<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 June 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
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AMERICAN BIOMED, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0136574
-------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10077 Grogan's Mill Road, Suite 100, The Woodlands, Texas 77380
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(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
August 10, 1999 is 40,203,890.
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AMERICAN BIOMED, INC. and SUBSIDIARY
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
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 9
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
</TABLE>
2
<PAGE>
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 June 30, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................................... $ 133,500 $ 36,463
Accounts receivable, trade, net of Allowance for doubtful accounts of $40,000 as of June 30, 1999
and December 31, 1998............................................................................. 163,456 128,844
Accounts receivable, other......................................................................... 21,019 11,850
Inventories........................................................................................ 399,990 569,209
Other current assets............................................................................... 88,349 146,415
------------ -------------
Total current assets.............................................................................. 806,314 892,781
Property and equipment, net......................................................................... 102,429 131,446
Patents, net of accumulated amortization of $968,073 and $960,862 on June 30, 1999 and December 31,
1998, respectively................................................................................. 135,632 145,526
Goodwill, net of accumulated amortization of $882,101 and $820,559 on June 30, 1999 and December
31, 1998, respectively............................................................................. 348,735 410,277
Other assets........................................................................................ 35,564 35,439
------------ -------------
Total assets...................................................................................... $ 1,428,674 $ 1,615,469
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to stockholders and others........................................................... $ 612,168 $ 616,309
Current maturities of long-term debt............................................................... 60,855 51,881
Current maturities of capital lease obligations.................................................... 414,898 414,845
Debentures......................................................................................... 400,000
Accounts payable................................................................................... 651,223 640,572
Accrued liabilities................................................................................ 674,112 1,021,892
------------ -------------
Total current liabilities......................................................................... 2,813,256 2,745,499
Long-term debt, net of current maturities........................................................... 7,637 29,928
Capital lease obligations, net of current maturities................................................ 1,238 2,274
Deferred revenue.................................................................................... 960,000 40,000
Commitments and contingencies
------------ -------------
Total liabilities................................................................................. 3,782,131 2,817,701
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000,000 shares authorized, 32,650 and 42,183 shares issued at
June 30, 1999 and December 31, 1998, respectively................................................. 33 42
Common stock, $.001 par value, 50,000,000 shares authorized, 39,146,440 and 32,648,075 shares
issued at June 30, 1999 and December 31, 1998, respectively....................................... 40,115 32,648
Additional paid-in capital.......................................................................... 28,491,792 28,544,387
Deficit accumulated during the Development stage.................................................... (30,885,397) ( 29,779,309)
------------ -------------
Total stockholders' equity (deficit).............................................................. (2,353,457) (1,202,232)
------------ -------------
Total liabilities and stockholders' equity (deficit).............................................. $ 1,428,674 $ 1,615,469
============ =============
</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 Six Months Ended September 4, 1984
June 30, June 30, to June 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Sales, net............................... $ 165,551 $ 94,316 $ 278,242 $ 256,400 $ 4,689,079
Cost of sales............................ (152,488) (74,357) (279,159) (226,975) (4,540,833)
----------- ----------- ----------- ----------- ------------
Gross profit............................. 13,063 19,959 ( 917) 29,425 148,246
----------- ----------- ----------- ----------- ------------
Operating expenses:
Selling, general and administrative.... (457,741) (584,441) (944,389) (1,068,261) (20,460,843)
Research and development............... ( 38,632) (131,908) ( 72,845) (223,217) (8,442,611)
Distributor settlement................. -- -- -- -- (1,080,915)
----------- ----------- ----------- ----------- ------------
(496,373) (716,349) (1,017,234) (1,291,478) (29,984,369)
----------- ----------- ----------- ----------- ------------
Loss from operations........... (483,310) (696,390) (1,081,151) (1,262,053) (29,836,123)
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest income........................ 10 1,346 26 1,941 156,388
Interest expense....................... (52,985) (33,608) (114,305) (65,895) (3,138,055)
Other income (expense)................. 11,342 (41,250) 26,342 (2,729) 1,932,393
----------- ----------- ----------- ----------- ------------
Other income (expense), net.... (41,633) (73,512) (87,937) (66,683) (1,049,274)
----------- ----------- ----------- ----------- ------------
Net loss....................... (524,943) (769,902) (1,106,088) (1,328,736) (30,885,397)
Less preferred stock dividends. -- (103,145) -- (103,145) (1,353,444)
----------- ----------- ----------- ----------- ------------
Net loss available to common
shareholders.................. $ (524,943) $ (873,047) $(1,106,088) $(1,431,881) $(32,238,841)
=========== =========== =========== =========== ============
Net loss per common share...... $(0.01) $(0.03) $(0.03) $(0.06)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding..... 39,753,355 25,611,544 37,567,941 22,541,297
=========== =========== =========== ===========
</TABLE>
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 OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Six Months Ended September 4, 1984 to
June 30,
1999 1998 June 30, 1999
-------------------------------------------------
<S> <C> <C> <C>
Net cash used by operating activities................................ $(1,283,351) $(921,583) $(22,493,287)
Cash flows from investing activities:
Capital expenditures............................................... (316) (34,812) (612,909)
Investment in patents.............................................. ( 2,972) (13,996) (512,614)
Deferred licensing fees............................................ 1,000,000 1,300,000
Other investing activities......................................... 2,117 26,000 (25,287)
----------- --------- ------------
Net cash provided (used) by investing activities.................. 998,829 (22,808) 149,190
----------- --------- ------------
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 41,011 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.............................. (122,986) (85,827) (6,219,306)
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.............................. 600,000 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..................................................... (81,974) (1,029,746)
Other financing activities......................................... (59,447)
----------- --------- ------------
Net cash provided by financing activities......................... 381,559 941,210 22,477,597
----------- --------- ------------
Net increase (decrease) in cash and cash equivalents................. 97,037 (3,181) 133,500
Cash and cash equivalents at beginning of period..................... 36,463 82,789
----------- --------- ------------
Cash and cash equivalents at end of period........................... $ 133,500 $ 79,608 $ 133,500
=========== ========= ============
</TABLE>
The accompanying notes are an integralpart 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
material 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, 1998
included in the Company's Annual Report filed on Form 10-K. Results for the
second quarter are not necessarily indicative of year-end results.
2. CAPITAL STOCK
During the first six months of 1999, 533 shares of Series A convertible
preferred stock and 9,000 shares of Series D convertible preferred stock were
converted into 4,224,741 and 742,559 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-CathTM. 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. 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
Six Months Six Months September 4,
Ended Ended 1984, to
June 30, June 30, June 30,
1999 1998 1999
--------------- --------------- -------------------
<S> <C> <C> <C>
Interest paid................................................ $ 44,512 $ 101,542 $1,413,211
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, 1997 Series C, and 1998
Series D preferred stock to common stock.................. 623,000 2,415,079 5,163,579
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......... 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............. 86,256 1,847,129
</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, 1999 December 31, 1998
----------------- ----------------------
<S> <C> <C>
Raw materials.................................................. $ 93,772 $206,800
Work in process................................................ 83,012 120,188
Finished goods................................................. 223,206 242,221
-------- --------
$399,990 $569,209
======== ========
</TABLE>
7
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES
In May 1997, a former Chairman and Chief Scientific Officer and 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 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. The Company
agreed to give the plaintiff an agreed judgment totaling $400,000, which may not
be executed until 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 June 30, 1999.
In August 1997, a former Chief Financial Officer, Secretary and Treasurer
and 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.
In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and is 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.
8
<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 June 30, 1999, the Company had an accumulated deficit of $30,885,397.
During the first six months of 1999, the Company focused its efforts 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. As a result of the Company's decision in March
to relocate its manufacturing facility and form a strategic manufacturing
alliance with MRI, manufacturing backlogs have been temporarily created. These
backlogs are expected to continue through the third quarter as the Arizona
manufacturing facility completes the manufacturing start-up phase. Full-scale
production levels are expected to be in place by the end of the third quarter
1999.
During the six months ended June 30, 1999, the Company's net sales
increased 8.5% to $278,242 compared with sales of $256,400 for the same period
in 1998. Net sales for the second quarter 1999 increased $71,235 or 75.5%.
Foreign export net sales for the quarter decreased 16.5% to $50,817 from $60,889
and increased 8.5% for the first six months of 1999 to $150,968 from $139,121 in
1998. Domestic net sales for the quarter increased 471% to $114,734 from $20,092
and 73.3% for the first six months of 1999 to $127,274 from $73,424. At June 30,
1999 the Company had approximately $77,600 in backorders to its distributors due
to the relocation of the manufacturing facility. In comparison, the backorders
to its European distributors as of June 30, 1998 were $31,200 related to the
attainment of the CE Mark and $10,800 in backorders related to the Company's
launch of its thrombectomy catheter in June 1998. Included in the domestic net
sales for the quarter and six months ended June 30, 1999 is revenue of $28,000
from sales and marketing services and $88,254 from the sale of raw material and
supplies. 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 will receive $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 decision to distribute Biocontrol's vascular products will
solidify and enhance the Company's extensive domestic and international
distributor network.
The second quarter 1999 and 1998 cost of sales percentage was 92.1% and
78.8%, respectively. Cost of sales represented 100.3% and 88.5% of sales for the
six months ended June 30, 1999 and 1998, respectively. The increase in cost of
sales for the year is primarily due to an increase in factory overhead as rent
and other costs increased. 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 for the quarter decreased
21.7% or $126,700 to $457,741 as compared to the same period in the prior year.
These expenses for the first six months of 1999 decreased 11.6% or $123,873 to
$944,389 during the first six months of 1999, compared to $1,068,261 for the
same period in 1998 primarily due to the relocation of the manufacturing
facility during the second quarter. Promotion expense, which includes samples to
distributors, trade shows and exhibits, decreased approximately $21,000 for the
quarter and year to date as compared to the prior year. For the second quarter
1999, one-time expenditures amounting to approximately $30,000 were incurred in
the relocation of the manufacturing facility and California administrative
offices. Quarterly expenditures decreased approximately $57,500 for consulting
expenses, $10,700 for insurance expense, $6,700 for legal and accounting,
$17,000 for payroll and related expenses, $9,500 for facility and equipment
expense, $7,400 for office expense, $10,600 for depreciation and amortization
allocation, $6,300 for investor relations expenses and $10,000 for other
miscellaneous expenses. The decrease in consulting expense is due to timing
differences in the consulting expenses related to attaining and maintaining the
CE Mark and ISO 9001 certifications as well as the expenses related to the
Company's Annual Report. The other decreases in expense were primarily
attributable to the relocation of the manufacturing facility.
9
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Research and development expenses totaled $72,845 during the first six
months of 1999, a decrease of 67.4% from the 1998 six month total of $223,217.
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
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.
Interest expense increased 73.5% to $114,305 for the first six months of
1999, compared to $65,895 for the first six months of 1998 due to increased
borrowings during the fourth quarter of 1998 and second quarter of 1999.
Other income for the quarter includes $15,000 amortization of the license
fee received from Wright Medical Technologies, Inc. for the spinal dissector
transaction in 1994 and $50,000 amortization of the license fee received from
ITI. The Company entered into an exclusive worldwide, royalty-bearing license
agreement on April 14, 1999 with IntraTherapeutics, Inc. for its OmniFilter
technology, a percutaneous filter to be used in carotid angioplasty procedures.
The Company received a one-time license fee of $1,000,000 and a 5% royalty fee
for the life of the 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 at June 30,
1999 and is included in other income and expense, net.
Liquidity and Capital Resources
The Company had a working capital deficiency as of June 30, 1999 of
$2,006,942 and cash and cash equivalents of $133,500 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 $1,283,351 was $361,768 more
than during the same period in 1998. Financing activities provided cash of
$381,559 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 Operation.")
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. 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.
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
10
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
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.
PART II OTHER INFORMATION
-------------------------
Item 1. Legal Proceedings
In May 1997, a former Chairman and Chief Scientific Officer and 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 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. The Company
agreed to give the plaintiff an agreed judgment totaling $400,000, which may not
be executed until 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 June 30, 1999.
In August 1997, a former Chief Financial Officer, Secretary and Treasurer
and 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.
In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and is 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
11
<PAGE>
AMERICAN BIOMED, INC. AND SUBSIDIARY
(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
12
<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: August 12, 1999 /s/ Steven B. Rash
-----------------------------------
Steven B. Rash
President and
Chief Executive Officer
Date: August 12, 1999 /s/ Colene F. Blankinship
------------------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
13
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
-------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 133,500
<SECURITIES> 0
<RECEIVABLES> 203,456
<ALLOWANCES> 40,000
<INVENTORY> 399,990
<CURRENT-ASSETS> 806,314
<PP&E> 761,108
<DEPRECIATION> 642,029
<TOTAL-ASSETS> 1,428,674
<CURRENT-LIABILITIES> 2,813,256
<BONDS> 0
0
33
<COMMON> 40,115
<OTHER-SE> (2,353,457)
<TOTAL-LIABILITY-AND-EQUITY> 1,428,674
<SALES> 250,242
<TOTAL-REVENUES> 278,242
<CGS> 279,159
<TOTAL-COSTS> 279,159
<OTHER-EXPENSES> 1,017,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,305
<INCOME-PRETAX> (1,106,088)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,106,088)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,106,088)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
