<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
For the transition period from _______________________________________ to
Commission File Number: 0-19606
AMERICAN BIOMED, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0136574
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
10077 Grogan's Mill Road, Suite 100, The Woodlands, Texas 77380
- --------------------------------------------------------- ----------
(address of principal executive offices) (Zip Code)
(281) 367-3895
--------------
(Registrant's telephone number, including area code)
N.A.
----
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
The total number of shares outstanding of common stock, $.001 par value as of
November 2, 1998 is 30,704,186.
<PAGE>
AMERICAN BIOMED, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX TO EXHIBITS
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................................... $ 17,000 $ 82,789
Accounts receivable, trade, net of Allowance for doubtful accounts of $48,706 and
$57,167 for September 30, 1998 and December 31, 1997, respectively............................. 101,910 158,724
Accounts receivable, other........................................................................ 16,477 13,716
Inventories....................................................................................... 654,139 648,957
Other current assets.............................................................................. 84,263 144,713
------------ ------------
Total current assets....................................................................... 873,789 1,048,899
Property and equipment, net......................................................................... 147,746 167,991
Patents, net of accumulated amortization of $951,741 and $920,330 on September 30, 1998
and December 31, 1997, respectively............................................................... 143,706 158,695
Goodwill, net of accumulated amortization of $789,788 and $697,475 on September 30, 1998
and December 31, 1997, respectively............................................................... 441,048 533,361
Other assets........................................................................................ 35,439 36,110
------------ ------------
Total assets............................................................................... $1,641,728 $1,945,056
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders and others.......................................................... $ 446,563 $ 300,976
Current maturities of long-term debt.............................................................. 47,597 41,694
Current maturities of capital lease obligations................................................... 414,819 416,901
Accounts payable.................................................................................. 585,519 254,234
Accrued liabilities............................................................................... 757,644 662,245
------------ ------------
Total current liabilities.................................................................. 2,252,142 1,676,050
Long-term debt, net of current maturities........................................................... 40,735 71,855
Capital lease obligations, net of current maturities................................................ 2,782 ---
Deferred revenue.................................................................................... 55,000 100,000
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, 830 and 1,390 shares issued and
outstanding at September 30, 1998 and December 31, 1997, $1,000 per share or $830,000 and
$1,390,000 aggregate liquidation preference, respectively........................................ 1 1
Series B: Convertible preferred stock, 2,500 shares authorized, 0 and 500 shares issued and
outstanding at September 30, 1998 and December 31, 1997, $1,000 per share or $0 and $500,000
aggregate liquidation preference, respectively, increasing at 10% per year from the date of
issuance......................................................................................... - 1
Series C: Convertible preferred stock, 125 shares authorized, 3 and 112 shares issued and
outstanding at September 30, 1998 and December 31, 1997, respectively, $20,000 per share or
$60,000 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 September 30, 1998, $10 per share or $600,000 aggregate liquidation preference,
respectively, increasing at 8% per year from the date of issuance................................ 60 -
Series E: Convertible preferred stock, 500,000 shares authorized, 7,500 shares issued and
outstanding at September 30, 1998, $10 per share or $75,000 aggregate liquidation preference,
respectively, increasing at 8% per year from the date of issuance................................ 7 -
Common stock, $.001 par value, 50,000,000 shares authorized, 29,924,331 and 18,457,426 shares
issued at September 30, 1998 and December 31, 1997, respectively, of which 0 shares and 68,323
shares are held in treasury at September 30, 1998 and December 31, 1997, respectively............ 29,924 18,457
Additional paid-in capital.......................................................................... 28,527,887 27,479,517
Deficit accumulated during the Development stage.................................................... (29,266,810) (27,149,225)
Less treasury stock at cost, 68,323 shares.......................................................... (251,600)
----------- -----------
Total stockholders' equity (deficit)....................................................... (708,931) 97,151
----------- -----------
Total liabilities and stockholders' equity (deficit)....................................... $ 1,641,728 $ 1,945,056
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Three Months Ended Nine Months Ended September 4, 1984,
September 30, September 30, To
1998 1997 1998 1997 September 30, 1998
--------------------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Sales, net $ 136,681 107,292 $ 393,082 $ 360,621 $ 4,253,202
Cost of Sales (131,194) (62,044) (358,169) (222,062) (4,073,436)
--------- --------- ----------- ---------- -----------
Gross profit (loss) 5,487 45,248 34,913 138,559 179,766
--------- --------- ----------- ---------- -----------
Operating expenses:
Selling, general and administrative (489,335) (532,466) (1,557,597) (1,427,423) (19,090,226)
Research and development (229,155) (127,096) (452,371) (502,058) (8,350,414)
Distributor settlement (1,080,915)
--------- --------- ----------- ---------- -----------
(718,490) (659,562) (2,009,968) (1,929,481) (28,521,555)
--------- --------- ----------- ---------- -----------
Loss from operations (713,003) (614,314) (1,975,055) (1,790,922) (28,341,789)
--------- -------- ---------- ---------- -----------
Other income (expense):
Interest income 487 4,133 2,428 24,505 156,362
Interest expense (28,534) (24,110) (94,429) (101,021) (2,973,406)
Other income (expense) (47,800) 15,001 (50,529) 44,944 1,892,022
--------- -------- ---------- ---------- -----------
Other income (expense), net (75,847) (4,976) (142,530) (31,572) (925,022)
--------- -------- ---------- ---------- -----------
Net loss (788,850) (619,290) (2,117,585) (1,822,494) (29,266,811)
Less preferred stock dividends (66,886) (170,031) (1,353,444)
--------- -------- ---------- ---------- -----------
Net loss attributable to common
shareholders $(855,736) $(619,290) $(2,287,616) $(1,822,494) $(30,620,255)
========= ========= =========== =========== ============
Net loss per common share (1) $ (0.03) $ (0.04) $ (0.09) $ (.12)
========= ========= =========== ===========
Weighted average number of
common shares outstanding 29,044,855 15,823,589 24,392,112 14,799,314
========== ========== =========== ===========
</TABLE>
(1) Basic and diluted net loss per share are the same.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S><C><C>
Inception,
Nine Months Ended September 4, 1984
September 30, to
1998 1997 September 30,1998
-------------------------------------------------
Net cash used by operating activities $ (1,214,722) $ (1,705,344) $(20,836,033)
Cash flows from investing activities:
Capital expenditures (35,212) (112,974) (612,644)
Investment in patents (16,422) (34,335) (497,766)
Other investing activities 26,000 272,596
------------ ------------ ------------
Net cash used by investing activities (25,634) (147,309) (837,814)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to banks 2,333,880
Proceeds from notes payable to stockholders 9,600 1,235,521
Proceeds from notes payable to others 212,490 58,750 6,071,077
Repayments of notes payable to banks (2,070,000)
Repayments of notes payable to stockholders (822,992)
Repayments of notes payable to others (101,720) (1,093,733) (6,005,823)
Proceeds of capital lease obligations 8,521 8,521
Principal payments under capital lease obligations (7,821) (114,386) (789,931)
Proceeds from patent assignment and leaseback 500,000
Proceeds from equipment assignment and leaseback 305,000
Proceeds from sale of debentures 640,000
Proceeds from sale of preferred stock 675,000 2,500,000 9,111,502
Proceeds from sale of common stock and exercise of
unregistered warrants 468,000 320,034 9,522,350
Proceeds from exercise of stock options 3,750 339,917
Proceeds from issuance of registered stock purchase warrants 100,000
Proceeds from exercise of registered stock purchase warrants 2,801,018
Treasury stock acquired (500,000)
Offering costs (89,503) (287,590) (1,029,746)
Other financing activities (59,447)
------------ ------------ ------------
Net cash provided by financing activities 1,174,567 1,386,825 21,690,847
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (65,789) (465,828) 17,000
Cash and cash equivalents at beginning of period 82,789 1,183,613
------------ ------------ ------------
Cash and cash equivalents at end of period $ 17,000 $ 717,785 $ 17,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the requirements of Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, the
unaudited consolidated condensed financial statements reflect all adjustments
that are necessary for a fair statement of the results of the periods presented,
and all such adjustments are of a normal recurring nature.
The unaudited consolidated condensed financial statements include the accounts
of American BioMed, Inc. and its wholly-owned subsidiary, Cathlab Corporation,
(jointly referred to as the "Company") after elimination of all intercompany
transactions and accounts.
These unaudited consolidated condensed financial statements should be read in
connection with the financial statements for the year ended December 31, 1997
included in the Company's Annual Report filed on Form 10-K. Results for the
period are not necessarily indicative of year-end results.
2. CAPITAL STOCK
During 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 with an exercise price ranging from $0.34 - $0.69 exercisable for
two years to accredited investors for $348,000. An additional 34,000 shares
were issued in payment of debt. During the first quarter of 1998, 100 shares of
Series A convertible preferred stock ("Series A"), 200 shares of Series B
convertible preferred stock ("Series B") and 29 shares of Series C convertible
preferred stock ("Series C") were converted into 416,666 shares, 745,349 shares
and 1,752,752 shares, respectively of common stock.
In connection with the restructuring of lease obligations due Aberlyn Capital
Management Limited Partnership, on February 10, 1998 the Company issued warrants
to purchase 125,000 shares of common stock at a purchase price of $0.44,
exercisable for five years. In connection with this transaction, no value was
assigned to the warrant due to immateriality. Warrants to purchase 75,000
shares with an exercise price of $7.50 issued to Aberlyn Capital Management
Limited Partnership and Aberlyn Holding Co., Inc. expired January 1998. In
addition, warrants to purchase 269,064 shares with an exercise price of $1.00
issued to other investors in connection with the 1993 bridge financing expired
during June 1998.
In April 1998, the Company received $120,000 for the issuance of 201,148
shares of common stock and warrants to purchase 90,000 shares of common stock
with an exercise price ranging from $0.34 - $0.69 exercisable for two years
through private placements to accredited investors. An additional 221,000
shares were issued in payment of debt, and the treasury stock consisting of
68,323 shares was cancelled. During the second quarter of 1998, 300 shares of
Series A, 300 shares of Series B and 54 shares of Series C were converted into
1,249,999 shares, 728,267 shares and 2,551,350 shares, respectively of common
stock. During the third quarter of 1998, 160 shares of Series A and 26 shares
of Series C were converted into 666,667 shares and 1,822,334 shares of common
stock, respectively.
Options to purchase 100,000 shares for an exercise price of $0.70, which
equals or exceeds fair market value, was issued in May 1998 to the Company's
investor relation firm as part of their agreement to represent the Company. The
options expire in five years. In addition to the options, the Company is to pay
$4,000 per month in fees. Any value related to the option granted is considered
to be immaterial. In settlement of a lawsuit with a distributor, the Company
issued an option to purchase 225,000 shares with an exercise price of $0.40 on
May 1, 1998, exercisable by October 31, 1998. Expense of $56,250 has been
recorded in connection with the issuance of this option. (See Commitments and
Contingencies.)
6
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
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. As of September 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 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. The Series D and
Series E, which confer no voting rights, rank equal with each other, rank junior
to the Series A, B and C convertible preferred stock and senior to the Company's
other securities (except with the consent of the majority of the holders of
Series D or the consent of the majority of the holders of Series E,
respectively). In the event of the dissolution or winding up of the Company,
the holders of Series D and Series E 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 Company is made to or set apart for the
holders of the Common Stock.
The Series E may be issued and sold to the investor at the request of the
Company anytime 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. 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 Company received $600,000 less offering costs for the issuance of 60,000
shares of Series D on April 29, 1998. Due to the beneficial conversion features
in connection with the issuance of Series D, the Company was deemed to recognize
noncash preferred stock dividends totaling approximately $155,000. This amount
is equivalent to the discount from the fair market value of the common stock
given to the purchasers of the Series D calculated as of the date of the sale of
such stock. The preferred stock dividends were recognized over the period from
the date of issuance to the earliest conversion date, which resulted in the
recognition of approximately $103,000 of preferred stock dividends in the second
quarter of 1998 and approximately $52,000 in the third quarter of 1998. In
addition, on April 29, 1998 the Company issued a warrant to the investor for
60,000 shares of common stock with an exercise price of $0.85, expiring in three
years and placement warrants for 200,000 shares of common stock with an exercise
price of $0.85, expiring in five years.
On July 27, 1998, the Company received $75,000 less offering costs for the
issuance of 7,500 shares of Series E. Due to the beneficial conversion features
in connection with the issuance of Series E, the Company recognized noncash
preferred stock dividends totaling approximately $15,000 in the third quarter.
This amount is equivalent to the discount from the fair market value of the
common stock given to the purchasers of Series E calculated as of the date of
the sale of such stock.
During the third quarter warrants to purchase 1,136,205 shares of common
stock for an exercise price ranging from $2.16 to $6.65 expired. Warrants to
purchase 50,000 shares of common stock with an exercise price of $0.35 expiring
in two years were issued to a financing source. In addition, the Company has
reserved for warrants to purchase 200,000 shares of common stock at $0.55 in
connection with a finders fee agreement.
7
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
3. SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984
September 30, to
1998 1997 September 30, 1998
----------------------------------------------------
<S> <C> <C> <C>
Interest Paid $ 116,418 $ 86,678 $1,371,956
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 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 2,813,579 910,000 4,073,579
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 538,671
Common stock and warrants issued in lieu of interest expense 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 56,250 28,280 1,091,957
Issuance of common stock for certain liabilities 204,756 88,861 1,929,379
</TABLE>
4. INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consisted
of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials $ 252,675 $ 225,340
Work in process 140,149 169,657
Finished goods 261,315 253,960
--------- ---------
$ 654,139 $ 648,957
========= =========
</TABLE>
8
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES
On December 8, 1994, a vendor commenced a lawsuit in 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, failure of consideration for the
assignment of certain patent rights, wrongful termination and unpaid debts and
advances. The September 30, 1998 financial statements properly account for notes
payable to the plaintiff in the amount of $242,450, related accrued interest and
accrued salary. The February 1998 mediation conference, which was mandated by
the Court, did not result in a settlement agreement. The case came to trial in
October 1998 and was settled on terms favorable to the Company.
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 with respect to a letter agreement executed in connection
with his employment separation and resignation from the Board of the Company,
and is seeking specific performance and monetary damages of approximately
$307,000. On August 24, 1998 the parties reached a settlement through
mediation. The Company agreed to (a) pay $2,800 in cash in 45 days; (b) issue
to the plaintiff stock options to purchase 150,000 shares of common stock at an
exercise price of $0.6875; and (c) execute an agreed judgment in the amount of
$85,000 at 10% interest payable November 1, 1999.
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
former distributor is currently attempting to void the agreement to settle and
continue the pending litigation. 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, accrues 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.
6. YEAR 2000 READINESS
The Company installed vendor upgrades in 1997 for each of its computer-
based applications that will accommodate the millenium change. The Company's
processing and manufacturing equipment is not date dependent and on-board CPU's
simply control devices without date dependency. The administrative and design
computers utilize state of the art, commercially available software which has
been tested, and when necessary, modified to be Year 2000 ("Y2K") compliant. To
date, more than 60% of the Company's vendors have responded that they are Y2K
compliant and will be able to continue to meet our materials and shipping
demands beyond the year 2000. Therefore, the Company does not believe the
millenium change will have an adverse impact on its operations.
9
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is in the development stage and has had limited operating
revenues since its inception on September 4, 1984. From September 4, 1984
through September 30, 1998, the Company had an accumulated deficit of
$29,266,810. During the first nine 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.
During the nine months ended September 30, 1998, the Company's net sales
increased 9% to $393,082 compared with net sales of $360,621 for the same
period in 1997. Net sales for the third quarter 1998 increased 27.4% to
$136,681 as compared to $107,292 for the third quarter 1997. Foreign export net
sales decreased 11.2% for the quarter to $63,550 from $71,562 and 11.5% for the
first nine months of 1998 to $201,051 from $227,122. Domestic net sales for the
quarter decreased 6.6% to $33,374 from $35,730 while year to date domestic sales
increased 17.8% to $106,798 from $90,636. Revenues for other services and
projects for the first nine months of 1998 increased to $83,612 from $42,863 or
95.1% compared to the same period in 1997. This is primarily attributable to
Original Equipment Manufacturing ("OEM") contracts, set up fees and CE Mark
registration costs related to the projects. Foreign export sales decreased
primarily due to the requirement by the European Union ("EU") that all medical
device products entering the EU after mid-June 1998 must bear the CE Mark. The
Company received CE Mark certification in September 1998 and resumed shipments
to the EU.
Cost of sales represented 91.1% and 61.6% of sales for the nine months
ended September 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 samples to distributors for use in training at reduced
prices and had increased sales of products with lower gross margins than the
majority of its existing products.
Selling, general and administrative expenses decreased 8.1% to $489,335
during the third quarter of 1998, compared to $532,466 for the same period in
1997. Selling expense increased 76.6% to $60,097 as compared to $34,031 for the
third quarter 1997 primarily related to the cost of adding, training and
supporting the Company's expanding distributor network. Specifically, personnel
expense, sales related travel and samples distributed at no charge increased.
General and administrative expenses decreased 13.9% to $429,239 as compared to
the third quarter 1997 amount of $498,435. Personnel costs decreased
approximately $88,500 as administrative personnel were dedicated to regulatory
issues this quarter and the costs were reflected in research and development
instead. 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. Legal and accounting fees increased approximately
$71,600 for the third quarter of 1998 from approximately $18,600 to
approximately $90,200.
For the nine months ended September 30, 1998, selling, general and
administrative expenses increased 9.1% to $1,557,597 as compared to $1,427,423
for the same period in 1997. Selling expense increased 69.9% to $199,312 as
compared to $117,334. Personnel expenses increased approximately $34,600 due to
staff changes. Travel increased approximately $30,000 due to increased trips,
both overseas and domestically, to distributors and trade shows. Samples
distributed at no charge increased approximately $21,300 and were used in
distributor training and market exposure to hospitals. General and
administrative expenses increased 3.7% to $1,358,285 as compared to $1,310,089
for the nine months ended September 30, 1998 and 1997, respectively. This
increase is primarily due to legal expenses related to litigation and financing,
consultants for CE Mark, and increased personnel costs. CE Marking and ISO 9001
expenses for the first nine months of 1998 total approximately $111,000.
Research and development expenses totaled $452,371 during the first nine
months of 1998, a decrease of 9.9% from the 1997 nine month total of $502,058.
These expenses are being slowed until the Company receives
10
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
sufficient funding to ensure that, once initiated, projects can be completed as
scheduled. The third quarter includes costs for certain regulatory items. 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 6.5% to $94,429 for the first nine months of
1998, compared to $101,021 for the first nine months of 1997 due to the decrease
in notes payable and capital lease obligations.
Other income for the nine months includes $367 for royalty income,
approximately $24,000 from gain on sale of machine shop equipment and $45,000
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 connection with the issuance of an option to purchase 225,000 shares
of common stock to a distributor in settlement of litigation. (See Legal
Proceedings.)
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, the Company raised additional 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 September 30, 1998 of $1,378,353, and
cash and cash equivalents of $17,000 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 $1,214,722 was approximately
$490,622 less than during the same period in 1997. This is due in part to
improved accounts receivable collection procedures. During the first nine
months of 1998 the cash flow was favorably impacted by the negotiations of debt
to equity conversions of approximately $204,756. 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
$1,174,567. This includes proceeds from the issuance of Series D of $600,000
less $81,974 offering costs and $75,000 less $7,529 offering costs for the
issuance of 7,500 shares of Series E.
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
OmniStentTM, Evert-O-CathTM, and other products as well as product enhancements
to its existing 100%-silicone balloon catheters, the OmniCath(R), Evert-O-CathTM
and OmniStentTM and to expand its manufacturing and distribution abilities with
respect to the Cathlab products. The Company is actively seeking additional
financing through possible collaborative arrangements, public or private
financings, including equity financings, and other arrangements.
Although the Company has a commitment for a $5 million equity credit line
(Series E), certain trading conditions must be met prior to closing. If these
conditions are not met and the Company is unable to obtain 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.
11
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS
On December 8, 1994, a vendor commenced a lawsuit in 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, failure of consideration for the
assignment of certain patent rights, wrongful termination and unpaid debts and
advances. The September 30, 1998 financial statements properly account for notes
payable to the plaintiff in the amount of $242,450, related accrued interest and
accrued salary. The February 1998 mediation conference, which was mandated by
the Court, did not result in a settlement agreement. The case came to trial in
October 1998 and was settled on terms favorable to the Company.
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 with respect to a letter agreement executed in connection
with his employment separation and resignation from the Board of the Company,
and is seeking specific performance and monetary damages of approximately
$307,000. On August 24, 1998 the parties reached a settlement through
mediation. The Company agreed to (a) pay $2,800 in cash in 45 days; (b) issue
to the plaintiff stock options to purchase 150,000 shares of common stock at an
exercise price of $0.6875; and (c) execute an agreed judgment in the amount of
$85,000 at 10% interest payable November 1, 1999.
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 former
distributor is currently attempting to void the agreement to settle and continue
pending litigation. 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, accrues 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.
12
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
ITEM 5. OTHER INFORMATION
The Company expects to hold its next Annual Meeting on or about May 15,
1999. Management will exercise the discretionary authority granted pursuant to
proxies to vote on shareholder proposals submitted from the floor of the
Company's Annual Meeting unless the Company receives written notice of a
shareholder's intent to submit such a proposal on or before March 1, 1999. The
notice submitted by a shareholder should include a statement that the proponent
intends to solicit the necessary percentage of shareholder votes to carry the
proposal supported by evidence that the stated percentage will actually be
solicited. If the Company receives notice, meeting the foregoing requirements,
of a shareholder's intent to submit such a proposal by March 1, 1999 pursuant to
the rules of the Securities and Exchange Commission, management will not be able
to exercise the discretionary authority granted pursuant to proxies to vote for
or against such proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this Report.
27 Financial Data Schedule
REPORTS ON FORM 8-K
None
13
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BIOMED, INC.
Date: November 13, 1998 /s/ Steven B. Rash
------------------
Steven B. Rash
President and
Chief Executive Officer
Date: November 13, 1998 /s/ Colene F. Blankinship
-------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
14
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
-------
27 Financial Data Schedule
15
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 17,000
<SECURITIES> 0
<RECEIVABLES> 150,616
<ALLOWANCES> 48,706
<INVENTORY> 654,139
<CURRENT-ASSETS> 873,789
<PP&E> 822,762
<DEPRECIATION> 675,016
<TOTAL-ASSETS> 1,641,728
<CURRENT-LIABILITIES> 2,252,142
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<COMMON> 29,924
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<TOTAL-LIABILITY-AND-EQUITY> 1,641,728
<SALES> 393,082
<TOTAL-REVENUES> 393,082
<CGS> 358,169
<TOTAL-COSTS> 358,169
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<INCOME-PRETAX> (2,117,585)
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