<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, 1999
[_] 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 (I.R.S. Employer
incorporation 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 4, 1999 is 40,775,524.
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AMERICAN BIOMED, INC. and SUBSIDIARY
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 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1999 1998
-------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................................................... $ 21,280 $ 36,463
Accounts receivable, trade, net of Allowance for doubtful accounts of $38,245 and $40,000 as of
September 30, 1999 and December 31, 1998, respectively............................................ 153,161 128,844
Accounts receivable, other......................................................................... 18,528 11,850
Inventories........................................................................................ 387,287 569,209
Other current assets............................................................................... 54,847 146,415
------------ -----------
Total current assets.............................................................................. 635,103 892,781
Property and equipment, net......................................................................... 92,165 131,446
Patents, net of accumulated amortization of $971,678 and $960,862 on September 30, 1999 and
December 31, 1998, respectively.................................................................... 136,365 145,526
Goodwill, net of accumulated amortization of $912,872 and $820,559 on September 30, 1999 and
December 31, 1998, respectively.................................................................... 317,964 410,277
Other assets........................................................................................ 35,564 35,439
------------ -----------
Total assets...................................................................................... $ 1,217,161 $ 1,615,469
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders and others........................................................... $ 597,003 $ 616,309
Current maturities of long-term debt............................................................... 61,694 51,881
Current maturities of capital lease obligations.................................................... 414,757 414,845
Debentures......................................................................................... 400,000
Accounts payable................................................................................... 694,862 640,572
Accrued liabilities................................................................................ 793,931 1,021,892
------------ -----------
Total current liabilities......................................................................... 2,962,247 2,745,499
Long-term debt, net of current maturities........................................................... 29,928
Capital lease obligations, net of current maturities................................................ 710 2,274
Deferred revenue.................................................................................... 925,980 40,000
Commitments and contingencies
------------- -----------
Total liabilities................................................................................. 3,888,937 2,817,701
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000,000 shares authorized, 29,650 and 42,183 shares issued at
September 30, 1999 and December 31, 1998, respectively............................................ 30 42
Common stock, $.001 par value, 50,000,000 shares authorized, 40,499,668 and 32,648,075 shares
issued at September 30, 1999 and December 31, 1998, respectively.................................. 40,500 32,648
Additional paid-in capital.......................................................................... 28,490,365 28,544,387
Deficit accumulated during the Development stage.................................................... (31,202,671) ( 29,779,309)
------------ -----------
Total stockholders' equity (deficit).............................................................. (2,671,776) (1,202,232)
------------ -----------
Total liabilities and stockholders' equity (deficit).............................................. $ 1,217,161 $ 1,615,469
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Inception
--------------------------- ---------------------------- September 4, 1984
September 30, September 30, to September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Sales, net............................... $ 48,158 $ 136,681 $ 326,401 $ 393,082 $ 4,737,237
Cost of sales............................ (15,723) (131,194) (294,883) (358,169) (4,556,556)
----------- ----------- ----------- ----------- ------------
Gross profit............................. 32,435 5,487 31,518 34,913 180,681
----------- ----------- ----------- ----------- ------------
Operating expenses:
Selling, general and administrative.... (299,403) (489,335) (1,243,792) (1,557,597) (20,760,246)
Research and development............... ( 44,985) (229,155) (117,830) (452,371) (8,487,596)
Distributor settlement................. -- -- -- -- (1,080,915)
----------- ----------- ----------- ----------- ------------
(344,388) (718,490) (1,361,622) (2,009,968) (30,328,757)
----------- ----------- ----------- ----------- ------------
Loss from operations........... (311,953) (713,003) (1,330,104) (1,975,055) (30,148,076)
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest income........................ 10 487 36 2,428 156,398
Interest expense....................... (74,984) (28,534) (189,289) (94,429) (3,213,039)
Other income (expense)................. 69,653 (47,800) 95,995 (50,529) 2,002,046
----------- ----------- ----------- ----------- ------------
Other income (expense), net.... (5,321) (75,847) (93,258) (142,530) (1,054,595)
----------- ----------- ----------- ----------- ------------
Net loss....................... (317,274) (788,850) (1,423,362) (2,117,585) (31,202,671)
Less preferred stock dividends. -- (66,886) -- (170,031) (1,353,444)
----------- ----------- ----------- ----------- ------------
Net loss available to common
shareholders (1).............. $ (317,274) $ (855,736) $(1,423,362) $(2,287,616) $(32,556,115)
=========== =========== =========== =========== ============
Net loss per common share...... $ (0.01) $ (0.03) $ (0.04) $ (0.09)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding..... 40,233,343 29,044,855 38,466,172 24,392,112
=========== =========== =========== ===========
</TABLE>
(1) Basic and diluted net loss per share are the same.
The accompanying notes are an integral part of the financial statements
4
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AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984
September 30, to
1999 1998 September 30, 1999
------------------------------------------------------
<S> <C> <C> <C>
Net cash used by operating activities................................ $(1,373,601) $(1,214,722) $(22,583,537)
Cash flows from investing activities:
Capital expenditures............................................... (316) (35,212) (612,909)
Investment in patents.............................................. ( 7,310) (16,422) (516,952)
Deferred licensing fees............................................ 1,000,000 1,300,000
Other investing activities......................................... 7,117 26,000 (20,287)
----------- ----------- ------------
Net cash provided (used) by investing activities.................. 999,491 (25,634) 149,852
----------- ----------- ------------
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.............................. 104,545 230,611 6,685,341
Repayments of notes payable to banks............................... (2,070,000)
Repayments of notes payable to stockholders........................ (822,992)
Repayments of notes payable to others.............................. (145,618) (109,541) (6,241,938)
Principal payments under capital lease obligations................. (785,841)
Proceeds from patent assignment and leaseback...................... 500,000
Proceeds from equipment assignment and leaseback................... 305,000
Proceeds from sale of debentures................................... 400,000 1,040,000
Proceeds from sale of preferred stock.............................. 675,000 9,111,502
Proceeds from sale of common stock and exercise of unregistered
warrants.......................................................... 468,000 9,522,350
Proceeds from exercise of stock options............................ 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) (1,029,746)
Other financing activities......................................... (59,447)
----------- ------------ ------------
Net cash provided by financing activities......................... 358,927 1,174,567 22,454,965
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents................. (15,183) (65,789) 21,280
Cash and cash equivalents at beginning of period..................... 36,463 82,789
----------- ----------- --------------------
Cash and cash equivalents at end of period........................... $ 21,280 $ 17,000 $ 21,280
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
5
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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 material
intercompany transactions and accounts.
Results for the third quarter are not necessarily indicative of year-end
results. These unaudited consolidated condensed financial statements should be
read in connection with the audited financial statements for the year ended
December 31, 1998 included in the Company's Annual Report filed on Form 10-K.
2. CAPITAL STOCK
During the first nine months of 1999, 533 shares of Series A convertible
preferred stock and 12,000 shares of Series D convertible preferred stock were
converted into 4,224,741 and 1,138,842 common shares respectively.
On March 3, 1999, the Company and an investor entered into a securities
purchase agreement for a Series 1999-A Nine Percent (9%) Redeemable Convertible
Debenture (the "Debenture") in the amount of $400,000. Offering costs of
$47,500 were incurred in this transaction. The Debenture matures December 31,
2001 with interest payable quarterly. The Company granted the holder a security
interest in the OmniCath(R) and the Evert-O-Cath(TM). As additional
consideration, a warrant to purchase 40,000 shares of common stock at an
exercise price of $0.175 per share, which is equal to 125% of the closing bid
price for the common stock on March 3, 1999, was issued to the investor. The
warrant is exercisable for three years.
The Debenture is convertible into common stock at a conversion price equal to
the lesser of $0.15 per share or 75% of the lowest of the closing bid prices for
the five business days immediately preceding the conversion date. As a part of
the agreement registration rights were granted regarding the warrant, the
conversion shares, the interest shares and the security shares, and the Company
must make reasonable efforts to file a registration statement within 45 days
after closing. Such registration has not yet been filed. In addition,
2,500,000 shares of common stock are being held in escrow.
The Company has a right to redeem all or a portion of the Debenture at any
time prior to receiving a notice of conversion. The cash redemption amount
shall be equal to:
. 115% of the face amount to be redeemed if redeemed within the first
thirty days;
. 120% of the face amount to be redeemed if redeemed between thirty-
one and sixty-one days; or
. 125% of the face amount to be redeemed if redeemed after 60 days.
6
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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 SEPTEMBER 4,
ENDED NINE MONTHS ENDED 1984, TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Interest paid................................................ $ 67,848 $ 101,542 $ 1,436,547
Noncash investing and financing activities:
Equipment acquired through capital lease agreements.......... 266,539
Equipment and leasehold improvements acquired through notes 35,775
payable.....................................................
Conversion of accrued interest payable to principal on 105,170
notes payable to stockholders...............................
Conversion of Series A and Series B preferred stock to 444
common stock................................................
Conversion of 1996 Series A and B, 1997 Series C, and 1998
Series D preferred stock to common stock................... 653,000 2,813,579 5,193,579
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 124,999
assets of VMS, Inc..........................................
Issuance of common stock in connection with purchase of 81,819
assets of Superstat, Inc....................................
Conversion of notes payable to common stock.................. 538,671
Common stock and warrants issued in lieu of interest......... 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 1,108,457
Issuance of common stock for certain liabilities............. 122,334 1,847,129
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:
SEPTEMBER 30, 1999 DECEMBER 31, 1998
----------------------- ---------------------
Raw materials........................................... $ 93,772 $ 206,800
Work in process......................................... 83,766 120,188
Finished goods.......................................... 209,749 242,221
---------- -----------
$ 387,287 $ 569,209
========== ===========
</TABLE>
7
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AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES
In May 1997, an individual who formerly was Chairman, Chief Scientific
Officer, and a director of the Company filed a lawsuit in the 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 court-mandated mediation
conference in February 1998 did not result in a settlement agreement. The case
came to trial in October 1998 and was settled on terms favorable to the Company.
The Company agreed to give the plaintiff an agreed judgment totaling $400,000,
which was executable after February 15, 1999 with post judgment interest at the
rate of 10% per year. In addition, the Company agreed that upon the sale of its
guidewire micro-filter patent (the OmniFilter), the plaintiff will be entitled
to payment totaling $200,000. In the event of a licensing agreement, the
plaintiff will receive 5% of the licensing agreement revenues until a total of
$200,000 has been paid. The payment of $200,000 is secured by the OmniFilter
patent and such security interest will be subordinated to any lender requesting
the OmniFilter patent as collateral. At the Company's discretion the security
interest in the OmniFilter may be moved to the stent patent with the same
stipulation as to subordination. The judgment was paid and a release filed in
April 1999. The plaintiff has now filed suit claiming that the Company
anticipatorily breached the agreement to pay licensing revenues. The Company
has filed a response denying the claim. Royalty expense in the amount of
$50,000 has been accrued as of September 30, 1999.
In August 1997, an individual who formerly was Chief Financial Officer,
Secretary and Treasurer, and a director of the Company filed a lawsuit in the
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 sought specific
performance and monetary damages of approximately $307,000. On August 24, 1998
the parties reached a settlement through mediation. The Company paid $2,800 in
cash, issued at no cost to the plaintiff stock options to purchase 150,000
shares of common stock at an exercise price of $0.6875 with a guaranteed value
of $100,000 and executed an agreed judgment in the amount of $85,000 at 10%
interest payable November 1, 1999. The judgment was amended to include the
guaranteed value shortage in the amount of $70,173 for a total of $155,173.
In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and seeking $34,000 plus pre-
judgment interest. In the opinion of management, the ultimate outcome of this
matter will not materially affect 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.
6. SUBSEQUENT EVENTS
Pursuant to Secured Convertible Debenture Purchase Agreements dated September
30, 1999 and October 29, 1999, respectively, ( the "Purchase Agreements"), the
Company issued an aggregate of $200,000 of its 13% Secured Convertible
Debentures due April 1, 2000 (the "2000 Debentures") to AJW Partners, LLC and
New Millenium Capital Partners, LLC in order to raise additional funds for
working capital purposes. The Company also entered into a Registration Rights
Agreement with the holders of the 2000 Debentures whereby the Company agreed to
register for resale under the Securities Act of 1933, as amended, the shares of
common stock issuable upon conversion of the 2000 Debentures and shares issuable
upon exercise of certain warrants issued in connection therewith (the
"Warrants"). Offering costs of $20,000 excluding legal fees were incurred in
the transactions. Interest on the 2000 Debentures is payable quarterly. As
additional consideration, the Company issued warrants to purchase a total of
100,000 shares of common stock at an exercise price equal to 130% of the average
per share
8
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market values for the five days preceding the date the funds were received.
These debentures are part of the $10 million financing that the Company has
engaged THE NIR Group to structure.
The 2000 Debentures are convertible into common stock. The number of shares
issuable upon such conversion shall be equal to the outstanding principal to be
converted, plus accrued and unpaid interest thereon, divided by 60% of the
average bid price during the twenty trading days immediately prior to such
conversion. The conversion price is subject to adjustment under certain
circumstances. The Company has the option to prepay the 2000 Debentures upon
prior notice.
On November 9, 1999, the Company received notification that the OmniCath(R)
has been granted CE Mark approval, a precondition for European sales. The
Company is planning to launch the OmniCath(R) in Europe during the fourth
quarter of 1999. Management estimates the target market to be in excess of $500
million.
9
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AMERICAN BIOMED, INC.
(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, 1999, the Company had an accumulated deficit of $31,202,671.
During the first nine months of 1999, the Company focused its efforts primarily
on raising capital and forming strategic alliances. On March 26, 1999, the
Company entered into an exclusive license agreement with Manufacturing &
Research, Inc. ("MRI") for the Company's Cathlab (R) patents. Pursuant to the
license agreement, the Company relocated its manufacturing facility to MRI's
facility in Tucson, Arizona. MRI will staff and manage the facility and
manufacture the Company's cardiovascular products under the licensing agreement.
Management anticipates this action will result in the Company saving
approximately $600,000 in operating, production and engineering costs annually
as well as leading to additional revenue opportunities. Third quarter 1999
savings amounted to approximately $200,000 and indicates that the Company's cost
saving objectives for the period have been exceeded.
As a result of the Company's decision to relocate its manufacturing facility
and form a strategic manufacturing alliance with MRI, manufacturing backlogs
have been temporarily created. These backlogs continued through the third
quarter as the Arizona manufacturing facility completes the manufacturing start-
up phase. Production problems were encountered during the start-up phase and
process validations related to the CE Marking process which resulted in
production being approximately 60 days behind schedule. Production levels are
increasing and full-scale production is expected to commence during the fourth
quarter of 1999. However, if unforeseen problems occur, fourth quarter revenues
will be adversely impacted, although operating losses will continue to decrease.
During the nine months ended September 30, 1999, the Company's net sales
decreased 17.0% to $326,401 compared with sales of $393,082 for the same period
in 1998. Net sales for the third quarter 1999 decreased 64.8% to $48,158 from
$136,681 for the third quarter 1998. Foreign export net sales for the quarter
decreased 80.1% to $12,629 from $63,550 and decreased 22.9% for the first nine
months of 1999 to $163,597 from $201,051 in 1998. Domestic net sales for the
quarter increased 6.5% to $35,529 from $33,374 and 52.4% for the first nine
months of 1999 to $162,803 from $106,798. At September 30, 1999 the Company had
approximately $93,000 in backorders to its distributors due to the relocation of
the manufacturing facility. There were no significant backorders from
distributors as of September 30, 1998. A sales, marketing and distribution
agreement with Biocontrol Technology, Inc. ("Biocontrol") was entered into on
May 25, 1999. During the initial term of the agreement the Company received
$14,000 per month to perform all sales and marketing functions associated with
the sale and distribution of Biocontrol's product, theraPORT(R), an implantable
vascular access system. The agreement was revised to $5,000 per month beginning
August 25, 1999. The decision to distribute Biocontrol's vascular products will
solidify and enhance the Company's extensive domestic and international
distributor network.
The third quarter 1999 and 1998 cost of sales percentage was 32.6% and 96.0%,
respectively. Cost of sales represented 90.3% and 91.1% of sales for the nine
months ended September 30, 1999 and 1998, respectively. The decrease in cost
of sales for the quarter is primarily attributable to the Company's decision to
use the services of MRI for the production of its products.
Selling, general and administrative expenses for the quarter decreased 38.8%
or $189,932 to $299,403 as compared to the same period in the prior year. These
expenses for the first nine months of 1999 decreased 20.1% or $313,805 to
$1,243,792 during the first nine months of 1999, compared to $1,557,597 for the
same period in 1998. Promotion expense, which includes samples to
distributors, trade shows and exhibits, decreased approximately $6,300 and
$24,000 for the quarter and year to date as compared to the prior year.
Quarterly expenditures decreased approximately $98,000 for consulting expenses,
$51,000 for legal and accounting, $28,600 for facility and equipment expense,
$7,500 for office expense, and $9,400 for depreciation and amortization
allocation
Research and development expenses totaled $117,830 during the first nine
months of 1999, a decrease of 73.9% from the 1998 nine month total of $452,371.
These expenses are being slowed until the Company receives funding to ensure
that, once initiated, projects can be completed as scheduled. The Company
entered into an exclusive worldwide, royalty-bearing licensing agreement on
April 14, 1999 with IntraTherapeutices, Inc. ("ITI") for the OmniFilter
10
<PAGE>
AMERICAN BIOMED, INC.
(A Development Stage Enterprise)
technology, a percutaneous guidewire micro-filter to be used in carotid
angioplasty procedures. It is anticipated that research and development
expenses will decrease as a result of this agreement. In addition, other
licensing opportunities are being considered as an alternative to research and
development funding as well as outsourcing opportunities for research and
development projects are being explored to maximize development efforts and
minimize development costs and timelines.
Interest expense increased 100.4% to $189,289 for the first nine months of
1999, compared to $94,429 for the first nine months of 1998 due to increased
borrowings during the fourth quarter of 1998 and second quarter of 1999.
Other income for the quarter includes $10,000 amortization of the license fee
received from Wright Medical Technologies, Inc. for the spinal dissector
transaction in 1994, $50,000 amortization of the license fee received from ITI
and approximately $4,200 for the manufacturing license fee from MRI. The
Company received a one-time license fee of $1,000,000 and a 5% royalty fee from
ITI for the life of the OmniFilter patents. The license term is the later of
the expiration of all patents, including patent applications, or ten years from
the first commercial sale of the licensed product. As part of a settlement
agreement, the former Chairman, Chief Scientific Officer and director of the
Company will receive 5% of the licensing agreement revenues until a total of
$200,000 has been paid. The payment of $200,000 is secured by the OmniFilter
patent and such security interest will be subordinated to any lender requesting
the OmniFilter patent as collateral. Royalty expense of $50,000 has been
accrued and is included in the period to date other income and expense, net.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency as of September 30, 1999 of
$2,327,144 and cash and cash equivalents of $21,280 compared to a deficiency of
$1,852,718 and cash and cash equivalents of $36,463 as of December 31, 1998.
The net cash used by operating activities of $1,373,601 was approximately
$160,000 more than during the same period in 1998. Financing activities
provided cash of $358,927 and was favorably impacted by the issuance of Series
1999-A Nine Percent Redeemable Convertible Debentures in the amount of $400,000.
Investing activities provided cash of approximately $999,000 resulting primarily
from a licensing agreement with ITI (See "Results of Operations.")
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. In the event such funding is not obtained, the Company's
research and development projects will continue to be delayed or scaled back.
Failure to receive funds 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.
RECENT DEVELOPMENTS
Pursuant to Secured Convertible Debenture Purchase Agreements dated September
30, 1999 and October 29, 1999, respectively, ( the "Purchase Agreements"), the
Company issued an aggregate of $200,000 of its 13% Secured Convertible
Debentures due April 1, 2000 (the "2000 Debentures") to AJW Partners, LLC and
New Millenium Capital Partners, LLC in order to raise additional funds for
working capital purposes. The Company also entered into a Registration Rights
Agreement with the holders of the 2000 Debentures whereby the Company agreed to
register for resale under the Securities Act of 1933, as amended, the shares of
common stock issuable upon conversion of the 2000 Debentures and shares issuable
upon exercise of certain warrants issued in connection therewith (the
"Warrants"). Offering costs of $20,000 excluding legal fees were incurred in
the transactions. Interest on the 2000 Debentures is payable quarterly. As
additional consideration, the Company issued warrants to purchase a total of
100,000 shares of common stock at an exercise price equal to 130% of the average
per share
11
<PAGE>
AMERICAN BIOMED, INC.
(A Development Stage Enterprise)
market values for the five days preceding the date the funds were received.
These debentures are part of the $10 million financing that the Company has
engaged THE NIR Group to structure.
The 2000 Debentures are convertible into common stock. The number of shares
issuable upon such conversion shall be equal to the outstanding principal to be
converted, plus accrued and unpaid interest thereon, divided by 60% of the
average bid price during the twenty trading days immediately prior to such
conversion. The conversion price is subject to adjustment under certain
circumstances. The Company has the option to prepay the 2000 Debentures upon
prior notice.
On November 9, 1999, the Company received notification that the OmniCath(R)
has been granted CE Mark approval, a precondition for European sales. The
Company is planning to launch the OmniCath(R) in Europe during the fourth
quarter of 1999. Management estimates the target market to be in excess of $500
million.
YEAR 2000 READINESS
The Company installed vendor upgrades 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.
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.
12
<PAGE>
AMERICAN BIOMED, INC.
(A Development Stage Enterprise)
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1997, an individual who formerly was Chairman, Chief Scientific
Officer, and a director of the Company filed a lawsuit in the 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 court-mandated mediation
conference in February 1998 did not result in a settlement agreement. The case
came to trial in October 1998 and was settled on terms favorable to the Company.
The Company agreed to give the plaintiff an agreed judgment totaling $400,000,
which was executable after February 15, 1999 with post judgment interest at the
rate of 10% per year. In addition, the Company agreed that upon the sale of its
guidewire micro-filter patent (the OmniFilter), the plaintiff will be entitled
to payment totaling $200,000. In the event of a licensing agreement, the
plaintiff will receive 5% of the licensing agreement revenues until a total of
$200,000 has been paid. The payment of $200,000 is secured by the OmniFilter
patent and such security interest will be subordinated to any lender requesting
the OmniFilter patent as collateral. At the Company's discretion the security
interest in the OmniFilter may be moved to the stent patent with the same
stipulation as to subordination. The judgment was paid and a release filed in
April 1999. The plaintiff has now filed suit claiming that the Company
anticipatorily breached the agreement to pay licensing revenues. The Company
has filed a response denying the claim. Royalty expense in the amount of
$50,000 has been accrued as of September 30, 1999.
In August 1997, an individual who formerly was Chief Financial Officer,
Secretary and Treasurer, and a director of the Company filed a lawsuit in the
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 sought specific
performance and monetary damages of approximately $307,000. On August 24, 1998
the parties reached a settlement through mediation. The Company paid $2,800 in
cash, issued at no cost to the plaintiff stock options to purchase 150,000
shares of common stock at an exercise price of $0.6875 with a guaranteed value
of $100,000 and executed an agreed judgment in the amount of $85,000 at 10%
interest payable November 1, 1999. The judgment was amended to include the
guaranteed value shortage in the amount of $70,173 for a total of $155,173.
In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and seeking $34,000 plus pre-
judgment interest. In the opinion of management, the ultimate outcome of this
matter will not materially affect 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.
ITEM 5. OTHER INFORMATION
The Company changed transfer agents in 1999. All common stock transactions
are being handled by Harris Trust and Savings Bank. Correspondence regarding
stock transactions should be directed to the following:
Harris Trust and Savings Bank
Attn: Shareholder Services
P.O. Box A 3504
Chicago, Illinois 60690-3504
Phone: 800-577-5042
13
<PAGE>
AMERICAN BIOMED, INC.
(A Development Stage Enterprise)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this Report.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
14
<PAGE>
AMERICAN BIOMED, INC.
(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 15, 1999 /s/ Steven B. Rash
--------------------------
Steven B. Rash
President and
Chief Executive Officer
Date: November 15, 1999 /s/ Colene F. Blankinship
--------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
15
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
27.1 Financial Data Schedule
16
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
<RECEIVABLES> 191,406
<ALLOWANCES> 38,245
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<OTHER-EXPENSES> 1,361,622
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