<PAGE> 1
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 June 30, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from to
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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 (I.R.S. Employer Identification Number)
incorporation or organization)
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
July 31, 1998 is 28,130,106.
<PAGE> 2
AMERICAN BIOMED, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 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
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................................... $ 79,608 $ 82,789
Accounts receivable, trade, net of Allowance for doubtful accounts of $48,900 and
$57,167 for June 30, 1998 and December 31, 1997, respectively ............................. 55,721 158,724
Accounts receivable, other .................................................................. 11,818 13,716
Inventories ................................................................................. 671,720 648,957
Other current assets ........................................................................ 129,746 144,713
------------ ------------
Total current assets ................................................................. 948,613 1,048,899
Property and equipment, net ................................................................... 165,908 167,991
Patents, net of accumulated amortization of $942,633 and $920,330 on June 30, 1998
and December 31, 1997, respectively ......................................................... 150,388 158,695
Goodwill, net of accumulated amortization of $759,017 and $697,475 on June 30, 1998
and December 31, 1997, respectively ......................................................... 471,819 533,361
Other assets .................................................................................. 35,439 36,110
------------ ------------
Total assets ......................................................................... $ 1,772,167 $ 1,945,056
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders and others .................................................... $ 273,774 $ 300,976
Current maturities of long-term debt ........................................................ 43,444 41,694
Current maturities of capital lease obligations ............................................. 414,424 416,901
Accounts payable ............................................................................ 334,086 254,234
Accrued liabilities ......................................................................... 684,523 662,245
------------ ------------
Total current liabilities ............................................................ 1,750,251 1,676,050
Long-term debt, net of current maturities ..................................................... 51,323 71,855
Capital lease obligations, net of current maturities .......................................... 3,645 --
Deferred revenue .............................................................................. 70,000 100,000
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, 990 and 1,390
shares issued and outstanding at June 30, 1998 and December 31, 1997,
$1,000 per share or $990,000 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 June 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, 29 and 112 shares issued
and outstanding at June 30, 1998 and December 31, 1997, respectively, $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, respectively, increasing at 8% per year from the date of issuance ............. 60 --
Common stock, $.001 par value, 50,000,000 shares authorized, 27,260,330 and 18,457,426
shares issued at June 30, 1998 and December 31, 1997, respectively, of which 0 shares
and 68,323 shares are held in treasury at June 30, 1998 and December 31, 1997,
respectively .............................................................................. 27,260 18,457
Additional paid-in capital .................................................................... 28,347,588 27,479,517
Deficit accumulated during the Development stage .............................................. (28,477,961) (27,149,225)
Less treasury stock at cost, 68,323 shares .................................................... (251,600)
------------ ------------
Total stockholders' equity (deficit) ................................................. (103,052) 97,151
------------ ------------
Total liabilities and stockholders' equity (deficit) ................................. $ 1,772,167 $ 1,945,056
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Three Months Ended Six Months Ended September 4, 1984,
June 30, June 30, To
1998 1997 1998 1997 June 30, 1998
---------------------------- ---------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues, net $ 94,316 $ 135,982 $ 256,400 $ 253,329 $ 4,116,521
Cost of Sales
Gross profit (loss) (74,357) (35,284) (226,975) (160,018) (3,942,242)
------------ ------------ ------------ ------------ ------------
19,959 100,698 29,425 93,311 174,279
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative (584,441) (426,907) (1,068,261) (894,957) (18,600,891)
Research and development (131,908) (228,674) (223,217) (374,962) (8,121,259)
Distributor settlement (1,080,915)
------------ ------------ ------------ ------------ ------------
(716,349) (655,581) (1,291,478) (1,269,919) (27,803,065)
------------ ------------ ------------ ------------ ------------
Loss from operations (696,390) (554,883) (1,262,053) (1,176,608) (27,628,786)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income 1,346 15,331 1,941 20,372 155,875
Interest expense (33,608) (34,302) (65,895) (76,911) (2,944,872)
Other income (expense) (41,250) 14,943 (2,729) 29,943 1,939,822
------------ ------------ ------------ ------------ ------------
Other income (expense), net (73,512) (4,028) (66,683) (26,596) (849,175)
------------ ------------ ------------ ------------ ------------
Net loss (769,902) (558,911) (1,328,736) (1,203,204) (28,477,961)
Less preferred stock dividends (103,145) (103,145) (1,286,558)
------------ ------------ ------------ ------------ ------------
Net loss attributable to common
shareholders $ (873,047) $ (558,911) $ (1,431,881) $ (1,203,204) $(29,764,519)
============ ============ ============ ============ ============
Net loss per common share $ (0.03) $ (0.04) $ (0.06) $ (.08)
============ ============ ============ ============
Weighted average number of common
shares outstanding 25,611,544 14,565,103 22,541,297 14,278,688
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Six Months Ended September 4, 1984
June 30, to
1998 1997 June 30, 1998
--------------------------------------------
<S> <C> <C> <C>
Net cash used by operating activities $ (921,583) $ (1,087,831) $(20,542,894)
Cash flows from investing activities:
Capital expenditures (34,812) (10,080) (612,244)
Investment in patents (13,996) (17,717) (495,340)
Other investing activities 26,000 272,596
------------ ------------ ------------
Net cash used by investing activities (22,808) (27,797) (834,988)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to banks 2,333,880
Proceeds from notes payable to stockholders 1,225,921
Proceeds from notes payable to others 32,490 5,891,077
Repayments of notes payable to banks (2,070,000)
Repayments of notes payable to stockholders (822,992)
Repayments of notes payable to others (78,474) (1,023,361) (5,982,577)
Proceeds of capital lease obligations 8,521 8,521
Principal payments under capital lease obligations (7,353) (86,178) (789,463)
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 600,000 2,500,000 9,036,502
Proceeds from sale of common stock and exercise of unregistered
warrants 468,000 310,034 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 (81,974) (287,590) (1,022,217)
Other financing activities (59,447)
------------ ------------ ------------
Net cash provided by financing activities 941,210 1,416,655 21,457,490
------------ ------------ ------------
Net increase in cash and cash equivalents (3,181) 301,027 79,608
Cash and cash equivalents at beginning of period 82,789 1,183,613
------------ ------------ ------------
Cash and cash equivalents at end of period $ 79,608 $ 1,484,640 $ 79,608
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 6
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 55 shares of Series C were converted into 1,249,999
shares, 728,267 shares and 2,551,350 shares, respectively of common stock.
Options to purchase 100,000 shares for an exercise price of $0.70 which
equals or exceeds fair market value was issued 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 option, 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, exercisable
by October 31, 1998. Expense of $56,250 has been recorded in connection with the
issuance of this option. (See Commitments and Contingencies.)
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 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
6
<PAGE> 7
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 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.
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. 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 will be recognized over the period from the date
of issuance to the earliest conversion date, which resulted in the recognition
of $103,000 of preferred stock dividends in the second quarter of 1998. In
addition, 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.
7
<PAGE> 8
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,
Six Months Ended September 4,
June 30, 1984 to
1998 1997 June 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
Interest Paid $ 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 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 2,415,079 200,000 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 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 29,958 1,091,957
Issuance of common stock for certain liabilities 86,256 98,861 1,810,879
</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>
June 30, 1998 December 31, 1997
------------ -----------------
<S> <C> <C>
Raw materials $ 232,841 $ 225,340
Work in process 176,252 169,657
Finished goods 262,627 253,960
------------ --------------
$ 671,720 $ 648,957
============ ==============
</TABLE>
8
<PAGE> 9
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, which was paid in full 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. Under the terms of the agreement the
Company is required to register the underlying shares of common stock.
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.
9
<PAGE> 10
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 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.
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
10
<PAGE> 11
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
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.)
LIQUIDITY AND CAPITAL RESOURCES
During the first six 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 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 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 approximately $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 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. 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
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.
11
<PAGE> 12
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, which was paid in full 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. Under the terms of the agreement the
Company is required to register the underlying shares of common stock.
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> 13
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
ITEM 5. OTHER INFORMATION
The Company expects to hold its 1998 Annual Meeting on or about December 1,
1998. 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 September 15, 1998.
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 September
15, 1998 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> 14
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: August 13, 1998 /s/ Steven B. Rash
----------------------------------
Steven B. Rash
President and
Chief Executive Officer
Date: August 13, 1998 /s/ Colene F. Blankinship
----------------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
14
<PAGE> 15
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 79,608
<SECURITIES> 0
<RECEIVABLES> 104,621
<ALLOWANCES> 48,900
<INVENTORY> 671,720
<CURRENT-ASSETS> 948,613
<PP&E> 822,362
<DEPRECIATION> 656,455
<TOTAL-ASSETS> 1,772,167
<CURRENT-LIABILITIES> 1,750,251
<BONDS> 0
0
61
<COMMON> 27,260
<OTHER-SE> (130,373)
<TOTAL-LIABILITY-AND-EQUITY> 1,772,167
<SALES> 256,400
<TOTAL-REVENUES> 256,400
<CGS> 226,975
<TOTAL-COSTS> 226,975
<OTHER-EXPENSES> 1,291,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,895
<INCOME-PRETAX> (1,328,736)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,328,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,328,736)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
