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REGISTRATION NO. 333-52301
As filed with the Securities and Exchange Commission on August 21, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4 ON
FORM S-1
(FORMERLY ON FORM S-3)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMERICAN BIOMED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0136574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10077 GROGANS MILL ROAD #100
THE WOODLANDS, TEXAS 77380
(281) 367-3895
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
STEVEN B. RASH With copies to:
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN BIOMED, INC. PORTER & HEDGES, L.L.P.
10077 GROGANS MILL ROAD #100 700 LOUISIANA, 35TH FLOOR
THE WOODLANDS, TEXAS 77380 HOUSTON, TEXAS 77002-2764
(281) 367-3895 (713) 226-0674
(Name, address and telephone number, including ATTN.: ROBERT G. REEDY
area code, of agent for service)
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF SHARES OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share ....................... 1,406,744 $ 0.905(1) $ 1,273,103 $ 376
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Common Stock, par value $.001
per share(2) .................... 1,125,000 $ 0.905(1) 1,018,125 300
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Common Stock, par value $.001
per share(3) .................... 317,000 $ 0.905(1) 286,885 85
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Common Stock, par value $.001
Per share(4) .................... 2,124,000 $ 0.905(1) 1,922,220 567
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TOTAL .................. 4,972,744 4,500,333 $ 1,328(5)
==============================================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the registration fee for these shares is
calculated based upon the average of the bid and asked price per share
of the Common Stock reported by the OTC Bulletin Board(R) on May 6,
1998, or $0.905 per share.
(2) Issuable upon exercise of options evidencing the right to purchase
shares of Common Stock.
(3) Issuable upon exercise of warrants evidencing the right to purchase
shares of Common Stock.
(4) Issuable upon conversion of Series D Preferred and Series E Preferred
Stock
(5) Fee of $1,562 was paid upon the initial filing of the Registration
Statement
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
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PROSPECTUS
4,972,744 SHARES
AMERICAN BIOMED, INC.
COMMON STOCK
($.001 PAR VALUE)
----------------
This prospectus relates to the resale of 4,972,744 shares of common stock,
par value $.001 per share (the "Common Stock"), of American BioMed Inc., a
Delaware corporation (the "Company"), which may be offered and sold from time to
time by security holders of the Company (the "Selling Security Holders"). Of the
total number of shares offered hereby, 1,442,000 are issuable upon the exercise
of options and warrants to acquire Common Stock, 2,124,000 are issuable upon
conversion of shares of the Company's 1998 Series D and Series E Preferred
Convertible Stock, and 1,406,744 are currently outstanding shares of the
Company's Common Stock owned by certain security holders of the Company. Of the
currently outstanding shares owned by said Selling Security Holders, 1,071,844
shares of common stock were acquired through private placements to accredited
investors and 334,900 shares were acquired in settlement of outstanding
obligations. A Registration Rights Agreement was entered into regarding the
Common Stock issuable on conversion of the Company's 1998 Series D and Series E
Preferred Convertible Stock. In addition, the Common Stock issuable on exercise
of an option to purchase 225,000 shares owned by a certain shareholder is
required to be included in the registration statement pursuant to a settlement
agreement. See "Selling Security Holders." The Company will not receive any
of the proceeds from the sale of the shares of Common Stock offered hereby.
However, if all of the options and warrants representing shares of Common Stock
in this offering are exercised, the Company will receive aggregate proceeds
therefrom of $751,680.
The Company's Common Stock is currently traded in the over-the-counter
market on the OTC Bulletin Board.(R) On August 17, 1998, the closing bid and
asked prices for the Company's stock were, respectively, $0.395 and $0.40 per
share. The Company's Common Stock is considered a "penny stock" under federal
securities laws and additional regulatory requirements apply to broker-dealers
who trade in such stock. See "Risk Factors - Possible Effect of Penny Stock
Regulations on Market Liquidity of Common Stock."
The Common Stock may be offered by the Selling Security Holders from
time to time in transactions on the OTC Bulletin Board(R), in privately
negotiated transactions, or by a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Security Holders may effect such transactions by selling the Common
Stock to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders or the purchasers of the Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principal or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Selling Security Holders" and "Plan of
Distribution."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 2.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The date of this Prospectus is ____________, 1998.
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SUMMARY
This prospectus relates to the resale of 4,972,744 shares of Common
Stock of the Company. Of the total number of shares offered hereby, 1,442,000
are issuable upon the exercise of options and warrants to acquire Common Stock,
2,124,000 are issuable upon conversion of shares of the Company's 1998 Series D
and Series E Preferred Convertible Stock, and 1,406,744 are currently
outstanding shares of the Company's Common Stock owned by certain security
holders of the Company. See "Selling Security Holders." The Company will not
receive any of the proceeds from the sale of the shares of Common Stock offered
hereby. However, if all of the options and warrants representing shares of
Common Stock in this offering are exercised, the Company will receive aggregate
proceeds therefrom of $751,680.
THE COMPANY
American BioMed, Inc., a Delaware corporation (the "Company"), is
engaged in the development, manufacture and marketing of medical, surgical and
diagnostic devices. The Company's primary technology is directed at
interventional cardiology, endovascular surgery and minimally invasive surgical
devices. The principal products are silicone balloon catheters, atherectomy
catheters, stents, clot filters and drug delivery catheter systems. The
Company's primary business strategy is to design and develop minimally invasive
medical devices to treat atherosclerotic disease. The Company holds patents
and/or proprietary rights on several devices designed to facilitate the flow of
blood through blood vessels and to eliminate or minimize the buildup of plaque
within vessels or other synthetic implanted vessel devices. Though the Company
currently manufactures and sells certain medical devices, from which it derives
revenues, its core technology products, such as the OmniCath(R) and the
OmniFilter (guidewire microfilter), are still in the development stage. The
Company's efforts, therefore, consist primarily of research and development and
market development of its primary medical devices.
The Company's executive offices are located at 10077 Grogans Mill Road
#100, The Woodlands, Texas 77380, and its telephone number is (281) 367-3895.
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider all of the information set forth in this Prospectus
and should give particular attention to the following risk factors.
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES; ABILITY TO CONTINUE AS A
GOING CONCERN
The Company is in the development stage and devotes substantially all
of its efforts to financial planning, raising capital, research and development
and developing markets for its products. The Company's cash requirements have
heretofore significantly exceeded its resources due to its expenditures related
to research and development, obtaining regulatory approvals, obtaining and
maintaining manufacturing and distribution arrangements, acquisitions and
product introductions. Consequently, the Company has incurred a cumulative loss
of $28,477,961 since its inception and had a working capital deficit of $801,638
at June 30, 1998. The Company expects to continue to incur operating losses
until such time as it derives meaningful revenues from the sale of its products.
There are problems, delays, expenses and difficulties typically encountered by
companies in the development stage, many of which may be beyond the Company's
control, such as unanticipated results of laboratory or clinical tests requiring
changes in product design, changes in applicable government regulations or the
interpretation thereof, market acceptance of the Company's products, and
development of competing products by others. There can be no assurance that the
Company will successfully complete the transition from a development stage
company to profitability. Such ability is dependent upon, among other things,
its ability to obtain additional working capital to develop, manufacture, and
market its products and the success of future operations. The Company's
independent accountants have included an explanatory paragraph in their report
on the Company's financial statements at December 31, 1997, as to the
uncertainty relating to the Company's ability to continue as a going concern.
Uncertainty regarding the Company's ability to continue as a going concern may
affect its ability to raise capital or obtain the necessary financing to
continue its operating activities.
NEED FOR ADDITIONAL FINANCING
The Company requires significant additional funds to enable it to
complete development and, subject to obtaining required regulatory approvals,
commercialization of the OmniCath(R) for peripheral and A-V fistula use, to
enter into marketing and distribution arrangements for the OmniCath(R), to
commence and continue the development of other
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products which include the OmniStent(TM), Evert-O-Cath(TM), and other products
as well as product enhancements to its existing 100%-silicone balloon catheters,
the OmniCath(R), Evert-O-Cath(TM) and OmniStent(TM) and to expand its
manufacturing and distribution abilities with respect to the Cathlab products.
Research and development expenditures for 1998, including amounts for clinical
affairs, are expected to be approximately $1.2 million. If the Company
experiences 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 1998; however, this increase will not be sufficient to satisfy
the Company's funding needs.
There can be no assurance that the Company will be able to obtain
additional funding on acceptable terms or in time to fund any necessary or
desirable expenditures. In the event such funding is not obtained, the Company's
research and development projects will be delayed or scaled back. Failure to
obtain additional financing will have material adverse effect on the Company's
operations. In order to continue as a going concern, the Company must raise
additional funds as noted above and ultimately must achieve profitable
operations.
IMPACT OF GOVERNMENTAL REGULATION AND NEED FOR FDA APPROVAL
The Company's products, development activities and manufacturing
processes are subject to extensive and rigorous regulation by the United States
Food and Drug Administration (the "FDA") pursuant to the Federal Food, Drug, and
Cosmetic Act (the "FDA Act"), by comparable agencies in foreign countries, and
by state regulatory agencies. Under the FDA Act, medical devices must receive
FDA clearance before they can be commercially marketed in the United States. The
process of obtaining marketing clearance from the FDA for new products can take
a number of years and require the expenditure of substantial resources, and may
involve rigorous pre-clinical and clinical testing. The time required for
completing such testing and obtaining FDA clearance is uncertain, and there is
no assurance that the Company will have sufficient resources to complete the
required testing and regulatory review process, that such clearances will be
granted, or that FDA review will not involve delays that will adversely affect
the Company's ability to commercialize additional products. Delays or rejections
may be encountered based upon changes in FDA policy during the period of product
development and FDA review of each submitted application. Similar delays may
also be encountered in other countries. Even if regulatory approvals to market a
product are obtained from the FDA, these approvals may entail limitations on the
indicated uses of the product. In addition, as can be expected with any
investigational device, modifications will be made to the Company's products to
enhance their functionality and performance based upon new data and design
review. There can be no assurance that the FDA will not request additional
information relating to product improvements, that any such improvements will
not require further regulatory review thereby delaying the testing, approval and
commercialization of the Company's development products, or that ultimately any
such improvements will receive FDA clearance. Product approvals by the FDA can
also be withdrawn due to failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial approval. Later discovery of
previously unknown problems with a product, manufacturer, or facility may result
in restrictions on such product or manufacturer, including fines, delays or
suspensions of regulatory clearances, seizures or recalls of products, operating
restrictions and criminal prosecution, and could have a material adverse effect
on the Company. FDA regulations depend heavily on administrative interpretation,
and there can be no assurance that future interpretations made by the FDA or
other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company.
FDA regulations also require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("cGMP/QSR"), which include testing,
quality control and documentation procedures. Compliance with applicable
regulatory requirements is subject to continual review and will be monitored
through periodic inspections by the FDA. Following the inspection of the
Company's Cathlab Corporation ("Cathlab") manufacturing facility in May 1996,
the FDA advised the Company that it is in compliance with the applicable
requirements of the FDA Act and implementing regulations. The Company also
received ISO 9001 certification in January 1998 and is presently undergoing CE
Mark certification process. The CE Mark is currently required by the European
Union on medical devices before they can be imported. Failure to receive the CE
Mark could result in the loss of sales to distributors in those countries and
would have a material adverse effect on the Company's financial position,
results of operations and cash flows. In addition, failure of the Company or its
manufacturers to adhere to cGMP/QSR could delay production of the Company's
products, which could in turn have a material adverse effect on the Company's
financial position, results of operations and cash flows.
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POSSIBLE DEFAULT ON ABERLYN AGREEMENTS
In December 1992, the Company and Aberlyn Capital Management Limited
Partnership ("Aberlyn") entered into a Patent Assignment and License Agreement
pursuant to which the Company assigned all Cathlab patents to Aberlyn in
consideration of payment to the Company of $500,000. The patents were
exclusively licensed back to the Company for three years, after which Aberlyn
was obligated to reassign the patents to the Company for additional
consideration. Furthermore, in January 1993 the Company and Aberlyn entered into
a three-year Master Lease Agreement, pursuant to which the Company could request
Aberlyn to purchase equipment for up to $1,000,000 and lease it back to the
Company. During 1993, two draws were made against the Master Lease Agreement,
one in the amount of $205,000 against Cathlab equipment and another in the
amount of $100,000 against equipment at the Company's Woodlands facility.
In 1994, the Master Lease Agreement, as well as the Patent Assignment and
License Agreement, were renegotiated to require semi-annual rather than monthly
payments. The Company did not make payments when due and Aberlyn demanded
payment in full. On May 28, 1996, Aberlyn and the Company agreed to restructure
these obligations, which agreement was approved by the Board of Directors on
July 17, 1996. The agreement requires payments to Aberlyn to be made over a
twenty-four month period commencing June 1, 1996. Effective November 1, 1997,
the Company and Aberlyn entered into modification agreements of the Patent
Assignment and License Agreement and the Master Lease Agreement which revised
the schedule of lease payments and extended the maturity date to October 1,
1998. If the Company fails to make timely payments, Aberlyn may assert that the
Company has defaulted on the Patent Assignment and License Agreement and Master
Lease Agreement, which are collateralized by certain equipment and the Cathlab
patents. The loss of these assets could have a material adverse effect on the
Company's financial position, results of operations and cash flows.
POSSIBILITY OF UNSUCCESSFUL NEW PRODUCT DEVELOPMENT; RELIANCE ON PRODUCTS UNDER
DEVELOPMENT
Four of the Company's primary development products, the OmniCath(R), the
OmniStent(TM), the Evert-O-Cath(TM), and the OmniFilter are under development in
several different versions. Commercial introduction of the OmniCath(R) can only
commence upon completion of human clinical trials and receipt of regulatory
approval. In 1995, the Company received FDA approval to begin Phase II clinical
trials of the OmniCath(R) for peripheral use. Phase II clinical trials commenced
August 1, 1996. However, the clinical trials were temporarily suspended as the
Company filed an amended protocol with the FDA which was approved on May 8,
1998. The Company expects the clinical trials to resume in late 1998 and
submissions to the FDA approximately 18 months later. Currently, the Company has
eight clinical trial sites. The Company has not completed the approval process
with respect to the OmniStent(TM) or the OmniFilter. The Company received FDA
approval of a version of the Evert-O-Cath(TM) for non-coronary use and is
evaluating the market potential for this product while also seeking regulatory
approval of a version of the Evert-O-Cath(TM) for non-coronary use with more
advanced features. There can be no assurance that FDA approval of marketable
products will be obtained on a timely basis, if at all. The success of the
OmniCath(R), the OmniStent(TM), the Evert-O-Cath(TM) and the OmniFilter, if and
when commercially introduced, will depend upon acceptance by the medical
community, which cannot be assured. Finally, there can be no assurance that the
products, if sold, will generate the level of profits anticipated. In the event
commercialization or development of the OmniCath(R), the OmniStent(TM), the
Evert-O-Cath(TM) and/or the OmniFilter is delayed or those product lines do not
achieve market acceptance, there may be a material adverse effect on the
Company's financial position, results of operations and cash flows.
ABILITY TO SECURE ADVANTAGEOUS CORPORATE PARTNERSHIPS
The Company's strategy for research, development, and commercialization
of certain of its products may require the Company to enter into collaborative
arrangements with corporate partners. There can be no assurance that the Company
will be able to attract such corporate partners or that the Company will be able
to negotiate such partnerships on acceptable terms. Further, reliance on
collaborations with others may adversely affect the Company's profitability.
Although the Company believes its collaborators will have an economic motivation
to perform their contractual obligations under any arrangements with the
Company, the time and amount of resources they devote to these
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activities will not be within the control of the Company and may be affected by
such collaborators' financial condition or other difficulties. There can be no
assurance that such parties will perform their obligations as expected, or that
the Company will generate any revenues from these agreements. In addition, there
can be no assurance that any such corporate partners will not pursue alternative
technologies to develop products similar to those being developed by the
Company.
RAPID TECHNOLOGICAL CHANGE
The medical device industry is characterized by extensive research and
development and rapid technological change. Development by others of new or
improved products, processes or technologies may make the Company's products or
proposed products obsolete or less competitive. The Company will be required to
devote continued efforts and financial resources to bring its development
products to market, enhance its existing products and develop new products for
the medical marketplace.
HIGHLY COMPETITIVE INDUSTRY
Competition in the biomedical industry is intense. Many of the
Company's products compete directly with similar products sold by a number of
companies. There can be no assurance that these products will be able to
maintain a sizable market share, if any. There are many companies and academic
institutions that are capable of developing products of similar design, and that
have developed and are capable of developing products based on other
technologies, including lasers, drug-based therapies and thermal systems, that
are or may be competitive with the Company's current and proposed products. Many
of these companies and academic institutions are well-established, have
substantially greater financial and other resources than the Company, and have
established reputations for success in the development, sale and service of
products. These companies and academic institutions may succeed in developing
competing products that are more effective than those of the Company or that
receive FDA approval more quickly than the Company's products. The Company's
ability to compete will be dependent upon its ability to get products approved
by regulatory authorities and introduced to the market, including the
arrangement of a distribution network, and to provide products with advanced
performance features, none of which can be assured.
UNCERTAINTY OF MARKET ACCEPTANCE OF COMPANY'S PRODUCTS
As with any new medical technology, there is substantial risk that the
marketplace may not accept or be receptive to the potential benefits of the
Company's products. Achieving market acceptance for the Company's products will
require substantial marketing efforts and the expenditure of significant funds
to inform potential customers, including third-party distributors, of the
distinctive characteristics and benefits of these products. There can be no
assurance that the Company's current and proposed products will be accepted by
the medical community or that any of the Company's current or proposed products
will be able to compete effectively against current and alternative treatments.
LIMITED MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTY DISTRIBUTORS
The Company sells and intends to sell its products primarily through
third-party distributors and may, on a limited basis, sell products
independently. The Company is, and will be, substantially dependent on its
arrangements with distributors to generate product revenues, and there can be no
assurance that the Company will be able to obtain satisfactory arrangements with
distributors, or that the Company will realize substantial revenues from sales
by distributors. The loss of any of its major distributors, in the absence of
substantially similar replacement arrangements, could have a material adverse
effect on the ability of the Company to introduce and sell products and to move
beyond the development stage. In the event that the Company determines that its
distribution arrangements are unsatisfactory, or is unable to obtain
satisfactory distribution arrangements for any product in any geographic area,
unless prohibited by existing distribution arrangements, the Company may attempt
to distribute products in that geographic area independently. Inasmuch as the
Company has limited marketing experience and has limited financial and other
resources to undertake extensive independent marketing activities, there can be
no assurance that the Company will be able to market products successfully.
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LIMITED MANUFACTURING EXPERIENCE
The Company's manufacturing expertise in commercial quantities is
limited to the production of its ten FDA approved silicone balloon catheters and
its existing OEM contract. The Company currently manufactures the OmniCath(R)
for U.S. clinical trials and international sales. The Company has no experience
manufacturing this product in commercial quantities and there can be no
assurance that the Company will be able to manufacture it on a cost-effective
basis. Failure to meet production requirements could have a material adverse
impact on the ability of the Company to achieve market acceptance of its
products. The Company's inability to maintain its current manufacturing
arrangements, or obtain other necessary manufacturing arrangements on acceptable
terms, could have a material adverse effect on the Company's commercialization
of its products.
RELIANCE AND LIMITATIONS ON THIRD PARTY REIMBURSEMENT
The Company's products are purchased by hospitals, physicians, and
other health care providers, which bill various third-party payors, such as
government health programs, private health insurance plans, managed care
organizations and other similar programs, for the health care goods and services
provided to their patients. Payors may deny reimbursement if they determine that
a product was not used in accordance with established payor protocol regarding
cost-effective treatment methods, or was used for an unapproved treatment.
Increasingly, third-party payors are also contesting the prices charged for
medical products and services and, in some instances, have put pressure on
medical device suppliers to lower their prices. There is no assurance that
reimbursement for the Company's products will be available or, if available,
that payors' reimbursement levels will not adversely affect the Company's
ability to sell its products on a profitable basis. Failure by hospitals and
other users of the Company's products to obtain reimbursement from third-party
payors and changes in third-party payors' policies towards reimbursement for
procedures using the Company's products, could have a material adverse effect on
the Company's financial position, results of operations and cash flows.
POSSIBLE IMPACT OF PROPOSED HEALTH CARE REFORM
The cost of health care has risen significantly over the past decade,
and there have been and may continue to be proposals by legislators, regulators
and third-party payors to curb these costs. Health care reform is an area of
increasing national attention and a priority of many governmental officials.
Certain reform proposals, if adopted, could impose limitations on the prices the
Company will be able to charge in the United States for its diagnostic products
and any therapeutic products, or the amount of reimbursement available for the
Company's products from governmental agencies or third-party payors.
DEPENDENCE ON PATENTS AND PROTECTION OF PROPRIETARY INFORMATION
The medical device industry traditionally has placed considerable
importance on obtaining and maintaining patents and trade secret protection for
significant new technologies, products and processes; the Company's ability to
compete effectively with other companies is materially dependent upon the
proprietary nature of its technologies. The Company pursues a policy of
generally obtaining patent protection in both the United States and abroad for
patentable subject matter in its proprietary devices. Currently, the Company
owns several United States patents and has United States and international
patent applications pending with respect to the OmniCath(R), OmniStent(TM),
Evert-O-Cath(TM), OmniFilter, cardiac-assist pumps, and other products under
development by the Company. There can be no assurance that any pending or future
patent applications will result in issued patents, or that any current or future
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a competitive
advantage to the Company. The invalidation of key patents or proprietary rights
owned by the Company could have an adverse effect on the Company's financial
position, results of operations and cash flows.
The patent position of medical device firms generally is highly
uncertain and involves complex legal and factual questions. There has not
emerged any consistent policy regarding the breadth of claims allowed in medical
device patents. Accordingly, there can be no assurance that patent applications
relating to the Company's products or technology will afford protection against
competitors with similar technology. In addition, companies that obtain patents
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for products or processes that are necessary for or useful to the development of
the Company's products may bring legal actions against the Company claiming
infringement. In recent years, it has been common for companies in the medical
device field to aggressively challenge the rights of other companies to develop
and sell competitive devices. Differences in catheter devices can be very small
and there has been substantial litigation by established companies to prevent
the marketing of new devices. Regardless of the outcome, any future litigation
could result in substantial expense to the Company and significant diversion of
the efforts of the Company's technical and management personnel. There can be no
assurance that the Company will have the financial resources necessary to
enforce any patent rights it may hold. Although the Company is not aware of any
claim that it infringes or will infringe any existing patent, in the event that
in the future the Company is unsuccessful in defending against a claim of
infringement, it may be required to obtain licenses to patents or to other
proprietary technology in order to develop, manufacture or market its products.
There can be no assurance that the Company will be able to obtain licenses on
commercially reasonable terms or that the patents underlying the licenses will
be valid and enforceable. In the event the Company's right to market any of its
products were to be successfully challenged, the Company's financial position,
results of operations and cash flows could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The success of the Company largely will be dependent on the efforts of
Steven B. Rash, the Company's President and Chief Executive Officer. Although
the Company has entered into an employment agreement with Mr. Rash, the loss of
his services would have a material adverse effect on the Company's financial
position, results of operations and cash flows. The success of the Company also
is dependent upon its ability to retain its operating, marketing, technical and
financial personnel. The competition for qualified personnel in the medical
device industry is intense and, accordingly, there can be no assurance that the
Company will be able to hire or retain necessary personnel.
EXPOSURE TO PRODUCT LIABILITY CLAIMS
The medical device industry historically has been very litigious, and the
manufacture and sale of the Company's products inherently entails a risk of
product liability claims. As a supplier of products that may be used in medical
diagnosis or treatment, the Company will face the risk of exposure to product
liability claims in the event that the end use of its products results in
unanticipated adverse effects. The Company currently carries liability insurance
in the amount of $2.0 million relating to general commercial liability,
including products and completed operations, which the Company believes is
adequate. However, no assurance can be given that adequate insurance coverage
will continue to be available at a reasonable cost, or that a product liability
claim would not have a material adverse effect on the financial position,
results of operations and cash flows of the Company. In addition, the costs of
defending or settling a product liability action and the negative publicity
arising therefrom, could have a material adverse impact on the Company, even if
the Company were ultimately to prevail. Furthermore, in the event problems arise
with the Company's products after commercial introduction, the Company might be
required to recall the defective products. In that event, the costs and
potential liability to the Company could be significant and might have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
RISKS OF INTERNATIONAL TRANSACTIONS
The Company has arrangements with several foreign distributors to
distribute products in Canada, Europe, Southeast Asia, the Far East, the Middle
East, Australia, Central America and South America. International transactions
subject the Company to several potential risks, including fluctuating exchange
rates, regulation of fund transfers by foreign governments, United States and
foreign export and import duties and tariffs and political instability. Although
all export sales transactions are conducted in U.S. dollars and the Company has
no foreign assets, there can be no assurance that any of the foregoing will not
have a material adverse effect on the Company's financial position, results of
operations and cash flows.
BUSINESS EXPANSION AND COMPANY ACQUISITIONS
Since the closing of the Company's initial public offering in October
1991 (the "1991 Offering"), the Company has expanded its business and activities
through the stock acquisition of Freedom Machine, Inc. ("FMI") and
7
<PAGE> 10
Cathlab, and the purchase of rights to certain technology from VMS Medical, Inc.
("VMS"). Further, the Company has entered into agreements to become the
distributor of products developed by others. The Company views this expansion as
complementary to its OmniCath(R) and Evert-O-Cath(TM) development efforts and as
a possible opportunity to generate sales. There can be no assurance that the
Company's acquisitions and expanded activities will prove successful, that
acquired or distributed products will prove complementary to the Company's
business, that the Company will generate sales or profits from these activities
or from any of its acquired companies or assets, or that such acquisitions and
activities will not overtax the Company's limited management, financial and
other resources and slow or prevent the Company from achieving its research and
development goals.
DELISTING OF SECURITIES FROM NASDAQ
The National Association of Securities Dealers, Inc. ("NASD") has
adopted rules which impose stringent criteria for continued listing of
securities on the NASDAQ Small-Cap Market. Under these rules, in order to
maintain the listing of its securities on the NASDAQ Small-Cap Market, a company
must have, among other things, total assets of $2 million, capital and surplus
of $1 million and, in certain circumstances, a minimum bid price for its common
stock of $1.00 per share. The Company's Common Stock traded on the NASDAQ
Small-Cap Market under the symbol "ABMI" from October 22, 1991 through October
13, 1994. On October 13, 1994, the Company was delisted from NASDAQ because the
Company did not meet the required $1 million in equity as of June 30, 1994.
Trading in the Company's stock is presently conducted in the over-the-counter
market on the OTC Bulletin Board(TM). As a consequence of such delisting,
investors may find it comparatively more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities than when the
Common Stock was traded on the NASDAQ Small-Cap Market. In addition, the
delisting may prove detrimental to the amount of news coverage the Company
receives, and information relating to the Company may be comparatively more
difficult to obtain than when the Common Stock was traded on the NASDAQ
Small-Cap Market. This in turn could result in a decline in the market for the
Company's securities and make it more difficult for the Company to obtain
additional financing. No assurance can be given that the Company will be
eligible at some future date for the relisting of its Common Stock on the NASDAQ
Small-Cap Market.
POSSIBLE EFFECT OF PENNY STOCK REGULATIONS ON MARKET LIQUIDITY OF COMMON STOCK
The Penny Stock Reform Act of 1990 requires additional disclosure, relating
to the market for penny stocks, in connection with trades in any stock defined
as a penny stock. The Commission has adopted regulations that generally define a
penny stock to be an equity security that has a market price of less than $5.00
per share, subject to certain exceptions. Such exceptions include any equity
security listed on the NASDAQ Small-Cap Market and any equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for three years, (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years, or (iii) average annual revenue of at least
$6,000,000, for the last three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.
The Company's Common Stock currently falls within the definition of a
penny stock and this will impair the market liquidity for the Company's
securities, given that regulations on penny stocks will limit the ability of
broker/dealers to sell the Company's securities, and thus limit the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
OUTSTANDING OPTIONS AND WARRANTS
As of December 31, 1997, the Company had outstanding stock options to
purchase 3,897,500 shares of its Common Stock and outstanding warrants to
purchase 4,935,966 shares of its Common Stock, which options and warrants are
exercisable over the next several years at prices ranging from $.001 to $7.50.
The holders of certain of such options and warrants therefore have an
opportunity to profit from a rise in the market price of the Company's Common
Stock with a resulting dilution in the interests of the other stockholders.
Further, the terms on which the Company may obtain additional financing during
the next several years may be adversely affected by the existence of such
options and warrants. The holders of the options and warrants are likely to
exercise them at a time when the Company would
8
<PAGE> 11
otherwise be able to obtain additional capital through an equity financing on
terms more favorable than those provided by the options and warrants.
SIGNIFICANT DILUTION RELATED TO PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
issuance of preferred stock with anti-takeover measures could have a depressive
effect on the market price of the Company's Common Stock and could discourage
hostile bids in which stockholders may receive premiums for their shares. At
July 30, 1998, 890 shares of Series A Preferred Convertible Stock (the "Series
A"), 0 shares of Series B Preferred Convertible Stock (the "Series B"), and 22
shares of Series C Preferred Convertible Stock (the "Series C") are outstanding.
No additional shares of Series B may be issued. Each share of Series A is
convertible at any time at the option of the holder thereof into such number of
shares of Common Stock as is equal to $1,000 divided by the lesser of (i) $.24
or (ii) 80% of the average of the closing bid price of the Common Stock for the
five consecutive days ending two days prior to the date the election to convert
is made; provided, however, that a holder of Series A may not elect to convert
its shares of Series A into Common Stock to the extent that the amount of shares
of Common Stock beneficially held by such holder at the time of the conversion
election, in addition to the number of shares of Common Stock issuable to the
holder upon such election, exceeds 4.9% of the then-outstanding amount of Common
Stock. The Series C, stated value $20,000 is convertible at any time on or after
July 22, 1997 at the option of the holders thereof into a number of shares of
Common Stock based on a conversion price that is equal to the lesser of (i)
$1.75 and (ii) the average of the closing bid price for the Common Stock for the
five consecutive trading days immediately preceding the date the election to
convert is made. The conversion ratio for each of Series A and C is subject to
adjustment from time to time upon the occurrence of stock splits, reverse stock
splits, and similar events.
The Company authorized 60,000 shares of Series D Preferred Convertible
Stock (the "Series D"), stated value $10, and 500,000 shares of Series E
Preferred Convertible Stock (the "Series E"), stated value $10, on April 29,
1998. At July 30, 1998 60,000 shares of Series D and 7,500 shares of Series E
are issued and outstanding. Each share of the Series D is convertible at any
time after the earlier of (i) the date on which this registration statement is
declared effective or (ii) July 28, 1998 based upon a conversion price that is
equal to the lesser of (a) 110% of the closing bid price five day average
preceding the date of purchase of the Series D by the holder; or (b) 80% of the
closing bid price five day average preceding the date such conversion is made.
Each share of the Series E are convertible any time after issuance at
82.5% of the five day average of the closing bid prices for the five trading
days preceding the date such conversion is made. The conversion ratio for Series
D and Series E is subject to adjustment from time to time upon the occurrence of
stock splits, reverse stock splits, and similar events. The Series E may be
issued and sold to the investor at the request of the Company from time to time
on or before April 29, 2000 assuming, among other conditions, that the average
daily trading volume for the Common Stock for the previous 60 trading days is at
least 150,000 shares per day and the average daily trading price for the prior
10 trading days is at least $.45 per share. In connection with the sale of the
Series D and Series E, the Company will also issue three year warrants to the
investor for each share of Series D and Series E purchased with an exercise
price of 125% of the closing bid price for the Common Stock on the date of
purchase.
The Series A, C, D and E which are currently issued are presently
convertible, in the aggregate, into approximately 3,708,333, 1,572,000,
1,894,000 and 230,000 shares of Common Stock, respectively, but such conversion
9
<PAGE> 12
amounts may be significantly larger depending on the market price of the Common
Stock. However, pursuant to their Certificates of Designations, Preferences and
Rights, the Series A and C may not be converted such that the aggregate number
of shares beneficially owned by the holder and its affiliates, upon giving
effect to the conversion, exceeds 4.9% of the outstanding shares of Common Stock
following the conversion. The aforementioned 4.9% beneficial ownership limit
may not be waived; however, the limit does not apply with respect to the Series
C at mandatory conversion on March 31, 2000. Assuming that the Company issued
and sold 200,000 to 500,000 Series E (the minimum and maximum allowable), the
Series E would be presently convertible into approximately 5,387,200 to
13,468,000 shares of Common Stock. However, pursuant to the Securities Purchase
Agreement governing the Series E, the number of shares issuable upon conversion
of the Series E then being purchased, together with the shares of the Company's
Common Stock issued thereto, may not exceed 20% of the outstanding shares of the
Company's Common Stock. This condition may be waived should the Company obtain
any required shareholder or other consent to the issuance of more than 20% of
the Company's Common Stock. Should the market price of the Common Stock
decrease, the amount of shares of Common Stock issuable upon conversion of the
Series A, C, D and E will correspondingly increase.
Purchasers of Common Stock may therefore experience substantial dilution of
their investment in the event that the holders of Series A, C, D or E elect to
convert their holdings of Preferred Stock into shares of Common Stock. Moreover,
the holders of each of the Series A, C, D and E are entitled to certain demand
and piggyback registration rights with respect to the resale of the entire
amount of shares of Common Stock issuable upon conversion thereof. Sales of
significant amounts of Common Stock in the public market could adversely affect
the prevailing market price of the Company's Common Stock.
<TABLE>
<CAPTION>
RECAP OF PREFERRED CONVERTIBLE STOCK
As of July 30, 1998
ESTIMATED NO.
STATED VALUE PREFERRED SHARES LIQUIDATION COMMON SHARES
SERIES ($) (#) PREFERENCE UPON CONVERSION
- ------ ------------ ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
A 1,000 890 890,000 3,708,333
B* 1,000 --- --- ---
C 20,000 22 440,000 1,572,000
D 10 60,000 600,000 1,894,000
E 10 7,500 75,000 230,000
</TABLE>
* All shares have been converted. No additional shares may be issued.
NO CASH DIVIDENDS
The Company does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. It is anticipated that any earnings that may be
generated from the Company's operations will be used to finance the Company's
growth.
POSSIBLE VOLATILITY OF SECURITIES PRICES
The market price of the Company's securities may be highly volatile, as
has been the case with the securities of other companies engaged in high
technology research and development. Factors such as announcements by the
Company or its competitors concerning technological innovations, new commercial
products or procedures, proposed government regulations and developments, or
disputes relating to patents or proprietary rights may have a significant impact
on the market price of the Company's securities.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The statements contained in all parts of this document regarding future
business activities, products and product developments, financial performance,
future regulatory approvals, business strategies, market acceptance, business
arrangements, and results and other statements which are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, those relating to: (i) the Company's business strategy; (ii)
the intention to contract with other organizations for the research, development
and, if applicable, registration of product candidates, and to seek joint
development or licensing arrangements; (iii) the research or development of
particular products or technologies; (iv) anticipated results of such
development activities and related clinical trials or of required regulatory
approvals; and (v) the reliance on collaborative partners for development,
regulatory or marketing activities. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates, including, among other things, the ability
to: (i) obtain substantial additional funds; (ii) obtain and maintain all
necessary patents or licenses; (iii) demonstrate the safety and efficacy of
product approvals; (iv) produce product candidates in commercial quantities at
reasonable costs; (v) compete successfully against other products; and (vi)
market products in a profitable manner. As a result, there also can be no
assurance that the forward-looking statements included herein will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
10
<PAGE> 13
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock being offered. However, if all of the options and
warrants representing shares of Common Stock in this offering are exercised, the
Company will receive aggregate proceeds therefrom of $751,680 (before offering
expenses estimated to be $23,062). These proceeds will be used for general
working capital.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the Nasdaq Small-Cap Market under the
symbol ABMI from October 22, 1991 through October 13, 1994. On October 13, 1994,
the Company was delisted from NASDAQ because the Company's equity fell below the
required $1,000,000 on June 30, 1994. The following table sets forth, for the
periods indicated, the range of high and low bid prices for the Common Stock as
reported by OTC Bulletin Board(R). The quotes represent "Inter-dealer" prices
without adjustment or markups, markdowns or commissions and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
COMMON
STOCK
-------------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter .............. .78125 .375
Second Quarter ............. 2.8125 .625
Third Quarter .............. 2.25 1
Fourth Quarter ............. 2 .875
1997
First Quarter .............. 1.625 1
Second Quarter ............. 1.09375 .6875
Third Quarter .............. .71875 .40625
Fourth Quarter ............. .59 .21
1998
First Quarter .............. .98 .28
Second Quarter ............. .95 .50
</TABLE>
As of November 3, 1997 there were approximately 328 holders of record and
approximately 3,000 additional beneficial shareholders of the Company's common
stock. The closing Inter-dealer prices for the Company's common stock on August
17, 1998 was $0.40.
To date the Company has not paid any dividends on its common stock. The
payment of future dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, its capital requirements
and financial condition, as well as, other relevant factors. The Company does
not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company's business
operations.
DILUTION
The deficit in net tangible book value of the Company's Common Stock as of
June 30, 1998 was approximately $(0.03) per share. The deficit on net tangible
book value represents the amount of the Company's stockholders' equity, less
intangible assets, divided by the number of issued and outstanding shares of
Common Stock. Assuming that a Selling Shareholder sells shares of Common Stock
pursuant to this Prospectus at current market prices, the purchaser will
experience a significant dilution per share. As of August 17, 1998, the closing
bid and ask prices for the Common Stock on the OTC Bulletin Board(R) was $0.395
and $0.40, respectively.
SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
consolidated financial statements of the Company (A Development Stage
Enterprise). The Company declared no common stock dividends during any period
presented. The operating results of Freedom Machine, Inc. and Cathlab
Corporation since the respective dates of acquisition are included in the
selected operating statement data below. This data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
11
<PAGE> 14
SELECTED OPERATING STATEMENT DATA:
<TABLE>
<CAPTION>
SIX SIX FISCAL FISCAL FISCAL
MONTHS MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales, net ................ $ 256,400 $ 253,329 $ 545,473 $ 579,533 $ 660,770
Cost of sales ............. (226,975) (160,018) (482,360) (420,838) (649,355)
Interest income ........... 1,941 20,372 44,200 4,252 7,239
Other income (expense) .... (2,729) 29,943 25,766 (114,762) 1,561,203(2)
Interest expense .......... (65,895) (76,911) (183,538) (313,914) (276,688)
Research & development
expense ................. (223,217) (374,962) (648,049) (640,792) (537,962)
Selling, general &
admin expense ........... (1,068,261) (894,957) (2,075,695) (1,718,595) (2,169,591)
Distributor settlement .... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss .................. (1,328,736) (1,203,204) (2,774,203) (2,625,116) (1,404,384)
Less preferred stock
dividends ............... (103,145) -- -- (1,183,413) --
------------ ------------ ------------ ------------ ------------
Net loss attributable to
common shareholders ..... $ (1,431,881) $ (1,203,204) $ (2,774,203) $ (3,808,529) $ (1,404,384)
============ ============ ============ ============ ============
Net loss per common
share .................. $ (.06) $ (.08) $ (.18) $ (.34) $ (0.15)
============ ============ ============ ============ ============
Average number of common
shares outstanding ..... 22,541,297 14,278,688 15,528,231 11,310,592 9,362,198
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FISCAL FISCAL
YEAR YEAR
ENDED ENDED
DEC. 31, DEC. 31,
1994 1993
------------ ------------
<S> <C> <C>
Sales, net ................ $ 637,375 $ 826,590
Cost of sales ............. (782,729) (960,232)
Interest income ........... 902 23,663
Other income (expense) .... (56,209)(1) 1,353
Interest expense .......... (182,606) (1,261,203)
Research & development
expense ................. (1,167,773) (2,397,405)
Selling, general &
admin expense ........... (2,235,116) (4,381,165)
Distributor settlement .... -- --
------------ ------------
Net loss .................. (3,786,156) (8,148,399)
Less preferred stock
dividends ............... -- --
------------ ------------
Net loss attributable to
common shareholders ..... $ (3,786,156) (8,148,399)
============ ==========
Net loss per common
share .................. $ (0.46) $ (1.62)
============ ==========
Average number of common
shares outstanding ..... 8,188,980 5,041,698
============ ==========
</TABLE>
- ------------
(1) Other expense in December 31, 1994 includes the write-off of the Superstat
assets. See "Notes to Financial Statements."
(2) Other income in December 31, 1995 includes $1,000,000 forfeited escrow
deposit received from USSC and sale of OmniCath(R) EPO patent to Guerbet.
See "Management Discussion and Analysis of Financial Condition and
Results of Operations."
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) .............. $ (801,638) $ (627,151) $ (256,206) $ (3,827,287) $ (3,246,020) $ (1,057,831)
Total assets ........................... 1,772,167 1,945,056 3,069,151 1,883,278 2,445,076 4,000,345
Long-term debt, net of current
maturities ........................... 51,323 71,855 110,472 -- 611 2,784
Capital lease obligations, net
of current maturities ................ 3,645 -- 302,766 7,095 18,033 485,580
Total liabilities ...................... 1,875,219 1,847,905 2,940,556 4,685,133 4,002,192 2,761,942
Preferred stock ........................ 61 2 3 -- -- --
Deficit accumulated during the
development stage .................... (28,477,961) (27,149,225) (24,375,022) (21,749,906) (20,345,522) (16,559,366)
Total stockholders' equity (deficit) ... (103,052) 97,151 128,595 (2,801,855) (1,557,116) (1,238,403)
</TABLE>
12
<PAGE> 15
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 June 30, 1998, the Company had an accumulated deficit of $28,477,961.
During the first six months of 1998 the Company focused on CE Mark
certification, product development, preparation for launch of the Ahn
thrombectomy catheter and continuing the addition of North American distributors
to achieve full sales coverage for North America for the first time in the
Company's existence as well as securing distributors in key international
markets.
Six Months Ended June 30, 1998 Compared With Six Months Ended June 30, 1997
During the six months ended June 30, 1998, the Company's net sales increased
1.2% to $256,400 compared with net sales of $253,329 for the same period in
1997. Net sales for the second quarter 1998 decreased 30.6% to $94,316 as
compared to $135,982 for the second quarter 1997. Foreign export net sales
decreased 18.6% for the quarter to $60,889 from $74,838 and 10.6% for the first
six months of 1998 to $139,121 from $155,560. Domestic net sales for the quarter
decreased 43.5% to $20,092 from $35,534 while year to date domestic sales
increased 33.7% to $73,424 from $54,906. Revenues for other services and
projects for the first six months of 1998 increased to $43,855 from $42,863 or
2.3% compared to the same period in 1997. This is primarily attributable to the
Original Equipment Manufacturing ("OEM") contract, set up fees and CE Mark
registration costs related to the project. Foreign export sales decreased
primarily due to the requirement by the European Union that all medical device
products entering the European Union after mid-June 1998 must bear the CE Mark.
At June 30, 1998 the Company had approximately $31,200 in backorders from its
European distributors related to the attainment of the CE Mark as well as other
orders which will be released upon receipt of the CE Mark. Additional backorders
consisted of $10,800 for the new thrombectomy catheter launched by the Company
in June 1998.
Cost of sales represented 88.5% and 63.2% of sales for the six months ended
June 30, 1998 and 1997, respectively. The higher percentage in 1998 is due
primarily to the cost of implementing ISO 9001 and CE Marking procedures as well
as start-up costs associated with the initial OEM contract secured in February
1998 and the Ahn thrombectomy catheter launched in June 1998. In addition the
Company sold some samples to distributors for use in training at a reduced price
and has increased sales of products whose gross margins are lower than the
majority of its existing products.
Selling, general and administrative expenses increased 36.9% to $584,441
during the second quarter of 1998, compared to $426,907 for the same period in
1997. Sales and marketing expense increased 73.3% to $79,484 as compared to
$45,871 for the second quarter 1997. Personnel expense increased approximately
$15,000, sales related travel increased approximately $11,000 and samples
distributed at no charge increased approximately $15,000. General and
administrative expenses increased 32.5% to $504,957 as compared to the second
quarter 1997 amount of $381,036. Additional personnel costs of approximately
$26,000 is due to staff changes and the addition of a quality assurance manager
required by ISO 9001 and CE Marking procedures. Consultant expenses related to
the CE Mark and to ISO 9001 increased by approximately $18,000 during the second
quarter 1998 as compared to the same period in 1997. Costs in connection with
the printing of the Company's Annual Report of approximately $46,000 was
incurred in the second quarter 1998, but was not incurred until the third
quarter in 1997. A one-time expense related to an investor conference of
approximately $6,000 was also incurred during the second quarter 1998. In
addition, the Company incurred substantial legal and accounting fees related to
ongoing litigation as well as SEC filings required by the Series D and Series E
agreements.
For the six months ended June 30, 1998, selling, general and administrative
expenses increased 19.4% to $1,068,261 as compared to $894,957 for the same
period in 1997. Sales and marketing expenses increased 67.1% to $139,215 as
compared to $83,303. Personnel expenses increased approximately $22,800 due to
staff changes. Travel increased approximately $24,000 due to increased trips to
distributors both overseas and domestically and trips to trade shows. Samples
distributed at no charge increased approximately $20,000 and were used in
distributor training and market exposure to hospitals. General and
administrative expenses increased 14.5% to $929,046 as compared to $811,654 for
the six months ended June 30, 1998 and 1997 respectively. This increase is
primarily due to legal expenses related to litigation and financing, consultants
for CE Mark, increased personnel costs and a timing difference in the printing
of the Company's Annual Report in 1998 versus 1997. CE Marking and ISO 9001
expenses for the first six months of 1998 total approximately $97,000.
Research and development expenses totaled $223,217 during the first six
months of 1998, a decrease of 40.5% from the 1997 six month total of $374,962.
These expenses are being slowed until the Company receives funding to ensure
that, once initiated, projects can be completed as scheduled. It is anticipated
that research and development expenses will increase in the last half of the
year as the Company focuses on development of its OmniFilter and expanded Phase
II OmniCath(R) clinical trials. As the OmniCath(R) Peripheral Atherectomy
catheter proceeds through the clinical trials, management estimates that the
market for this device is $100 million. The market for the OmniFilter is
estimated by management to be $500 million.
Interest expense decreased 14.3% to $65,895 for the first six months of
1998, compared to $76,911 for the first six months of 1997 due to the decrease
in notes payable and capital lease obligations.
Other income for the six months includes $367 for royalty income,
approximately $24,000 from gain on sale of machine shop equipment and $30,000
amortization of the license fee received from Wright Medical Technologies, Inc.
for the spinal dissector transaction in 1994. Option expense of $56,250 was
recorded in regards to the issuance of an option to purchase 225,000 shares of
common stock to a distributor in settlement of litigation. (See Legal
Proceedings.)
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
During 1997 the Company focused on productivity improvements, ISO 9001
certification, CE Mark certification process, product development and clinical
investigational programs. The addition of domestic distributors became the focus
during the fourth quarter of 1997 and continues to receive priority in 1998.
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<PAGE> 16
Net sales decreased 5.9% for 1997 compared to 1996. The decline is due to
the ineffectiveness of the Company's sales team during the first nine months of
1997. Quotas were not met, leads were not diligently pursued and customer
service deteriorated. Corrective action was taken and the sales staff was
replaced in October resulting in fourth quarter 1997 net sales of $184,852
compared to $162,336 fourth quarter 1996 net sales. Foreign export net sales
increased to 65.5% in 1997 compared to 54.5% in 1996. Four new domestic
distributors were added during the fourth quarter 1997. The first will
concentrate its sales efforts in California, Nevada and Arizona; the second
will focus its efforts in Pennsylvania, Ohio and Indiana markets; the third
serves the Northwestern U.S. market, primarily Oregon, Washington, Montana and
Idaho; and the fourth will concentrate its efforts in the Southwest and Rocky
Mountain regions.
Cost of sales percentage is 88.4% of 1997 net sales as compared to 72.6% of
1996 net sales. The increase in cost of sales percentage is due primarily to a
year-end adjustment to inventory standard cost as well as to the increased
sales of one of the Company's least profitable items. Standard costs increased
due to vendor changes for some items, a change in standard quantities
purchased, and normal price increases for component parts that had not been
reflected in pricing for more than two years.
During 1997 total selling, general and administrative expenses increased to
$2,075,695 from $1,718,595. The overall increase is due to several factors.
First, the sublease of 3,000 square feet of the Cathlab facility for $3,000 per
month which began in January 1996 terminated April 30, 1997 upon proper
notification by the lessee. Sales and marketing expenses increased approximately
$19,000 primarily due to salaries and payroll-related expenses. Other salaries
and payroll-related expenses increased approximately $239,000 due to the hiring
of two additional corporate personnel and a quality assurance manager, as well
as salary and benefit increases. Two other areas increased significantly. Legal
and accounting expenses increased approximately $35,000 or 25.3% and insurance
increased approximately $34,000 or 49.8%. Product liability insurance was added
during the third quarter 1997 as the Company became more proactive in risk
management. The Company began the ISO 9001 certification process in the fourth
quarter of 1996 and the CE Mark certification process in the second quarter
1997. Expenses related to the two certification processes during 1997 were
approximately $54,000.
Research and development expenses for 1997 increased 1.1% compared to the
same period in 1996.
Interest expense decreased 41.5% to $183,538 in 1997 compared to $313,914
in 1996 due to the decrease of over $1 million in notes payable and capital
lease obligations.
For the period from inception to December 31, 1997, the Company's other
income of $1,942,550 consisted primarily of $1 million received in connection
with a forfeited option fee from United States Surgical Corporation ("USSC"),
approximately $495,000 realized gain from the sale of the European patent for
the OmniCath(R) atherectomy catheter to Guerbet S.A. of France ("Guerbet") for a
purchase price of $500,000 cash, $400,000 received from Guerbet in 1991 in
connection with the development of certain of the Company's products, and
$200,000 amortization of the license fee received from Wright Medical
Technologies, Inc.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
During the year the Company made substantial investments in five key areas.
First, the Company consolidated all manufacturing operations into our Irvine,
California facility, enabling it to increase manufacturing capabilities and
efficiencies. Secondly, investments were made in the manufacturing
infrastructure resulting in productivity improvements. Third, the Company
invested in product development and clinical investigational programs to further
the advancement of its core product technologies. Fourth, the Company invested
in the expansion of its sales and marketing efforts by implementing new
marketing programs. Finally, considerable time and effort was invested in
reshaping the Company's balance sheet via a debt to equity conversion and the
raising of additional equity capital via private placements.
Net sales decreased $81,237 or 12.3% for 1996 compared to 1995. The
decline is due to discontinued product lines, limited international OmniCath(R)
sales and a shift in international marketing. In addition, the Company
discontinued its hole punch operation during the fourth quarter of 1995. The
hole punch operation provided approximately $30,000 or 4.5% of net sales during
1995 with related cost of goods sold of approximately $26,000. The OmniCath(R),
which is distributed outside the U.S., had lower sales in 1996 due to the need
for the product in U.S. clinical trials. During 1995 the Company appointed 22
new international distributors. However, sales in these new markets were
delayed until the registration requirements of each country were met. After an
international distributor is appointed, the distributor must comply with the
applicable country regulations before products can be imported and sold in a
particular country. Depending upon the country, the registration period can
take from as little as a few weeks to over nine months, causing delays in
product sales while the distributor awaits approval to sell the product. This
delay in product registration caused a decline in foreign export sales, which
decreased by approximately $221,000 or 41% in 1996 as compared to 1995. The
Company believes that its revised distribution network in Western Europe, South
America, Japan and the Pacific Rim countries is now substantially completed.
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<PAGE> 17
Gross profit margins increased to 27.4% in 1996 compared to 1.7% in 1995.
This increase is due primarily to better inventory management, decrease in
factory overhead and increased productivity of the plant. In order to improve
inventory management the Company instituted restocking procedures to take
advantage of bulk order discounts and computerized inventory management, as well
as shipping and receiving information. The better tracking system enabled the
Company to avoid having any expired inventory during 1996. In February 1996 the
Company hired a director of manufacturing to assess the inefficiencies in the
current system and to ready the plant for increased production. The Company
negotiated a more favorable rental rate resulting in decreased facility rent, a
portion of which is allocated to plant overhead, introduced energy saving
operating techniques, reduced scrap rates and improved batch yields. Higher
recruitment standards, improved training for production employees and revised
salary structures to reduce personnel turnover were instituted. Since the
manufacturing process is labor intensive, these changes resulted in increased
productivity as well as reducing costs.
Total selling, general and administrative expenses decreased during 1996 to
$1,718,595 from $2,169,591. 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 consolidated
all manufacturing activities, technical support and research and development in
the Irvine, California facility. In addition, the Company renegotiated the
Cathlab facility lease in August 1996 for an additional $16,000 in savings in
1996 and an annual savings of $48,000.
Research and development expenses increased 19.1% to $640,792 in 1996
compared to $537,962 in 1995. The increase is primarily attributed to the
Company's efforts to initiate U.S. clinical trials for the OmniCath(R). These
expenses are expected to increase in the future as the Company's products
approach commercial viability and will be funded by increased revenue generated
through Cathlab Division sales or from the sale of ancillary technologies or
through joint development agreements with strategic partners.
Interest expense increased 13.5% to $313,914 in 1996. This is primarily due
to the obligation due USSC. The Note, originally due January 20, 1996, was
extended to March 15, 1996 and subsequently extended to September 1996. Monthly
payments were made from March through August 1996, and the remaining balance
paid in September 1996 with proceeds received from promissory notes. These
promissory notes were repaid in full in November 1996.
Other income (expenses) decreased $1,675,965 in 1996 as compared to 1995.
This is primarily due to the Company's receipt in 1995 of a $1 million
forfeited option fee from USSC and a realized gain of approximately $495,000
from the sale of a European patent to Guerbet. On May 1, 1995, the Company and
USSC entered into an Option Agreement (the "Option Agreement"), pursuant to
which USSC was granted a 90-day option to purchase the Company's technologies
for stents (including the OmniStent(TM)), atherectomy catheters (including the
OmniCath(R) Atherectomy Catheter), toposcopic catheters (including the
Evert-O-Cath(TM) Drug Delivery catheter) and all intellectual property rights,
inventory, equipment and goodwill related thereto (collectively, the "Assets").
Upon execution of the Option Agreement, USSC paid $2.0 million to the Company
(the "Initial Payment") in consideration of the option and in partial
consideration of the purchase price. On July 20, 1995, USSC elected not to
exercise its option. As a result, the Company retained $1.0 million of the
Initial Payment as a forfeited option fee. The other $1.0 million was payable
to USSC plus interest at 10% per annum beginning July 20, 1995 (the "Note"),
which was subsequently repaid in 1996.
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<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1998, the Company raised equity capital via
private placements and continues to convert trade debt to common stock to
improve the Company's financial position and cash flows. The Company had a
working capital deficiency as of June 30, 1998 of $801,638, and cash and cash
equivalents of $79,608 compared to a deficiency of $627,151 and cash and cash
equivalents of $82,789 as of December 31, 1997.
The net cash used by operating activities of $921,583 for the six months
ended June 30, 1998 was approximately $166,250 less than during the same
period in 1997. This is due in part to improved accounts receivable collection
procedures. During the first six months of 1998 the cash flow was favorably
impacted by the negotiations of debt to equity conversions of $86,256. In
addition the sale of machine shop equipment provided total cash of $26,000.
Financing activities, consisting of note proceeds and repayments, capital lease
obligations and repayments and proceeds from sale of common stock and warrants,
provided cash of $941,210. This includes proceeds from the issuance of Series D
of $600,000 less $81,974 offering costs. The Company received $75,000 in July
1998 for the issuance of 7,500 shares of Series E.
The net cash used by operating activities in 1997 of $2.3 million was 38%
more than in 1996. In 1996 the cash flow was favorably impacted by the
negotiations of debt to equity conversions of approximately $1.5 million with
various stockholders, vendors and a bank. In addition, two consultants were paid
in stock rather than cash.
Cash flows of $452,145 were provided by investing activities in 1995 as
compared to cash used by investing activities of $185,046 and $76,923 in 1997
and 1996, respectively. Cash flows were favorably impacted in 1995 by the sale
of technology and by the sale of assets of the Company's hole punch operation.
Capital expenditures were $142,206 and $46,773 in 1997 and 1996,
respectively. Additions in 1996 included new computers and leasehold
improvements to the Cathlab facility to facilitate the relocation of the
research and development activities from Texas. During 1997 the Company
purchased additional computers, accounting software upgrades, manufacturing
equipment and molds. The vendor upgrades made to each of the Company's
computer-based applications accommodates the millenium change. The Company is,
however, in the process of identifying any current suppliers who are not
prepared to offer assurances that their systems will be year 2000 compliant.
In addition, the Company continues to invest in the development of its patents
as evidenced by the use of funds of $44,356, $31,414 and $51,877 for the years
ended December 31, 1997, 1996 and 1995, respectively. Since inception, the
Company has expended $481,344 on internally developed patents.
Cash flows of $1,371,414, $2,906,223 and $1,019,504 were provided by
financing activities for the years ended December 31, 1997, 1996, and 1995,
respectively. Since inception, financing activities have provided net cash of
$20,516,280. Financing activities consist of note proceeds and repayments,
capital lease obligations and repayments, proceeds from the sale of debentures,
preferred stock, common stock and warrants, proceeds from the exercise of
warrants and options, related offering and financing costs, cash dividends on
preferred stock and the acquisition of treasury stock.
In March 1997 the Company raised $2.5 million capital pursuant to an
offering of the Company's equity securities. Offering costs of $287,590 were
paid from the proceeds of this transaction.
In February 1996, the Company and Zanett, a financial consulting firm,
signed an agreement whereby Zanett agreed to assist the Company in raising
capital pursuant to an offering of the Company's equity securities. (See
"Related Party Transactions"). Funds of approximately $1.7 million were raised
in the first offering. An additional $1.5 million was received pursuant to an
offering of the Company's securities in November 1996. As a result of Securities
and Exchange Commission guidance issued in early 1997 with respect to beneficial
conversion features in connection with the issuance of convertible preferred
stock, the Company was deemed to recognize noncash preferred stock dividends
totaling approximately $1.2 million in fiscal year 1996. This amount is
equivalent to the discount from the fair market value of the common stock given
to the purchasers of the Series A and B calculated as of the date of the sale of
such stock.
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<PAGE> 19
On May 28, 1996, Aberlyn and the Company reached an agreement to restructure
the Leases which resulted in a revised schedule of lease payments over a
twenty-four month period, with the initial payment commencing on June 1, 1996.
In addition, 115,000 shares of common stock were issued in payment of consulting
fees, investment banking service fees and accumulated miscellaneous expenses
totaling $115,728. Effective November 1, 1997, the Company and Aberlyn entered
into modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998.
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.
During 1997 the Company received cash proceeds of $3,750 from the exercise
of options and $320,033 from the exercise of warrants. Cash proceeds of $97,000
from the exercise of options, $391,325 from the exercise of warrants and $3,231
from the purchase of stock by individuals were received in 1996.
In December 1996, the Company received proceeds of $1 million from a 30-day
note payable to bridge any potential funding shortfalls (regarding clinical
trial costs) until such time as warrants were exercised or new equity funding
was received. The note was paid in full in January 1997 and the interest was
paid by the issuance of 11,722 shares of common stock.
The Company requires significant additional funds to enable it to complete
development and, subject to obtaining required regulatory approvals,
commercialization of the OmniCath(R) for peripheral and A-V fistula use, to
enter into marketing and distribution arrangements for the OmniCath(R), to
commence and continue the development of other products which include the
OmniStent(TM), Evert-O-Cath(TM), and other products as well as product
enhancements to its existing 100%-silicone balloon catheters, the OmniCath(R),
Evert-O-Cath(TM) and OmniStent(TM) and to expand its manufacturing and
distribution abilities with respect to the Cathlab products. Research and
development expenditures for 1998, including amounts for clinical affairs, are
expected to be approximately $1.2 million. If the Company experiences 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 1998;
however, this increase will not be sufficient to satisfy the Company's funding
needs.
The Company has experienced significant cash flow problems in the past.
Since its inception, the Company has operated at a loss and is dependent upon
equity investments and issuance of debt instruments to meet its obligations.
The Company has not always received funding from financing and operations in a
timely manner and has, in the past, been delinquent on notes and accounts
payable. The Company has also satisfied certain debts with equity and has been
able to renegotiate terms of payment on others, such as the Aberlyn lease
obligations. Although the Company has a commitment for a $5 million equity
credit line, certain conditions must be met prior to closing. These conditions
include that the average daily trading volume for the Common Stock for the
previous 60 trading days be at least 150,000 shares per day and the average
daily trading price for the prior 10 trading days be at least $0.45 per share.
If said conditions are not met and the Company is unable to draw down additional
funds, the Company may require additional sources of funding. There can be no
assurance that the Company will be able to obtain additional funding on
acceptable terms or in time to fund any necessary or desirable expenditures. In
the event such funding is not obtained, the Company's research and development
projects will be delayed or scaled back. Failure to receive funds from the
equity credit line or additional financing will have a material adverse effect
on the Company's operations. In order to continue as a going concern, the
Company must raise additional funds as noted above and ultimately must achieve
profitable operations. (See "Risk Factors - Ability to Continue as a Going
Concern.")
Though still a developmental stage company engaged in the development,
manufacture and marketing of medical devices, the Company has ten products
presently available to market and has a comprehensive business strategy which it
believes will enable it to capitalize on its technologies and on developing
trends in the healthcare industry. The Company's strategic plan consists of
focusing on increased market penetration of its ten existing FDA-approved
products, continuing to revamp its distribution network, continuing to focus on
the commercialization of its core technologies by pursuing US and international
regulatory approval, aggressively pursuing the sale of ancillary technology to
meet future cash requirements and to validate the proprietary nature of its
technologies and continuation of efforts to identify and pursue strategic
alliances.
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<PAGE> 20
BUSINESS
GENERAL
American BioMed, Inc. ("Parent Company") develops, manufactures and markets
medical, surgical and diagnostic devices. The Parent Company was incorporated
September 4, 1984 and closed its initial public offering in October 1991. In
1992 the Parent Company acquired Cathlab Corporation ("Cathlab") and Freedom
Machine, Inc. ("FMI"). Due to the insignificant amount of revenues derived from
FMI, the Parent Company sold the hole punch operation assets in 1995. FMI was
dissolved in 1996 and the residual assets were transferred to the Parent
Company. Unless otherwise described herein, references to the "Company" are to
American BioMed, Inc. and its subsidiary.
American BioMed, Inc., including its wholly-owned subsidiary, (the
"Company"), a development stage enterprise, is engaged in the development,
manufacture and marketing of medical devices. The Company's primary technology
is directed at interventional cardiology, endovascular surgery and minimally
invasive surgical devices. The principal products are atherectomy catheters,
stents, clot filters, 100% silicone balloon catheters and drug delivery catheter
systems. The Company's primary business strategy is to design and develop
minimally invasive medical devices to treat atherosclerotic disease. The Company
holds patents on its OmniCath(R) atherectomy catheter, a device that
mechanically removes the atherosclerotic disease ("plaque") from within blood
vessels or other synthetic implanted vessel devices. The Company also has patent
and/or proprietary rights to stent devices, the OmniStent(TM) and the
OmniFilter, a catheter-mounted temporary blood filter. These devices are
implantable within the vessel of the body to maintain an open lumen allowing
necessary rates of blood flow.
The third product area, 100%-silicone balloon catheters from which the
Company currently derives the majority of its revenue, is protected by a series
of patents for the ten 510(k) product approvals which the Company is currently
marketing. The Company's subsidiary, Cathlab Corporation ("Cathlab"),
manufactures and markets a series of non-angioplasty 100%-silicone balloon
catheter products. These products are used to remove arterial blockages and
gallstones, to measure the cardiac output of the heart (through thermodilution)
and to angioscopically view the interior of the blood vessel.
The fourth product area is a toposcopic catheter, the Evert-O-Cath(TM) a
drug delivery catheter which is used to precisely inject fluids or drugs to the
lesion or diseased area. This product group is also protected by patents and has
510(k) approval for sale in the U.S. It is believed that drugs/coatings applied
to the treated disease site will further reduce the incidence of restenosis as
coatings should allow for a smoother artery lining after an atherectomy or stent
procedure. The clinical success objective of interventional cardiologists,
radiologists and vascular surgeons in treating atherosclerosis is to facilitate
an acceptable rate of blood flow through the vessel and to eliminate or minimize
subsequent reoccurrence of plaque re-buildup (restenosis).
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<PAGE> 21
Efforts are underway to bring the Company's core technologies to market. The
Company received Institutional Review Board (IRB) approval at the University of
California at Los Angeles authorizing the start of Phase II human clinical
trials for the OmniCath(R) peripheral atherectomy catheter to begin in August
1996. The clinical trials at UCLA commenced August 1, 1996 and were temporarily
suspended as the Company filed an amended protocol with the FDA for the
peripheral indication. The amended protocol was approved on May 8, 1998. The
Company expects the clinical trials to be resumed by late 1998 and submission
to the FDA approximately 18 months later. Currently the Company has eight
clinical sites and intends to expand the number of sites to 10 in 1998.
In addition, the Company filed an Investigative Device Exemption (IDE) with
the FDA in February 1997 to conduct human clinical trials for its OmniCath(R)
atherectomy catheter for hemodialysis A-V fistula restenosis and expects to
receive this approval to start the trials in late 1998. These clinical trials
will be conducted in parallel with the ongoing peripheral clinical trials. The
Company anticipates completion of these trials before the end of 1999 and hopes
to make an FDA submission in the U.S. within six months after conclusion of the
clinical trials.
The Company is moving forward in its efforts to commercialize its
OmniStent(TM) and stent delivery system technologies. Management hopes to start
clinical trials for these products within twelve months. The Company will
require significant additional financing to fund the clinical trials for
OmniCath(R), OmniStent(TM) and all its other products which require approval of
the FDA. (See "Liquidity and Capital Resources.")
INDUSTRY BACKGROUND
Interventional Cardiology and Endovascular Surgery
Over 65 million Americans suffer from some form of coronary or peripheral
vascular disease. The most noted of these diseases is cardiovascular. This
disease is progressive and degenerative, and is characterized by a buildup of
fatty materials ("plaque") within the lining of the arterial blood vessels. The
buildup of plaque results in an obstruction (stenosis) that reduces blood flow
through the arteries and may eventually lead to total blockage causing tissue
damage and death. The plaque forms at varying degrees of hardness, eccentrically
or concentrically within the artery, reducing the elastic nature of the vessel
and thereby compromising the vessel's ability to efficiently pump blood to vital
organs.
Despite significant advances in product technologies, the disease continues
to be the leading cause of mortality in the U.S. today. Degenerative
atherosclerotic narrowing of the arteries that feed the heart ("coronary
arteries"), known as coronary heart disease, afflicts over six million persons
in the U.S. alone. It is largely responsible for approximately 1.5 million
"heart attacks" each year in the U.S., of which approximately 500,000 result in
death. Atherosclerosis also affects arteries in the kidneys ("renal arteries")
and in the abdomen, groin and legs ("peripheral arteries") and is a leading
cause of strokes, reno-vascular hypertension (a type of high blood pressure) and
peripheral vascular disease.
Prior to the late 1960's, pharmaceuticals represented the most common form
of treatment for coronary heart disease and other forms of atherosclerosis.
While often effective in alleviating many symptoms, pharmaceuticals did not
address the underlying problems of narrowed arteries and reduced blood flow.
During the late 1960's, cardiovascular surgeons pioneered a new type of open
heart surgery that grafted a blood vessel from the patient's leg to the diseased
coronary artery to bypass the blockage, thereby providing a longer-term
treatment, but one that was highly invasive, costly and required a lengthy
hospital stay. Today, bypass graft surgeries of the coronary arteries and of
other peripheral vessels account for over 600,000 procedures annually in the
United States. Bypass surgery generally is performed when the patient displays
extensive deposits of atherosclerotic plaque throughout the length of one or
more vessels thereby rendering impractical the attempted opening ("dilating") of
the blocked ("occluded") arteries due to the procedural time required, the
critical location of the occlusion, or the inability to safely access the
blockage.
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In the late 1970's, cardiologists developed a less-invasive method of
treating atherosclerosis, the method known as balloon angioplasty. In its
simplest form, balloon angioplasty involves threading a small balloon-tipped
catheter through the arterial system to the site of the blockage. The balloon is
inflated, dilating the vessel and thereby displacing the plaque by pressing it
against the artery wall. The arterial opening is thereby enlarged, restoring
blood flow.
There are inherent risks in balloon angioplasty, including vessel
dissection, acute closure due to overstretching of the vessel, and the potential
that small pieces of plaque will break off and move downstream to block critical
parts of the blood vessel. The blood supply to critical heart tissue is
temporarily cut off while the balloon is inflated, increasing the risk of a
heart attack during the procedure. The balloon-dilated artery may spasm during
and/or immediately after the procedure and cut off the blood supply to critical
tissues. Balloon angioplasty is generally not considered suitable for patients
with extensive atherosclerosis nor for patients who suffer from very severe
blockages of arteries that supply large areas of the heart with blood.
Additionally, since the atherosclerotic plaque is not removed during the balloon
procedure and because certain damage to the inner lining of the arteries can
occur when the balloon is inflated, there is a high rate of re-blockage or
"restenosis" of the treated artery(ies).
The limitations inherent in balloon angioplasty have created a significant
opportunity for alternative types of angioplasty devices, including stents and
atherectomy devices. A third method, lasers, has been shown to be damaging to
the arterial walls and now is used only for narrowly defined clinical
indications. Laser systems are expensive and require special facilities and
maintenance. Stents and atherectomy devices are rapidly becoming the growth
products in atherosclerotic procedures.
The number of angioplasty (including atherectomy) procedures performed and
the market for coronary and peripheral angioplasty devices and accessories have
grown at a rapid rate as a result of a number of factors, including the general
aging of the world's population. Currently, industry sources estimate the
worldwide stent market to be between $1.6 - 1.9 billion.
PRODUCTS
The OmniCath(R) Atherectomy Catheter
The OmniCath(R) is an "atherectomy catheter," designed to allow physicians
to remove atherosclerotic plaque from obstructed blood vessels throughout the
body, enlarging the narrowed vessel openings and thereby restoring normal blood
flow. The Company is developing the OmniCath(R) with catheter shafts of several
different diameters for use in coronary arteries which feed the heart (5.8 to 7
French) and in peripheral arteries in the abdomen, groin and legs (7 French and
8 French). "French" is a measure of diameter, one French is equivalent to 1/3rd
of a millimeter. The OmniCath(R) is self-contained and disposable and is powered
by a small battery pack and motor assembly in the handle. Connected to the
handle is the catheter shaft which will vary in length depending on the distance
needed from insertion to the treatment site. The weight of the OmniCath(R) is
approximately 11 ounces.
The OmniCath(R)'s shaft has a side-window and a small rotating cylindrical
blade near its distal end (the end of the catheter or farthest part of the
catheter which is inserted into the body). At the surface opposite the
side-window are two deflector wires which, when advanced against the arterial
wall opposite the plaque using controls in the handle, stabilize the catheter
shaft and allow the window to cover a larger volume of the plaque, compressing
it into the path of the rotating blade. Once the deflector wires are engaged and
the side window is in position, using controls on the OmniCath(R) handle, the
rotating blade can be advanced and retracted across the side-window at
approximately 11,000 RPM to shave the atherosclerotic plaque from the interior
surface of the vessel walls. The blade does not come into contact with the
non-diseased arterial walls during the atherectomy procedure. The shaved plaque
is aspirated into an annular space in the catheter and evacuated through a
removal port at the proximal end of the catheter (the end at the OmniCath(R)
handle) via a vacuum system. This enables the excised plaque to be collected and
examined while the atherectomy is taking place. There is very little loss of
blood during the procedure as the OmniCath(R) is designed to restrict the amount
of blood
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which enters the catheter system. Further, the blockage of blood circulation by
an inflated balloon, which often occurs in balloon angioplasty, does not occur
in a procedure using the OmniCath(R). The deflectable system which holds the
catheter in place is designed to allow for continuous blood flow. This allows
more time to complete a procedure although a procedure using the OmniCath(R)
should generally require less time than a procedure utilizing multiple balloon
inflations to break up the plaque. As opposed to balloon angioplasty, which
cracks and displaces plaque, the shaving mechanism of the OmniCath(R) removes
plaque and is designed to leave the artery clean and smooth, free of fissures,
ruptures, and flaps.
Overall, the OmniCath(R) is designed for ease of use and provides the
physician with the capability to multiple lesion atherectomy procedures with a
single placement as opposed to the multiple placements often required with
balloon angioplasty and competitive atherectomy devices. The OmniCath(R)'s
features, including its lightweight and compact construction are designed to
provide a competitive advantage over existing atherectomy catheters. See
"Business -- Competition."
The Company had commenced limited human clinical trials in the United States
with the 8 French OmniCath(R) for peripheral use. The device was initially used
on patients during 1991 and 1992. Although no adverse effects or complications
were observed or reported from the use of the OmniCath(R) on any patient, the
trials indicated that the OmniCath(R) needed certain modifications. In July
1992, the Company contracted with an independent third party to conduct a
product design review of the OmniCath(R). Based on the results of that review,
improvements to the OmniCath(R) were made including increasing battery and motor
power for guiding the catheter through the body, strengthening the deflector
wires which hold the catheter in place, enhancing the cutter and debris-removal
system, and creating a better ergonomically profiled product for the end user.
The Company informed the FDA of the improvements in July 1992, and the FDA
requested additional information on the modifications before human clinical
testing could resume. The Company submitted the additional information and
received permission from the FDA to resume Phase I clinical trials in July 1993.
The Company completed its Phase I trials and submitted its data to FDA. The
Company received approval by the FDA for its Phase II peripheral OmniCath(R)
atherectomy clinical trials in 1995 and commenced Phase I on August 1, 1996 at
the University of California at Los Angeles. However, the clinical trials were
temporarily suspended as the Company filed an amended protocol with the FDA
which was approved on May 8, 1998. The Company expects the clinical trials to
resume by late 1998 and submission to the FDA approximately 18 months later.
Currently the Company has eight clinical sites and intends to expand the number
of sites to 10 in 1998.
The Company has not yet applied for U.S. FDA approval of the OmniCath(R) for
coronary use but expects to file for investigative device exemption (IDE) at the
successful conclusion of the OmniCath(R) peripheral clinical trials. There can
be no assurance that required regulatory approvals will be received on a timely
basis or at all. See "Business -- Government Regulation." The Company received a
Notice of Allowance from the U.S. Patent and Trademark Office for its sixth
patent for the OmniCath(R).
The OmniStent(TM)
Although angioplasty and atherectomy contributed greatly to less invasive
treatment of atherosclerosis, it was not until 1994 that a third less invasive
means of treatment was developed. This new means consists of simple spring-like
devices called stents which when placed in a treated vessel, greatly reduces
acute and chronic clinical failure rate of restenosis.
Stents provide a foundation for support to a weakened vessel. The most
common design is the metal stent which comprises a tubular structure, normally
having a pattern of slots which when expanded produce a tiny tubular grillwork
which can hold a diseased vessel open, thereby providing a channel for blood
flow to the heart or limbs.
It appears that the majority of flow-limiting lesions, whether in a duct
(biliary), tract (esophageal) or vessel (vascular stenosis, aneurysm,
arteriovenous shunts, etc.), are stent treatable. The stent is placed in a
relatively conventional manner for angioplasty. The lesion is crossed with a
conventional guide wire, and the lesion is predilated using a conventional
balloon catheter; using the exchange technique, the delivery balloon catheter is
then advanced over the wire to the lesion being treated. At the site of the
lesion, initial inflation to 5-6 atm is carried out. To further imbed the coiled
stent into the subintimal layers of the arterial wall, higher inflation
pressures that expand the compliant delivery balloon to larger diameters are
then used.
21
<PAGE> 24
The OmniStent(TM) has been successfully manufactured using a unique,
patented proprietary process that makes a one piece, endless loop without
welding, soldering or annealing. The Company also has a proprietary process in
which it forms and shapes the stents prior to use. The Company is also looking
at metals other than stainless steel (which it has previously used) and is
designing its own delivery catheter which may use a variation of its
Evert-O-Cath(TM).
The Company has patented two distinct stent configurations, the coil stent
and the bifurcated stent. The coil stent is a straight coil wound in helix which
would be used in supporting a longitudinal section of vessel such as a major
coronary vessel, (i.e., left anterior descending or right coronary artery or a
major peripheral vessel such as the aortic iliac or femoral). The coil is formed
from an endless loop of wire formed in a plurality of arcuate sections.
The bifurcated OmniStent(TM) is a Y-shaped bifurcated stent designed for use
in aortic bifurcation. However, small versions may be used at any branched blood
vessel. The bifurcated version is also an endless stent overcoming the
deficiencies of prior art in construction. However, it is unique in design as no
other company has solved the dilemma of manufacturing and deploying a bifurcated
stent. All rely on a series of single stents, placed in close proximity, and
usually requiring an access from each artery (lateral and contralateral
femoral). This is very distressful to the patient requiring a surgical prep,
artery puncture and catheter sheath on each side of the groin. Potentially it is
twice as difficult, dangerous and time consuming to both patient and doctor as
the bifurcated OmniStent(TM). In addition, the Company has developed a process
of reproducing the stents using photoetching which significantly reduces cost
and production error.
The Company's stent technology is protected by two patents, US Patent No.
5,342,387 issued August 30, 1994 titled Artificial Support for a Blood Vessel,
and US Patent No. 5,607,445 issued March 4, 1997 titled Method and Apparatus for
Making a Stent. In addition, on January 8, 1998 the Company received a Notice of
Allowance from the US Patent and Trademark Office for the Company's stent
delivery system. All patents are assigned to the Company.
The Company's patent includes a proven biocompatible coating used to coat
the interior surface of artificial hearts. This neutralized collagen compound is
considered to be one of the most blood- and tissue-compatible biomaterials used
to construct a smooth blood flow around the device. When applied as a thin film
it provides a smooth, biochemically stable protein coating with non-pseudo
intimal properties, very little platelet adhesion, and high blood compatibility.
In addition, when used as a substrate, the coating bonds easily with various
anticoagulant molecules such as Heparin and phospholipids which are used to
further reduce thrombosis. The Company has developed a concept for covering its
stents with graft material and plans to file a patent on this process in the
future. The endoprosthesis will enable the Company to become active in the
endovascular graft market. The greatest advantage in using the endless loop,
self-expanding metals is the potential for generating mural pressures within a
stenosis sufficient for precise stent-vessel apposition.
Once the vessel is acutely dilated, the stent could be passed through the
stenosis on a guide wire, in its endless, elongated configuration, then released
to allow the coils to reform at the stenosis. The gradual mural pressure of the
"memory" reforming coil produces a subsequent chronic vessel dilation over a
period of several hours or days until the "memory" diameter of the coil is
reached. This could greatly impact the restenosis problem in that the acute
trauma of angioplasty (i.e., rapid vessel wall stretching, dissection of
internal elastic lamina and media) could be modulated over the succeeding days
after angioplasty by gentle though constant vessel wall "remolding."
The OmniStent(TM) has several advantages over competitive products. It is a
dual, endless coil which gives the stent versatility in using almost any
material; the dual coil gives more than two times the hoop strength of a single
coil; the continuous loop allows easy deployment whether on a balloon,
guidewire, or through a sheath (such as the Schneider Wallstent). When coiled,
according to the reversible arcuate sections (the preferred embodiment in US
Patent 5,342,387), the open sections can be used to place at vessel branches
allowing open flow into these branches. In addition, the patent claims a
bifurcated stent made of the same endless loop, that presents wide applications
in peripheral stenting and grafts (the aortoileal stenosis is the most common
pathology in peripheral vascular disease). The endless, bifurcated stent can
thus be inserted into both iliac vessels from a unilateral (one puncture)
technique. It is the most versatile stent in the interventional field.
22
<PAGE> 25
Although the Company intends to commercialize the OmniStent(TM) as quickly
as possible, the current regulatory climate at the FDA has made the approval
process extremely slow for new products. Therefore, there can be no assurances
that the product will be approved within a timeframe which will permit the
stents to contribute to the Company's need for short-term capital, nor can there
be any assurances that the FDA will ever approve the OmniStent(TM).
The Evert-O-Cath(TM) Drug Delivery Catheter
The Evert-O-Cath(TM) is a "toposcopic catheter" used to inject fluids and
drugs, such as thrombolytic agents (drugs that dissolve blood clots) and
chemotherapeutic agents, in the body in an extremely precise and localized
manner and to withdraw fluids from the body. The Evert-O-Cath(TM) features a
flexible and extremely soft-tipped catheter (the "primary catheter"), inside of
which lies a second, interior catheter known as a "topo" element. The thin and
flexible toposcopic catheter adapts to the contours of lumen permitting it to be
extended further into the body than a conventional catheter. The toposcopic
catheter also can be extended around near-total obstructions, causing less
friction and less damage to the lumen and allowing passage of the catheter
through tight strictures that, otherwise, would be unpassable. The
Evert-O-Cath(TM) is designed to be useful for reaching remote or extremely
fragile places in the body that, currently, are inaccessible to other catheters.
The most applicable use of the Evert-O-Cath(TM) is in conjunction with
balloon angioplasty where it can be used to both dilate and deliver localized
drugs to the angioplasty site to modulate restenosis or thrombus formations.
The Company is developing a dilating version of the Evert-O-Cath(TM) to
combine drug delivery with angioplasty. As an angioplasty catheter, the
Evert-O-Cath(TM) is expected to provide a method of extruding a drug delivery
balloon from the interior of a catheter. In addition, the eversion of the
balloon from within the Evert-O-Cath(TM) makes the placement through narrow and
tortuous blood vessels, such as saphenous vein grafts, much easier than with
conventional balloon catheters. This procedure, when used in fragile grafts,
should result in less abrasion to arterial walls, and fewer cases of downstream
blockage of the blood vessel by dislodged plaque. The everting balloon could
remain extruded continually during dilatation from the Evert-O-Cath(TM),
allowing perfusion through the lumen and thus making multiple and prolonged
dilations easy to perform without withdrawing the catheter from the vessel.
A version of the Evert-O-Cath(TM) was approved by the FDA for certain
non-coronary applications in July 1994. The Company developed prototypes during
1994 and, based on feedback from potential users of the dilating
Evert-O-Cath(TM), the prototypes have been modified to better satisfy existing
medical needs. The Company intends to file a 510(k) Notification with the FDA
with respect to these modifications when the Company is convinced there is a
commercial market application for this product. There can be no assurance that a
favorable determination with respect to the Company's 510(k) Notification will
be obtained. See "Business -- Government Regulation."
The OmniFilter
The Company is developing a percutaneous temporary filter which is mounted
on a guide wire and is used to prevent stroke-causing blood clots from reaching
various organs of the human body. The filter is deployed remotely, opened within
a vessel and then remotely closed, safely and reliably removed with clots intact
within a mesh filter containing the entrapped material. The size of the filter
is such that blood flow is not significantly reduced through straining, but
embolytic debris is caught and retained by the filter. On December 9, 1997 the
Company received US Patent No. 5,695,519 titled Percutaneous Filter for
Carotid Angioplasty.
The Company believes that the OmniFilter, which has not been submitted to
the FDA for approval, will find significant use in such emerging procedures as
percutaneous angioplasty and stenting for carotid arteries, acute lytic
procedures for limb salvage, and endoluminal stent grafting for such procedures
or endoluminal aortic abdominal aneurysm. There can be no assurances that the
product will be approved by the FDA. (See "Business -- Government Regulation.")
23
<PAGE> 26
Cathlab Catheters -- General
The Company's Cathlab subsidiary has ten FDA approved balloon catheters,
seven of which are currently being marketed within the United States and abroad.
In addition, the Company has submitted a 510(k) Notification to the FDA for
approval of an infusion catheter. The 100%-silicone design of these catheters is
resistant to environmental factors, unaffected by body temperature, and more
biocompatible than latex balloons or polyvinyl chloride (PVC) tubing. The
patented one-piece balloon design eliminates glue and ties, providing superior
smoothness and preventing the possibility of balloon dislodgement.
Allergy to latex has been increasingly recognized as a cause of
life-threatening intraoperative anaphylaxis (a systemic reaction). Frequent use
of latex in patients or by health care workers can result in sensitization that
may place some individuals at risk for such a life-threatening allergic
reaction. The 100%-silicone design of Cathlab's catheters negates the potential
risk of intraoperative anaphylaxis.
Embolectomy and Bi-Lumen Catheters
Cathlab manufactures and markets an embolectomy catheter, which is used in
procedures to remove arterial blockages, generally clotted blood but also
bacteria and other substances ("emboli"). The catheter is passed through a
surgical cutting or opening in an artery (an "arteriotomy"), along the artery,
and through any suspected emboli, with the balloon deflated. The balloon is then
inflated with saline solution and the embolus is removed by withdrawing the
catheter tip through the arteriotomy.
Cathlab manufactures and markets a bi-lumen embolectomy and irrigation
catheter which is used to assist in the removal of clotted blood from inside a
vessel, as well as, to irrigate a vessel with saline or other drug solutions
during a surgical procedure.
Ahn Thrombectomy Catheter
The Company received 510(k) approval from the FDA in January 1998 for its
new, safer thrombectomy catheter for the treatment of thromboemboli, the removal
of clots from blood vessels. The product will be named after Dr. Samuel S. Ahn,
the product's developer and the Company's Chief Clinical Investigator. This
unique catheter incorporates a distal dual balloon design to more effectively
remove emboli, as well as a proximal safety balloon indicator which allows the
surgeon to visually determine inflation volume. A patent application has been
filed with the US Patent and Trademark Office for this product, and the Company
launched the product during the second quarter of 1998 and has received orders
from its distributors.
Occlusion Catheter
Cathlab manufactures and markets an occlusion catheter which is used to
occlude the flow of blood in a vessel during a surgical procedure. Occlusion of
vessels during surgical procedures with a balloon catheter is much less
traumatic to the vessel than other methods of occlusion (i.e. clamps or
sutures).
Thermodilution Catheter
Cathlab manufactures and markets a thermodilution catheter which is used in
the assessment of a patient's hemodynamic condition (the efficiency of the heart
muscle) through direct intracardiac and pulmonary artery pressure monitoring and
cardiac output determination. This catheter is also used for blood sampling and
infusing solutions.
Angiographic/Angioscopic Irrigation Catheter
Cathlab manufactures and markets an angiographic/angioscopic irrigation
catheter which is used as a sheath for insertion of an appropriate size
angioscope to visually examine the interior of circulatory vessels. The
flexibility of this catheter permits its navigation through tortuous vessels of
the circulatory system. The variety of sizes and lengths of this catheter
provide compatibility with a variety of angioscopes.
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<PAGE> 27
Biliary Catheter
Cathlab manufactures and markets a biliary catheter which is used for the
removal of intraductal stones and debris from the biliary tree. Cathlab is
currently developing a biliary catheter for use during laparoscopic procedures.
Cardiac-Assist Devices
Angioplasty and other therapies involving the removal or displacement of
plaque from the arteries are intended to increase blood flow but do not relieve
the heart muscle ("myocardium") from its continual job of pumping blood
throughout the circulatory system. The Company holds four issue patents on a
cardiac-assist pump for future development of cardiac-assist devices which have
the basic objective of assisting the myocardium in moving blood through the body
at a physiologically acceptable rate. The Company has no plans to develop these
pumps at the present time and is a prime candidate for divestiture.
Spinal Dissector
The Company has patented and developed prototypes of minimally invasive
devices for use in spinal surgery, which have been evaluated in vivo. In August
1994, the Company licensed its "Spinal Dissector" spinal instrument to Wright
Medical Technology, Inc. for a license fee of $300,000 plus royalties. This
device is used for both anterior and posterior lumbar disc decompression
procedures.
REGULATORY STATUS OF PRODUCTS
As of August 17, 1998
<TABLE>
<CAPTION>
======================================================================================================
510(K) REVENUE
PRODUCT NUMBER* FDA STATUS Y/N
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arterial Embolectomy Catheter (3Fr - 7Fr) K881455 Approved 4/6/88 Y
- ------------------------------------------------------------------------------------------------------
Bi-lumen Irrigation Catheter (5Fr - 7Fr) K893680 Approved 8/1/89 Y
- ------------------------------------------------------------------------------------------------------
Bi-lumen Irrigation Catheter (3Fr - 4Fr) K897184 Approved 3/14/90 Y
- ------------------------------------------------------------------------------------------------------
Foley Urological Catheter K862124 Approved 8/14/86 N
- ------------------------------------------------------------------------------------------------------
Thermodilution Catheter K893435 Approved 5/2/89 Y
- ------------------------------------------------------------------------------------------------------
Arterial Embolectomy Catheter (2Fr) K905139 Approved 2/5/91 Y
- ------------------------------------------------------------------------------------------------------
Angioscopic/Angiographic Irrigation Catheter (6Fr - 8Fr) K897051 Approved 3/16/90 N
- ------------------------------------------------------------------------------------------------------
Biliary Catheter K910917 Approved 8/2/91 Y
- ------------------------------------------------------------------------------------------------------
Occlusion Catheter K910916 Approved 6/24/91 Y
- ------------------------------------------------------------------------------------------------------
Thrombectomy Catheter (dual balloon) K972572 Approved 1/13/98 Y
- ------------------------------------------------------------------------------------------------------
Evert-O-Cath(TM) Catheter (drug delivery) K922455 Approved 7/7/94 N
- ------------------------------------------------------------------------------------------------------
OmniCath(R) N/A IDE Filed** Y
- ------------------------------------------------------------------------------------------------------
Omni Filter (Guidewire Micro Filter) N/A Development N
- ------------------------------------------------------------------------------------------------------
OmniStent(TM) N/A Development N
- ------------------------------------------------------------------------------------------------------
Spinal Dissector N/A Development N
- ------------------------------------------------------------------------------------------------------
Heart Assist Pump N/A Development N
- ------------------------------------------------------------------------------------------------------
Needle Scope N/A Development N
======================================================================================================
</TABLE>
* See "Business - Government Regulation"
** Investigational Device Exemption ("IDE")
SCIENTIFIC ADVISORY BOARD
American BioMed, Inc. has established relationships with outside scientific
advisors and views access to such advisors as an important resource. The
advisors counsel the Company with respect to its research and development
programs, new technological advances and medical requirements. The Company's
Scientific Advisory Board was reformulated in February 1996 and the advisors
are:
SAMUEL S. AHN, M.D., F.A.C.S. -- Dr. Ahn has served as Chief Clinical
Advisor to the Company since January 1996. Dr. Ahn is Associate Clinical
Professor of Surgery at the University of California at Los Angeles. He serves
on the editorial board of the Journal of Vascular Surgery, and is a reviewer or
guest reviewer for Surgery, Arteriosclerosis, Thrombosis and Vascular Biology,
Journal of Endovascular Surgery, Annals of Vascular Surgery, Vascular Surgery,
and others. He is author or co-author of over 70 peer review articles, a
visiting professor at University of Louisville; Yonsei University, Seoul, Korea;
University of Ulm, Ulm, Germany; Ultrech Hospital, Ultrech, Netherlands; Ochsner
Clinic and others. He holds membership in the American Medical Association,
Association for Academic Surgery, American College of Surgeons (Fellow), Western
Vascular Society, Los Angeles Surgical Society, etc.
LARRY STUART-DEUTSCH, M.D. -- Dr. Deutsch is Professor and Chief of Vascular
and Interventional Radiology at the University of California at Irvine. He is a
Research Radiologist and is involved in numerous scientific projects.
DARWIN ETON, M.D., F.A.C.S. -- Dr. Eton is Associate Professor of Surgery at
the University of Southern California, Los Angeles, with major research
activities in gene therapy of intimal hyperplasia, stented vascular grafts and
approaches to less invasive aortic surgery with laparoscopic instrumentation.
LAWRENCE A. YEATMAN, M.D., F.A.C.C. -- Dr. Yeatman is Professor of
Cardiology and Chief of Cardiac CathLab at University of California at Los
Angeles Medical Center is the Company's advisor regarding coronary applications
for the OmniCath(R) and OmniStent(TM).
DAVID A. LEE, M.D. -- Dr. Lee is Associate Professor of Ophthalmology and
Director of Tissue Culture Laboratory at University of California at Los Angeles
Medical Center, and Chief of Glaucoma Division at Jules Stein Eye Institute. For
many years he has specialized in experimental and clinical ocular pharmacology
and pharmaceutics. He will lead the investigations of molecular and cellular
reactions to the Company's products.
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<PAGE> 28
J. PATRICK JOHNSON, M.D. -- Dr. Johnson is Associate Professor of
Neurosurgery at the University of California at Los Angeles, and a director of
the Comprehensive Spine Center. He specializes in spine, nerve roots and the
spinal cord. Dr. Johnson advises the Company regarding its MIS Spinal Dissector
and Needlescope products.
RICHARD STOUT, M.D. -- Dr. Stout is a professional clinical and regulatory
affairs consultant in the medical device field. He reviews, comments and advises
the Company on all FDA, Enzyme Commission and other regulatory matters.
MARKETING PLANS AND ARRANGEMENTS
The Company is focused on increasing the exposure in the market place for
the Company's proprietary products and technologies. The identification and
selection of qualified distributorships, both international and domestic
markets, will be a key component to this strategy. The Company has embarked on
an ambitious search to find qualified specialty distributors with the necessary
resources to professionally promote its products in their respective geographic
territories. Since November 1997 five industry-respected specialty distributors
have been added to the domestic distributor network. The newly appointed
distributors have placed initial stocking orders and are in the process of
completing their initial product orientation and product training for the
Company's complete product portfolio. Complete geographic coverage of the U.S.
domestic market and Canada has been accomplished.
Sales to Sorin BioMedica ("Sorin"), Italy represented 16.9% of the Company's
total 1997 net sales. The remainder of net sales to any one customer was less
than 10%. Sorin is not affiliated with the Company. The loss of this major
account would be material to the Company's overall results of operations,
financial position and cash flows.
The following summary indicates the Company's percentage of sales within
geographic regions for the years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
REGION 1997 1996 1995
- ------------------------ ---- ----- -----
<S> <C> <C> <C>
United States ........................... 34.5 45.5 18.7
Italy ................................... 16.9 18.7 24.9
South America ........................... 12.0 17.0 --
Other European Countries ................ 15.7 12.1 39.6
Other (1)................................ 20.9 7.7 16.8
</TABLE>
(1) Includes Japan, Mexico, Latin America and Canada.
Supporting the Company's domestic distributors will be a network of
independent manufacture representatives. These representatives will be
compensated by commission on actual sales and will be the liaison and marketing
support to our rapidly growing distributor network. Management believes by
bringing the sales and marketing support to the field level, the Company will
enhance customer service support to both the distributor and to end user
customers. The Company's application engineers and clinical support personnel
will supplement the efforts of the manufacturer's sales representative and
distributors by providing all customers with in-service training and product
education. Management will continue to attend key industry symposiums and
conventions where the concentrated exposure to important decision-makers can be
achieved and enhance the marketing visibility of our products. Journal
advertising, strategic mailings, and sponsorship of academic-based research
articles are planned for 1998 to support the Company's sales efforts.
The Company selected four new international distributors during the fourth
quarter of 1997. These distributors, three in Europe and one in Japan, have
placed initial stocking orders and are currently promoting the Company's product
line in their respective countries. The addition of these distributors brings
the total number of international distributors to twelve. The Company plans to
add up to fifteen international distributorships during calendar year 1998 in
targeted global markets where the Company's products are currently not
represented.
Augmenting the distribution strategy will be a focused effort on securing
Group Purchasing Organization ("GPO") contracts. Securing these contracts with
GPO's like the Premier Group, a GPO representing more than fifteen hundred
hospitals, is key to achieving rapid success in the marketplace. The Company is
currently in negotiations with numerous GPO's to secure contracts with these
groups because of its unique product offerings and competitive pricing.
The Company received ISO 9001 certification January 12, 1998. In February
1998 the Company entered into an OEM agreement with Polamedco, Inc. to
manufacture up to 300,000 units annually of Polamedco's nasopharyngeal airway
products in assorted sizes. Polamedco represents the Company's first OEM
contract and is a direct result of the Company's receipt of ISO 9001
certification. By securing suitable OEM arrangements, the Company hopes to
achieve greater marketing coverage while maintaining sales increases with its
distributor network. The Company is currently in
26
<PAGE> 29
discussions with other medical manufacturers/strategic partners for OEM
distribution of the Company's products. In addition, the Company is pursuing
private label opportunities to provide OEM manufacturing for existing products
and products not currently manufactured but that capitalize on the Company's
existing silicone technologies.
The Company is uncertain today that the distributors now in place will be
able to effectively market and sell the Company's core product technologies, the
OmniCath(R), OmniStent(TM) and Evert-O-Cath(TM). 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 has begun formulating a comprehensive marketing and sales
strategy and has determined that the most expeditious and cost-effective method
of marketing the OmniCath(R) is to ally itself with a strategic partner whose
marketing and distribution networks are global in scope and is selling to
healthcare providers who are high volume users of angioplasty, atherectomy and
stent devices. By selecting one or more strategic partners, the Company can
focus its efforts on manufacturing, product development and securing regulatory
approvals while the strategic partner or partners can focus on selling with
their existing, experienced sales organizations. The Company is currently
marketing the OmniCath(R) in selected international markets through existing
Cathlab distributors and will continue to do so until the Company gains FDA
approval for U.S. sales and/or strategic partners are selected.
However, there can be no assurance that these OEM and private label
opportunities or the Company's efforts to secure distributors and GPO contracts
will result in contracts and subsequent revenue to the Company. Many of these
potential strategic partners bring with them the added benefits of GPO contracts
and the advantage of the bundling of products to the end user, thereby
increasing the visibility of our products in the global marketplace.
GOVERNMENT REGULATION
The 100% silicone balloon catheters, atherectomy catheters, guidewire
microfilter and stent devices which have been and are being developed by the
Company (and any products intended to be researched, developed or marketed in
the future) are all medical devices subject to regulation by the FDA. Pursuant
to the Federal Food, Drug, and Cosmetic Act and regulations promulgated
thereunder (the "FDC Act"), the FDA regulates and must approve the manufacture,
distribution and promotion of medical devices in the United States. Various
states and foreign countries in which the Company's products may be sold in the
future may impose additional regulatory requirements. For example, the countries
of Japan, Korea, India, China and Australia have Ministries of Health and have
an approval process that may take as much as nine months to gain import sales
approval. European countries (comprising the European Union) now require the CE
Mark on medical devices before they can be imported. Other countries require
administrative product registration which is a process that takes approximately
three weeks.
If the manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a device that is legally
marketed, the manufacturer or distributor may seek FDA marketing clearance for
the device by filing a "510(k) Notification." The 510(k) Notification and the
claim of substantial equivalence must be supported by various types of data and
materials, including test results. Following submission of the 510(k)
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. The order is
generally sent within 90 days of the submission and the order may declare the
FDA's determination that the device is substantially equivalent to another
legally marketed device and allow the proposed device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, whether or not the FDA has made a
determination in response to a 510(k) Notification, the manufacturer or
distributor will have to seek "premarket approval" of the proposed device. A
premarket approval application would be submitted supported by extensive data,
including preclinical and human clinical trial data, as well as extensive
literature, to provide recommendations to the FDA. While the FDA has responded
to 510(k) Notifications and premarket approval applications ("PMAs") within the
allotted time period, reviews more often than not occur over a significantly
protracted time period,
27
<PAGE> 30
usually 12 to 18 months for a PMA, and possibly as much as a year or more for
certain 510(k) Notifications supported by clinical data. A number of devices
have never been cleared for marketing under either the PMA or 510(k)
Notification process.
If human clinical trials of a proposed device are required and the device
presents significant risk, the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, including the results of animal and mechanical testing. If
the IDE application is approved, human clinical trials may begin.
In June 1991, the Company's IDE application with respect to the OmniCath(R)
for peripheral use was approved allowing the Company to commence limited human
clinical trials with one physician investigator at one institution, who could
use the device on a total of ten patients to mechanically remove accumulations
of plaque from peripheral arteries. During 1992, an additional institution was
approved by the FDA to conduct human clinical trials. The Company concluded
Phase I of the IDE as approved by the FDA and submitted an IDE Supplement to the
FDA in August 1994. The Supplement contained the clinical data (generated on 12
patients) which demonstrated the performance of the device. The Company was
granted conditional approval by the FDA to expand the clinical trials in the
United States for peripheral vessels. To date, the OmniCath(R) device has been
used, domestically and internationally, on more than 60 patients. The Company
must accumulate case study data on at least 50 patients for the peripheral
trials and have follow-up for at least six months, before the 510(k)
Notification can be prepared and initially filed. With respect to the
OmniCath(R) for hemodialysis A-V fistula restenosis, clinical trials represent
an expansion from peripheral applications of the OmniCath(R) to include A-V
grafts. Animal studies have been completed to demonstrate safety and to provide
the basis of efficacy in debulking A-V grafts in hemodialysis patients. It is
anticipated that these clinical trials will be completed before the end of 1999
and FDA 510(k) submission is anticipated three months after completion of the
required number of clinical trial cases.
By virtue of the additional risk associated with the use of a mechanical
catheter in the arteries of the heart, the OmniCath(R) for coronary application,
presently under development, will require more extensive animal and mechanical
testing than did the peripheral OmniCath(R) before an IDE application can be
filed and human clinical trials undertaken. The Company does not intend to
pursue the coronary application until the peripheral and A-V fistula indications
are approved by the FDA.
The Evert-O-Cath(TM) was cleared to market by the FDA for certain
non-coronary applications (see previous discussion under "General"). The Company
developed prototypes during the fourth quarter of 1991 and, based on feedback
from potential users of the Evert-O-Cath(TM), the prototypes were modified to
better satisfy medical needs. The Company received clearance from the FDA to
market the Evert-O-Cath(TM) commercially in July 1994. The Company is developing
a therapeutic version of the Evert-O-Cath(TM) for angioplasty applications and
expects that mechanical, animal and human testing and follow-up will be required
under an IDE to support the filing of a premarket approval application with
respect to that version of the Evert-O-Cath(TM) (see previous discussion under
"General"). In the second quarter of 1993, the Company completed mechanical
testing and in the first quarter 1994 completed animal testing of the
therapeutic version of the Evert-O-Cath(TM).
The heart pumps under development by the Company would require extensive
evaluation prior to use on humans. These proposed products would ultimately
require tests on humans under an IDE, and premarket approval. Although design
and preclinical engineering has been completed, the Company will not commit
further significant resources to these products until such time as the Company
secures a strategic partner in the global healthcare industry to collaborate in
the development efforts as well as to provide the substantial funds required.
Cathlab has ten specialty products which have all received marketing
clearance via the 510(k) Notification process and one pending FDA approval. The
Company is currently marketing the embolectomy catheter, bilumen irrigation
catheter, occlusion catheter, biliary gall stone removal catheter,
thermodilution catheter and the angiographic/angioscopic catheter. The newly
approved Ahn Thrombectomy catheter was launched in the second quarter 1998.
The facility housing Cathlab has been inspected by both the federal and
state FDA and has been licensed for
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<PAGE> 31
operation as a medical device manufacturer. The Company passed its latest FDA
inspection in May 1996 and received no 483 violations during the inspection. In
addition, the Company received ISO 9001 certification in January 1998.
Any products distributed or to be distributed by the Company are subject to
pervasive and continuing regulation by the FDA. Products must be manufactured in
registered establishments and be manufactured in accordance with "Good
Manufacturing Practices," as such term is defined under the FDC Act. Labeling
and promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. The export of devices is also
subject to regulation in certain instances.
The Medical Device Reporting ("MDR") regulation obligates the Company to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures which could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that the Company
is not in compliance with the law, the FDA can institute proceedings to detain
or seize products, enjoin future violations, or assess civil and/or criminal
penalties against the Company, its officers or employees. Any action by the FDA
could result in disruption of the Company's operations for an undetermined time.
In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a materially
adverse effect upon the Company's ability to do business.
THIRD PARTY REIMBURSEMENT
Hospitals, physicians and other healthcare providers that purchase medical
devices, such as the Cathlab products, OmniCath(R), OmniStent(TM) or the
Evert-O-Cath(TM), for use in furnishing care to their patients, typically rely
on third-party payers, principally Medicare, Medicaid, and private health
insurance plans, to reimburse all or part of the costs or fees associated with
the medical procedures performed with those devices, and/or of the costs of
acquiring those devices. Cost control measures adopted by third-party payers in
recent years, including the Medicare prospective payment system for inpatient
hospital patients, and reductions in Medicare payments for hospital outpatient
services and capital costs, have had and may continue to have a significant
effect on the purchasing practices of many providers, generally causing them to
be more selective in the purchase of medical devices. Limitations may be imposed
upon the conditions for which procedures may be performed or on the cost of
procedures for which third-party reimbursement is available, which may adversely
affect the market for the Company's products. In addition, if competing devices
or procedures are available, choices may be made on the basis of price. While
the Company cannot predict the cost of its devices, or the procedures to be
performed with its products, or the relative cost and efficacy of competing
products or procedures, changes in third-party payer reimbursement practices
regarding the procedures performed with medical devices sold by the Company may
adversely affect the Company's financial position, results of operations, and
cash flows.
While third-party payers generally make their own decision regarding which
items and services to cover, Medicaid and other third-party payers often apply
standards similar to Medicare's in determining whether to provide coverage for a
particular medical procedure. The Medicare statute prohibits payment for any
items or services that are not reasonable and necessary for the diagnosis or
treatment of illness or injury or to improve the functioning of a malformed body
member, and the Health Care Financing Administration ("HCFA"), an agency within
the Department of Health and Human Services responsible for administering the
Medicare program, has interpreted this provision to prohibit Medicare coverage
of procedures that, among other things, are not deemed safe and effective
treatments for the conditions for which they are being used, or which are still
investigational. For medical devices, FDA clearance for marketing is required,
but is not determinative of whether these prerequisites for Medicare coverage
have been met.
While a limited number of national coverage decisions are made by HCFA, in
general, the determination of whether a procedure satisfies these standards is
made by the Medicare carrier or intermediary which processes claims for
reimbursement within that carrier's or intermediary's jurisdiction. The Company
has not requested a national coverage decision with respect to procedures to be
performed using the OmniCath(R), the OmniStent(TM) or the Evert-O-Cath(TM)
because the Company believes that procedures utilizing other catheter products
are currently covered by Medicare, the Company does not intend to request a
decision. The unavailability of third-party coverage or inadequacy of
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<PAGE> 32
third-party reimbursement for procedures using the OmniCath(R), the
OmniStent(TM), or the Evert-O-Cath(TM) could adversely affect the Company's
ability to market those products.
The Company is unable to predict what additional legislation or regulations,
if any, may be enacted or adopted in the future relating to the Company's
business or the healthcare industry, including third-party coverage and
reimbursement, or what effect any such legislation or regulation may have on the
Company.
MANUFACTURING
The manufacturing facility received ISO 9001 certification on January 12,
1998. ISO (International Standards Organization) is an international federation
of national normalization organizations representing approximately 100
countries. ISO 9001 is a quality-assurance model that conforms to
internationally accepted guidelines on management and system elements, and is
used by companies that design, produce, inspect, test, install and service
items. Certification by the Registrar significantly validates a company's
commitment to product quality and customer service. To expand international
activities, the Company contracted with a large European Notified Body to obtain
the CE Mark for certification of product quality for its entire product line.
The European Commission currently requires CE Marking for many products sold in
the European marketplace.
The Company's primary manufacturing and research and development center
operates within the Cathlab Division. Cathlab is located in a modern, 13,000
square foot facility in Irvine, California and benefits from the close
proximity of medical research facilities associated with various universities,
as well as UCLA Medical Center and our Scientific Advisory Board. Cathlab has
ten FDA approved balloon catheters and three catheters pending FDA approval
that are used primarily in vascular surgery for the removal of embolus (blood
clots). Six of the catheters are currently being marketed within the domestic
and international marketplace. The Company's newest product, the Ahn
Thrombectomy Catheter, a dual balloon catheter, was launched in the second
quarter 1998.
The all-silicone catheters are designed to be resistant to environmental
factors, unaffected by body temperature and more biocompatible than latex
balloons or polyvinyl chloride (PVC) tubing. Allergy to latex has been
increasingly recognized as a cause of life threatening intraoperative
anaphylaxis, a systemic reaction. Frequent use of latex in patients or by health
care workers can result in sensitivity which may place some individuals at risk
for such a life threatening allergic reaction. The all-silicone design of
Cathlab's catheters negates the potential risk of intraoperative anaphylaxis.
Cathlab's catheters utilize a patented one piece balloon design, thereby
eliminating glue and ties which in turn provide superior smoothness and prevent
the possibility of balloon dislodgement.
Cathlab is currently producing 30,000 embolectomy, thrombectomy (dual
balloon), bi-lumen irrigation, occlusion, angioscopy, biliary and cardiac output
catheters of advanced silicone technology. Cathlab has the capacity to
manufacture approximately 120,000 balloon catheters annually. In addition, the
OmniCath(R) is presently being manufactured in the facility for clinical trials
on a limited production basis but the plant has the capacity to manufacture
12,000 annually.
Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies.
Since receiving ISO 9001 certification in January 1998, the Company has received
unsolicited requests to manufacture unique devices to the specifications of
third parties, indicating growth potential in the OEM market. One OEM contract
for 100,000 units per year is currently in force and another incorporating the
manufacture of nine separate product lines is being negotiated.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts as well as its ongoing
technical support activities were consolidated in the Irvine, California
facility in September 1996. The consolidation resulted in a better utilization
of resources, annual
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<PAGE> 33
cost savings, improved communication and reduced product development lead times.
As a result of this decision the 4,800 square foot facility in The Woodlands,
Texas was closed and all R&D prototypes, Computer-Aided Design (CAD), testing
apparatus, ink drawing plotters and computer simulation work stations have been
consolidated in Irvine, California, greatly improving the utilization of this
equipment.
The Company's research and development efforts in interventional cardiology
are aimed at increasing the convenience, ease and speed for use of percutaneous
transluminal coronary angioplasty ("PTCA") and percutaneous transluminal
angioplasty ("PTA") devices (including balloon and atherectomy catheters) while
expanding the clinical applications for which PTCA and PTA are appropriate. The
development of superior PTCA and PTA catheters requires the resolution of
several conflicting performance parameters, including catheter profile
(diameter), trackability (the ability to follow the paths of tortuous arteries)
and pushability (the ability to push through tight strictures). Meeting these
conflicting objectives requires expertise in a number of technical disciplines
that the Company must develop and retain internally. Research and development
expenses in the fiscal years ended December 31, 1997, 1996, and 1995 were
$648,049, $640,792, and $537,962, nearly all of which was applied to the
development of the OmniCath(R), OmniStent(TM) and Evert-O- Cath(TM). Research
and development expenses decreased 1.1% in 1997 over 1996 and increased 19.1%
over 1995. Research and development efforts for the foreseeable future will be
focused on the Company's core technologies which include balloon catheters,
OmniCath(R), OmniStent(TM), blood filter and Evert-O-Cath(TM) drug delivery
system. The Company anticipates that research and development expenses will
increase as products approach commercial viability and may be funded by
increased revenue generated through Cathlab Division sales, from the sale of
ancillary technology or through joint development agreements with strategic
partners. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
The Company has entered into agreements with various persons and entities to
conduct contract research and development and for the provision of consulting
services. These consultants are paid consulting fees plus out-of-pocket expenses
associated with their consulting efforts.
PATENTS AND PROPRIETARY INFORMATION
The medical device industry traditionally has placed considerable importance
on obtaining and maintaining patents and trade secret protection for significant
new technologies, products and processes. The Company pursues a policy of
generally obtaining patent protection in both the U.S. and abroad for patentable
subject matter in its proprietary devices. The Company has been issued five U.S.
patents and one Notice of Allowance ("NOA") relating to atherectomy catheters
and two relating to cardiac-assist pumps, and the Company has a 50% interest in
two other U.S. patents relating to cardiac-assist pumps. The Company has
received two patents on the OmniStent(TM) and one on the spinal dissector. In
addition, the Company has received an NOA from the US Patent and Trademark
Office on its stent delivery system. The Company has applications pending for
additional U.S. patents and foreign patents relating to the OmniCath(R) and
OmniStent(TM), and has foreign applications pending with respect to the
cardiac-assist pumps.
The U.S. patents currently have terms expiring at various dates from 2001 to
2015, with the earliest of the current patents relating to the OmniCath(R)
expiring in 2008. The foreign patents expire on various dates commencing in
2009. As the Company develops modifications or improvements of existing methods
or products or develops new products or processes, it will seek additional
patents. The Company believes, although there can be no assurances, that the
patented aspects of its products enhance the functionality of its products and
suitability for their intended purposes which, in turn, may increase their
likelihood of commercial acceptance. The patents may limit, to some extent, the
ability of others to develop competing products.
In connection with the Company's acquisition of Cathlab Corporation, the
Company is now the owner of rights relating to two United States patents
concerning the method of attaching the balloon to the catheter, as well as
owning patent rights relating to the same process in the United Kingdom, Germany
and Spain. Various foreign patent applications relating to the same process are
pending.
Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
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<PAGE> 34
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab Patents were exclusively licensed back to the Company for three years
for a monthly license fee of $16,355, after which Aberlyn was required to
reassign the Cathlab Patents to the Company in exchange for $50,000. Under its
terms, if the Company declined to purchase the Cathlab Patents, the Patent and
License Agreement would automatically be extended for an additional nine months
for a monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was exclusively
leased back to the Company for three years for a monthly fee of $6,706, after
which Aberlyn was required to return the equipment to the Company in exchange
for $20,500. Under the terms, if the Company opted not to purchase the
equipment, the Equipment Lease would automatically be extended for an additional
three months for a monthly payment of $7,011, after which the equipment would
automatically revert back to the Company.
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease (the "Leases") were modified. The payment terms of
the license fee pursuant to the Patent and License Agreement were revised to
semiannual payments of $97,445 and the payment terms of the Equipment Lease were
similarly revised to semiannual payments of $39,100 and $20,281, respectively.
In consideration to Aberlyn for making these modifications, the Company issued
warrants to Aberlyn to purchase 150,000 shares of the Company's common stock at
an exercise price of $1.50 per share exercisable over a five-year period. On May
28, 1996, Aberlyn and the Company reached an agreement to restructure the Leases
which resulted in a revised schedule of lease payments over a twenty-four month
period, with the initial payment commencing on June 1, 1996. The payments were
based on an outstanding principal amount of approximately $500,000 and total
accrued interest of approximately $148,000. In addition, 115,000 shares of
common stock were issued in payment of consulting fees, investment banking
service fees and miscellaneous expenses totaling $115,728.
Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998.
The Company believes that its future success does not depend solely upon
patents, but rather depends, to a significant extent, upon the technical
competence and creative skills of its personnel, the execution of its strategic
plan and on its significant unpatented proprietary technology. The Company has
no knowledge that it is infringing any existing patent such that it would be
liable for material damages or prevented from manufacturing or marketing its
planned products. However, competitors continue to obtain new patents and to
file applications to modify or expand claims of existing patents that could lead
to possible conflict with the Company's products or proposed products.
The Company may decide for business reasons to retain a patentable invention
as a trade secret. In that event, or if patent protection is unobtainable, the
Company must rely upon trade secrets, know-how and continuing technological
innovation to maintain its competitive position. Employees and consultants of
the Company who have access to proprietary information have signed
confidentiality agreements with the Company.
The Company has four trademarks: the OmniCath(R), the OmniStent(TM), the
Evert-O-Cath(TM), and Cathlab Corporation(R). The Company has applied to
register the OmniStent(TM); however, there can be no assurance that federal
registration will be obtained. "Cathlab Corporation(R)" and "OmniCath(R)" are
registered trademarks.
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COMPETITION
Competition in the biomedical industry is intense. Cathlab's catheters
compete directly with similar products sold by a number of companies including
Baxter, Applied Vascular and Ideas for Medicine. There can be no assurance that
these products will be able to obtain or maintain a sizable market share, if
any. There are many companies and academic institutions that are capable of
developing products of similar design, and that have developed and are capable
of developing products based on other technologies, that are or may be
competitive with the Company's current and proposed products. Many of those
companies and academic institutions are well-established, have substantially
greater financial and other resources than the Company, and have established
reputations for success in the development, sale and service of products. These
companies and academic institutions may succeed in developing competing
products that are more effective than those of the Company or that receive FDA
approval more quickly than the Company's products. The Company's ability to
compete will be dependent upon its ability to get products approved by
regulatory authorities and introduced to the market, including the arrangement
of a distribution network, and to provide products with advanced performance
features, none of which can be assured.
In addition to competition from other atherectomy devices, other angioplasty
modalities, such as lasers, thermal systems (e.g. hot-tip, hot-balloon, and
spark ablation), disruptive devices (e.g., ultrasonic angioplasty), and stents
may provide competition to the OmniCath(R) and the OmniStent(TM). The current
atherectomy devices anticipated to be competitive to the OmniCath(R) are the
Simpson Atherocath (Devices for Vascular Intervention, Inc., a division of Eli
Lilly, Inc.), the Transluminal Extraction Catheter, or "TEC" device
(InterVentional Technologies, Inc.), the Auth Rotablator (Heart Technology,
Inc.), and the Kensey Catheter (Theratek International, Inc., a division of Dow
Corning Wright, a subsidiary of Dow Corning Corp.). If the product receives
regulatory approval on a timely basis, the Company believes the OmniCath(R)'s
competitive position will be enhanced by its closed aspiration system (which
eliminates down-stream debris), low cost disposability, microangioscope
capability, and conventional guidewire capability, as well as by the positioning
of its side-window which allows the rotating blade to shave plaque from inside
the catheter as opposed to from the tip of the catheter. Competition to the
Company's OmniStent(TM) is expected to come from Johnson & Johnson, which had
its Palmaz-Schatz Stent approved by the FDA in 1994, the Cook Gianturco, from
Medtronic's Wiktor Stent and from Schneider's Wallstent, neither of which has
obtained full FDA approval.
While lasers, ultrasonic angioplasty devices and other new modalities have
proliferated over the past several years, none of these technologies has yet
been shown to reduce the restenosis rate or to reduce the overall procedural
cost of angioplasty. Lasers are particularly expensive (most laser angioplasty
systems sell for $100,000 -- $300,000), and the Company believes lasers will be
accepted only if significantly better results can be shown clinically. Lasers
have been found to be damaging to the arterial wall, and non-laser versions
including thermal balloon devices, spark ablation systems, and other new
modalities are currently under development and have not reached
commercialization. The Company believes that direct removal of tissue without
thermal effect may be the most desirable approach for angioplasty, as most
thermal systems cause trauma to the arterial wall, resulting in proliferation of
fibrous tissue and early restenosis.
The Company does not know of any person or entity currently marketing a
toposcopic catheter with features similar to the Evert-O-Cath(TM).
EMPLOYEES
As of July 30, 1998, the Company had 27 full-time employees, 2 in research
and development, 2 in sales and marketing, 16 in manufacturing, 2 in quality
control and 5 in corporate management and administration. None of the Company's
employees are represented by labor unions. The Company considers its
relationship with its employees to be in good standing. The Company also employs
two paid consultants (Dr. Samuel S. Ahn and Lawrence M. Hoffman) who are paid on
a monthly basis at rates ranging from $3,125 to $12,500 per month.
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PROPERTIES
The Company leases approximately 2,400 square feet of space at 10077
Grogan's Mill Road, Suite 100, The Woodlands, Texas, which houses its corporate
headquarters. The three-year lease commenced June 1, 1997. The Company believes
that this facility is adequate for its operations during the remaining term of
the lease.
In connection with the Company's acquisition of Cathlab Corporation, it now
leases approximately 13,000 square feet of space at 17991 Fitch, Irvine,
California, which houses the manufacturing, research and development, and sales
facilities. The lease commenced on September 1, 1990 and was renewed in August
1997 for an additional year. The Company subleased 3,000 square feet to an
unrelated party in January 1996 for $3,000 per month which terminated April 30,
1997 upon early notification by the lessee. The Company believes that this
facility is adequate for its operations during the remaining term of the lease
and is currently negotiating a one year extension. Currently the plant is
utilizing 90% of the available floor space and is operating at approximately 70%
of capacity for one shift and will add an extra shift as the demand for product
increases.
LEGAL PROCEEDINGS
On December 8, 1994, a vendor commenced a lawsuit in the State
District Court of Harris County, Texas against the Company regarding unpaid
invoices. On June 15, 1995, the parties to the lawsuit executed a Stipulation of
Settlement Agreement, a Consent Judgment and a Stipulation of Dismissal to be
held in escrow. The Company agreed to pay $125,000 to the vendor under the
settlement agreement; $25,000 was paid upon execution of this stipulation and
the balance was included in accounts payable at December 31, 1995. The balance
was paid through the issuance of 116,145 shares of the Company's common stock in
1996. The vendor sold the shares for less than the amount owing under the
settlement agreement including applicable interest and legal fees. In February
1998, the Company reached an agreement with the vendor for the final payment
schedule on the additional balance due of approximately $20,000, which was paid
in full in July 1998.
In May 1997, a former Chairman and Chief Scientific Officer and
director of the Company filed a lawsuit in State District Court of Harris
County, Texas seeking an unspecified amount of damages and alleging oppressive
action toward a minority shareholder, breach of contract, wrongful termination
and unpaid debts and advances. The February 1998 mediation conference, which was
mandated by the Court, did not result in a settlement agreement and the case is
scheduled for trial in 1998. The financial statements properly account for notes
payable to the plaintiff in the amount of $242,450, related accrued interest and
accrued salary. The Company is vigorously contesting this lawsuit and is
pursuing counterclaims against the plaintiff; however, an adverse resolution of
this matter may have a material adverse impact on the Company's financial
position, results of operations and cash flows.
In August 1997, a former CFO, Secretary and Treasurer and director
of the Company filed a lawsuit in State District Court of Harris County, Texas
alleging breach of contract and is seeking specific performance and monetary
damages. The Company is vigorously contesting this lawsuit. The Company has
accrued $125,000, which is management's best estimate of the ultimate
liability, if any. The resolution of this matter may have a material adverse
impact on the Company's financial position, results of operations and cash
flows.
In September 1997, a former distributor filed a lawsuit in State
District Court of Harris County, Texas alleging the letter agreement terminating
their distribution agreement was breached by the Company due to the non-issuance
of options to purchase 437,500 shares of common stock at $0.40 per share. On May
1, 1998 the Company reached an agreement to settle this lawsuit with the
issuance of options to purchase 225,000 shares for an exercise price of $0.40
per share, exercisable for six months with registration requirements. The holder
of this option is included as a Selling Security Holder in this prospectus.
Compensation expense of approximately $56,250 was recorded in the second quarter
1998 financial statements to reflect the value of the options granted.
The Company is occasionally a party to litigation (other than that
specifically noted) 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 these matters. 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.
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MANAGEMENT
The following table sets forth information pertaining to executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven B. Rash 50 President and Chief Executive Officer
Chairman of the Board
Lawrence M. Hoffman 54 Director
Claudio Guazzoni 35 Director
Richard S. Serbin 53 Director
Marshall Kerr 47 Vice President Sales & Marketing
Colene Blankinship 48 Controller, Chief Accounting Officer,
Secretary and Treasurer
</TABLE>
STEVEN B. RASH has served as President, Chief Executive Officer and director
of the Company since July 15, 1995. Mr. Rash was appointed Chairman of the Board
on February 4, 1997. From 1994 until June 1995, Mr. Rash served as Vice
President of Operations of Blue Rhino Corporation, an industrial products
manufacturer. From 1992 to 1994, Mr. Rash served as President of the Technical
Services Division of the Maxum Health Corporation, a company engaged in
providing mobile MRI services. From 1989 to 1992, Mr. Rash served as the
President of Intex Medical Technologies, Inc., a medical equipment manufacturer.
Prior thereto, Mr. Rash held various positions with BOC Group, PLC, an
international manufacturer of industrial gases and healthcare products and
services. Mr. Rash holds an MBA from Southern Illinois University and served for
four years in the U.S. Army, where he reached the rank of Captain.
LAWRENCE M. HOFFMAN has served as a director of the Company since April 1991
and as Vice President of Corporate Relations from July 1990 to December 1991,
when he was appointed Vice President of Business Development, a position he held
until June 28, 1995. From March 28, 1995 until June 28, 1995, Mr. Hoffman served
as the interim Treasurer. Mr. Hoffman is also President and Chief Executive
Officer of Aberlyn Group, Inc., a financial consulting firm that he founded in
1989. Prior to founding Aberlyn Group, Inc., Mr. Hoffman was employed as
Director of Corporate Finance at Monmouth Investments, a New Jersey-based
securities brokerage firm. From January 1986 to May 1988, Mr. Hoffman served as
Chairman of Nicholas, Lawrence & Co., a securities brokerage firm specializing
in institutional trading and biotechnology companies. Mr. Hoffman holds a B.S.
in Economics from New York University.
CLAUDIO M. GUAZZONI has served as a director of the Company since March 7,
1996. Mr. Guazzoni is the President and Chief Executive Officer of Zanett
Capital, Inc. ("Zanett") and has served in that capacity since 1993. He is
engaged in the business of providing financial and strategic consulting services
to business entities. Prior to his service at Zanett, Mr. Guazzoni was a Money
Manager with Delphi Capital Management, Inc. in 1992 and an associate with
Salomon Brothers, Inc. from 1985 to 1991.
RICHARD S. SERBIN has served as a director of the Company since July 17,
1996. Since 1991, Mr. Serbin has served as Executive Vice President and a
director of Bio-Imaging Technologies, Inc. which provides specialized consulting
services to pharmaceutical and biotechnology companies. From January 1991 to
March 1992, Mr. Serbin was Chairman of the Board of Radius Scientific, Inc., a
medical communications company which he founded. From June 1989 to January 1990,
he served as President of Bradley Pharmaceuticals, Inc. and from September 1988
to May 1989, held the position of Senior Vice President of Lifetime Corporation,
a holding company whose major asset, Kimberly Quality Care, is a provider of
home healthcare and temporary nursing services. Mr. Serbin is a registered
patent attorney, registered pharmacist, member of the Board of Trustees of the
Mountainside Hospital, and a member of the Board of Health of Roseland, New
Jersey. Mr. Serbin holds a B.S. from Rutgers College of Pharmacy, a J.D. from
Seton Hall Law School and a LL.M in Trade Regulation from New York University
School of Law.
MARSHALL KERR joined the Company October 10, 1997 as a sales consultant and
was appointed Vice President, Sales and Marketing December 15, 1997. From 1996
to 1997 Mr. Kerr served as Vice President, Sales and Marketing at US Medical
Instruments, Inc., a manufacturer of disposable medical products where he
established and directed both the domestic and international sales forces. He
served as Vice President Sales with ICU Medical, Inc. from 1993 to 1996 where he
directed their national sales efforts and reconstructed its distribution
network. Prior to ICU Medical Inc. Mr. Kerr was Executive Vice President of
Professional Hospital Supply from 1985 to 1993.
COLENE BLANKINSHIP, CPA joined the Company February 7, 1995 as Controller
and became the Chief Accounting Officer November 1995. She was elected Secretary
and Treasurer on February 4, 1997. From 1992 through 1994, Ms. Blankinship
served as Controller of Excel Resources, Inc., a gas marketing company in
Houston, Texas. She has 13 years experience in public accounting which includes
9 years with the local firm of Tribolet, Fuller & Associates, P.C., Humble,
Texas. Ms. Blankinship attended Texas Tech University and North Harris County
College and is a CPA. Ms. Blankinship is a national director of the American
Society of Women Accountants, a position she has held since July 1996.
35
<PAGE> 38
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to executive officers whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1997, for services during the fiscal years ended
December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------- ----------------------- ----------------------
(e)
OTHER (f) (g) (i)
ANNUAL RESTRICTED SHARES/ (h) ALL
(a) (c) (d) COMPEN- STOCK OPTIONS/ LTP OTHER
NAME AND (b) SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPEN-
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) SATION
- ------------------------ ----------- ----------- ---------- --------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven B. Rash.......... 1997 165,000 -- 9,600 -- 927,000(4)(5) -- --
President, Chief 1996 141,875 -- 7,496 -- -- -- --
Executive Officer 1995 61,875(2) -- 19,941(3) -- 600,000(4) -- --
</TABLE>
- ----------
(1) Cost of life insurance and auto allowance.
(2) Annual compensation of $135,000 prorated from July 16, 1995, when Mr. Rash
began his service with the Company.
(3) Includes relocation expenses paid in the amount of $19,745.
(4) Represents options issued in connection with a three-year employment
agreement, vesting on various dates during the term of the agreement. See
"Employment Agreements."
(5) Includes options to purchase 27,000 shares of common stock received as
director.
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<PAGE> 39
The following table sets forth certain information with respect to stock
options granted during the fiscal year ended December 31, 1997 to each of the
named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
PERCENT ASSUMED
NUMBER OF OF ANNUAL RATES
SECURITIES TOTAL OF STOCK PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION
OPTIONS/SARS GRANTED TO OF BASE FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------
NAME (#)(4) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------- ------------ ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Rash 900,000 (1) 73.0% .6875 5/07 387,000 990,000
15,000 (2) 1.2% 1.00 1/02 3,000 7,650
2,000 (3) .2% 1.3125 2/02 720 1,600
2,000 (3) .2% 1.21875 3/02 680 1,480
2,000 (3) .2% .96875 4/02 540 1,180
2,000 (3) .2% .46875 7/02 60 580
2,000 (3) .2% .53 9/02 300 640
2,000 (3) .2% .47 9/02 260 580
</TABLE>
- ----------
(1) 300,000 exercisable December 31, 1997; 300,000 exercisable December 31, 1998
and remainder exercisable December 31, 1999.
(2) Exercisable November 22, 1997; granted 11/22/96, agreement dated 1/1/97
(3) Exercisable immediately
(4) Options do not contain re-pricing provisions except in the case of a
merger, consolidation, reorganization or liquidation of the Company.
The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1997 by each
of the named executive officers and the number and value of unexercised options
held by such named executive officers as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- -------- --------------------- ---------------
<S> <C> <C> <C> <C>
Steven B. Rash 0 0 527,000/1,000,000 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
Steven B. Rash entered into a three-year employment agreement (the
"Agreement") with the Company dated July 15, 1995. Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases
plus bonuses of up to 50% and an option to purchase 600,000 shares of common
stock. In 1997 Mr. Rash's agreement was extended to December 31, 1999. The base
salary was increased to $165,000 per year, with a cash bonus of $30,000 to be
paid should the Company's revenues exceed $2 million in 1997. Options to
purchase an additional 900,000 shares of common stock at $.6875 per share were
granted.
Effective December 15, 1997, Marshall Kerr entered into a two-year
employment agreement with the Company. The employment agreement provides for a
salary of $80,000 per year through January 31, 1998 and $108,000 annually
thereafter with annual increases as determined by the Board of Directors and
annual bonuses of up to 50% of the base
37
<PAGE> 40
salary. In addition, the Company granted options to purchase 300,000 shares of
common stock; 100,000 shares at $0.50 per share and 200,000 shares at $.42 per
share.
COMPENSATION COMMITTEES INTERLOCKS AND INSIDER PARTICIPATION
Until June 1995, the Company did not have a Compensation Committee.
Compensation matters were determined by the Board of Directors. In June 1995,
the Board created and appointed a Compensation Committee. Effective November 26,
1996 the Board of Directors elected Messrs. Hoffman and Guazzoni to serve on the
Compensation Committee. Mr. Hoffman is a consultant of the Company and was Vice
President of Corporate Relations from July 1990 to December 1991 and from
December 1991 to June 28, 1995 served as Vice President of Business Development.
In addition, Mr. Hoffman served as the Company's interim Treasurer from March
28, 1995 until June 28, 1995.
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibilities
to stockholders and other matters relating to the corporate accounting and
reporting practices of the Company and the quality and integrity of the
financial reports of the Company. From January 1, 1996 to November 26, 1996
Mr. Hoffman served as the sole member of the Audit Committee. Effective
November 26, 1996 Messrs. Hoffman and Serbin were elected to serve on the
Audit Committee.
COMPENSATION OF DIRECTORS
It has been the Company's policy to compensate the directors only for their
reasonable travel expenses in relation to in-person board meetings and
stockholder meetings. Effective November 22, 1996 the directors each received an
option to purchase 12,000 shares of common stock at an exercise price of $1.00
per share, to be vested November 22, 1997. For each board meeting attended,
either telephonically or in person, the directors received options to purchase
2,000 shares of common stock. The Chairman of the Board received an option to
purchase 15,000 shares of common stock vested upon issuance. The options are
exercisable for five years at an exercise price ranging from $0.46875 to $1.3125
which equaled fair market value at the time of issuance. At December 31, 1996 no
one had been elected Chairman of the Board. New officers were elected February
4, 1997 at which time Mr. Rash became Chairman.
SECURITY OWNERSHIP AND CERTAIN RELATIONSHIPS
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of June 16, 1998,
regarding the beneficial ownership of the common stock by (i) each person or
group known to the Company to beneficially own more than 5% of the outstanding
common stock, (ii) each director of the Company, (iii) certain executive
officers, individually, and (iv) all directors and officers as a group. As of
July 30, 1998, the Company had issued and outstanding 28,130,106 shares of
common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2)(3) PERCENT OF CLASS
- ------------------------------------ -------------------------- ----------------
<S> <C> <C>
Steven B. Rash...................... 528,900(4) 1.9%
Lawrence M. Hoffman................. 1,275,674(5) 4.4%
701 Mohican Court
Morganville NJ
Claudio Guazzoni.................... 975,306(6) 3.4%
10 E. 76th Street
New York, NY
Richard Serbin...................... 22,000(7) Less than 1%
61 Monroe Ave
Roseland, NJ 07068
All Directors and Officers as a
Group (6 persons)................... 2,817,880(8) 9.2%
</TABLE>
38
<PAGE> 41
- ----------
(1) Unless otherwise specified, the address of each beneficial owner is American
BioMed, Inc., 10077 Grogan's Mill Road, Suite 100, The Woodlands, Texas
77380.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options or
warrants or other convertible securities.
(4) Includes 527,000 shares which may be acquired within 60 days upon the
exercise of vested options. Excludes options to purchase 1,000,000 shares
not vested.
(5) Includes 425,000 shares issuable upon the exercise of warrants held by
Aberlyn Capital Management ("Aberlyn Partnership"). Mr. Hoffman owns a
limited partnership interest in Aberlyn Partnership, and is an officer,
director and stockholder of Aberlyn Capital Management, Inc., which is a
general partner of Aberlyn Partnership. Also, includes 547,000 shares which
may be acquired within 60 days upon the exercise of options by Mr. Hoffman.
(6) Includes 953,306 shares issuable upon the exercise of warrants held by
Zanett Capital or its assigns. Mr. Guazzoni is President and Chief Executive
Officer of Zanett Capital, Inc.
(7) These shares may be acquired upon the exercise of options.
(8) Includes 2,498,306 shares which may be acquired within 60 days upon the
exercise of options or warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the period from inception, September 4, 1984, to December 31, 1997, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,089,869. Of this amount, $7,797, $37,500, and $50,000 related to the years
ended December 31, 1997, 1996 and 1995, respectively.
On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPA patent to Guerbet, a stockholder of the Company, for $500,000 cash.
Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases,
plus bonuses of up to fifty percent, and options to purchase 600,000 shares of
common stock. In 1997 Mr. Rash's agreement was extended to December 31, 1999.
The base salary was increased to $165,000 per year, with a cash bonus of $30,000
to be paid should the Company's revenues exceed $2 million in 1997. Options to
purchase an additional 900,000 shares of common stock at $.6875 per share were
granted.
Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab Patents were exclusively licensed back to the Company for three years
for a monthly license fee of $16,355, after which Aberlyn was required to
reassign the Cathlab Patents to the Company in exchange for $50,000. Under its
terms, if the Company declined to purchase the Cathlab Patents, the Patent and
License Agreement would automatically be extended for an additional nine months
for a monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
39
<PAGE> 42
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was exclusively
leased back to the Company for three years for a monthly fee of $6,706, after
which Aberlyn was required to return the equipment to the Company in exchange
for $20,500. Under the terms, if the Company opted not to purchase the
equipment, the Equipment Lease would automatically be extended for an additional
three months for a monthly payment of $7,011, after which the equipment would
automatically revert back to the Company.
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual payments
of $97,445 and the payment terms of the Equipment Lease were similarly revised
to semiannual payments of $39,100 and $20,281, respectively. In consideration to
Aberlyn for making these modifications, the Company issued warrants to Aberlyn
to purchase 150,000 shares of the Company's common stock at an exercise price of
$1.50 per share exercisable over a five-year period. On May 28, 1996, Aberlyn
and the Company reached an agreement to restructure the Leases which resulted in
a revised schedule of lease payments over a twenty-four month period, with the
initial payment commencing on June 1, 1996. The payments were based on an
outstanding principal amount of approximately $500,000 and total accrued
interest of approximately $148,000. In addition, 115,000 shares of common stock
were issued in payment of consulting fees, investment banking service fees and
accumulated miscellaneous expenses totaling $115,728.
Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998.
On February 18, 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 offshore private placement of equity.
Claudio M. Guazzoni, a member of the Company's Board of Directors, is Zanett's
President and Chief Executive Officer. As a retainer for availability of
services by Zanett, the Company agreed to grant Zanett warrants to purchase
shares of common stock at a rate of 1 for every 10 shares of common stock or
warrants issued in connection with equity and bridge financings raised by
Zanett. Each of the warrants will be exercisable at an exercise price of $0.50
per share for five years from the date it is granted, which shall be the date of
the closing of the particular equity or bridge financing in question. During
1996 through the efforts of Zanett, the Company sold 1,250,001 shares of common
stock, 1,390 shares of Series A Preferred and 1,500 shares of Series B Preferred
pursuant to Regulation S of the Securities Act of 1933, as amended. In
connection with these placements, the Company issued warrants to purchase
811,310 shares of common stock to unrelated third-parties upon assignment of
such warrants by Zanett. In addition a 10% placement fee of approximately
$319,000 has been paid to Zanett or their designated representative in
connection with the sale of the Series A and Series B Preferred.
In September 1996, Zanett was granted a warrant to purchase 25,000 shares of
common stock at $.9375 in connection with the placement of bridge financing. The
warrants are exercisable for five years.
The Company does not have a policy against employing relatives. During the
years ended December 31, 1997, 1996 and 1995, the Company paid salaries and
wages to relatives of officers of the Company amounting to $7,797, $22,692, and
$51,600, respectively. The terms of all the related party transactions are no
less favorable to the Company than could be obtained from non-affiliated
parties.
40
<PAGE> 43
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share. The holders of outstanding shares of Common Stock are
entitled to share ratably on a share-for-share basis with respect to any
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. (See "Risk Factors - No Cash Dividends." ) Each
holder or Common Stock is entitled to one vote for each share held of record.
The Common Stock is not entitled to conversion or preemptive rights and is not
subject to redemption. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of preferred stock with
such designation, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company.
In February 1996 the Company sold 1,390 shares of its Series A convertible
preferred stock of which 890 are outstanding at July 30, 1998, 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 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 or (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 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. In the event of the dissolution
or winding up of the Company, the holders of Series A Preferred Stock shall have
a liquidation preference equal to the stated value of $1,000 per share. The
Series A Preferred Stock is subject to mandatory redemption at the option of the
holders of at least 50% of then outstanding shares of Series A Preferred Stock
if the Company fails to issue shares of Common Stock, fails to transfer shares
of Common Stock or fails to remove any restrictive legend on any certificate or
any shares of Common Stock upon the exercise of the conversion rights by the
holders of the Series A Preferred Stock.
In November 1996 the Company issued units consisting of (i) 1,500 of its
1996 Series B convertible preferred stock, of which none are outstanding, 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 Preferred was fully converted into a total of
4,191,853 shares of Common Stock. 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. 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 and was included in a 1997
Registration Statement.
In March 1997 the Company issued 125 shares of its Series C convertible
preferred stock of which 22 are outstanding at July 30, 1998, par value $.001
per share (the "Series C Preferred") to Nelson Partners for a total purchase
price of $2,500,000 or $20,000 per share. In the event of the dissolution or
winding up of the Company, the holders of Series C Preferred Stock shall have a
liquidation preference equal to the sum of $20,000 per share plus 7% per annum
of such Stated Value. After a major transaction (as defined, including merger,
reorganization, restructuring, sale of assets, change in control) or a
triggering event (as defined, including the failure of the registration
statement to be effective or to cover the resale of all the shares of Common
Stock, Steven Rash ceases to be Chief Executive Officer) the holders of Series C
Preferred Stock shall have the right, at the option of at least two-thirds of
the Series C Preferred Stock then outstanding, to require the Company to redeem
all of the Series C Preferred Shares then outstanding. The Series C Preferred,
which bears no dividends and confers no voting rights, is of equal rank with
shares of the Series A Preferred and the Series B Preferred and senior to the
Company's other equity securities (except with the consent of the majority of
the holders of Series C Preferred). The Series
41
<PAGE> 44
C Preferred is convertible at any time on or after 120 days after the initial
date of issuance at the option of the holder into a number of shares of common
stock (the "Series C Conversion Shares") based on a formula as defined in the
purchase agreement. The Series C conversion price is the lesser of (i) $1.75 or
(ii) the average of the closing bid price for the common stock for the five
consecutive trading days immediately preceding the date the election to convert
is made (the "Series C Conversion Price"). The number of Series C Conversion
Shares is subject to adjustment from time to time upon the occurrence of stock
splits, reverse stock splits, and similar events. On March 1, 2000 any
outstanding shares of the Series C Preferred will be automatically converted
based on the Series C Conversion Price then in effect. Registration rights were
conferred upon the Series C Preferred requiring the Company to file a
Registration Statement covering the resale of the Series C Conversion Shares on
or before the ninetieth day following the issuance date.
The Series D Preferred Stock and Series E Preferred Stock, which bear no
dividends and confer no voting rights, rank pari passu with each other, rank
junior to the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock and rank senior to the Company's other securities (except with
the consent of the majority of the holders of Series D Preferred Stock or the
consent of the majority of the holders of Series E Preferred Stock,
respectively). In the event of the dissolution or winding up of the Company, the
holders of Series D Preferred Stock and Series E Preferred Stock shall have
liquidation preferences of $10 per share plus any accumulated but unpaid
dividends, and no more, before any payment or distribution of assets of the
Corporation is made to or set apart for the holders of the Common Stock. The
Series D Preferred Stock shall not be redeemable at any time prior to September
30, 1999. After that date, the Company may, at its option and at any time prior
to notice of the Series D Preferred Stock at the time issued and outstanding for
an amount in cash equal to $11.75 per share plus any accumulated and unpaid
dividends. If less than all the Series D Preferred Stock are to be redeemed,
then such redemption shall be pro rata based on the number of Series D Preferred
Stock owned of record by each Preferred Shareholder. The Series E Preferred
Stock shall not be redeemable at any time prior to September 30, 2001. After
that date, the Company may, at its option and at any time prior to notice of
conversion of the Series E Preferred Stock by the holder thereof, redeem all or
any part of the Series E Preferred Stock at the time issued and outstanding for
an amount in cash equal to $11.75 per share plus any accumulated and unpaid
dividends. If less than all the Series E Preferred Stock are to be redeemed,
then such redemption shall be pro rata based on the number of shares of Series E
Preferred Stock owned of record by each Preferred Shareholder.
The Company authorized 60,000 shares of Series D Preferred Convertible
Stock (the "Series D") and 500,000 shares of Series E Preferred Convertible
Stock (the "Series E") on April 29, 1998. Both Series D and Series E have a
stated value of $10 per share and 8% cumulative dividends payable in either cash
or stock at the option of the Company. At July 30, 1998, 60,000 shares of Series
D and 7,500 shares of Series E are issued and outstanding. Each share of the
Series D is convertible at any time after the earlier of (i) the date on which
the registration statement covering the resale of the common stock received upon
conversion is declared effective or (ii) July 28, 1998 based upon a conversion
price that is equal to the lesser of (a) 110% of the closing bid price five day
average preceding the date of purchase of the Series D by the holder; or (b) 80%
of the closing bid price five day average preceding the date such conversion is
made.
Each share of the Series E are convertible any time after issuance at
82.5% of the five day average of the closing bid prices for the five trading
days preceding the date such conversion is made. The conversion ratio for Series
D and Series E is subject to adjustment from time to time upon the occurrence of
stock splits, reverse stock splits, and similar events. The
42
<PAGE> 45
Series E may be issued and sold to the investor at the request of the Company
from time to time on or before April 29, 2000 assuming, among other conditions,
that the average daily trading volume for the Common Stock for the previous 60
trading days is at least 150,000 shares per day and the average daily trading
price for the prior 10 trading days is at least $0.45 per share. In connection
with the sale of the Series D and Series E, the Company also issued warrants to
the investor and consultants exercisable for a total of 200,000 shares of Common
Stock with an exercise price of $0.85 per share. The investor warrant will
expire on April 19, 2001, three years from the date of the issuance of the
warrants. The consultant warrants will expire on April 19, 2003, five years from
the date of the issuance of the warrants. The number of shares and exercise
price are subject to adjustments in the event of reclassification,
reorganization or other change of outstanding shares of the Common Stock;
consolidation or merger of the Company with or into another Company; and if the
Company shall effect a stock dividend, a stock split, a stock combination, or a
reverse stock split of the Common Stock. In addition, registration rights were
conferred upon the Series D Preferred Stock, the Series E Preferred Stock and
the accompanying warrants for Common Stock requiring the Company to file a
Registration Statement covering the resale of the Series D Preferred, the Series
E Preferred Stock and the accompanying warrants on or before the date that is 10
business days from the closing date.
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
with three years, did own) 15% or more of the corporation's voting stock.
43
<PAGE> 46
SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security Holder and
the number of shares of Common Stock being offered by each Selling Security
Holder. The shares of Common Stock being offered hereby are being registered to
permit public secondary trading, and the Selling Security Holders may offer all
or a portion of the shares for resale from time to time. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Amount Amount Percentage
Beneficially Beneficially Beneficially
Owned Owned Following Owned
Prior to Amount Offering Following
Name Offering Offered Offering(1)
---- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Augustine Fund, LP 2,124,000 2,124,000 (2) 0 ---
Bridgewater Capital Corporation 60,000 60,000 (3) 0 ---
Bruce Brust 225,000 225,000 (4) 0 ---
Richard Cutler 50,000 50,000 (3) 0 ---
Farnsworth & vonBerg 15,000 15,000 (9) 0 ---
Gary Frazier 34,482 34,482 (10) 0 ---
Ganesh Asset Management, LTD 80,000 80,000 (3) 0 ---
Brenda Greer 110,000 110,000 (5)(10) 0 ---
Glenn W. Greer 17,647 17,647 (10) 0 ---
Hamilton Fund, LLC 10,000 10,000 (3) 0 ---
Rodney Hand 50,000 50,000 (10) 0 ---
Jeffrey L. Henken, DDS 95,936 95,936 (6)(10) 0 ---
Lawrence M. Hoffman 1,275,674 91,900 (9) 1,183,774 4.2
Marshall Kerr 300,000 300,000 (7) 0 ---
Lyons Community Property Trust 275,000 200,000 (9) 75,000 *
Srikant Koneru 2,941 2,941 (10) 0 ---
Richard Manley 370,270 270,270 (10) 100,000 *
James L. Marks 73,529 73,529 (10) 0 ---
Steven B. Rash 1,528,900 600,000 (8) 928,900 3.3
David Sherer 50,000 50,000 (10) 0 ---
Monroe Smith 23,256 23,256 (10) 0 ---
Sunset Corporation 460,783 460,783 (10) 0 ---
Texas Heart Institute 6,000 6,000 (9) 0 ---
Woodlands Corporation 22,000 22,000 (9) 0 ---
--------- --------- ---------
TOTAL 7,260,418 4,972,744 2,287,674
========= ========= =========
</TABLE>
44
<PAGE> 47
(1) Assumes no sales are effected by the Selling Security Holder during the
offering period other than pursuant to this Registration Statement.
(2) These shares may be acquired upon the conversion of shares of the Company's
1998 Series D and Series E Convertible Preferred Stock ("Series D and E
Preferred") which conversion is governed by the terms of the Certificate of
Designation, Preferences and Rights of the Series D and E Preferred. The
fund consists of 13 beneficial owners and no one beneficial owner has more
than 25% of the fund.
(3) These shares may be acquired upon the exercise of a warrant to purchase
Common Stock at an exercise price per share of $0.85 which is 125% of
closing bid price on the date the transaction with The Augustine Fund L.P.
closed. (Series D Preferred transaction.)
(4) These shares may be acquired upon the exercise of an option to purchase
225,000 shares at $0.40 per share and is in settlement of an outstanding
obligation.
(5) These shares may be acquired upon the exercise of warrants to purchase
60,000 shares of Common Stock at an exercise price of $0.34 per share and
50,000 shares of Common Stock at an exercise price of $0.69 per share.
(6) Includes shares may be acquired upon the exercise of warrants to purchase
2,000 shares at $.34 per share and 5,000 shares at $.42 per share.
(7) These shares may be acquired upon the exercise of options to purchase
100,000 shares at $0.50 and 200,000 shares at $0.42 and are a part of his
employment agreement.
(8) These shares may be acquired upon the exercise of options to purchase
Common Stock at an exercise price of $0.50 and are part of his employment
agreement.
(9) These shares were acquired in payment of outstanding obligations.
(10) Acquired in private placement to accredited investors.
* Represents less than one percent.
Except as set forth below, no Selling Security Holder has held any position
or office, or has had any material relationship with, the Company or any of its
affiliates within the past three years.
Steven B. Rash has served as the Company's President and Chief Executive
Officer, as a director since July 15, 1995 and as Chairman of the Board since
January 1, 1997. Lawrence M. Hoffman, a director of the Company, served as its
Vice President of Business Development from 1991 to June 28, 1995 and interim
Treasurer from March 28, 1995 to June 28, 1995. Marshall Kerr, Vice President of
Sales and Marketing, joined the Company in October 1997 and was appointed Vice
President in December 1997. Richard Manley is president of one of the Company's
domestic distributors. Farnsworth & vonBerg represented the Company in
litigation matters in 1994 and 1995. A portion of the remaining Selling Security
Holders are past and/or present vendors of the Company who have accepted shares
of Common Stock as payment for amounts owed to them by the Company.
45
<PAGE> 48
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Security Holders may sell
Common Stock from time to time in transactions on the OTC Bulletin Board(R), in
privately-negotiated transactions or by a combination of such methods of sale,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Security Holders may effect such transactions by selling the
shares offered hereby to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Security Holders or the purchasers of the Common Stock for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions).
Other methods by which the Shares may be sold include, without limitation:
(i) transactions which involve cross or block trades or any other transaction
permitted by the NASDAQ or other trading markets, (ii) "at the market" to or
through market makers or into an existing market for the Common Stock, (iii) in
other ways not involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents, (iv) through
transactions in options or swaps or other derivatives (whether exchange-listed
or otherwise), (v) through short sales, or (vi) any combination of any such
methods of sale. The Selling Stockholders may also enter an into option or other
transactions with broker-dealers which require the delivery to such broker
dealers of the Common Stock offered hereby, which Common Stock such
broker-dealers may resell pursuant to this Prospectus. The Selling Shareholders
may also make sales pursuant to Rule 144 under the Securities Act of 1933, as
amended, if such exemption from registration is otherwise available.
The Selling Security Holders and any broker-dealers who act in connection
with the sale of Common Stock hereunder may be deemed to be "underwriters" as
that term is defined in the Securities Act, and any commissions received by them
and profit on any resale of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
Pursuant to certain Registration Rights Agreements with Series D and
Series E Preferred Stockholders, the Company has agreed to indemnify these
Selling Stockholders and each underwriter against certain liabilities, including
certain liabilities under the Securities Act as amended, or will contribute to
payments such Selling Stockholders or underwriters may be required to make in
respect of certain losses, claims, damages or liabilities. The Company has also
agreed pursuant to the Registration Rights Agreement to pay the expenses
incurred in connection with filing the registration statement of which the
Prospectus is a part, other than selling commissions.
With respect to the shares of Common Stock offered hereby which may be
acquired upon the exercise of warrants (the "Warrant Shares"), each of the
warrant holders, representing an aggregate of 317,000 shares of Common Stock,
and the holder of options exercisable for 1,125,000 shares of Common Stock (the
"Option Shares"), has agreed that the Company may voluntarily suspend the
effectiveness of this registration statement for a limited time, not to exceed
120 days, if the Company has been advised by counsel or a managing underwriter
involved in an offering by the Company that the offering of the Warrant Shares
and Offering Shares pursuant to this registration statement would adversely
affect, or would be improper in view of, a proposed financing, reorganization,
recapitalization, merger, consolidation or similar transaction involving the
Company.
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereby. However, if all of the warrants and
options representing shares of Common Stock in this offering are exercised, the
Company will receive aggregate proceeds therefrom of $751,680.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Porter & Hedges, L.L.P., of Houston, Texas.
46
<PAGE> 49
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997, are included herein in reliance on the report, which includes an
explanatory paragraph that refers to substantial doubt regarding the Company's
ability to continue as a going concern, of PricewaterhouseCoopers L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-3 (including any amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto. Statements made in this Prospectus
regarding the contents of any contract or document filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is hereby made to the copy of such contract or document so filed. Each
such statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material may also be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a World Wide Web site at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission.
47
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants .................................................. F-2
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 and 1996 ....... F-3
Consolidated Statements of Operations for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995 and for
the period from inception, September 4, 1984, to March 31, 1998..................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the
period from inception to December 31, 1993, for the years ended December 31,
1997, 1996, 1995 and 1994 and for the three months ended March 31, 1998 ........... F-5
Consolidated Statements of Cash Flows for the three months ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996, and 1995 and for
the period from inception, September 4, 1984 to March 31, 1998..................... F-9
Notes to Consolidated Financial Statements ........................................ F-11
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants ................................................. F-26
Schedule II -- Valuation and Qualifying Accounts .................................. F-27
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission, which are not
presented, are not required under the related instructions or are inapplicable,
and therefore have been omitted.
F-1
<PAGE> 51
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
American BioMed, Inc.:
We have audited the accompanying consolidated balance sheets of American
BioMed, Inc. and Subsidiaries (the "Company") (a development stage enterprise)
as of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years ended December 31, 1997, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
BioMed, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years ended December 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 18 to the consolidated financial statements, the Company has
operated as a development stage enterprise since its inception by devoting
substantially all of its efforts to financial planning, raising capital,
research and development and developing markets for its products. Consequently,
as shown in the accompanying consolidated financial statements through December
31, 1997, the Company had a cumulative loss of $27,149,225 since its inception
and had a working capital deficit of ($627,151) at December 31, 1997. The above
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Accordingly, the Company's continued existence is dependent upon
its ability to obtain additional working capital, to develop and market its
products and, ultimately, upon its ability to attain profitable operations. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 31, 1998
F-2
<PAGE> 52
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1998 ----------------------------
(UNAUDITED) 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ....................................................... $ 79,608 $ 82,789 $ 1,183,613
Accounts receivable, trade, net of Allowance for doubtful accounts of
$48,900 for June 30, 1998, $57,167 and $57,500 for 1997 and 1996,
respectively .................................................................. 55,721 158,724 168,359
Accounts receivable, other ...................................................... 11,818 13,716 19,848
Inventories ..................................................................... 671,720 648,957 462,097
Other current assets ............................................................ 129,746 144,713 277,195
------------ ------------ ------------
Total current assets ..................................................... 948,613 1,048,899 2,111,112
Property and equipment, net ....................................................... 165,908 167,991 81,315
Patents, net of accumulated amortization of $942,633, $920,330 and $870,014 in
1998, 1997 and 1996, respectively ................................................. 150,388 158,695 164,655
Goodwill, net of accumulated amortization of $759,017, $697,475 and $574,391 in
1998, 1997 and 1996, respectively ................................................. 471,819 533,361 656,444
Other assets ...................................................................... 35,439 36,110 55,625
------------ ------------ ------------
Total assets ............................................................. $ 1,772,167 $ 1,945,056 $ 3,069,151
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders and others ........................................ $ 273,774 $ 300,976 $ 1,278,485
Current maturities of long-term debt ............................................ 43,444 41,694 38,404
Current maturities of capital lease obligations ................................. 414,424 416,901 266,078
Accounts payable ................................................................ 334,086 254,234 301,184
Accrued liabilities ............................................................. 684,523 662,245 483,167
------------ ------------ ------------
Total current liabilities ................................................. 1,750,251 1,676,050 2,367,318
Long-term debt, net of current maturities ......................................... 51,323 71,855 110,472
Capital lease obligations, net of current maturities .............................. 3,645 -- 302,766
Deferred revenue .................................................................. 70,000 100,000 160,000
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000,000 shares authorized,
Series A: Convertible preferred stock, 1,390 shares authorized, 990 shares
issued and outstanding at June 30, 1998 and 1,390 shares issued and
outstanding at 1997 and 1996, $1,000 per share or $990,000 and $1,390,000
aggregate liquidation preference, respectively .................................. 1 1 1
Series B: Convertible preferred stock, 2,500 shares authorized, 0, 500 and
1,500 shares issued and outstanding June 30, 1998, December 31, 1997 and
1996, $1,000 per share or $0, $500,000 and $1,500,000 aggregate liquidation
preference, respectively, increasing at 10% per year from the date of issuance .. -- 1 2
Series C: Convertible preferred stock, 125 shares authorized, 29 and 112 shares
issued and outstanding at June 30, 1998 and December 31, 1997, $20,000 per
share or $580,000 and $2,240,000 aggregate liquidation preference,
respectively, increasing at 7% per year from the date of issuance .............. -- -- --
Series D: Convertible preferred stock, 60,000 shares authorized, 60,000 shares
issued and outstanding at June 30, 1998, $10 per share or $600,000 aggregate
liquidation preference, increasing at 8% per year from the date of issuance ..... 60 -- --
Common stock, $.001 par value, 50,000,000 shares authorized, 27,260,330,
18,457,426 and 13,544,019 shares issued at June 30, 1998 and December 31,
1997 and 1996, respectively, of which no shares are held in treasury at
June 30, 1998 and 68,323 shares are held at December 31, 1997 and 1996 .......... 27,260 18,457 13,544
Additional paid-in capital ........................................................ 28,347,588 27,479,517 24,741,670
Deficit accumulated during the Development stage .................................. (28,477,961) (27,149,225) (24,375,022)
Less treasury stock at cost, 68,323 shares ........................................ (251,600) (251,600)
------------ ------------
Total stockholders' equity (deficit) ..................................... (103,052) 97,151 128,595
------------ ------------ ------------
Total liabilities and stockholders' equity (deficit) ..................... $ 1,772,167 $ 1,945,056 $ 3,069,151
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of the consolidated financial statements.
F-3
<PAGE> 53
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
SEPTEMBER 4,
SIX MONTHS ENDED 1984
ENDED ENDED ENDED JUNE 30, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) JUNE 30, 1998
1997 1996 1995 1998 1997 (UNAUDITED)
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net ...................... $ 545,473 $ 579,533 $ 660,770 $ 256,400 $ 253,329 $ 4,116,521
Cost of sales ...................... (482,360) (420,838) (649,355) (226,975) (160,018) (3,942,242)
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) ................ 63,113 158,695 11,415 29,425 93,311 174,279
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative ................ (2,075,695) (1,718,595) (2,169,591) (1,068,261) (894,957) (18,600,891)
Research and development ......... (648,049) (640,792) (537,962) (223,217) (374,962) (8,121,259)
Distributor settlement ........... -- -- -- -- -- (1,080,915)
------------ ------------ ------------ ------------ ------------ ------------
(2,723,744) (2,359,387) (2,707,553) (1,291,478) (1,269,919) (27,803,065)
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations .......... (2,660,631) (2,200,692) (2,696,138) (1,262,053) (1,176,608) (27,628,786)
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income .................. 44,200 4,252 7,239 1,941 20,372 155,875
Interest expense ................. (183,538) (313,914) (276,688) (65,895) (76,911) (2,944,872)
Other income (expense) ........... 25,766 (114,762) 1,561,203 (2,729) 29,943 1,939,822
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense), net ... (113,572) (424,424) 1,291,754 (66,683) (26,596) (849,175)
------------ ------------ ------------ ------------ ------------ ------------
Net loss ......................... $ (2,774,203) $ (2,625,116) $ (1,404,384) $ 1,328,736) $ (1,203,204) $(28,477,961)
Less preferred stock dividends ... -- (1,183,413) -- (103,145) -- (1,286,558)
------------ ------------ ------------ ------------ ------------ ------------
Net loss attributable to common
shareholders .................. $ (2,774,203) $ (3,808,529) $ (1,404,384) $ (1,431,881) $ (1,203,204) $(29,764,519)
============ ============ ============ ============ ============ ============
Net loss per common share .......... $ (.18) $ (0.34) $ (0.15) $ (0.06) $ (.08)
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding ...... 15,528,231 11,310,592 9,362,198 22,541,297 14,278,688
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 54
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
---------------------- ----------------------------- PAID-IN DEVELOPMENT
SHARES PAR SHARES PAR CAPITAL STAGE
----------- ---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of $1 par
value common stock
on September 4, 1984........ 1,000 $ 1,000
Redemption of $1 par
value common stock.......... (1,000) (1,000)
Issuance of $.001 par
value common stock.......... 1,000,000 1,000
Issuance of $.001 par
value common stock
at fair market value of
services rendered........... 100,000 100 $ 19,900
Issuance of Series A
preferred stock............. 156,250 $ 156 499,844
Issuance of common
stock pursuant to a
three-for-one stock
split subsequent to
December 31, 1990,
retroactively applied....... 2,200,000 2,200 (2,200)
Redemption of common
stock pursuant to a
one-for 2.325 reverse
stock split subsequent to
December 31, 1990,
retroactively applied....... (1,880,645) (1,881) 1,881
Issuance of $.001 par
value common stock
in connection with
Bridge Notes................ 182,000 182 45,318
Issuance of stock
purchase warrants........... 100,000
Sale of common stock,
net of offering costs....... 800,000 800 3,059,472
Conversion of Series A
preferred stock............. (156,250) (156) 223,214 223 (67)
Conversion of
$255,000 principal
amount of debenture......... 63,750 64 254,936
Exercise of underwriter's
over allotment option,
net of offering costs....... 111,700 112 483,367
Issuance of $.001 par
value common stock
in connection with
acquisition of Freedom
Machine, Inc. .............. 60,000 60 206,940
Conversion of
$385,000 principal
amount of debentures........ 96,250 96 384,904
Issuance of $.001 par
value common stock
in connection with
acquisition of Cathlab
Corporation................. 450,000 450 2,024,550
Issuance of $.001 par
value common stock
in connection with
acquisition of VMS,
Inc......................... 27,777 28 124,971
<CAPTION>
TREASURY STOCK
-------------------------
SHARES COSTS TOTAL
----------- ----------- ---------------
<S> <C> <C> <C>
Issuance of $1 par
value common stock
on September 4, 1984........ $ 1,000
Redemption of $1 par
value common stock.......... (1,000)
Issuance of $.001 par
value common stock.......... 1,000
Issuance of $.001 par
value common stock
at fair market value of
services rendered........... 20,000
Issuance of Series A
preferred stock............. 500,000
Issuance of common
stock pursuant to a
three-for-one stock
split subsequent to
December 31, 1990,
retroactively applied....... --0--
Redemption of common
stock pursuant to a
one-for 2.325 reverse
stock split subsequent to
December 31, 1990,
retroactively applied....... --0--
Issuance of $.001 par
value common stock
in connection with
Bridge Notes................ 45,500
Issuance of stock
purchase warrants........... 100,000
Sale of common stock,
net of offering costs....... 3,060,272
Conversion of Series A
preferred stock............. --0--
Conversion of
$255,000 principal
amount of debenture......... 255,000
Exercise of underwriter's
over allotment option,
net of offering costs....... 483,479
Issuance of $.001 par
value common stock
in connection with
acquisition of Freedom
Machine, Inc................ 207,000
Conversion of
$385,000 principal
amount of debentures........ 385,000
Issuance of $.001 par
value common stock
in connection with
acquisition of Cathlab
Corporation................. 2,025,000
Issuance of $.001 par
value common stock
in connection with
acquisition of VMS,
Inc......................... 124,999
</TABLE>
F-5
<PAGE> 55
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE CHANGE IN STOCKHOLDERS'
EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
---------------------- ----------------------------- PAID-IN DEVELOPMENT
SHARES PAR SHARES PAR CAPITAL STAGE
----------- ---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of $.001 par
value common stock
in connection with
6% promissory note.......... 58,576 $ 59 $ 263,533
Issuance of $.001 par
value common stock
in connection with
purchase of assets
of SuperStat, Inc........... 18,182 18 81,801
Issuance of $.001 par
value common stock
in connection with
a $500,000 loan
from a bank................. 79,365 79 357,064
Issuance of $.001 par
value common stock
in connection with
Therex settlement........... 58,823 59 499,941
Issuance of Series B
preferred stock,
net of offering costs....... 287,500 $ 288 2,545,858
Exercise of stock
purchase warrants........... 678,717 679 2,800,341
Issuance of $.001 par
value common stock
in connection with
Therex settlement........... 77,000 77 (77)
Issuance of $.001 par
value common stock
in connection with
consulting agreement....... 50,000 50 174,950
Exercise of stock options..... 166,880 167 38,795
Reacquire $.001 par
value common stock
originally issued
in connection with
Therex settlement...........
Treasury stock
reissued, 67,500
common shares at cost....... 1,600
Issuance of 193,500
warrants in
connection with 9% 574,176
promissory notes............
Dividend requirement
on Series B
preferred stock............. (135,209)
Conversion of Series
B preferred stock
into $.001 par
value common stock.......... (287,500) (288) 1,268,465 1,268 134,091
Sale of common stock
for cash, net of
offering costs.............. 1,500,000 1,500 3,501,299
Net loss for the
period...................... $(16,559,366)
--------- ------ ------------ -------- ------------ ------------
Balance, December 31,
1993........................ -- -- 7,390,054 $ 7,390 $ 18,041,979 $(16,559,366)
--------- ------ ------------ -------- ------------ ------------
<CAPTION>
TREASURY STOCK
-------------------------
SHARES COSTS TOTAL
----------- ----------- ---------------
<S> <C> <C> <C>
Issuance of $.001 par
value common stock
in connection with
6% promissory note.......... $ 263,592
Issuance of $.001 par
value common stock
in connection with
purchase of assets
of SuperStat, Inc. ......... 81,819
Issuance of $.001 par
value common stock
in connection with
a $500,000 loan
from a bank................. 357,143
Issuance of $.001 par
value common stock
in connection with
Therex settlement........... 500,000
Issuance of Series B
preferred stock,
net of offering costs....... 2,546,146
Exercise of stock
purchase warrants........... 2,801,020
Issuance of $.001 par
value common stock
in connection with
Therex settlement........... --0--
Issuance of $.001 par
value common stock
in connection with
consulting agreement....... 175,000
Exercise of stock options..... 38,962
Reacquire $.001 par
value common stock
originally issued
in connection with
Therex settlement........... (135,823) $(500,000) (500,000)
Treasury stock
reissued, 67,500
common shares at cost....... 67,500 248,400 250,000
Issuance of 193,500
warrants in
connection with 9% 574,176
promissory notes............
Dividend requirement
on Series B
preferred stock............. (135,209)
Conversion of Series
B preferred stock
into $.001 par
value common stock.......... 135,071
Sale of common stock
for cash, net of
offering costs.............. 3,502,799
Net loss for the
period...................... (16,559,366)
---------- --------- ------------
Balance, December 31,
1993........................ (68,323) $(251,600) $ 1,238,403
---------- --------- ------------
</TABLE>
F-6
<PAGE> 56
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS'
EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
---------------------- ----------------------------- PAID-IN DEVELOPMENT
SHARES PAR SHARES PAR CAPITAL STAGE
----------- ---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares in
connection with
private placements.......... 684,395 $ 684 $ 566,734
Issuance of shares in
connection with
officer subscription........ 40,000 40 31,460
Issuance of shares to
an officer in
connection with
private placement........... 15,000 15 2,985
Exercise of stock
options..................... 400,000 400 224,600
Issuance of shares to
employees in lieu
of salary................... 11,500 12 11,738
Issuance of shares
previously paid for
but not issued.............. 8,548 9 (9)
Conversion of
shareholder loan............ 111,111 111 49,889
Issuance of shares in
payment of expenses......... 117,812 118 70,396
Issuance of shares
for services................ 524,554 524 55,726
Additional accrual of
expenses related to
1993 offering............... (24,795)
Net loss for the
year........................ $ (3,786,156)
--------- ------ ------------ -------- ------------ ------------
Balance, December 31,
1994........................ -- -- 9,302,974 9,303 19,030,703 (20,345,522)
--------- ------ ------------ -------- ------------ ------------
Issuance of shares in
connection with
officer loan................ 2,000 2
Issuance of shares to
an officer in lieu
of salary................... 15,000 15 6,161
Issuance of shares in
payment of
expenses.................... 34,300 34 47,239
Issuance of shares in
connection with
private
placement................... 151,000 151 60,349
Issuance of
options..................... 37,500
Issuance of
Warrants.................... 8,400
Other......................... (206)
Net loss for the
year........................ (1,404,384)
--------- ------ ------------ -------- ------------ ------------
Balance, December 31, 1995.... -- -- 9,505,274 $ 9,505 $ 19,190,146 $(21,749,906)
--------- ------ ------------ -------- ------------ ------------
<CAPTION>
TREASURY STOCK
-------------------------
SHARES COSTS TOTAL
----------- ----------- -------------
<S> <C> <C> <C>
Issuance of shares in
connection with
private placements.......... $ 567,418
Issuance of shares in
connection with
officer subscription........ 31,500
Issuance of shares to
an officer in
connection with
private placement........... 3,000
Exercise of stock
options..................... 225,000
Issuance of shares to
employees in lieu
of salary................... 11,750
Issuance of shares
previously paid for
but not issued..............
Conversion of
shareholder loan............ 50,000
Issuance of shares in
payment of expenses......... 70,514
Issuance of shares
for services................ 56,250
Additional accrual of
expenses related to
1993 offering............... (24,795)
Net loss for the
year........................ (3,786,156)
--------- ---------- ------------
Balance, December 31,
1994........................ (68,323) $( 251,600) (1,557,116)
--------- ---------- ------------
Issuance of shares in
connection with
officer loan................ 2
Issuance of shares to
an officer in lieu
of salary................... 6,176
Issuance of shares in
payment of
expenses.................... 47,273
Issuance of shares in
connection with
private
placement................... 60,500
Issuance of
options..................... 37,500
Issuance of
Warrants.................... 8,400
Other......................... (206)
Net loss for the
year........................ (1,404,384)
--------- --------- ------------
Balance, December 31, 1995.... (68,323) $(251,600) $ (2,801,855)
--------- --------- ------------
</TABLE>
F-7
<PAGE> 57
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS'
EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
---------------------- ----------------------------- PAID-IN DEVELOPMENT
SHARES PAR SHARES PAR CAPITAL STAGE
----------- ---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares in
connection with
private placements,
net of offering
costs....................... 2,890 $ 3 1,250,001 $ 1,250 $ 2,870,066
Exercise of stock
options..................... 197,000 197 142,220
Exercise of
warrants.................... 744,165 744 390,581
Issuance of options........... 237,087
Issuance of shares in
payment of certain
liabilities................. 1,245,579 1,246 1,545,263
Issuance of shares
for services................ 600,000 600 366,900
Issuance of shares to
individuals................. 2,000 2 3,229
Other......................... (3,822)
Net loss for the year......... $ (2,625,116)
--------- ------ ------------ -------- ------------ ------------
Balance, December 31,
1996........................ 2,890 3 13,544,019 13,544 24,741,670 (24,375,022)
--------- ------ ------------ -------- ------------ ------------
Issuance of shares in
connection with
private placements,
net of offering
costs....................... 125 2,212,410
Exercise of stock
options..................... 20,000 20 3,730
Exercise of
Warrants.................... 802,583 803 319,230
Conversion of
preferred stock............. (1,013) (1) 3,881,102 3,881 (3,880)
Issuance of shares in
payment of certain
liabilities................. 172,222 172 178,114
Issuance of shares
for services................ 37,500 37 28,243
Net loss for the
year........................ (2,774,203)
--------- ------ ------------ -------- ------------ ------------
Balance, December 31,
1997........................ 2,002 2 18,457,426 18,457 27,479,517 (27,149,225)
--------- ------ ------------ -------- ------------ ------------
Issuance of shares in
connection with
private placements.......... 60,000 60 1,171,844 1,172 984,794
Conversion of preferred
stock..................... (984) (1) 7,444,383 7,444 (7,443)
Issuance of options......... 56,250
Issuance of shares in
payment of certain
liabilities............... 255,000 255 86,002
Retire treasury stock......... (68,323) (68) (251,532)
Net loss for the period....... (1,328,736)
--------- ------ ------------ -------- ------------ ------------
Balance, June 30, 1998
(Unaudited)................... 61,018 $ 61 27,260,330 $ 27,260 $ 28,347,588 $(28,477,961)
========= ====== ============ ======== ============ ============
<CAPTION>
TREASURY STOCK
-------------------------
SHARES COSTS TOTAL
----------- ----------- ---------------
<S> <C> <C> <C>
Issuance of shares in
connection with
private placements,
net of offering
costs....................... $ 2,871,319
Exercise of stock
options..................... 142,417
Exercise of
warrants.................... 391,325
Issuance of options........... 237,087
Issuance of shares in
payment of certain
liabilities................. 1,546,509
Issuance of shares
for services................ 367,500
Issuance of shares to
individuals................. 3,231
Other......................... (3,822)
Net loss for the year......... (2,625,116)
--------- --------- ------------
Balance, December 31,
1996........................ (68,323) (251,600) 128,595
--------- --------- ------------
Issuance of shares in
connection with
private placements,
net of offering
costs....................... 2,212,410
Exercise of stock options..... 3,750
Exercise of Warrants.......... 320,033
Conversion of
preferred stock............. --
Issuance of shares in
payment of certain
liabilities................. 178,286
Issuance of shares
for services................ 28,280
Net loss for the year......... (2,774,203)
--------- --------- ------------
Balance, December 31,
1997........................ (68,323) $(251,600) $ 97,151
========= ========= ============
Issuance of shares in
connection
with private placements..... 986,026
Conversion of preferred stock. --
Issuance of options........... 56,250
Issuance of shares in payment
of certain liabilities...... 86,257
Retire treasury stock......... 68,323 251,600 --
Net loss for the period....... (1,328,736)
--------- --------- ------------
Balance, June 30, 1998
(Unaudited)................. 0 0 $ (103,052)
========= ========= ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
<PAGE> 58
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
SIX MONTHS ENDED SEPTEMBER 4,
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 1984, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) JUNE 30, 1998
1997 1996 1995 1998 1997 (UNAUDITED)
------------ ------------ ------------ ---------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................... $ (2,774,203) $ (2,625,116) $ (1,404,384) $ (1,328,736) $ (1,203,204) $(28,479,580)
Adjustments to reconcile net
loss to cash used by operating
activities:
Depreciation and amortization ........ 237,633 334,012 660,539 117,894 68,248 3,131,094
Write off of goodwill ................ 120,000 120,000
Expenses paid by transfer
of equipment ....................... 3,380 37,134
Loss (gain) on sale of assets ........ 24,972 (501,043) (23,154) (499,225)
Interest expense recorded upon
issuance of common stock and
warrants in connection with
notes payable ...................... 1,250,907
Issuance of common stock and
warrants for services .............. 604,587 53,245 1,066,347
Write off of note receivable
from officer ........................ 25,000
Noncash compensation ................. 45,900 56,250 102,150
Gain on sale of investment
securities .......................... (4,190)
Distributor settlement ............... 625,915
Write off of investment in joint
venture ............................. 227,256
Write off of patents ................. 600 79,167
Write off of obsolete inventory ...... 43,325 367,688
Changes in operating assets
and liabilities:
Accounts receivable, net ............. 15,767 2,570 (97,115) 104,902 10,255 (8,361)
Inventories .......................... (186,860) (91,967) (74,007) (22,763) (162,265) (1,133,847)
Other assets ......................... 181,378 51,145 (57,495) 100,953 105,245 269,385
Accounts payable ..................... (33,460) (135,640) (203,921) 79,852 43,907 1,051,200
Accrued liabilities .................. 332,553 239,973 (12,142) 23,219 79,983 1,159,066
Deferred revenue ..................... (60,000) (60,000) (60,000) (30,000) (30,000) 70,000
------------ ------------ ------------ ------------ ------------ ------------
Total adjustments .................. 487,011 970,252 (79,334) 407,153 115,373 7,936,686
------------ ------------ ------------ ------------ ------------ ------------
Net cash used by
operating activities ............. (2,287,192) (1,654,864) (1,483,718) (921,583) (1,087,831) 20,542,894)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ................. (142,206) (46,773) (1,076) (34,812) (10,080) (612,244)
Issuance of notes receivable ......... (85,000)
Proceeds from repayment of notes
receivable .......................... 35,000
Investments in patents ............... (44,356) (31,414) (51,877) (13,996) (17,717) (495,340)
Investment in joint venture .......... (2,015) (229,271)
Organization costs ................... (1,000)
Purchase of investment securities .... (4,391)
Proceeds from sale of investment
securities .......................... 8,581
Proceeds from sale of assets ......... 1,516 1,264 507,113 26,000 535,893
Cash acquired in acquisition of
Freedom Machine ..................... 6,338
Cash acquired in acquisition of
Cathlab Corporation ................ 6,446
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided (used) by
investing activities ............. (185,046) (76,923) 452,145 (22,808) (27,797) (834,988)
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
F-9
<PAGE> 59
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
INCEPTION
SIX MONTHS ENDED SEPTEMBER 4,
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, 1984, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) JUNE 30, 1998
1997 1996 1995 1998 1997 (UNAUDITED)
------------ ------------ ------------ --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Cash dividends on preferred stock ...... (138)
Offering costs ......................... (287,590) (322,859) (81,974) (287,590) (1,022,217)
Financing costs ........................ (59,309)
Proceeds from notes payable to banks ... 2,333,880
Proceeds from notes payable to
stockholders .......................... 34,750 1,225,921
Proceeds from notes payable to others .. 116,250 1,835,576 1,688,560 32,490 5,891,077
Repayments of notes payable to bank .... (5,000) (2,070,000)
Repayments of notes payable to
stockholders .......................... (286,260) (822,992)
Repayments of notes payable to others .. (1,129,086) (1,932,618) (614,145) (78,474) (1,023,361) (5,982,577)
Proceeds from patent assignment
and leaseback.......................... 500,000
Proceeds from equipment assignment and
leaseback ............................. 305,000
Proceeds of capital lease obligations .. 8,521 8,521
Principal payments under capital
lease obligations ..................... (151,943) (99,278) (115,411) (7,353) (86,178) (789,463)
Proceeds from sale of debentures ....... 640,000
Proceeds from sale of preferred stock .. 2,500,000 2,890,356 600,000 2,500,000 9,036,502
Proceeds from sales of common stock and
exercise of unregistered warrants .... 320,033 694,556 60,500 468,000 310,034 9,522,350
Proceeds from exercise of stock options 3,750 97,000 3,750 339,917
Treasury stock acquired ................ (500,000)
Proceeds from issuance of registered
stock purchase warrants ............... 100,000
Proceeds from exercise of registered
stock purchase warrants ............... 2,801,018
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities ............ 1,371,414 2,906,223 1,019,504 941,210 1,416,655 21,457,490
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents .................... (1,100,824) 1,174,436 (12,069) (3,181) 301,027 79,608
Cash and cash equivalents at
beginning of period ..................... 1,183,613 9,177 21,246 82,789 1,183,613
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of period ........................... $ 82,789 $ 1,183,613 $ 9,177 $ 79,608 $ 1,484,640 $ 79,608
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-10
<PAGE> 60
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
American BioMed, Inc. (the "Company") was incorporated on September 4, 1984,
for the purpose of developing, manufacturing and marketing medical, surgical and
diagnostic devices. The Company markets its products to health care providers
that are high volume users of angioplasty, atherectomy and stent devices, to
third-party distributors and to independent representatives that are both
geographically located in, and sell in North and South America, Western Europe,
the Middle East, the Far East and Southeast Asia. Domestic and foreign export
sales comprise approximately 34.5% and 65.5%, respectively, of the Company's
sales. The percentage of sales by geographic region is as follows: 34.5% in the
United States, 16.9% in Italy, 15.7% in other European countries, 12.0% in South
America, and 20.9% in other countries. The Company faces competition from
primarily two other companies. The Company has operated as a development stage
enterprise since its inception by devoting substantially all of its efforts to
research and development, developing markets for its products and raising
capital to support these efforts. The following is a summary of the Company's
significant accounting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Cathlab Corporation and Freedom Machine,
Inc., after elimination of all intercompany accounts and transactions. Effective
September 30, 1996, the Company dissolved Freedom Machine, Inc. and all
remaining assets were transferred to the Company. The Company operates in a
single segment, which accounts for in excess of 90% of the Company's total
revenues, loss and identifiable assets.
The Company's financial statements have been prepared using accounting
principles applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classifications of recorded assets and liabilities that might
be necessary should the Company be unable to continue in existence.
Interim Financial Statements
The consolidated financial statements as of June 30, 1998 and for the
six months ended June 30, 1998 and 1997 are unaudited, but in the opinion of
management include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position and
results of operations.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity date of three
months or less to be cash equivalents. The Company primarily invests its excess
cash in deposits with major banks and other financial institutions, and at
times, these deposits may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company selects depository
institutions based upon management's review of the financial stability of the
institution. For these short-term instruments, the carrying amount approximates
estimated fair value.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs that do
not improve or extend the life of the assets are expensed as incurred.
Expenditures for renewals and betterments are capitalized. The cost of assets
retired and the related accumulated depreciation are removed from the accounts
and any gain or loss is included in the results of operations when incurred.
Depreciation for property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets (one to seven years) for
financial reporting purposes and the modified accelerated cost recovery system
for tax reporting purposes.
Technology and Patents
Patents represent the cost of obtaining the rights to utilize and develop
certain atherectomy catheters, heart-assist pumps and related devices. The costs
of the patents are amortized using the straight-line method over the estimated
useful lives of the patents (5 years). The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
changing customer needs. The Company believes that its future success will
depend, in part, upon its ability to change, identify and develop technical
innovations and apply them to new products designed for specific applications.
The Company's success depends, in part, on its ability to continue to have
patent protection for its products, maintain trade secret protection and operate
without infringing on the proprietary rights of others. The Company intends to
vigorously defend its patents against any infringements. The Company has been
issued several patents and several others are pending, all of which were
internally developed. The Company evaluates its patents for impairment on a
periodic basis. Such evaluations consist of a review of the patents based upon
patent current and future expected use, revenue existence from patented product,
expected future cash flows and third-party valuations. Based on the Company's
review, the net carrying value of the Company's patents is adjusted, as
appropriate. In management's opinion, no impairment in the carrying value of
patents is indicated for the periods presented.
F-11
<PAGE> 61
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the net assets at the date of acquisition,
which represents technology and other intangible assets, and is being amortized
using the straight-line method over ten years. The purchase price is allocated
to assets and liabilities based upon their fair values. Amounts allocated to
intangible assets are the same for financial and tax reporting purposes. The
Company periodically compares the carrying value of its goodwill to the
anticipated undiscounted future operating income from the businesses whose
acquisition gave rise to the goodwill as well as third-party valuations. In
management's opinion, no impairment in the carrying value of goodwill is
indicated for the periods presented.
Long-Lived Assets
In fiscal year 1996 the Company adopted the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). In
accordance with SFAS 121, the carrying values of the Company's long-lived
assets, which includes patents and goodwill, are reviewed if facts and
circumstances suggest that such assets may be impaired. If any impairment is
indicated as a result of such reviews, the Company would measure impairment
based on the fair market value of the assets, using techniques such as projected
future discounted cash flows or third-party valuations. In management's
opinion, no impairment in the carrying value of its long-lived assets is
indicated for the periods presented.
Other Assets
Other assets consist of membership fees and long-term deposits.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"). SFAS 129 requires all entities, public
and nonpublic that have issued securities which provide evidence of debt or
ownership or a related right to adequately disclose within the financial
statement, information regarding the Company's capital structure and is
effective for financial statements issued for periods ending after December 15,
1997.
Revenue Recognition
Revenue is recognized when products are shipped.
Research and Development
Research and development costs are expensed as incurred.
Loss Per Share
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128). SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Basic earnings per share is computed based
on the weighted average number of shares of common stock and common stock
equivalents outstanding during the periods. Diluted earnings per share includes
the number of shares issuable upon exercise of stock options, less the number of
shares that could have been repurchased with the exercise proceeds, using the
treasury stock method. The effect of the computation is antidilutive due to
continuing losses, therefore only basic earnings per share is presented.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on its trade receivables. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Regulation
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The FDA regulates and must approve the
manufacture, distribution and promotion of medical devices in the United States.
Various states and foreign countries in which the Company's products may be sold
impose additional regulatory requirements. Certain of the Company's products
have received marketing clearance from the FDA through the 510(k) Notification
process, other products are pending FDA approval, and other products are being
evaluated.
F-12
<PAGE> 62
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Third-Party Reimbursement
The Company sells its products to distributors, hospitals, physicians and
other health care providers for use in furnishing care to their patients.
Substantially all except the distributors rely on third-party payors,
principally Medicare, Medicaid, and private health insurance plans, to reimburse
all or part of the costs or fees associated with the medical procedures
performed. While the Company cannot predict the cost of its devices, or the
procedures to be performed with its products, or the relative cost and efficacy
of competing products or procedures, changes in third-party payor reimbursement
practices regarding the procedures performed with medical devices sold by the
Company may adversely affect the Company.
Millennium Change
The Company installed vendor upgrades for each of its computer-based
applications that will accommodate the millennium change. The Company is,
however, in the process of identifying any current suppliers who are not
prepared to offer assurances that their systems will be year 2000 compliant.
The Company does not believe that the millennium change will have an adverse
impact on its operations.
Recent Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 established standards for reporting and display of comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. It requires the items of other
comprehensive income be classified by their nature and the accumulated balance
of other comprehensive income be displayed separately from retained earnings and
additional paid-in capital in the equity section. SFAS 130 is effective for
fiscal years beginning after December 15, 1997 and application is to be adopted
at the beginning of the fiscal year. The Company has not yet determined the
impact that the adoption of SFAS 130 will have on its presentation of financial
information.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131") which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes standards
requiring public business enterprises to report information about operation
segments in annual financial statements on the basis that is used internally for
evaluating segment performance and allocating resources, and requires selected
information be reported in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers.
2. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Raw materials .................. $ 232,841 $ 225,340 $ 178,762
Work in process ................ 176,252 169,657 157,114
Finished Goods ................. 262,627 253,960 126,221
---------- ---------- ----------
$ 671,720 $ 648,957 $ 462,097
========== ========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1998 ------------------------
(UNAUDITED) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Furniture and fixtures .................. $ 75,450 $ 72,887 $ 51,133
Machinery and equipment ................. 704,917 733,577 627,917
Leasehold improvements .................. 34,872 28,949 15,673
Equipment under capital lease agreements. 7,123 24,243 24,243
--------- --------- ---------
822,362 859,656 718,966
Less accumulated depreciation and
amortization ............................ (656,454) (691,665) (637,651)
--------- --------- ---------
$ 165,908 $ 167,991 $ 81,315
========= ========= =========
</TABLE>
Included in accumulated depreciation and amortization at June 30, 1998 and
December 31, 1997 and 1996 is $356, $23,865 and $22,195, respectively, of
accumulated amortization on equipment acquired under capital lease agreements.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $54,000, $133,000 and $191,000, respectively. For the six months
ended June 30, 1998 and 1997, depreciation expense was approximately $34,049
and $10,600, respectively.
F-13
<PAGE> 63
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GOODWILL
In November 1995 the Company sold certain assets and the associated customer
base of the catheter hole punch operations to a related party. Accordingly, the
Company wrote off approximately $120,000 of goodwill associated with these
assets.
5. DEFERRED REVENUE
On August 26, 1994, the Company signed a Patent License, Research &
Development Agreement with Wright Medical Technologies, Inc. (WMT) in which the
Company licensed to WMT the world-wide manufacturing and distribution rights to
the "spinal dissector". The Company received a $300,000 license fee and will
receive 5% royalty from sales by WMT through the life of the patent. The Company
granted to WMT a stock purchase warrant for 150,000 shares with an exercise
price of $2.00. The warrant is exercisable through August 1999. The contract
called for the Company to continue to develop the spinal dissector on behalf of
WMT and granted the Company the first right of refusal for the manufacturing of
the spinal dissector. The Company performed and received additional fees for
development services of $2,400 during the year ended December 31, 1995. No
development fees were included in revenues for the year ended December 31, 1997
and 1996, and the six months ended June 30, 1998 and 1997. The $300,000
license fee is being amortized over five years, the life the Company uses to
amortize patents. The unamortized balance of $70,000, $100,000 and $160,000 is
reflected as deferred revenue as of June 30, 1998, December 31, 1997 and 1996,
respectively.
6. NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1998 ----------------------------
(UNAUDITED) 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Notes payable to stockholders and others consisted of the
following:
Uncollateralized promissory note to stockholder, bearing
interest at 10%, payable quarterly with principal due on demand ... $ 242,450 $ 242,450 $ 242,450
Note payable to an insurance company bearing interest at 8.7%
per year payable in monthly installments of $5,298 including
interest,maturing August 8, 1997 .................................. -- -- 36,035
Note payable to an insurance company bearing interest at 8.7%
per year, payable in monthly installments of $5,298 including
interest, maturing August 8, 1998 ................................. 10,482 41,035 --
Note payable to an insurance company bearing interest at
7.75% per year payable in monthly installments of $4,213 including
interest, maturing January 1, 1998 ................................ -- 4,186 --
Note payable to an insurance company payable in non-interest
bearing quarterly installments of $5,733, maturing April 9, 1998 .. -- 10,319 --
Note payable to an insurance company bearing interest at
7.26% per year payable in monthly installments of
$3,162 including interest, maturing January 1, 1999................ 20,842 -- --
Note payable to an insurance company payable in non-interest
bearing quarterly installments of $1,493, maturing April 14, 1998.. -- 2,986 --
Uncollateralized note payable to a company bearing interest
at 12% per year, maturing January 27, 1997 ........................ -- -- 1,000,000
----------- ----------- -----------
$ 273,774 $ 300,976 $ 1,278,485
=========== =========== ===========
Long-term debt consisted of the following:
Note payable to a law firm bearing interest at 8.25% per year
payable in monthly installments of $3,858 including interest,
maturing August 1, 2000............................................ $ 94,767 $ 113,549 $ 148,876
Less current maturities ............................................. (43,444) (41,694) (38,404)
----------- ----------- -----------
$ 51,323 $ 71,855 $ 110,472
=========== =========== ===========
</TABLE>
The Company has failed to make monthly payments to the law firm when due.
Under the terms of the note agreement, the law firm can elect to impose an
interest rate of 18%. The law firm has not made this election.
Future maturities of notes payable and long term debt are as follows:
<TABLE>
<S> <C>
1998 ............................ $ 342,670
1999 ............................ 41,927
2000 ............................ 29,928
---------
$ 414,525
=========
</TABLE>
F-14
<PAGE> 64
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTAL FINANCIAL INFORMATION:
ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, 1998 -------------------------
(UNAUDITED) 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Accrued interest payable ...... $ 172,360 $ 208,007 $ 133,129
Accrued payroll and related
taxes ......................... 132,691 122,306 132,672
Accrued offering costs ........ 102,000 102,000 102,000
Other ......................... 277,472 229,932 115,366
---------- ---------- ----------
$ 684,523 $ 662,245 $ 483,167
========== ========== ==========
</TABLE>
OTHER INCOME/EXPENSES:
Other income and expenses for the year ended December 31, 1995 consisted
primarily of $1 million received in connection with a forfeited option fee from
United States Surgical Corporation and approximately $495,000 realized gain from
the sale of the European patent for the OmniCath(R) atherectomy catheter to
Guerbet S.A. of France.
8. COMMITMENTS AND CONTINGENCIES:
Lease Obligations
The Company leases certain patents and equipment under agreements classified as
capital leases. In addition, the Company leases its office space and other
properties under noncancelable operating leases through November 2002. Future
minimum payments under the capital leases and noncancelable operating leases
with initial or remaining terms of one year or more consisted of the following
at December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- --------
<S> <C> <C>
1998.............................. $ 470,259 $146,906
1999.............................. 55,850
2000.............................. 27,026
2001.............................. 5,640
2002.............................. 3,488
---------- --------
Total minimum lease payments...... 470,259 $238,910
========
Amounts representing interest..... (53,358)
----------
Present value of future lease
payments.......................... 416,901
Less current maturities........... (416,901)
----------
$ -0-
==========
</TABLE>
Rental expense under operating leases for the years ended December 31, 1997,
1996 and 1995 and for the period from inception, September 4, 1984, to December
31, 1997 amounted to $151,705, $157,972, $243,881, and $1,282,835, respectively.
Litigation
On December 8, 1994, a vendor commenced a lawsuit against the Company
regarding unpaid invoices in the amount of $124,759 plus attorney fees and
accrued interest. On June 15, 1995, the parties to the lawsuit executed a
Stipulation of Settlement, a Consent Judgment and a Stipulation of Dismissal to
be held in escrow. The Company agreed to pay $125,000 to the vendor under the
settlement agreement; $25,000 was paid upon execution of this stipulation and
the balance was due on or before October 31, 1995. The amount of $100,000 is
included in accounts payable at December 31, 1995. The balance was paid through
the issuance of 116,145 shares of the Company's common stock in 1996. The vendor
sold the shares for less than the amount owing under the settlement agreement
including applicable interest and legal fees. The balance of approximately
$55,000 has been properly accrued in 1997. In February 1998, the Company reached
an agreement with the vendor for the final payment schedule on the balance due.
In May 1997, a former officer and director of the Company filed a lawsuit
alleging oppressive action toward a minority shareholder, breach of contract,
wrongful termination and unpaid debts and advances. The Company is vigorously
contesting this lawsuit and is pursuing counterclaims against the plaintiff. The
February 1998 mediation conference, which was mandated by the Court, did not
result in a settlement agreement and the case is scheduled for trial in 1998.
The financial statements properly account for notes payable to the plaintiff in
the amount of $242,450, related accrued interest and accrued salary. The Company
is unable to make a meaningful analysis of possible or likely damages, if any.
However, an adverse resolution of this matter may have a material adverse impact
on the Company's financial position, results of operations and cash flows.
In August 1997, a former officer and director of the Company filed a lawsuit
alleging breach of contract and is seeking specific performance and monetary
damages. The Company is vigorously contesting this lawsuit. The Company has
accrued $125,000 which is management's best estimate of the ultimate liability,
if any. The resolution of this matter may have a material adverse impact on the
Company's financial position, results of operations or cash flows.
In September 1997, a former distributor filed a lawsuit alleging the letter
agreement terminating their distribution agreement was breached by the Company
due to the non-issuance of options to purchase 437,500 shares of common stock at
$0.40 per share. These options have been properly reserved, but have not been
issued. Management believes the resolution of this matter will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
The Company is occasionally a party to litigation (other than that
specifically noted) 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.
Unaudited
On May 1, 1998 the Company reached an agreement with the former distributor
to settle the September 1997 lawsuit with the issuance of options to purchase
225,000 shares for an exercise price of $0.40 per share, with registration
rights and is exercisable for six months. Compensation expense of approximately
$56,250 was recorded in the second quarter 1998 financial statements to
reflect the value of the options granted.
F-15
<PAGE> 65
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FEDERAL INCOME TAXES:
At December 31, 1997, the Company had net operating loss (NOL) and research
and development (R&D) credit carryforwards available to offset future taxable
income approximately as follows:
<TABLE>
<CAPTION>
YEAR EXPIRES N O L R & D
- -------------- ------------ --------
<S> <C> <C>
2003....... $ 71,500
2004....... 14,300
2005....... 450,300 $ 7,635
2006....... 1,462,000 50,550
2007....... 3,122,800 143,632
2008....... 7,432,100 163,052
2009....... 2,181,300 73,637
2010....... 925,000 34,286
2011....... 3,409,000 41,669
2012....... 2,456,000 33,400
----------- ---------
$21,524,300 $ 547,861
=========== =========
</TABLE>
Net operating loss carryforwards for financial reporting purposes and
alternative minimum tax reporting purposes are approximately the same as those
under the regular tax method. Special limitations exist under the tax law which
may restrict the utilization of the regular tax and alternative minimum tax net
operating loss carryforwards. The amount of this restriction, if any, has not
been determined.
The Company adopted the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting For Income Taxes". Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their financial
amounts at year-end. The Company provides a valuation allowance to reduce
deferred tax assets to their net realizable value. The tax-effected components
of deferred tax assets at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Total deferred tax assets:
Net operating losses and
other...................... $ 8,827,000 $ 7,995,000
Valuation allowance........ (8,827,000) (7,995,000)
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
The Company has significant net operating loss carryforwards for which
realization of tax benefits is uncertain and therefore all deferred tax assets
have been fully reserved at December 31, 1997 and 1996, respectively. The change
in the total valuation allowance for the year ended December 31, 1997 and 1996
was a net increase of approximately $832,000 and $1,159,000, respectively.
Contributing primarily to this change were operating losses incurred during
1997.
10. RELATED PARTY TRANSACTIONS:
For the period from inception, September 4, 1984, to December 31, 1997, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,089,869. Of this amount, $7,797, $37,500, and $50,000 related to the years
ended December 31, 1997, 1996 and 1995, respectively.
On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPO patent to Guerbet S.A., a stockholder of the Company, of Paris, France for
$500,000 cash.
Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases,
plus bonuses of up to fifty percent, and options to purchase 600,000 shares of
common stock at $0.50 per share. The options vest at varying times during the
term of Mr. Rash's three-year employment agreement. In 1997 Mr. Rash's agreement
was extended to December 31, 1999. The base salary was increased to $165,000 per
year, with a cash bonus of $30,000 to be paid should the Company's revenues
exceed $2 million in 1997. Options to purchase an additional 900,000 shares of
common stock at $.6875 per share were granted.
A director, stockholder and paid consultant of the Company and formerly a
Vice President, is a limited partner of Aberlyn Capital Management Limited
Partnership ("Aberlyn") and is an officer, director and stockholder of Aberlyn
Capital Management, Inc., the general partner of Aberlyn. Effective December 31,
1992, the Company and Aberlyn entered into a Patent Assignment and License
Agreement (the "Patent and License Agreement") pursuant to which the Company
assigned patents as collateral which are owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab Patents were exclusively licensed back to the Company for three years
for a monthly license fee of $16,355, after which Aberlyn was required to
reassign the Cathlab Patents to the Company in exchange for $50,000. Under its
terms, if the Company declined to purchase the Cathlab Patents, the Patent and
License Agreement would automatically be extended for an additional nine months
for a monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
F-16
<PAGE> 66
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment as collateral to Aberlyn in consideration of $205,000. The equipment
was exclusively leased back to the Company for three years for a monthly fee of
$6,706, after which Aberlyn was required to return the equipment to the Company
in exchange for $20,500. Under the terms, if the Company opted not to purchase
the equipment, the Equipment Lease would automatically be extended for an
additional three months for a monthly payment of $7,011, after which the
equipment would automatically revert back to the Company.
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual payments
of $97,445 and the payment terms of the Equipment Lease were similarly revised
to semiannual payments of $39,100 and $20,281, respectively. In consideration to
Aberlyn for making these modifications, the Company issued warrants to Aberlyn
to purchase 150,000 shares of the Company's common stock at an exercise price of
$1.50 per share exercisable over a five-year period. On May 28, 1996, Aberlyn
and the Company reached an agreement to restructure the Leases which resulted in
a revised schedule of lease payments over a twenty-four month period, with the
initial payment commencing on June 1, 1996. The payments were based on an
outstanding principal amount of approximately $500,000 and total accrued
interest of approximately $148,000. In addition, 115,000 shares of common stock
were issued in payment of consulting fees, investment banking service fees and
accumulated miscellaneous expenses totaling $115,728.
Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998.
On February 18, 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 offshore private placement of equity.
Zanett's President and Chief Executive Officer is a member of the Company's
Board of Directors. As a retainer for availability of services by Zanett, the
Company agreed to grant Zanett warrants to purchase shares of common stock at a
rate of 1 for every 10 issued at an exercise price of $0.50 per share,
exercisable for five years from date of grant. Date of grant is the date of each
closing. During 1996 through the efforts of Zanett, the Company sold 1,250,001
shares of common stock, 1,390 shares of Series A preferred and 1,500 shares of
Series B preferred stock pursuant to Regulation S of the Securities Act of 1933,
as amended. In connection with these placements, the Company issued warrants to
purchase 811,310 shares of common stock to unrelated parties. In addition, a 10%
placement fee of approximately $319,000 has been paid to Zanett or their
designated representative.
In September 1996, Zanett was issued a restricted exercise warrant to
purchase 25,000 shares of common stock at $.9375 in connection with the
placement of bridge financing.
The Company does not have a policy against employing relatives. During the
years ended December 31, 1997, 1996 and 1995, the Company paid salaries and
wages to relatives of officers of the Company amounting to $7,797, $22,692, and
$51,600, respectively.
11. CAPITAL STOCK:
Common Stock
Pursuant to Regulation S of the Securities Act, in February 1996 the Company
sold 1,250,001 shares of common stock at a purchase price of $0.24 per share to
a group of foreign investors.
On November 22, 1996 the shareholders approved the increase in authorized
shares of the Company's common stock from 25,000,000 to 50,000,000.
Preferred Stock
In December 1992, the Company created a new class of preferred stock, the
"Series B preferred stock", with an offering price of $10 per share, consisting
of 350,000 shares. As of December 31, 1992, the Company had sold 10,000 shares
of Series B preferred stock and had received gross proceeds of $100,000. During
the first quarter of 1993, an additional 277,500 shares of the Series B
preferred stock were sold netting $2,456,145. Annual cumulative 10% dividends
were payable quarterly commencing April 1, 1993.
Pursuant to the Certificate of Incorporation, as amended, during the period
July 1993 through October 22, 1993 (the date of a public offering), all the
287,500 shares of the Series B preferred stock outstanding were converted into
1,202,773 shares of common stock. The accrued dividends thereon were converted
into 65,693 shares of common stock, and $138 was paid in cash.
F-17
<PAGE> 67
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pursuant to Regulation S of the Securities Act, in February 1996 the Company
sold 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 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 or (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 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.
Pursuant to Regulation S of the Securities Act, in November 1996 the Company
issued units consisting of (i) 1,500 of its 1996 Series B convertible preferred
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 proceeds of the sale were used to pay off
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 of equal priority 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, i.e., $1.40 per share or (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, 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 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.
As a result of Securities and Exchange Commission guidance issued in early
1997 with respect to beneficial conversion features in connection with the
issuance of convertible preferred stock, the Company was deemed to recognize
noncash preferred stock dividends totaling approximately $1.2 million in fiscal
year 1996. This amount is equivalent to the discount from the fair market value
of the common stock given to the purchasers of the Series A and B calculated as
of the date of the sale of such stock.
Pursuant to Section 4(2) of the Securities Act, in March 1997 the Company
issued 125 shares of its Series C convertible preferred stock, par value $.001
per share (the "Series C Preferred") to Nelson Partners, an unaffiliated
investor, for a total purchase price of $2,500,000 or $20,000 per share. The
proceeds of the sale will be used to fund clinical trials, research and
development projects and general working capital. The Series C Preferred, which
bears no dividends and confers no voting rights, is of equal rank with shares of
the Series A Preferred and the Series B Preferred and senior to the Company's
other equity securities (except with the consent of the majority of the holders
of Series C Preferred). The Series C Preferred is convertible at any time on or
after 120 days after the initial date of issuance at the option of the holder
into a number of shares of common stock (the "Series C Conversion Shares") based
on a formula as defined in the purchase agreement.
The Series C conversion price is the lesser of (i) $1.75 (adjusted if there
is a lock up in effect) or (ii) the average of the closing bid price for the
common stock for the five consecutive trading days immediately preceding the
date the election to convert is made (the "Series C Conversion Price"). The
number of Series C Conversion Shares is subject to adjustment from time to time
upon the occurrence of stock splits, reverse stock splits, and similar events.
On March 1, 2000 any outstanding shares of the Series C Preferred will be
automatically converted based on the Series C Conversion Price then in effect.
Registration rights were conferred upon the Series C Preferred requiring the
Company to file an S-3 Registration Statement ("Registration Statement")
covering the resale of the Series C Conversion Shares on or before the ninetieth
day following the issuance date ("Scheduled Effective Date"). The Registration
Statement became effective July 25, 1997 which was after the Scheduled Effective
Date.
F-18
<PAGE> 68
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company may at its option at any time after the 180th day and prior to
the 361st day following the issuance of the Series C Preferred, prohibit holders
of the Series C Preferred from exercising any conversion rights granted (the
"Lock-Up") when certain conditions are met. In the event the Company effects a
lock-up, each holder of the Series C Preferred will be entitled to a warrant
(the "Lock-Up Warrant") exercisable for that number of shares of common stock
equal to ( 1/2) one-half of the number of shares of common stock which would
have been issuable had such holder converted, and on the last day of the lock-up
period will be entitled to an additional Lock-Up Warrant exercisable for that
number of shares of common stock equal to one-half of the number of shares of
common stock which would have been issuable had such holder converted. The
exercise price of the Lock-Up Warrant is the fixed conversion price ($1.75) that
is in effect at the time of issuance of the Lock-Up warrant, but not subject to
any adjustments.
The Company has reserved 7,642,857 shares of common stock for issuance (i)
upon conversion of the Series C Preferred, (ii) upon exercise of the warrants
and (iii) the placement warrants.
During 1997 1,000 shares of Series B Preferred and 13 shares of Series C
Preferred were converted into 3,112,780 and 768,322 shares of common stock,
respectively.
The board of directors is authorized to determine, prior to issuing any such
series of preferred stock and without any vote or action by the shareholders,
the rights, preferences, privileges and restrictions of the shares of such
series, including dividend rights, voting rights, terms of redemption, the
provisions of any purchase, retirement or sinking fund to be provided for the
shares of any series, conversion and exchange rights, the preferences upon any
distribution of the assets of the Company, including in the event of voluntary
or involuntary liquidation or dissolution of the Company, and the preferences
and relative rights among each series of preferred stock.
Loss per share
Basic loss per share and diluted loss per share for the years ended December
31, 1997, 1996 and 1995 are the same due to the antidilutive effect the
conversion of warrants and options have on loss per share.
12. STOCK PURCHASE WARRANTS:
Under the terms of the agreement with Aberlyn Capital Management Limited
Partnership (See Note 10), the Company issued Aberlyn and Aberlyn Holdings
Company, Inc., an affiliate of Aberlyn, warrants to purchase 15,000 and 60,000
shares of common stock, respectively, at $7.50 per share. The warrants expire in
January 1998.
In September and October 1993 the Company issued warrants to purchase a
total of 193,500 shares of its common stock. These warrants are exercisable at
any time during the five-year period from date of issue at a per share price of
$1.00. During 1996 warrants for 2,500 shares were exercised.
In July 1993 the Company issued stock purchase warrants to the holders of
the Series B preferred stock to purchase an aggregate of 288,203 shares of the
Company's common stock at an exercise price of $6.65 per share. The warrants
expire in June 1998.
In August 1993 the Company issued warrants to purchase 848,002 shares of
common stock at an exercise price of $2.16 per share in connection with a 30-day
lock-up agreement upon the conversion of the Series B preferred stock on October
22, 1993. The warrants expire in 1998.
In connection with the offering of 1,500,000 shares in October 1993, the
Company issued warrants to its underwriters to purchase 150,000 shares of common
stock at prices ranging from $2.50 to $3.60 per share. The warrants are
exercisable for five years.
In March 1994, the Company issued warrants to purchase 20,000 shares of
common stock at $1.00 per share in connection with a loan guarantee. In June
1994, the Company issued an additional 50,000 warrants to purchase common stock
in connection with the renewal and extension of the note which is due when the
Company raises a minimum of $1,000,000 in new equity. The warrants are
exercisable for five years.
In connection with the modification of the lease terms with Aberlyn in March
1994, the Company issued warrants to purchase 150,000 shares of common stock at
$1.50 per share. The warrants are exercisable for five years.
In connection with the private placement of 552,042 shares of common stock
in January and February, 1994, the Company issued warrants to purchase 224,139
shares of common stock at $1.35 per share. The warrants are exercisable for five
years.
In June 1994, the Company issued warrants to purchase 282,634 shares of
common stock at prices ranging from $1.00 per share to $3.60 per share. These
warrants were issued as a result of transactions during 1993 in connection with
various bridge loans and are exercisable for five years. Warrants for 8,333
shares and 105,665 shares were exercised during 1997 and 1996, respectively. One
warrant was underexercised by one share in 1996 which is thereby forfeited.
In August 1994, in connection with a licensing agreement with Wright Medical
Technologies (See Note 5), the Company issued warrants to purchase 150,000
shares of common stock at $2.00 per share. The warrants are exercisable for five
years.
F-19
<PAGE> 69
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1994, the Company granted to one of its investment bankers, in
consideration for past services performed, warrants to purchase 100,000 shares
of common stock at $2.50 per share. The warrants are exercisable for five years.
During February through April 1995, in connection with a bridge loan, the
Company issued warrants to purchase 1,374,250 shares of common stock at $.40 per
share. The warrants are exercisable for two years and were registered on an S-3
Registration Statement effective August 23, 1996. In 1997 and 1996,
respectively, 754,250 shares and 620,000 shares, have been issued in connection
with the exercise of these warrants.
On June 16, 1995, the Board authorized warrants to Aberlyn Capital
Management Limited Partnership in order to induce Aberlyn to not accelerate the
repayment of loans in the amount of $455,298. The warrants are to purchase
100,000 shares of common stock at $.1875 per share and 100,000 shares of common
stock at $.50 per share and are exercisable for five years. An expense of
$37,500 was recorded in 1995.
In connection with the early exercise of warrants issued for bridge loans,
the Company issued warrants to purchase 132,000 shares at $.25 per share in
September 1995. Warrants for 40,000 shares were exercised in 1997 and in 1996,
respectively. The remaining warrant for 12,000 shares expired September 1997.
Warrants to purchase 20,000 shares of common stock at an exercise price of
$.50 per share were issued in connection with the settlement of litigation in
September 1995, exercisable for two years. The warrant expired in 1997.
In connection with the issuance of promissory notes in September 1996, the
Company issued 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 common
stock during the period beginning on the day prior to the date of issuance and
ending on the earlier of (i) 180 days thereafter or (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 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.
In connection with a consulting agreement, the Company issued warrants to
purchase 836,310 shares of common stock at prices ranging from $0.50 to $1.40
for fees in connection with the Series A Preferred, Series B Preferred and
bridge loan financing and are exercisable for five years from date of grant.
Warrants to purchase 1,209,677 shares at $1.40 were issued in connection with
the issuance of Series B Preferred Stock, exercisable for five years.
In December 1996 warrants to purchase 25,000 shares of common stock at $1.50
per share were issued for fees in connection with a short-term loan. The
warrants are exercisable for five years.
Cumulative shares issuable under warrants and their expiration dates as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF EXERCISE
GRANT DATE DATE SHARES PRICE
---------- ---------- --------- -----------
<S> <C> <C> <C>
January 1993.......... 1998 75,000 $ 7.50
June - October 1993... 1998 329,064 $ 1.00
July 1993............. 1998 288,203 $ 6.65
October 1993.......... 1998 848,002 $ 2.16
October 1993.......... 1998 135,571 $ 3.60
October 1993.......... 1998 45,000 $ 2.50
January - February 1994 1999 224,139 $ 1.35
March 1994............ 1999 150,000 $ 1.50
March - June 1994..... 1999 70,000 $ 1.00
August 1994........... 1999 150,000 $ 2.00
October 1994.......... 1999 100,000 $ 2.50
June 1995............. 2000 100,000 $ 0.1875
June 1995............. 2000 100,000 $ 0.50
February 1996......... 2001 704,167 $ 0.50
September 1996........ 2001 275,000 $ 0.9375
November 1996......... 2001 1,209,677 $ 1.40
November 1996......... 2001 107,143 $ 1.40
December 1996......... 2001 25,000 $ 1.50
----------
4,935,966
==========
</TABLE>
- ----------------------
* The valuation of the above outstanding warrants was determined by using
whichever value was more readily determinable, the fair value of the goods or
services received or the fair value of the equity instrument issued. The
Black-Scholes option pricing model is used to calculate the fair value of the
equity instrument when the value of goods and services are not readily
determinable. Compensation expense is charged for the fair value of the
warrants with an offsetting credit to additional paid in capital. Compensation
expense for 1995 related to the issuance of warrants to non-employees was
$37,500 and there was no expense charged for 1997 and 1996 due to
immateriality.
F-20
<PAGE> 70
<PAGE> 71
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTIONS:
At December 31, 1997, the Company had two stock-based compensation plans
which are described below. Additionally, the Company has issued options that are
not part of these plans to various employees and consultants (the "Other Plan").
The Company applies APB Opinion 25 and related interpretations in accounting for
options issued to employees and directors. Options issued to consultants and
other non-employees are recorded at fair market value. The compensation cost
that has been charged against income for its stock option plans was
approximately $122,781, $238,000 and $98,000 for 1997, 1996 and 1995,
respectively. Had compensation cost for the Company's two stock-based
compensation plans and Other Plan been determined consistent with Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR 1997 1996 1995
- ------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported........................ $(2,774,203) $(2,625,116) $(1,404,384)
Pro forma.......................... $(3,172,810) $(3,052,824) $(1,866,595)
Net loss available to common
shareholders
As reported........................ $(2,774,203) $(3,808,529) (1,404,384)
Pro forma.......................... $(3,172,810) $(4,236,237) (1,866,595)
Net loss per common share
As reported........................ $ (.18) $ (.34) $ (.15)
Pro forma.......................... $ (.20) $ (.37) $ (.20)
</TABLE>
The Company's fixed option plans include the 1996 Incentive Stock Option
Plan (the "1996 Plan"), the 1994 Stock Option Plan (the "1994 Plan") and the
Other Plan. Effective June 30, 1997 the Board terminated the 1990 and the 1992
Stock Option Plans. There were no outstanding options at the time of
termination. Options under the plans, except the Other Plan, generally vest 20%
per year over five years after one year of service and have a maximum term of
ten years. Options under the Other Plan vest over various periods ranging from
immediate to three years.
The 1996 Plan provides for the grant of (i) stock options, including
incentive stock options and non-qualified stock options, (ii) shares of
restricted stock, (iii) performance awards payable in cash or common stock, (iv)
shares of phantom stock, (v) stock bonuses, and (vi) cash bonuses (collectively,
the "Incentive Awards"). As of December 31, 1997, 78,000 shares of common stock
and options to purchase 330,000 shares have been granted to consultants and
options to purchase 905,000 shares have been granted to employees. The number of
shares of common stock subject to the 1996 Plan is 1,500,000 and is effective
October 10, 1996 as approved by the stockholders at the annual meeting held
November 22, 1996. The 1996 Plan will terminate October 10, 2006 unless earlier
terminated by the Company.
Under the 1994 Plan, options to purchase an aggregate of 1,500,000 shares
are available for grants to employees and consultants of the Company and its
subsidiaries. The 1994 Plan will terminate on April 8, 2004 unless terminated
earlier by the Company.
In April 1995, in consideration for termination of a distribution agreement,
the Company granted a distributor an option to purchase 437,500 shares at $.40
per share.
In connection with his employment in 1995 as President and CEO, the Company
granted Steven B. Rash options to purchase 600,000 shares of common stock at
$.50 per share vesting at various times during his three-year contract. The
options are exercisable through 2002.
In connection with a consulting agreement, the Company issued options to
purchase 100,000 shares at $.001 per share and 300,000 shares at $.56 per share
to a medical consultant in December 1995, exercisable for ten years. The options
are exercisable through 2005.
In connection with their employment in 1996, the Company granted hiring
options to three employees for a total of 115,000 at exercise prices ranging
from $.50 to 1.25 which equaled fair market value at the time of issuance.
During 1997 options to purchase 30,000 shares were forfeited due to termination
of employment and failure to exercise within the required time frame. The
options are exercisable for five years.
In connection with settlement agreements, the Company granted options to
purchase 225,000 shares of common stock to Lawrence M. Hoffman and 150,000
shares of common stock to a former officer at an exercise price of $.6875. The
options are exercisable through 1999 and 1998, respectively.
In connection with a consulting agreement, the Company issued options to
purchase 60,000 shares of stock at $1.00 exercisable for two years.
The Company granted options to purchase common stock totaling 93,000 shares
as a retainer to each of its four directors and for attendance at the Board of
Directors meetings during 1997. The options are exercisable for five years at an
exercise price ranging from $0.46875 o $1.3125 which equaled fair market value
at the time of issuance.
In connection with his employment agreement in December 1997 as Vice
President, Sales and Marketing, the Company granted Marshall Kerr options to
purchase 100,000 shares at $.50 and 200,000 shares at $0.42 vesting at various
times during his two-year contract and expiring December 2000.
F-21
<PAGE> 72
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock options granted to employees
as of December 31, 1997, December 31, 1996 and December 31, 1995 and the changes
during the year ended on these dates is presented below:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS
1997 1996 1995
--------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
---------- -------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of the
year................ 1,165,476 $ 0.98 2,872,194 $ 0.78 2,354,984 $ 0.88
Granted
at-a-discount....... 381,000 $ 1.67 15,000 $ 0.67 663,110 $ 0.42
Granted-at-the-money.. 912,000 $ 0.52 0 n/a 500,000 $ 0.36
Granted-at-a-premium.. 5,000 $ 0.96 110,000 $ 0.55 0 n/a
Total options
granted............. 1,298,000 $ 0.65 125,000 $ 0.93 1,163,110 $ 0.48
Exercised............. 20,000 $ 0.19 101,000 $ 1.00 0 n/a
Forfeited............. 31,200 $ 1.04 1,410,618 $ 0.21 145,900 $ 1.00
Expired............... 412,276 $ 1.69 320,100 $ 2.53 500,000 $ 0.50
Outstanding at end of
year................ 2,000,000 $ 0.63 1,165,476 $ 0.98 2,872,194 $ 0.78
Exercisable at end of
year................ 389,180 $ 0.69 645,476 $ 1.31 1,983,312 $ 0.63
Weighted-average FV of
options granted
at-a-discount....... $ 0.55 $ 0.66 $ 0.42
Weighted-average FV of
options granted
at-the-money........ $ 0.52 n/a $ 0.36
Weighted-average FV of
options granted
at-a-premium........ $ 0.96 $ 0.55 n/a
Weighted-average FV of
all options
granted............. $ 0.52 $ 0.57 $ 0.39
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
ASSUMPTION 1997 1996 1995
- ----------------------- --------- ---------- -------
<S> <C> <C> <C>
Expected Term............. 4.82 3.18 3.45
Expected Dividend Yield... 0.00% 0.00% 0.00%
Expected Volatility....... 95.00% 109.48% 109.48%
Risk-Free Interest Rate... 6.29% 6.01% 5.88%
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------------
WEIGHTED
AVERAGE
NUMBER WEIGHTED REMAINING NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE CONTRACTUAL EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 EXERCISE PRICE LIFE AT 12/31/97 EXERCISE PRICE
--------------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.42 to $0.99. 1,850,000 $ 0.58 7.79 291,980 $ 0.51
$1.00 to $2.99. 145,000 $ 1.04 3.79 93,200 $ 1.06
$3.00 to $5.00. 5,000 $ 5.00 5.20 4,000 $ 5.00
$0.42 to $5.00. 2,000,000 $ 0.63 7.49 389,180 $ 0.69
</TABLE>
F-22
<PAGE> 73
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NON-EMPLOYEES STOCK OPTIONS
A summary of the status of the Company's stock options granted to
non-employees as of December 31, 1997, December 31, 1996, and December 31, 1995
and the changes during the year ended on these dates is presented below:
STOCK OPTIONS -- CONSULTANTS
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year ........................... 1,572,500 $ 1.70 1,790,167 $ 1.03 957,667 $ 1.60
Granted at-a-discount............. 60,000 $ 1.00 435,000 $ 0.73 537,500 $ 0.33
Granted at-the-money.............. 0 n/a 0 n/a 5,000 $ 0.25
Granted at-a-premium.............. 270,000 $ 1.00 0 n/a 300,000 $ 0.56
Total options granted............... 330,000 $ 1.00 435,000 $ 0.73 842,500 $ 0.41
Exercised........................... 0 n/a 96,000 $ 1.00 0 N/a
Forfeited........................... 0 n/a 0 n/a 0 N/a
Expired............................. 0 n/a 556,667 $ 1.70 10,000 $ 4.00
Outstanding at end of year.......... 1,902,500 $ 0.76 1,572,500 $ 1.70 1,790,167 $ 1.03
Exercisable at end of year.......... 1,722,500 $ 0.73 1,422,500 $ 0.72 1,490,167 $ 1.12
Weighted-average FV of options
granted at-a-discount............. $ 0.81 $ 0.67 $ 0.29
Weighted-average FV of options
granted at-the-money.............. n/a n/a $ 0.16
Weighted-average FV of options
granted at-a-premium.............. $ 0.34 n/a $ 0.35
Weighted-average FV of all
options granted................... $ 0.42 $ 0.67 $ 0.31
</TABLE>
The following table summarizes information about non-employees stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED
AVERAGE
NUMBER WEIGHTED REMAINING NUMBER WEIGHTED
OUTSTANDING AVERAGE CONTRACTUAL EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 12/31/97 EXERCISE PRICE LIFE AT 12/31/97 EXERCISE PRICE
- ------------------------ ----------- -------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.01 to $0.99.......... 1,212,500 $ 0.50 3.89 1,212,500 $ 0.50
$1.00 to $3.00.......... 690,000 $ 1.22 5.30 510,000 $ 1.29
----------- ------ ------ ---------- ------
$0.01 to $3.00.......... 1,902,500 $ 0.76 4.40 1,722,500 $ 0.73
</TABLE>
The fair value of each non-employee stock option granted is estimated on the
date of grant using the Black-Sholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
ASSUMPTION 1997 1996 1995
- ----------------------- --------- ---------- ----------
<S> <C> <C> <C>
Expected Term............ 5.00 1.26 3.69
Expected Dividend Yield . 0.00% 0.00% 0.00%
Expected Volatility...... 95.00% 109.48% 109.48%
Risk-Free Interest Rate.. 6.15% 5.61% 6.10%
</TABLE>
F-23
<PAGE> 74
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL INFORMATION FOR CONSOLIDATED STATEMENT OF CASH FLOWS:
<TABLE>
<CAPTION>
(UNAUDITED)
(UNAUDITED) INCEPTION
YEAR YEAR YEAR SIX MONTHS ENDED SEPTEMBER 4,
ENDED ENDED ENDED JUNE 30, 1984, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1996 1995 1998 1997 1998
---------- ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest Paid............................. $ 108,660 $ 392,580 $ 178,156 $ 101,542 $ 68,163 $ 1,357,080
Noncash investing and financing
activities:
Equipment acquired through capital
lease agreements........................ 266,539
Equipment and leasehold improvements
acquired through notes payable.......... 35,775
Conversion of accrued interest payable
to principal on notes payable to
Stockholders............................ 26,800 105,170
Conversion of Series A and Series B
preferred stock to common stock......... 444
Conversion of 1996 Series A and B and
1997 Series C preferred stock to
common stock............................ 1,260,000 2,415,079 200,000 3,675,079
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................................... 488,671 538,671
Common stock and warrants issued in
lieu of interest ....................... 58,139 1,387,300
Patent assignment and leaseback........... 500,000
Issuance of common stock in connection
with Therex settlement.................. 77
Transfer of note receivable from
officer................................. 25,000
Write-up of property and equipment on
Cathlab due to sale and leaseback
agreement............................... 221,616
Issuance of common stock and warrants
for services ........................... 28,280 367,500 56,412 56,250 29,958 1,091,957
Issuance of common stock for certain
liabilities............................. 178,114 1,546,509 86,256 98,861 1,810,879
</TABLE>
15. SALES INFORMATION:
During the year ended December 31, 1997 sales to one customer represented
16.9% of the Company's total net sales. The remainder of net sales to any one
customer were less than 10%. Sales to three customers during the year ended
December 31, 1996 represented 18.7%, 18.2% and 12.9% of net sales while sales to
three customers during 1995 represented 24.8%, 20.2% and 19.4% of net sales. The
loss of any of these major accounts would be material to the Company's overall
results of operations, financial position and cash flows.
Foreign export net sales for 1997, 1996 and 1995 were approximately 62%, 55%
and 81%, respectively.
16. ACQUISITION AND PURCHASE AGREEMENTS:
During October 1992, the Company acquired the assets of SuperStat, Inc.
("SuperStat") in exchange for 18,182 shares of the Company's common stock,
valued at $81,819. Superstat has developed a patented modified collagen
hemostatic sponge for use to control bleeding in vascular and general surgery.
In March 1995, under an agreement with SuperStat, the Company transferred
the license agreement to BioCell, Inc. and was relieved of the obligation to pay
royalties in consideration of receiving a .5% royalty on future product sales by
BioCell, Inc.
17. SUBSEQUENT EVENT:
From January 26 through March 16, 1998 the Company issued 920,696 shares of
common stock through private placements to accredited investors. The share price
ranges from $0.34-$0.43 for a total of $331,000.
F-24
<PAGE> 75
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. OPERATIONS:
The Company has incurred recurring operating losses and negative cash flow.
In order to continue as a going concern, the Company must raise additional
capital and ultimately achieve profitable operations. Though still a
developmental stage company engaged in the development, manufacture and
marketing of medical devices, the Company has ten products presently available
to market and has comprehensive business strategy which it believes will enable
it to capitalize on its technologies and developing trends in the healthcare
industry. Management believes it will be able to raise the capital necessary to
fund the commercialization of its existing technologies and current working
capital for the foreseeable future by "unbundling" its core technologies and
identifying a strategic partner for each technology and product in a specific
international market.
The Company's strategic plan consists of focusing on increased market
penetration of its ten existing FDA-approved products, continuing to revamp its
distribution network, continuing to focus on the commercialization of its core
technologies by pursuing US and international regulatory approval, aggressively
pursuing the sale of ancillary technology to meet future cash requirements and
to validate the proprietary nature of its technologies and continuation of
efforts to identify and pursue strategic alliances.
Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies.
Since receiving ISO 9001 certification in January 1998, the Company has received
unsolicited requests to manufacture unique devices to the specifications of
third parties, indicating growth potential in the OEM market. One OEM contract
for 100,000 units per year is currently in force and another incorporating the
manufacture of nine separate product lines is being negotiated.
In addition, during 1997, management 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 distribution agreements, and research and
development agreements and projects. An integral part of this on-going strategy
is to aggressively pursue the sale of all ancillary technology which will enable
the Company to focus its resources exclusively on its core technologies and
commercial non-angioplasty balloon catheter products. Although there can be no
assurances, the Company does not foresee any risks associated with these
initiatives.
19. UNAUDITED INFORMATION
The Company authorized 60,000 shares of Series D Preferred Convertible Stock
(the "Series D"), stated value $10 and 500,000 shares of Series E Preferred
Convertible Stock (the "Series E"), stated value $10, on April 29, 1998. At
June 30, 1998, 60,000 shares of Series D and none of Series E are issued and
outstanding. Each share of the Series D is convertible at any time after the
earlier of (i) the date on which this registration statement is declared
effective or (ii) July 28, 1998 based upon a conversion price that is equal to
the lesser of (a) 110% of the closing bid price five day average preceding the
date of purchase of the Series D by the holder; or (b) 80% of the closing bid
price five day average preceding the date such conversion is made. As a result,
the Company will account for the "embedded yield" on the Series D by amortizing
approximately $150,000 as preferred stock dividends over the period from the
date of issuance to the earliest conversion date in arriving at the net loss
attributable to common shareholders. For the quarter ended June 30, 1998, the
Company recognized $103,000 of preferred stock dividends due to the beneficial
conversion features. Subsequent to June 30, 1998, the Company issued 7,500
shares of Series E.
F-25
<PAGE> 76
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
American BioMed, Inc.
Our report on the consolidated financial statements of American BioMed, Inc.
and Subsidiaries (a development stage enterprise), which refers to substantial
doubt regarding the Company's ability to continue as a going concern, is
included on Page F-2 in this registration statement. In connection with our
audits of such consolidated financial statements, we have also audited the
related consolidated financial statement schedule listed in the index on Page
F-1.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 31, 1998
F-26
<PAGE> 77
SCHEDULE II
AMERICAN BIOMED, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
ADDITIONS
-------------------------
(2)
(1) CHARGED
BALANCE AT CHARGED TO TO
BEGINNING COSTS OTHER BALANCE AT
OF AND ACCOUNTS- DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
------------------------------------ ----------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Allowance for doubtful
accounts......................... $17,588 $51,919 $ 24,027(1) $45,480
Allowance for deferred
tax assets....................... 6,522,000 314,000 6,836,000
DECEMBER 31, 1996
Allowance for doubtful
accounts......................... 45,480 13,238 1,218(1) 57,500
Allowance for deferred
tax assets....................... 6,836,000 1,159,000 7,995,000
DECEMBER 31, 1997
Allowance for doubtful
accounts......................... 57,500 68,721 69,054(1) 57,167
Allowance for deferred
tax assets....................... 7,995,000 832,000 8,827,000
</TABLE>
-----------
(1) Write-off of bad debts.
F-27
<PAGE> 78
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN, OR INCORPORATED BY REFERENCE
IN, THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF, OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
--------------------
<TABLE>
<S> <C>
TABLE OF CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Market for Registrant's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Security Ownership and Certain Relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
================================================================================
AMERICAN BIOMED, INC.
4,972,744 Shares
of
COMMON STOCK
--------------
P R O S P E C T U S
--------------
_______________, 1998
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering of the shares of Common Stock to be registered and offered hereby are
as follows:
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . $ 1,562
Legal fees and expenses . . . . . . . . . . . . . . . . . $ 8,000
Blue Sky fees and expenses (including legal expenses) . . $ 500
Accounting fees and expenses . . . . . . . . . . . . . . . $ 12,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . $ 1,000
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,062
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action.
In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for expenses, including attorney's fees, actually
and reasonably incurred in connection with the defense or settlement of such
action, and the corporation may not indemnify for amounts paid in satisfaction
of a judgment or in settlement of the claim. In any such action, no
indemnification may be paid in respect of any claim, issue or matters as to
which such person shall have been adjudged liable to the corporation, except as
otherwise approved by the Delaware Court of Chancery or the court in which the
claim was brought. In any other type of proceeding, the indemnification may
extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses.
The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. There are additional limitations applicable
to criminal actions and to actions brought by or in the name of the corporation.
The determination as to whether a person seeking indemnification has met the
required standard of conduct is to be made (1) by a majority vote of a quorum of
disinterested members of the board of directors, or (2) by independent legal
counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (3) by the stockholders.
The Company's Certificate of Incorporation requires the Company to
indemnify its directors and officers to the fullest extent permitted by Section
145 of the Delaware General Corporation Law. In addition, the Company
maintains directors' and officers' liability insurance.
II-1
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, the Company has sold unregistered securities in
the amounts, at the time and for the aggregate amounts of consideration listed
as follows:
(a) During February through April 1995, in connection with a bridge loan
bearing interest at 10% per year, the Company issued warrants to purchase
1,374,250 shares of common stock at $.40 per share. The warrants are
exercisable for two years.
<TABLE>
<CAPTION>
Name Principal Amount Shares of Common Stock
of Notes Issuable upon the
Exercise of Warrants
<S> <C> <C>
Amalgam Capital $ 27,000 67,500
Jim Bertocchio 10,000 25,000
Oral Bertocchio 20,000 50,000
Charles Bosco 40,000 100,000
George Britton 50,000 125,000
Christ Demos 20,000 50,000
Richard Domercq 88,000 220,000
Dyad Industries 10,000 25,000
Richard Feldman 41,000 102,500
Duane Gengler 35,000 87,500
Harrell Huff 20,000 50,000
Betty Janitz 10,000 25,000
Paul Jones 10,000 25,000
Penny Koenig 20,000 50,000
John Koroyanis 10,000 25,000
Chris Liakouras 10,000 25,000
Phillip Rose 55,000 137,500
Stephen Rose 10,000 25,000
Marshall Weinstein 10,000 25,000
Zoetic, Inc. 20,000 50,000
Amalgam Capital - transaction fee 84,250
-------- ---------
$516,000 1,374,250
======== =========
</TABLE>
(b) In May and September 1995, the Company issued shares of common
stock for services rendered to
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
<S> <C>
Dorothy Summers 2,000
Herbert Kalman 15,000
------
17,000
</TABLE>
(c) In May and September 1995, the Company issued 34,300 shares of common
stock to vendors in payment of outstanding obligations totaling
approximately $48,000.
(d) In September 1995, the Company sold 1,000 shares of common stock to
Stanley Hydrisko for $500 cash.
(e) In connection with the early exercise of warrants issued for the 1995
bridge loans, the Company issued warrants to purchase 132,000 shares at
$0.25 per share in September 1995.
II-2
<PAGE> 81
(f) Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 1,250,001 shares of common stock at a purchase price of $0.24
per share to a group of foreign investors.
<TABLE>
<CAPTION>
NAME OF INVESTOR NUMBER OF SHARES OF
COMMON STOCK
<S> <C>
Zanett Lombardier, Ltd. 416,667
Bruno Guazzoni 416,667
Parkland, Ltd 208,333
Heriot Holdings, Ltd 104,167
Harlow Enterprises, Inc. 104,167
---------
1,250,001
=========
</TABLE>
The placement agent for the offering was Zanett Capital, Inc ("Zanett").
Zanett or their designated representative received 10% as compensation for the
placement.
(g) During 1996, the Company issued 1,245,579 shares to vendors in payment
of certain liabilities totaling $1,546,509 in the aggregate.
(h) In April 1996, the Company issued 2,000 shares of common stock to Paul
Moser for $2,360.
(i) Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 1,390 shares of its Series A convertible preferred stock, par
value $0.001 per share for an aggregate of $1,390,000 to the following
foreign investors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF PREFERRED STOCK
<S> <C>
All Fruit Limited 150
Emral Holdings Ltd 400
Harlow Enterprises, Inc. 100
Heriot Holdings, Ltd 100
Queensborough Investments 250
Zanett Lombardier, Ltd 390
-----
1,390
=====
</TABLE>
The placement agent for the offering of Series A Preferred was Zanett.
Zanett or their designated representative received 10% as compensation for the
placement.
(j) Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (1) 1,500 of its 1996 Series B
convertible preferred stock, par value $0.001 per share and (2) an equal
number of warrants to purchase common stock to a group of foreign investors
for a total purchase price of $1,500,000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF PREFERRED STOCK
<S> <C>
Wood Gundy London, Ltd. 800
Shoham Investments, Ltd. 250
OTATO Limited Partnership 250
Ailouros Ltd. 200
-----
1,500
=====
</TABLE>
The placement agent for the offering of Series A Preferred was Zanett.
Zanett or their designated representative received 10% as compensation for the
placement.
(k) In March 1997 the Company issued 125 shares of its Series C convertible
preferred stock, par value $0.00l per share
II-3
<PAGE> 82
to Nelson Partners, an unaffiliated investor for a total purchase price of
$2,500,000. Regal International Capital, Inc. served as placement agent
and received a ten percent fee as compensation.
(l) During 1997, the Company issued 162,222 shares of common stock in payment
of obligations totaling $174,224 to certain vendors.
(m) During the first quarter of 1998, the Company issued 970,696 shares of
common stock through private placements and warrants to purchase 317,000
shares of common stock. An additional 166,666 shares of common stock and
warrants to purchase 50,000 shares of common stock was issued April 21,
1998 through a private placement.
<TABLE>
<CAPTION>
SHARES OF
NAME OF INVESTOR DATE PROCEEDS COMMON STOCK WARRANTS
<S> <C> <C> <C> <C>
Richard Manley 1/26/98 $ 100,000 270,270 100,000
Ida P. Whited 1/30/98 37,000 100,000 100,000
Sunset Corporation 3/4/98 100,000 294,117 *
Brenda Greer * * * 60,000
Glenn Greer 3/4/98 6,000 17,647
Jeffrey Henken, DDS 3/4/98 10,000 29,412 2,000
James Marks 3/10/98 25,000 73,529
David Sherer 3/11/98 17,000 50,000
Monroe Smith 3/11/98 10,000 23,256
Srikant Koneru 3/6/98 1,000 2,941
Jeffrey Henken, DDS 3/13/98 25,000 59,524 5,000
Rodney Hand 3/18/98 17,000 50,000
Sunset Corporation 4/21/98 100,000 166,666 **
Brenda Greer 4/21/98 ** ** 50,000
</TABLE>
(n) During the first five months of 1998, the Company issued 43,000 shares of
common stock to vendors in payment of obligations totaling approximately
$30,640.
(o) The Company sold 60,000 shares of Series D preferred convertible stock
on April 29, 1998 for $600,000 to Augustine Fund, L.P. The Placement
Agent, Bridgewater Capital Corporation, received a ten percent fee and
assignable warrants to purchase 200,000 shares of stock at 125% of the
closing bid price on April 29, 1998.
(p) The Company sold 7,500 shares of Series E preferred convertible stock on
July 28, 1998 for $75,000 to Augustine Fund, L.P.
Except as otherwise discussed, the issuances by the Company of the securities
sold in the transactions referenced above were not registered under the
Security Act pursuant to the exemption contemplated in Section 4(2) thereof,
for transactions not involving a public offering and were made to accredited
investors. In addition, the issuances referenced in (m), (o) and (p) were made
pursuant to Rule 506 under Regulation D to accredited investors.
ITEM 16. EXHIBITS.
The following is a list of all the exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
a. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ---------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among American BioMed, Inc.,
ABI Acquisition, Inc. and Cathlab Corporation dated
March 30, 1992(3)
3.1 -- Certificate of Incorporation.(1)
3.2 -- By-laws.(1)
</TABLE>
II-4
<PAGE> 83
<TABLE>
<S> <C>
3.3 -- Certificate of Designations, Preferences and Rights of 1996 Series A Convertible
Preferred Stock(5)
3.4 -- Certificate of Designations, Preferences and Rights of 1996 Series B Convertible
Preferred Stock(5)
3.5 -- Certificate of Designations, Preferences and Rights of 1997 Series C Convertible
Preferred Stock(8)
3.6 -- Certificate of Designations, Preferences, Limitations and Relative Rights of 1998
Series D Convertible Preferred Stock (10)
3.7 -- Certificate of Designations, Preferences, Limitations and relative Rights of 1998
Series E Convertible Preferred Stock (10)
4.2 -- Specimen Common Stock Certificate
5.1 -- Opinion of Porter & Hedges, L.L.P., as amended, as to the legality of the Common Stock
10.17 -- Summers Note, dated September 1990, between the Company and David P. Summers
Summers, as amended(1)
10.28 -- 1992 Stock Option Plan of the Company and forms of incentive stock option
agreement and non-qualified stock option agreement(11)
10.57 -- Patent License, Research & Development Agreement between Wright Medical
Technology, Inc. and American BioMed, Inc.(2)
10.69 -- Stipulation of Settlement, Scott Printing Corporation v. American BioMed, Inc.(4)
10.70 -- Employment contract with Steven B. Rash(4)
10.71 -- Purchase of Technology Agreement, Guerbet, S.A.(4)
10.80 -- 1996 Incentive Stock Option Plan(6)
10.81 -- Aberlyn Schedule No. 3 to Master Lease Agreement No. 0001E and Patent Schedule
No. 2 to Patent Assignment and License Agreement No. 0001P, effective June 1, 1996
(7)
10.82 -- Securities Purchase Agreement, dated February 20, 1996, between the Company and
certain investors relating to the issuance and sale of Common Stock and 200 shares of
the 1996 Series A Convertible Preferred Stock (8)
10.83 -- Securities Purchase Agreement, dated February 20, 1996, between the Company and
certain investors relating to the issuance and sale of 1,190 shares of the 1996
Series A Convertible Preferred Stock(8)
10.84 -- Form of Registration Rights Agreement, dated February 20, 1996, between the
Company and holders of the 1996 Series A Convertible Preferred Stock(8)
10.85 -- Securities Purchase Agreement, dated November 7, 1996, between the Company and
certain investors relating to the issuance and sale of the 1996 Series B Convertible
Preferred Stock(8)
10.86 -- Form of Registration Rights Agreement, dated November 7, 1996, between the
Company and holders of the 1996 Series B Convertible Preferred Stock(8)
10.87 -- Securities Purchase Agreement, dated March 21, 1997, between the Company and
certain investors relating to the issuance and sale of the 1997 Series C Convertible
Preferred Stock(8)
10.88 -- Registration Rights Agreement, dated March 21, 1997, between the Company and
holders of the 1997 Series C Convertible Preferred Stock (8)
10.89 -- Lease Agreement dated June 19, 1997 between the Company and Woodlands Office
Equities -- '95 Limited(9)
10.90 -- Modification Agreement -- Patent Schedule No. 002 between Aberlyn Capital
Management Co., Inc. and the Company(9)
10.91 -- Modification Agreement -- Lease Schedule No. 003 between Aberlyn Capital
Management Co., Inc. and the Company(9)
10.92 -- Employment agreement with Marshall Kerr(9)
10.93 -- Securities Purchase Agreement, dated April 29, 1998, Series D Preferred and
Series E Preferred Stock (10)
10.96 -- Registration Rights Agreement of Series D Preferred and Series E Preferred (10)
10.97 -- Augustine Fund, L.P. Warrant dated April 29, 1998 to purchase 60,000 shares
of Common Stock (10)
10.98 -- 1994 Stock Option Plan of the Company(12)
21 -- Subsidiaries of the Registrant(7)
</TABLE>
II-5
<PAGE> 84
<TABLE>
<S> <C>
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Porter & Hedges L.L.P (included in Exhibit 5.1)
27 -- Financial Data Schedule (10)
</TABLE>
b. Financial Statement Schedules
All schedules are omitted because they are not applicable or
because the required information is contained in the financial
statements or notes thereto.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, File No. 33-42472, dated October 22, 1991.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
for April 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Proxy Statement for the
November 22, 1996 Annual Meeting.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(8) Incorporated by reference to the Company's Annual Report on Form
10-K/A-1 for the year ended December 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(12) Incorporated by reference to the Company's Proxy Statement for the
April 27, 1994 Annual Meeting.
II-6
<PAGE> 85
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3 and if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability
under the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of a registration statement
in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was
declared effective.
(b) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 86
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-8
<PAGE> 87
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Amendment No. 4 on Form S-1 and has duly
authorized this registration statement to be signed on its behalf by the
undersigned, in the City of The Woodlands, State of Texas on August 21, 1998.
AMERICAN BIOMED INC.
By: /s/ Steven B. Rash
----------------------------------------
Steven B. Rash
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
4 on Form S-1 has been signed by the following persons in the capacities and on
the date indicated on August 21, 1998.
Signature Title
--------- -----
/s/ Steven B. Rash President, Chief Executive Officer and
- --------------------------------- Chairman of the Board
Steven B. Rash
* Director
- --------------------------------
Claudio Guazzoni
* Director
- -------------------------------
Lawrence M. Hoffman
Director
- -------------------------------
Richard S. Serbin
/s/ Colene Blankinship Controller, Chief Accounting Officer,
- ------------------------------- Secretary and Treasurer
Colene Blankinship
* By: /s/ Colene Blankinship
---------------------------------------------
as attorney in fact
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among American BioMed, Inc., ABI Acquisition, Inc.
and Cathlab Corporation dated March 30, 1992(3)
3.1 -- Certificate of Incorporation.(1)
3.2 -- By-laws.(1)
3.3 -- Certificate of Designations, Preferences and Rights of 1996 Series A Convertible
Preferred Stock(5)
3.4 -- Certificate of Designations, Preferences and Rights of 1996 Series B Convertible
Preferred Stock(5)
3.5 -- Certificate of Designations, Preferences and Rights of 1997 Series C Convertible
Preferred Stock(8)
3.6 -- Certificate of Designations, Preferences, Limitations and Relative Rights of 1998
Series D Convertible Preferred Stock (10)
3.7 -- Certificate of Designations, Preferences, Limitations and relative Rights of 1998
Series E Convertible Preferred Stock (10)
4.2 -- Specimen Common Stock Certificate
5.1 -- Opinion of Porter & Hedges, L.L.P., as amended, as to the legality of the Common Stock
10.17 -- Summers Note, dated September 1990, between the Company and David P. Summers
Summers, as amended(1)
10.28 -- 1992 Stock Option Plan of the Company and forms of incentive stock option
agreement and non-qualified stock option agreement(11)
10.57 -- Patent License, Research & Development Agreement between Wright Medical
Technology, Inc. and American BioMed, Inc.(2)
10.69 -- Stipulation of Settlement, Scott Printing Corporation v. American BioMed, Inc.(4)
10.70 -- Employment contract with Steven B. Rash(4)
10.71 -- Purchase of Technology Agreement, Guerbet, S.A.(4)
10.80 -- 1996 Incentive Stock Option Plan(6)
10.81 -- Aberlyn Schedule No. 3 to Master Lease Agreement No. 0001E and Patent Schedule
No. 2 to Patent Assignment and License Agreement No. 0001P, effective June 1, 1996(7)
10.82 -- Securities Purchase Agreement, dated February 20, 1996, between the Company and
certain investors relating to the issuance and sale of Common Stock and 200 shares of
the 1996 Series A Convertible Preferred Stock (8)
10.83 -- Securities Purchase Agreement, dated February 20, 1996, between the Company and
certain investors relating to the issuance and sale of 1,190 shares of the 1996
Series A Convertible Preferred Stock(8)
10.84 -- Form of Registration Rights Agreement, dated February 20, 1996, between the
Company and holders of the 1996 Series A Convertible Preferred Stock(8)
10.85 -- Securities Purchase Agreement, dated November 7, 1996, between the Company and
certain investors relating to the issuance and sale of the 1996 Series B Convertible
Preferred Stock(8)
10.86 -- Form of Registration Rights Agreement, dated November 7, 1996, between the
Company and holders of the 1996 Series B Convertible Preferred Stock(8)
10.87 -- Securities Purchase Agreement, dated March 21, 1997, between the Company and
certain investors relating to the issuance and sale of the 1997 Series C Convertible
Preferred Stock(8)
10.88 -- Registration Rights Agreement, dated March 21, 1997, between the Company and
holders of the 1997 Series C Convertible Preferred Stock (8)
10.89 -- Lease Agreement dated June 19, 1997 between the Company and Woodlands Office
Equities -- '95 Limited(9)
10.90 -- Modification Agreement -- Patent Schedule No. 002 between Aberlyn Capital
Management Co., Inc. and the Company(9)
10.91 -- Modification Agreement -- Lease Schedule No. 003 between Aberlyn Capital
Management Co., Inc. and the Company(9)
10.92 -- Employment agreement with Marshall Kerr(9)
10.93 -- Securities Purchase Agreement, dated April 29, 1998, Series D Preferred and
Series E Preferred Stock (10)
10.96 -- Registration Rights Agreement of Series D Preferred and Series E Preferred (10)
10.97 -- Augustine Fund, L.P. Warrant dated April 29, 1998 to purchase 60,000 shares
of Common Stock (10)
10.98 -- 1994 Stock Option Plan of the Company(12)
21 -- Subsidiaries of the Registrant(7)
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Porter & Hedges L.L.P (included in Exhibit 5.1)
27 -- Financial Data Schedule (10)
</TABLE>
<PAGE> 89
All schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto
- --------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, File No. 33-42472, dated October 22, 1991.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
for April 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Proxy Statement for the
November 22, 1996 Annual Meeting.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(8) Incorporated by reference to the Company's Annual Report on Form
10-K/A-1 for the year ended December 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(12) Incorporated by reference to the Company's Proxy Statement for the
April 27, 1994 Annual Meeting.
<PAGE> 1
EXHIBIT 4.2
ABC
AMERICAN BIOMED, INC.
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE SEE REVERSE
LAWS OF THE STATE OF FOR CERTAIN DEFINITIONS
DELAWARE
CUSIP 02461T 10 4
THIS CERTIFIES that
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, NEW JERSEY) TRANSFER AGENT
AND REGISTRAR
BY AUTHORIZED OFFICER
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE,
OF
AMERICAN BIOMED, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Colene Blankinship [seal] /s/ Steven B. Rash
SECRETARY PRESIDENT
<PAGE> 1
EXHIBIT 5.1
August 18, 1998
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel to American BioMed, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 as amended (the "Registration Statement") with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended. The Registration Statement relates to an aggregate of 4,972,744 shares
of the Company's common stock, par value $.001 per share (the "Common Stock"),
which may be offered and sold from time to time by selling security holders (the
"Selling Security Holders") of the Company.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law as
we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed the genuineness
of all signatures and the authenticity of all documents, instruments, records
and certificates submitted to us as originals.
Based on such examination and review and on representations made to us by
the officers and directors of the Company, we are of the opinion that (i) the
1,406,744 shares of Common Stock to be offered pursuant to the Registration
Statement are validly issued, fully-paid and nonassessable outstanding shares of
Common Stock and (ii) up to 3,566,000 shares of Common Stock to be offered and
sold pursuant to the Registration Statement will be, when issued by the Company
upon the exercise or conversion by certain of the Selling Security Holders of
warrants, options or preferred stock exercisable or convertible into shares of
the Common Stock, validly issued, fully-paid and nonassessable outstanding
shares of the Common Stock.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the Prospectus included in the Registration Statement. This opinion supersedes
our opinion on this matter dated June 22, 1998.
Very truly yours,
PORTER & HEDGES, L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement on Form S-1, Amendment No. 4, (file no. 333-52301) of our report,
which includes an explanatory paragraph concerning the Company's ability to
continue as a going concern, dated March 31, 1998, on our audits of the
consolidated financial statements of American BioMed, Inc. as of December 31,
1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995. We also
consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers, L.L.P.
PRICEWATERHOUSECOOPERS L.L.P.
Houston, Texas
August 21, 1998
