
shares of common stock.
In May 1996, the Company issued 198,000 shares of common stock to its
landlord in California to settle the outstanding lease obligation and to prepay
the lease for the remaining term.
On April 19, 1996, the Company issued 2,000 shares of common stock in
connection with a private placement.
6
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AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
In February 1996, the Company and Zanett Capital, Inc. ("Zanett"), a
financial consulting firm, signed an agreement whereby Zanett agreed to help
the Company raise capital pursuant to an offering of the Company's equity
securities. Claudio M. Guazzoni, a member to the Company's Board of Directors,
is Zanett's President and Chief Executive Officer. Pursuant to Regulation S of
the Securities Act, in July 1996 the Company sold 1,250,001 shares of Common
Stock, at a purchase price of $.24 per share, and 1,390 shares of its Series A
Convertible Preferred Stock, par value $.001 per share ("Series A Preferred"),
at a purchase price of $1,000 per share, to a group of foreign investors (the
"Investors"). The Investors consisted of Heriot Holdings, Ltd, Harlow
Enterprises, Inc., Parkland Limited, Zanett Lombardier, Ltd., Queensborough
Investments, All Fruit Limited, Emral Investments and Bruno Guazzoni. Zanett
Lombardier, Ltd. is not an affiliate of Zanett and Bruno Guazzoni is a relative
of Claudio Guazzoni, but is not a member of his immediate family. The Series A
Preferred, which bears no dividends and confers no voting rights, is senior in
priority to the Company's other equity securities (except with the consent of a
majority of the holders of the Series A Preferred) and is convertible at any
time after October 30, 1996 at the option of the holders into such number of
Common Shares (the "Series A Conversion Shares") as is equal to $1,000 divided
by the lesser of (i) $.24 and (ii) 80% of the average of closing bid price of
the Common Stock for the five consecutive days ending two days prior to the day
the election to convert is made (the "Conversion Price"). The number of
Conversion Shares is subject to adjustment from time to time upon the
occurrence of stock splits, reverse stock splits, and similar events. In July
1999, any outstanding shares of the Series A Preferred will be automatically
converted based on the Conversion Price then in effect. In addition,
registration rights were granted to the Investors for the Common Stock
purchased, as well as for the Common Stock issuable upon conversion of the
Series A Preferred. The term of the registration rights is three years and
includes three demand registration rights and unlimited piggyback rights. In
the event that the Company conducts an underwritten offering during such term,
the number of shares offered by the holders pursuant to a piggyback
registration may be cut back on a pro rata basis at the discretion of the
managing underwriter.
7
<PAGE> 8
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
3. SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984
September 30, to
1996 1995 September 30, 1996
--------- -------- ------------------
<S> <C> <C> <C>
Interest Paid $ 342,578 $ 147,797 $ 1,096,876
Noncash investing and financing activities:
Equipment acquired through
capital lease obligations 2,031 268,570
Equipment and leasehold improvements
acquired through notes payable 35,775
Conversion of accrued interest
payable to principal on note
payable to stockholders 26,800 105,170
Conversion of Series A and Series B
Preferred Stock to
common stock 444
Conversion of debentures
to common stock 640,000
Deferred offering costs incurred
in prior year charged against
offering proceeds 41,000
Issuance of common stock in connection
with purchase of assets of VMS, Inc. 124,999
Issuance of common stock in connection
with purchase of assets of Superstat, Inc. 81,819
Conversion of notes payable to common stock 407,360 457,360
Common stock and warrants issued in lieu of
interest expense 57,744 1,383,169
Patent assignment and leaseback 500,000
Issuance of common stock in connection with
Therex settlement 77
Transfer of note receivable from officer 25,000
Writeup of property and equipment on Cathlab
due to sale and leaseback agreement 221,616
Issuance of common stock and warrants
for services 1,544,921 54,833 2,184,848
</TABLE>
8
<PAGE> 9
4. INVENTORIES
Inventories are stated at the lower of cost or market value. Cost
is determined using the first-in, first- out (FIFO) method.
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 187,256 $ 146,901
Work in process 184,686 166,893
Finished goods 116,067 56,336
--------- ---------
$ 488,009 $ 370,130
========= =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
In March 1996, Aberlyn agreed to discuss a restructuring of all
Company leases and an agreement to restructure the leases was reached May 28,
1996 with Board of Directors' approval received July 17, 1996. The
restructuring has resulted in lease payments over a twenty-four month period
with the initial payment commencing June 1, 1996. The payment schedule is as
follows:
<TABLE>
<S> <C>
Months 1-5 $ 15,000 (each)
Month 6 50,000
Months 7-11 15,000 (each)
Month 12 50,000
Months 13-17 15,000 (each)
Month 18 125,000
Months 19-23 25,000 (each)
Month 24 $ 215,000
</TABLE>
The above payments are based on outstanding principal of approximately
$514,000 and total accrued interest of approximately $148,000. Accumulated
late fees and additional accumulated miscellaneous expenses totaling $115,728
was converted into 115,000 shares of the Company's common stock. The price
reflects a discount from the closing bid price of $1.125 per share on May 28,
1996.
In June 1996, the Company executed an installment note payable to a
vendor in the amount of $157,263, payable in monthly installments of $3,858
including interest, beginning September 1, 1996 and maturing August 1, 2000.
The note bears interest at 8.25% per year and is uncollateralized.
In July 1995, United States Surgical Corporation ("USSC") elected not
to exercise its option to acquire certain assets. As a result, the Company
retained $1.0 million of the initial payment as a forfeited option fee. The
other $1.0 million is payable to USSC plus interest at 10% per year. The note,
originally due January 20, 1996 which is collateralized by the Company's stent
technology, was extended to September 15, 1996.
In September 1996, the balance of the USSC note was paid from the
proceeds received in connection with the issuance of promissory notes (the
"Notes") in the amount of $835,576 to a group of foreign parties consisting of
Hariot Holdings, Bruno Guazzoni and Zanett Lombardier, Ltd. (collectively, the
"Lenders"). The Notes, bearing interest at 10% per annum and secured by the
Company's OmniStentTM, Evert-O-CathTM and Cardiac Assist technologies, matured
October 17, 1996, payable in U.S. Dollars. The Notes were paid in full in
November 1996. See "Subsequent Event." In addition to the Notes, the Lenders
received warrants to purchase an aggregate of 250,000 shares of the Company's
Common Stock (the "Bridge Warrants") and certain registration rights in
connection with such stock. The Bridge Warrants, issued pursuant to Regulation
S of the Securities Act, have a term of five years from the date of issuance
and an exercise price equal to the lowest market price for the Comon Stock
during the period beginning on the day prior to the date of issuance and ending
on the earlier of (i) 180 days thereafter and
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<PAGE> 10
(ii) the day prior to the date of exercise. The exercise price of the Bridge
Warrants and the number of shares of Common Stock underlying the Bridge
Warrants are both subject to adjustment upon the occurrence of stock splits,
reverse stock splits, the issuance of below-market securities, and other
events. In addition, the Lenders were given registration rights with respect
to the shares of Common Stock issuable upon exercise of the Bridge Warrants.
The term of the registration rights is three years and includes three demand
registration rights and unlimited piggyback rights. In the event that the
Company conducts an underwritten offering during such term, the number of
shares offered by the holders pursuant to a piggyback registration may be cut
back on a pro rata basis at the discretion of the managing underwriter.
6. SUBSEQUENT EVENT
Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (i) 1,500 shares of its 1996 Series B
Preferred Convertible Stock, par value $.001 per share (the "Series B
Preferred"), and (ii) an equal number of warrants to purchase Common Stock (the
"Warrants") to a group of foreign investors (the "Series B Investors") for a
total purchase price of $1,500,000, or $1,000 per unit. The Series B
Investors consisted of Otato Limited Partnership, Shoham Investment Limited,
Wood Gundy London Limited and Ailouros Ltd, none of which are affiliates of the
Company or "U.S. persons" (as such term is defined in Regulation S of the
Securities Act). The proceeds of the sale were used to pay off the Notes in
the amount of $835,576, with the balance to be used to fund clinical trials and
for general working capital. The Series B Preferred, which bears no dividends
and confers no voting rights, is pari passu to the Series A Preferred and
senior in priority to the Company's other equity securities (except with the
consent of a majority of the holders of the Series B Preferred) and is
convertible at any time at the option of the holders into a number of shares of
Common Stock (the "Series B Conversion Shares") based on the lesser of (i) the
average of the market price for the Common Stock for the ten consecutive days
prior to the sixtieth day after the closing date of the Series B issuance and
(ii) between 70% and 86% (depending on the length of time since the closing
date of the Series B issuance) of the average of the market price for the five
consecutive days prior to the day the election to convert is made (the "Series
B Conversion Price"). The number of Series B Conversion Shares is subject to
adjustment from time to time upon the occurrence of stock splits, reverse stock
splits, and similar events. In November 1998, any outstanding shares of the
Series B Preferred will be automatically converted based on the Series B
Conversion Price then in effect. Each Warrant entitles the holder to the
number of shares of Common Stock equal to the quotient of $1,000 divided by the
market price of the Common Stock on the closing date of the Series B issuance.
The exercise price of the Warrants is equal to the average of the market price
for the Common Stock for the ten consecutive days prior to the sixtieth day
after the closing date of the Series B issuance. The Warrants terminate five
years after issuance and the exercise price of the Warrants and the number of
shares of Common Stock underlying the Warrants are both subject to adjustment
upon the occurrence of stock splits, reverse stock splits, the issuance of
below-market securities, and other events. In addition to the Series B
Preferred and the Warrants, the Series B Investors were given registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Series B Preferred and exercise of the Warrants. The term of the
registration rights is three years and includes three demand registration
rights and unlimited piggyback rights. In the event that the Company conducts
an underwritten offering during such term, the number of shares offered by the
holders pursuant to a piggyback registration may be cut back on a pro rata
basis at the discretion of the managing underwriter. The Company's rights to
its OmniStentTM, Evert-O-CathTM and Cardiac Assist technologies were assigned
to the Series B Preferred purchasers as collateral until such time as the
Company's authorized Common Stock is increased to thirty-five million shares
and a sufficient number of shares of Common Stock is reserved to provide for
the full conversion and exercise of the holders' Series B Preferred and
Warrants, respectively. An amendment to the Company's Certificate of
Incorporation, which would increase the number of shares of authorized Common
Stock to fifty million, is on the ballot for the Company's annual stockholders
meeting scheduled for November 22, 1996. Zanett served as the placement agent
for the purchase and sale of the Series B Preferred.
10
<PAGE> 11
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is in the development stage and has had limited operating
revenues since its inception on September 4, 1984. From September 4, 1984
through September 30, 1996, the Company had an accumulated deficit of
$23,626,294.
During the quarter ended September 30, 1996, the Company's sales
increased 52.4% to $187,761 compared with sales of $123,180 for the same period
in 1995. Sales for the nine months increased by .7% to $417,197 compared with
sales of $414,413 for the same period in 1995. The primary reason for the
quarter increase is attributed to the increased activity by the Cathlab
international distributors. International export sales of Cathlab's products
increased to $104,563 or 31.8% this quarter from $79,289 in the third quarter
1995. Domestic sales increased 90% from $41,474 to $78,816 over the same
period.
Cost of sales represented 70.9% and 88.2% of sales for the nine months
ended September 30, 1996 and 1995, respectively. Obsolete inventory of
approximately $37,000 was written off during the nine months ended September
30, 1995.
Selling, general and administrative expenses decreased 26.7% to
$1,283,258 during the first nine months of 1996, compared to $1,750,268 for the
same period in 1995. The overall decrease is due to several factors. The
Company subleased 3,000 square feet of the Cathlab facility to an unrelated
party in January 1996 and downsized the corporate headquarters and research and
development facility, resulting in savings of approximately $52,000 for the
nine months ended September 30, 1996. The most significant difference was the
legal expense and other transaction costs incurred in the second quarter of
1995 related to the USSC transaction.
The third quarter 1996 increase of 15.2% over the same period in 1995
of selling, general and administrative expenses is attributable to increases in
marketing and investor relations activity.
Research and development expenses totaled $492,478 during the first
nine months, an increase of 12.9% from the 1995 first nine months total of
$435,994. The increase in research and development expenditures is primarily
attributed to the Company's efforts to initiate U.S. clinical trials for the
OmniCath(R).
The Company's interest expense totaled $85,634 for the third quarter
of 1996, compared to $80,810 for the third quarter of 1995.
The Company's continued emphasis on cost containment and a focus on
its core technologies resulted in the loss from operations improving from
$2,137,218 in 1995 to $1,654,260 in 1996, representing a 22.6% improvement.
In addition, net cash used by operating activities in the nine months ended
September 30, 1996 increased 121.7% or $661,620 compared to the same period in
1995 due to the forfeited option fee of $1 million and the sale of the European
Patent for $500,000 in 1995.
For the period from inception to September 30, 1996, the Company's
other income of $2,089,123 consisted primarily of $400,000 received from
Guerbet in 1991 in connection with the development of certain of the Company's
products, proceeds of $49,900 received from the initial phase of a grant
obtained from the National Institute of Health during 1992 in connection with
the development of certain of the Company's heart pumps, $105,417 in settlement
of accounts payable to certain vendors, $110,000 amortization of the license
fee received from Wright Medical
11
<PAGE> 12
Technologies, Inc. and $1.0 million from USSC as a forfeited option fee. An
additional $494,676 was realized on August 11, 1995 when the Company sold the
European patent for the OmniCath(R) atherectomy catheter for a purchase price
of $500,000 cash to Guerbet S.A. of France.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been exceeding its resources due
to its expenditures related to research and development, size of its general
and administrative staff, expenditures related to obtaining regulatory
approvals, obtaining and maintaining manufacturing and distribution
arrangements and the expenses of product introductions.
During 1995 the Company was unable to meet certain of its obligations
as they came due. Certain executive officers have deferred payment of salaries
amounting to $290,433. In addition, the Company is in arrears to certain
vendors and suppliers. Accounts payable and accrued liabilities, including
deferred officer salaries, amounted to $952,461 at September 30, 1996.
Management has resolved a large percentage of these outstanding obligations by
effecting debt to equity conversion, which became effective August 1996. (See
Footnote 2 - Capital Stock). The Company had a working capital deficiency as
of September 30, 1996 of $1,171,977, an improvement of approximately $2.7
million over December 31, 1995.
At September 30, 1996, the Company had cash and cash equivalents in
the amount of $125,743 compared with cash and cash equivalents of $9,177 at
December 31, 1995. Funds of approximately $1.7 million were received in
conjunction with a private placement during the first six months of 1996.
Options and warrants exercised during the second and third quarters provided
the Company with an additional $286,563.
In addition to the distributor agreements signed in 1995, agreements
were signed in June 1996 with a distributor in Mexico on an exclusive
arrangement and a non-exclusive agreement was finalized for the West Indies.
The Company has expanded its international business through non-exclusive
agreements in the following countries: Argentina, Greece, Brazil, Germany,
Kuwait, Norway, Taiwan, Belize and China. Discussions are proceeding regarding
distributor agreements with companies in other international and U.S. markets.
There can be no assurances of the execution of any agreements resulting from
these discussions.
The Company is also pursuing private label opportunities for its
Cathlab products to supply third-party companies with existing FDA approved
product lines. Additional opportunities are in the discussion stages to
provide OEM manufacturing capabilities to companies for products the Company
does not currently manufacture. No agreements have been signed or executed
subsequent to September 30, 1996 and there can be no assurances of the
execution of any agreements.
The Company is uncertain today that the distributors now in place will
be able to effectively market and sell the Company's core technologies, the
OmniCath(R), OmniStentTM and Evert-O-CathTM. As such, the Company has
undertaken efforts to identify healthcare companies with similar technologies
or companies seeking new proprietary products to strengthen their existing
market position. This strategy is directed toward the formation of strategic
alliances, joint venture arrangements, licensing and distributor agreements,
and research and development agreements/projects. An integral part of this
strategy is to aggressively pursue the sale of ancillary technologies (not core
technologies) which will enable the Company to focus its resources exclusively
on its core technologies and commercial non-angioplasty balloon catheter
products.
The Company requires additional funds to enable it to complete
development of its core technologies and, subject to obtaining required
regulatory approvals, commercialization of the OmniCath(R) for peripheral use,
to enter into marketing and distribution arrangements for the Evert-O-CathTM,
to commence and continue the development of the OmniStentTM and other products
as well as enhancements to the OmniCath(R) and the Evert-O-Cath(TM), and to
expand its manufacturing and distribution abilities with respect to Cathlab
products. If the Company experiences
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delays in the introduction, manufacturing or sale of the OmniCath(R), or if the
OmniCath(R) does not achieve market acceptance for any reason, substantial
additional financing may be required by the Company to continue its operations,
and to improve, complete the development of, obtain regulatory approvals for,
and manufacture or market products. The Company receives some revenues and
expects to continue to receive revenues from the sale of Cathlab's products.
The Company anticipates that Cathlab's revenues should increase during 1996;
however, this increase will not be sufficient to satisfy the Company's funding
needs. Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (i) 1,500 shares of its 1996 Series B
Preferred Convertible Stock, par value $.001 per share (the "Series B
Preferred"), and (ii) an equal number of warrants to purchase Common Stock (the
"Warrants") to a group of foreign investors (the "Series B Investors") for a
total purchase price of $1,500,000, or $1,000 per unit. The Series B Investors
consisted of Otato Limited Partnership, Showman Investment Limited, Wood Gundy
London Limited and Ailouros Ltd, none of which are affiliates of the Company or
"U.S. persons" (as such term is defined in Regulation S of the Securities Act).
The proceeds of the sale were used to pay off the Notes in the amount of
$835,576, with the balance to be used to fund clinical trials and for general
working capital. The Series B Preferred, which bears no dividends and confers
no voting rights, is pari passu to the Series A Preferred and senior in
priority to the Company's other equity securities (except with the consent of a
majority of the holders of the Series B Preferred) and is convertible at any
time at the option of the holders, subject to certain volume restrictons
imposed by the terms of the Series B Certificate of Designations, into a number
of shares of Common Stock (the "Series B Conversion Shares") based on the
lesser of (i) the average of the market price for the Common Stock for the ten
consecutive days prior to the sixtieth day after the closing date of the Series
B issuance and (ii) between 70% and 86% (depending on the length of time since
the closing date of the Series B issuance) of the average of the market price
for the five consecutive days prior to the day the election to convert is made
(the "Series B Conversion Price"). The number of Series B Conversion Shares is
subject to adjustment from time to time upon the occurrence of stock splits,
reverse stock splits, and similar events. In November 1998, any outstanding
shares of the Series B Preferred will be automatically converted based on the
Series B Conversion Price then in effect. Each Warrant entitles the holder to
the number of shares of Common Stock equal to the quotient of $1,000 divided by
the market price of the Common Stock on the closing date of the Series B
issuance. The exercise price of the Warrants is equal to the average of the
market price for the Common Stock for the ten consecutive days prior to the
sixtieth day after the closing date of the Series B issuance. Each Warrant may
be exercised at any time by the holder thereof, subject to certain volume
restrictions imposed by the terms of the Warrant. The Warrants terminate five
years after issuance and the exercise price of the Warrants and the number of
shares of Common Stock underlying the Warrants are both subject to adjustment
upon the occurrence of stock splits, reverse stock splits, the issuance of
below-market securities, and other events. In addition to the Series B
Preferred and the Warrants, the Series B Investors were given registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Series B Preferred and exercise of the Warrants. The term of the
registration rights is three years and includes three demand registration
rights and unlimited piggyback rights. In the event that the Company conducts
an underwritten offering during such term, the number of shares offered by the
holders pursuant to a piggyback registration may be cut back on a pro rata
basis at the discretion of the managing underwriter. The Company's rights to
its OmniStent(TM), Evert- O-Cath(TM) and Cardiac Assist technologies were
assigned to the Series B Preferred purchasers as collateral until such time as
the Company's authorized Common Stock is increased to thirty-five million shares
and a sufficient number of shares of Common Stock is reserved to provide for the
full conversion and exercise of the holders' Series B Preferred and Warrants,
respectively. An amendment to the Company's Certificate of Incorporation, which
would increase the number of shares of authorized Common Stock to fifty million,
is on the ballot for the Company's annual stockholders meeting scheduled for
November 22, 1996. Zanett served as the placement agent for the purchase and
sale of the Series B Preferred. The Company has an ongoing need to raise
additional funds to enable it to maintain its operations and advance the
research and development of its core technologies.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's report on Form 10-K for the year
ended December 31, 1995 and Form 10-Q for the quarter ended March 31, 1996 for
a description of other legal proceedings to which the Company became a party
during the nine (9) months ended September 30, 1996, which information is
incorporated by reference herein.
ITEM 5. OTHER INFORMATION
The Company, in cooperation with its Principal Clinical Investigator,
Dr. Samuel S. Ahn, filed and received approval for an IRB (Institutional Review
Board) at UCLA to conduct a multi-center prospective randomized study comparing
atherectomy using the OmniCath(R) device vs. balloon angioplasty to treat
Peripheral Arterial Occlusion Disease. The clinical studies began during the
third quarter 1996. Upon conclusion of these clinical investigations, the
Company will submit for approval a 510(k) Notification to the FDA for
peripheral use of its OmniCath(R) atherectomy catheter.
In addition, the Company is preparing to submit in the fourth quarter
1996 an IRB at UCLA and a U.S. Investigational Device Exemption (IDE)
application so that clinical trials can begin in the U.S. for use of its
OmniCath(R) atherectomy catheter as an adjunct to balloon angioplasty in the
treatment of partial stenosis of arteriovenous grafts. The Company is
proceeding to develop a randomized clinical investigation utilizing UCLA
Medical Center as its Central Monitoring Center. The Company will file an
additional 510(k) Notification for this indication as soon as the clinical
investigations are concluded.
The Company is a party to litigation arising in the ordinary course of
business. Management regularly analyzes current information and, as necessary,
provides accrual for probable liabilities for the eventual disposition of the
matter. In the opinion of management, the ultimate outcome of these matters
will not materially affect the Company's financial position, results of
operations or cash flows.
The Board of Directors authorized an increase in the number of
directors to six on July 17, 1996. Richard S. Serbin was elected to fill the
vacant seat. Mr. Serbin is Executive Vice President and Director of
Bio-Imaging Technologies, Inc., and has served in that capacity since 1991.
Bio-Imaging Technologies, Inc. provides specialized consulting services to help
pharmaceutical and biotechnology companies and medical device manufacturers
facilitate drug and device evaluation and regulatory review. Mr. Serbin is a
registered patent attorney, registered pharmacist, a member of the Board of
Trustees of the Mountainside Hospital and a member of the Board of Health of
Roseland, New Jersey.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this Report.
*3.1 Certificate of Designations, Preferences and Rights of
1996 Series A Convertible Preferred Stock
*3.2 Certificate of Designations, Preferences and Rights of
1996 Series B Convertible Preferred Stock
*11.1 Computation of Income (Loss) Per Common Share
*27 Financial Data Schedule
- -----------
* Filed previously
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BIOMED, INC.
<TABLE>
<S> <C> <C>
Date: December 6, 1996 /s/ STEVEN B. RASH
-----------------------------
Steven B. Rash
President and
Chief Executive Officer
Date: December 6, 1996 /s/ COLENE F. BLANKINSHIP
-------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
</TABLE>
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