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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number: 0-22146
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APPLIED BIOMETRICS, INC.
(Exact name of Registrant as specified in its charter)
--------------------------------------------------------------------------------
Minnesota 41-1508112
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. BOX 3170, BURNSVILLE, MN 55337
(Address of principal executive offices) (Zip Code)
TELEPHONE NUMBER: (612) 338-4722
--------------------------
The Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
---------------------------
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 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. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The Registrant has adopted liquidation basis accounting as of September 1, 2000.
As of March 15, 2001, 5,883,404 shares of Common Stock of the Registrant were
outstanding, and the aggregate market value of the Registrant's outstanding
Common Stock (based upon the last reported sale price of the Common Stock on the
Over-The-Counter Bulletin Board) excluding outstanding shares owned beneficially
by executive officers, directors and principal shareholders, was approximately
$620,315.
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-K INCLUDE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS
"EXPECT," ANTICIPATE," "PLAN," "MAY," "ESTIMATE" OR OTHER SIMILAR EXPRESSIONS.
SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULT TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SEE ITEM 6 "MANAGEMENT'S DISCUSSION AND ANALYSIS - CERTAIN FACTORS"
FOR IMPORTANT FACTORS KNOWN TO US THAT COULD CAUSE SUCH MATERIAL DIFFERENCES.
PART I
Item 1: DESCRIPTION OF BUSINESS
INTRODUCTION
Applied Biometrics, Inc. ("Applied Biometrics" or the "Company"), a
corporation founded in 1984 to develop and market a cardiac output monitoring
system, ceased its ongoing business operations in August 2000 because the
Company determined that it would be unable to complete the development of its
primary product, the Basis Cardiac Output Monitor and RealFlow Cardiac Output
Probe (collectively, the "Basis System"), for market and sale.
CESSATION OF BUSINESS OPERATIONS
As a result of its decisions to cease business operations, the
Company's Chief Executive Officer resigned and all other employees were let go.
Two of the four members of the Board of Directors resigned. In August 2000, the
Company retained Manchester Companies, Inc. ("Manchester"), a Minneapolis,
Minnesota investment banking firm, to explore options to wind-up the Company. As
part of the engagement of Manchester, the Company appointed James D. Bonneville
as the Acting Chief Executive Officer, Chief Financial Officer and Secretary of
the Company. The Company has wound down its business operations, eliminated
expenses and negotiated the termination or satisfaction of all of its
obligations.
The Company no longer occupies any office space. The Company can be
contacted at P. O. Box 3170, Burnsville, MN 55337 or by telephone at (612)
338-4722.
CLINICAL USE OF CARDIAC OUTPUT
Cardiac output (or "CO") is a measure of the volume of blood pumped by
the heart into the aorta and is one of the most basic physiological parameters
of the body's hemodynamic system. There are typically two types of parameters
measured in the heart for diagnostic and monitoring purposes:
electro-physiological, such as the electrocardiogram ("ECG"), and hemodynamic,
such as heart rate, blood pressure and cardiac output. In many cases, ECG, heart
2
rate and pressures are used as a proxy to understand cardiac output. Surgical,
electrical and drug therapies, as well as life support systems, such as bypass
machines and heart assist devices, are often designed to develop and sustain a
specified level of cardiac output.
Since the advent of open-heart surgery, surgeons, anesthesiologists and
intensivists have desired a reliable, accurate, continuous and real-time measure
of cardiac output. The Company believed that medical practitioners recognize the
importance of measuring cardiac output and that there is significant demand for
accurate, real-time cardiac output capability, especially for intra-operative
and post-operative heart surgery settings. In these settings, surgeons,
anesthesiologists and intensivists require continuous, real-time information
about cardiac output to guide surgery, drug delivery and life support systems.
The Company believed that practitioners were particularly interested in
immediate cardiac output data for certain patients undergoing cardiac surgery,
including heart transplant and coronary artery bypass surgeries, where the
ability to provide real-time, beat-to-beat, continuous cardiac output data can
allow surgeons, cardiologists and anesthesiologists to react quickly to changes
in a patient's condition.
PRODUCTS
Prior to deciding to cease its business operations, the Company was
developing a system designed to measure CO on a continuous and real-time basis
during and after cardiac surgery called the Basis System. The Basis System was
designed for use on a broad range of aortic diameters in both adults and
children. By using ultrasound to monitor CO directly from the ascending aorta,
the Basis System was expected to provide real-time accuracy never before
available. In contrast to conventional CO techniques, the Basis System was
designed to directly measure the patient's aortic diameter and blood velocity 44
times each second for a true, real-time view of cardiac output.
The Basis System consisted of the patented, disposable, ultrasonic
RealFlow Probe and the Basis Cardiac Output Monitor. The RealFlow Probe
consisted of an ultrasound sensor mounted in the probe head, a power cable and
an integrated release mechanism. The release mechanism involved two nitinol
"release" wires integrated into the sensor head, which the surgeon sutures to
the patient's aorta during open-heart surgery. Later, after the chest cavity has
been closed, the physician released the sutures by withdrawing the release
wires, permitting the probe to be removed from the chest without additional
surgical intervention.
The Basis System monitor consisted of both software and electronic
hardware and display, which energized the Basis System's RealFlow probe, senses
the probe's signal, determines cardiac output and provides a graphical and
numeric display to the physician. The electro-luminescent flat panel display
provided numerical, waveform and trend information of the patient's cardiac
output, stroke volume, blood velocity, aortic diameter and blood velocity. The
monitor was designed to be automatic, requiring no user calibration, and to
automatically adjust its analysis and readout to each individual patient.
The Basis System was specifically designed to address the need for
continuous, real-time, cardiac output data in surgical and post-operative
settings by reporting cardiac output accurately
3
and without subjective user intervention. The Basis System readings were thought
to be used to guide cardiac surgeons during surgical procedures and to assist
intensivists and anesthesiologists by monitoring vital signs and managing life
support systems both during and after the procedures.
In July of 2000, the Company determined that significant technical
issues faced the Basis System which made commercialization of the Basis System
unlikely in the near term. Two significant issues were identified. The first
issue involved the Basis System's ability to work successfully in the event of
considerable variability or turbulence in a patient's blood flow. The second
issue involved errors arising from the positioning of the Basis System's probe
during and after surgical procedures. Both of these problems significantly
impacted the performance, reliability and market potential of the Basis System.
RESEARCH AND DEVELOPMENT
Prior to deciding to cease its business operations, the Company's
professionals researched and developed proprietary competencies in ultrasound
transducers, signal processing, cardiac anatomy and pathology and the fluid
dynamics of blood flow. The Company's research and development expenditures for
the first eight months of 2000 were $1,500,000 and were $1,469,000 and $805,000
annually in 1999 and 1998, respectively. These funds were used primarily to
develop the Basis System and its underlying core technologies.
PATENTS AND PROPRIETARY RIGHTS
The Company developed extensive proprietary technology and knowledge in
a variety of fields that relate to cardiac output, blood flow and associated
diagnostic and monitoring products. These include ultrasound transducer design
and manufacturing, signal processing, cardiac anatomy, pathology and clinical
procedures, the fluid dynamics of blood flow and acoustic properties of the
human anatomy.
The Company obtained U.S. and foreign patents and patents pending,
which relate to devices and methods used to measure blood flow through a major
mammalian artery using ultrasound technology, the release mechanism employed by
the RealFlow probe, and certain methods and techniques which relate to minimally
invasive surgery, beating heart surgery and advanced signal processing. In
addition to its patented technology, the Company relied heavily on trade secrets
and unprotected proprietary technology. The Company always maintained the
confidentiality of such information through its internal security and secrecy
measures and the employment agreements requiring employees and agents of the
Company to maintain the confidentiality of Company information and to assign to
the Company inventions developed in the course of work for the Company.
Basis(TM) and RealFlow(TM) are trademarks of the Company.
On January 31, 2001, as part of its decision to cease business
operations, the Company sold certain patented technology to Transonic Systems,
Inc. for a purchase price of $23,000.
4
This patented technology consisted of technology that relates to devices and
methods used to measure blood flow through arteries using ultrasound technology,
and certain methods and techniques which relate to minimally invasive surgery,
beating heart surgery and advanced signal processing.
EMPLOYEES
As of December 31, 2000, the Company had no employees. James D.
Bonneville, the Company's Acting Chief Executive Officer, Chief Financial
Officer and Secretary has been retained by the Company under the agreement with
Manchester.
Item 2: PROPERTIES
Until October 2000, the Company occupied a leased facility located at
501 East Highway 13, Burnsville, Minnesota 55337. On October 30, 2000, the
Company terminated the lease of this facility and paid a one time lease
termination payment of $75,000. The Company does not currently occupy any space.
Item 3: LEGAL PROCEEDINGS
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
Item 4A: EXECUTIVE OFFICERS OF THE REGISTRANT
With the decision to cease business operations, all employees and
executive officers of the Company were terminated. As of March 15, 2001, the
Company, pursuant to its arrangement with Manchester, engages one individual as
its Acting Chief Executive and Chief Financial Officer his age and biographical
information is as follows:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
James D. Bonneville 61 ACTING CHIEF EXECUTIVE OFFICE, CHIEF
FINANCIAL OFFICER AND SECRETARY
JAMES D. BONNEVILLE - Mr. Bonneville has been a Vice President at
Manchester Companies since March 2000. Mr. Bonneville served as the Chief
Executive Officer of Linguistic Technologies, Inc. from March 1999 to January
2000. During 1999 Mr. Bonneville served as a consultant to MinCorp Investment
Network. From 1993 to 1998 Mr. Bonneville served as the President and Chief
Operating Officer of Connect Computer Company, which merged into Norstan in
1996.
5
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to November 30, 2000, the Company's Common Stock was traded on
the Nasdaq SmallCap Market under the symbol "ABIO." Effective as of November 30,
2000, the Company's Common Stock is no longer quoted on the Nasdaq Small Cap
Market because the Company no longer met, and currently does not meet, the
minimum net tangible assets and capital and surplus requirements for continued
quotation. The Common Stock currently trades on the Over-The-Counter Market on
the NASD "Electronic Bulletin Board" under the symbol "ABIO." The following
table sets forth, for the periods indicated, the high and low closing sale
prices per share as reported by the Nasdaq SmallCap Market and the OTC Bulletin
Board. These prices do not include adjustments for retail mark-ups, markdowns or
commissions and may not necessarily represent actual transactions.
2000 HIGH LOW
---- ---- ---
First Quarter............. $4.00 $2.28
Second Quarter............ 3.50 2.38
Third Quarter............. 2.19 0.25
Fourth Quarter............ 0.34 0.09
1999 HIGH LOW
---- ---- ---
First Quarter............. $8.50 $7.63
Second Quarter............ 8.00 4.38
Third Quarter............. 5.25 3.88
Fourth Quarter............ 5.00 2.38
The Company has not declared or paid any cash dividends on its Common
Stock since its inception. As of March 15, 2001, there were approximately 606
beneficial owners of the Company's Common Stock.
6
Item 6: SELECTED FINANCIAL DATA
SUMMARY STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION DATA:
FOUR MONTHS ENDED
DECEMBER 31, 2000
-----------------
Net assets in liquidation, beginning of period.............. $925,557
Changes in net assets in liquidation........................ (193,030)
---------
Net assets in liquidation, end of period.................... $732,527
========
SUMMARY STATEMENTS OF OPERATIONS DATA:
EIGHT MONTHS
ENDED
AUGUST 31, YEARS ENDED DECEMBER 31,
2000 1999 1998 1997(1) 1996
---- ---- ---- ------- ----
Net revenue ....................... $ -- $ -- $ -- $ 64,940 $ 125,120
Gross margin ...................... -- -- -- 32,765 63,145
Operating Expenses:
Selling, general &
administrative ................. 911,766 1,028,065 946,721 1,061,579 862,221
Research & development ......... 1,500,337 1,469,001 805,459 1,409,280 894,517
----------- ----------- ----------- ----------- -----------
Net Loss from continuing
operations ..................... (2,354,876) (2,445,942) (1,563,991) (2,134,604) (1,368,961)
Discontinued Operations:
Loss from operations of Trans-
catheter closure business ...... -- -- (1,838,147) (457,866) --
----------- ----------- ----------- ----------- -----------
Net Loss .......................... (2,354,876) (2,445,942) (3,402,138) (2,592,470) (1,368,961)
=========== =========== =========== =========== ===========
Basic and diluted loss per share
Continuing operations .......... $ (0.42) $ (0.52) $ (0.36) $ (0.51) $ (0.35)
Discontinued operations ........ -- -- $ (0.43) $ (0.11) $ --
----------- ----------- ----------- ----------- -----------
$ (0.42) $ (0.52) $ (0.79) $ (0.62) $ (0.35)
=========== =========== =========== =========== ===========
Weighted average shares(2)
outstanding, basic and
diluted ........................ 5,655,380 4,659,300 4,312,077 4,186,896 3,917,268
---------------------------------
(1) In 1997, the Company ceased marketing efforts of two cardiac output devices:
one that was integrated into an endotrachial tube, and the other being a
predecessor to the Basis System.
(2) The Company's weighted average shares outstanding were increased by the
issuance of 525,000 shares of Common Stock from two private placements in April
2000.
7
SUMMARY BALANCE SHEET DATA:
AT DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Cash, cash equivalents & short-
term investments .............. $1,109,537 $1,910,356 $2,369,413 $4,420,180 $6,374,452
Total assets ..................... 1,218,263 2,827,739 3,296,711 5,437,923 7,490,300
Net assets in liquidation ........ 732,527 -- -- -- --
Shareholders' equity ............. -- 2,516,625 2,151,564 5,271,202 7,287,110
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company ceased its ongoing business operations in August of 2000
because the Company determined it would be unable to complete the development of
its primary product, the Basis System, for market and sale. The Company's Chief
Executive Officer resigned and all other employees were terminated. The Company
has wound down its business operations, eliminated expenses and negotiated the
termination or satisfaction of all of its remaining obligations. Currently, the
Company's management and accounting functions are performed through Manchester.
The Company adopted liquidation basis accounting as of September 1,
2000. This basis of accounting is considered appropriate when liquidation of a
company appears imminent and the net realizable value of its assets are
reasonably determinable. Under this basis of accounting, assets and liabilities
are stated at their net realizable value and estimated costs through the
liquidation date are provided to the extent reasonably determinable.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, net assets in liquidation were $733,000. Cash,
cash equivalents and marketable securities were $1,100,000 as of December 31,
2000 as compared to $1,900,000 at December 31, 1999, a decrease of $800,000.
Continuing operating activities in 2000 used cash of $2,486,000 as
compared to $2,095,000 used during 1999.
Investing activities for the first eight months of 2000 provided cash
of $193,000 as compared to $116,000 for the twelve-month period ending December
31, 1999.
Financing activities provided $1,492,000 of cash, resulting primarily
from the issuance of Common Stock by the Company in a private equity financing
in April 2000.
8
Based on its expected rate of spending the Company believes that its
existing cash and cash equivalents will be more than sufficient to fund any
further expenses related to the Company for 36 months. The Company is presently
investigating liquidation options for the Company and its shareholders. There
can be no assurances that the Company will be able to find liquidation option
for the Company or the shareholders on terms satisfactory to all parties.
RESULTS OF OPERATIONS
EIGHT MONTHS ENDED AUGUST 31, 2000 AND TWELVE MONTHS OF 1999
Selling costs and general and administrative expenses were $912,000 for
the first eight months of 2000, compared to selling costs and general and
administrative expenses of $1,028,000 for the twelve months ended December 31,
1999. One-time expenses in the first eight months of 2000 were $100,000 from
termination costs and a non-cash compensation charge of $153,000 related to
stock granted to the Company's three non-employee directors for prior and
current Board service. There were no selling costs for this period.
Research and development costs for the first eight months of 2000 were
$1,500,000 compared to $1,469,000 for the twelve months ended December 31, 2000.
These expenses increased for the first eight months of 2000 because of a
$100,000 of employee termination costs related to the Company's termination of
operations and, a second quarter write-off by the Company of $210,000 of its
monitor and probe component inventory.
Other income, primarily interest, earned was $57,000 for the first
eight months of 2000 compared to $51,000 for the twelve months ended December
31, 1999.
The net loss for the first eight months of 2000 was $2,355,000, or
$0.40 per share, as compared to a net loss of $2,446,000, or $0.52 per share, in
the twelve-month period ending December 31, 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
General and administrative expenses increased $353,000 to $935,000 in
1999 from $582,000 in 1998. The increase in 1999 reflected increased
compensation related to costs of approximately $133,000 due to higher
compensation levels and additional personnel hired in anticipation of product
launch. The balance of the year-to-year increase related to an allocation of
personnel and other costs to discontinued operations in 1998.
Selling costs decreased $271,000 from $364,000 in 1998 to $93,000 in
1999. The Company had minimal sales and marketing activity in 1999. Of the
$93,000 total sales and marketing costs for 1999, 32% was incurred in the first
quarter and was related to marketing costs absorbed prior to the spin-off of the
transcatheter business. The remaining 68% was incurred primarily in the fourth
quarter of 1999 as the Company started adding marketing personnel and conducting
marketing research and product evaluation activities related to the Basis
System.
9
Research and development expenses increased $664,000 from $805,000 in
1998 to $1,469,000 in 1999 due to increased engineering, operations and quality
personnel costs, mammal testing and manufacturing pilot costs in 1999 over 1998.
Additionally, some 1998 costs, primarily related to manufacturing and quality
personnel were allocated to discontinued operations in 1998.
Other income, primarily interest, decreased $137,000 from $188,000 in
1998 to $51,000 in 1999. The decrease was due to lower average investment
balances in 1999 than in 1998.
The 1999 net loss was $2,446,000, or $0.52 per share, compared to a net
loss of $1,564,000, or $0.36 per share, in 1998, excluding a loss of $1,838,000,
or $.43 per share, from discontinued operations.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The Company had no revenue in 1998 as compared to $65,000 in 1997. In
1996, after a number of years of research and development, the Company decided
to focus its efforts on a new intra-operative cardiac output system using a
disposable ultrasound probe applied directly to the ascending aorta. Sales of an
earlier version of this device were ceased in 1997 until the completion of the
next generation product.
Selling, general and administrative costs decreased $115,000 in 1998
from $1,062,000 in 1997 to $947,000 in 1998. Lower selling costs accounted for
$24,000 of the decrease due to the reduction in marketing activities in 1998 as
the Company focused on research and development. Reduced general and
administrative costs of $91,000 accounted for the balance of the year-to-year
decrease, primarily due to costs allocated to discontinued operations.
Research and development decreased $604,000 from $1,409,000 in 1997 to
$805,000 in 1998. During 1998, fewer personnel and other resources were
dedicated to the cardiac output development effort as compared to the 1997
activity. The Company's research and development activities were split between
its continuing operations, cardiac output monitoring, and the transcatether
closure business, which comprises discontinued operations.
Other income, primarily interest, was $188,000 in 1998 as compared to
$303,000 in 1997 a decrease of 115,000. The decrease was the result of fewer
funds available for investment.
The 1998 loss from continuing operations was $1,564,000, or $0.36 per
share, as compared to a $2,135,000 loss, or $0.51 per share, in 1997. The loss
from discontinued operations was $1,838,000, or $0.43 per share, in 1998 as
compared to the 1997 loss from discontinued operations of $458,000, or $0.11 per
share.
10
INFLATION
Management believes inflation has not had a material effect on the
Company's operations or on its financial condition.
CERTAIN FACTORS
CESSATION OF BUSINESS OPERATIONS; NOT A GOING CONCERN.
As indicated, the Company has terminated its business operations due to
technical difficulties with its sole product, the Basis System. The Company has
positioned itself for a sale or liquidation. Although the Company may seek to
complete a merger of the Company with another operating entity, there can be no
assurance as to the Company's ability to conclude such a transaction or the
business, financial condition or results of operations of any successor entity.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements can be found on pages 22 to 36 of
this Report. The index to such items is included on page 19 in Item 14(a)(1).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 18, 1999, the Company appointed Ernst & Young LLP as the
Company's independent auditors and dismissed PricewaterhouseCoopers LLP. The
report of PricewaterhouseCoopers on the financial statements of the Company for
the year ended December 31, 1998 was unqualified and did not contain an adverse
opinion, any disclaimers, qualification or modification as to uncertainty, audit
scope, or accounting principles. In connection with the audits of the financial
statements of the Company for the most recent fiscal years ending December 31,
1999, and each subsequent interim period preceding October 18, 1999, there were
no disagreements or reportable events. The decision to change firms was approved
by the Company's Board of Directors.
11
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Company as of March 15, 2001 are as follows:
NAME AGE POSITION
---- --- --------
Andrew M. Weiss 44 Director and Chairman of the Board
Jeffrey W. Green 60 Director
Andrew M. Weiss was elected as a Director of the Company in March 1999.
Mr. Weiss served as the President and Chief Executive Officer of the Company
from March of 1999 to September 2000. In 1998, Mr. Weiss served as acting
President of Intellx of Boulder, Colorado, a venture stage company involved in
medical image processing. From 1995 to 1998 Mr. Weiss was Chief Executive
Officer and President of Vital Images, Inc., a Minneapolis-based provider of
diagnostic and surgical visualization systems. In 1994 and 1995, he was
Vice-President of Global Sales and Marketing for Marquette Medical Systems, a
Milwaukee, Wisconsin based manufacturer of patient monitoring systems. Prior to
1994, Mr. Weiss held various positions with General Electric Company, including
several positions with GE Medical Systems.
Jeffrey Green, is the Co-founder and Chairman of the Board of
Hutchinson Technology, Inc., a disk drive component manufacturer. Mr. Green has
been Chairman of the Board of Hutchinson Technology, Inc. since 1983 and served
as its Chief Executive Officer from January 1983 to May 1996.
During 2000, the Board met seven times and took action by written
consent four times. All of the members of the Board attended more than 75% of
the meetings of the Board that occurred while they were members of the Board.
DIRECTOR COMPENSATION
Non-employee directors did not receive cash compensation from the
Company for their services as members of the Board of Directors or its
Committees during the first eight months of 2000. Non-employee directors are
reimbursed for all out-of-pocket expenses that they incur traveling to and from
Board meetings.
The Company, in the past, has granted options that become exercisable
in installments over several years and other stock awards, to non-employee
directors. On February 2, 2000 the Company granted unrestricted stock awards for
Board service under the Company's 1996 Stock Plan to Dr. Demetre Nicoloff and
Mr. Norman Dann, former members of the Board who resigned in August of 2000, and
Mr. Green, in amounts equal to 7,786, 15,573 and 15,573, respectively. On
February 2, 2000 the Company also granted to Messrs. Nicoloff, Dann, and Green,
non-plan grants of unrestricted stock awards of 2,214, 4,427 and 4,427,
respectively. On March 2, 2000, the Company granted Messrs. Green and Nicoloff
stock options under its 1998 Stock Plan with
12
an exercise price of $3.375 per share. Mr. Green was granted options to purchase
40,000 shares, with 20,000 of such shares exercisable at the time of the grant
and 10,000 exercisable on the earlier to occur of June 1 or re-election as a
director thereafter. Mr. Nicoloff was granted an option to purchase 50,000
shares, with 30,000 of such shares exercisable at grant and 10,000 exercisable
on the earlier to occur of June 1 or re-election as a director thereafter.
(b) Executive Officers of the Registrant
Information concerning Executive Officers of the Company is included in
this Report under Item 4A, "Executive Officers of the Registrant."
(c) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company during, or with respect to, the period
ended December 31, 2000, the Company's directors, executive officers and greater
than 10% shareholders complied with the applicable Section 16(a) filing
requirements.
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31,
2000, 1999, and 1998, the compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to each person serving as
the Company's President and Chief Executive Officer during 2000 and each
executive officer who received more than $100,000 in compensation during 2000.
13
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
---------------------------------------- ----------------- ($)(1)
SECURITIES
SALARY BONUS OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTIONS (#)
-----------------------------------------------------------------------------------------------------------------------
Andrew M. Weiss (2) 2000 $131,250 -- $4,500 175,000 $183,200
FORMER PRESIDENT AND CHIEF
EXECUTIVE OFFICER
------------------------------------------------------------------------------------
1999 $145,833 $30,000 -- 325,000 --
------------------------------------------------------------------------------------
1998 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
James D. Bonneville (3) 2000 $45,000 -- -- -- $24,000
ACTING CHIEF EXECUTIVE
OFFICER
-----------------------------------------------------------------------------------------------------------------------
Camille Meyer(4) 2000 $75,000 -- -- 15,000 $51,500
FORMER VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
-----------------------------------------------------------------------------------------------------------------------
Joshua Baltzell(5) 2000 $66,667 $10,000 -- 55,000 $33,000
FORMER VICE PRESIDENT -
SALES AND MARKETING
-----------------------------------------------------------------------------------------------------------------------
-----------------------------
(1) Includes severance and benefits payments made to Mr. Weiss in the amount of
$183,200, to Ms. Meyer in the amount $51,500 and to Mr. Baltzell in the amount
of $33,000. Includes a commission payment of $24,000 to Manchester for sales of
certain liquidated assets.
(2) Mr. Weiss was named President and Chief Executive Officer in March of 1999.
During his employment, Mr. Weiss received a car allowance equal to $4,500. Mr.
Weiss' employment terminated in September of 2000 and as a result he received a
severance payment equal to $175,000 and a lump-sum benefits payment equal to
$8,200.
(3) The services of Mr. Bonneville as Acting Chief Executive Officer and Chief
Financial Officer and Secretary are provided through the agreement between the
Company and Manchester, pursuant to which the Company paid Manchester a monthly
fee equal to $10,000 for the months of August through November and $5,000 for
the month of December. Manchester received a commission payment of $24,000 under
the agreement with the Company.
(4) Ms. Meyer was terminated on September 30, 2000 as part of the winding down
of the Company and incidental to such termination she received a severance
payment equal to $50,000, plus a lump-sum benefits payment equal to $1,500.
(5) Mr. Baltzell was terminated as result of the winding down of the Company and
incidental to such termination he received a severance payment equal to $33,000.
OPTION GRANTED
The following tables summarize individual grants of options to purchase
shares of Common Stock during fiscal 2000 to each of the executive officers
named in the Summary Compensation Table above and the value of the options held
by such persons at December 31, 2000.
14
OPTIONS GRANTED IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
NUMBER OF OPTION APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM(1)
UNDERLYING EMPLOYEES OR BASE --------------------------
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SH) DATE 5% 10%
--------------------------------------------------------------------------------------------------------
Andrew M. Weiss 175,000 47.4% $3.063 02/02/10 -- (2) --
--------------------------------------------------------------------------------------------------------
Camille Meyer 15,000 4.1% 3.063 02/02/10 -- (2) --
--------------------------------------------------------------------------------------------------------
Joshua Baltzell 55,000 14.89% 3.063 02/02/10 -- (2) --
--------------------------------------------------------------------------------------------------------
James D. Bonneville -- -- -- -- -- (2) --
--------------------------------------------------------------------------------------------------------
-----------------------------
(1) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock will appreciate at the assumed annual rates
shown (5% and 10%), compounded annually from the date of grant of the option
until the end of the option term. These assumed rates are applied pursuant to
the Securities and Exchange Commission rules and therefore are not intended to
forecast possible future appreciation, if any, of the Common Stock. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Common Stock, overall market conditions and continued
employment of the named executive by the Company. There can be no assurance that
the amounts reflected in this table will be realized.
(2) The right to exercise the options granted during fiscal 2000 terminated
prior to December 31, 2000 as a result of the termination of the employees.
OPTIONS EXERCISED
No options were exercised by the named executive officers during fiscal
2000. Options granted under the Company's 1994, 1996 and 1998 Stock Plans
(collectively, the "Stock Plans") terminated three months after the termination
of the employees, unless otherwise agreed to by the Company and the terminated
employee. The Company's option plans generally provide that the exercise price
of options must be paid in cash, except that the Compensation Committee, in its
sole discretion, may allow payment by delivery of shares of Common Stock having
an aggregate fair market value equal to the exercise price or may allow the
exercise price to be financed by the Company upon such terms and conditions as
the Compensation Committee may determine. Based upon the difference between the
fair market value of one share of Common Stock on the date exercised and the
exercise price of the options exercised.
CHANGE OF CONTROL
Any options granted under the Stock Plans contain change in control
provisions which provide that all outstanding non-exercisable options become
exercisable in full, regardless of any remaining vesting provisions associated
with such options, for a period specified by the Company, (but not to exceed
sixty days) prior to or subsequent to a change in control. As defined in the
Stock Plans, a "change in control" means: (i) dissolution or liquidation of the
Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence,
15
where the Company will not be the surviving entity, or (iii) the transfer of
substantially all of the assets of the Company or acquisition of beneficial
ownership of more than 50% of any class of equity security of the Company.
Additionally, the terms of the employment agreement between Mr. Weiss and the
Company provide for six months of severance pay to be paid to him in the event
the Board of Directors terminates his employment for reasons other than cause or
lack of performance.
EMPLOYMENT AND SEPARATION AGREEMENTS
On August 15, 2000, the Company entered into a Separation Agreement
with Andrew M. Weiss, the former Chief Executive Officer and a director of the
Company, pursuant to which the Company agreed to provide Mr. Weiss with certain
payments and benefits, including (a) a lump-sum payment to Mr. Weiss in an
amount equal to one year of his base salary and car allowance and (b) a lump-sum
payment of $8,200 for the continuation of health and dental insurance coverage
for one year. The Company and Mr. Weiss also agreed that Mr. Weiss could
purchase outright for a payment of $31,480, or assume the lease of his
automobile, previously paid for by the Company.
COMPENSATION COMMITTEE
Prior to ceasing its business operations, the Company's Compensation
Committee was composed of the outside directors of the Company - Norman Dann,
Jeffrey Green and Demetre Nicoloff, M.D., Ph.D. The Compensation Committee's
responsibilities were to review compensation policies and compensation for the
Company's executive officers, review plans to provide management continuity and
administer the Company's stock-based compensation plans. With the termination of
all of the employees, these function are no longer necessary.
COMPENSATION PHILOSOPHY
Prior to the ceasing of its business operations, the philosophy of the
Company was to attract and retain qualified executive officers, to align the
interests of those executive officers with those of the Company's shareholders,
and to encourage the development of a cohesive management team. The Compensation
Committee of the Company, which has been eliminated, believed that the Company
should provide competitive base salaries to attract and retain qualified
executive officers, that executive officers be provided with stock ownership
opportunities that provide both a performance incentive and align their
interests with the Company's shareholders, and that provide incentive
compensation, both cash and stock-based, that recognizes individual initiative
and achievements and rewards overall Company performance.
BASE SALARY
Prior to the ceasing of its business operations, the Compensation
Committee reviewed the base salary of each of the Company's executive officers
using a number of factors, including the executive officer's experience and
performance, the level of skill and responsibility required, and the relative
competitive market value for an individual with similar skills, experience and
position responsibility. The Compensation Committee had the authority to adjust
the base
16
salaries based on Company performance and the executive officer's impact
thereon, promotion or market factors.
Mr. Weiss's base salary for of 2000 was $175,000 in conjunction with
his position of President and Chief Executive Officer.
ANNUAL CASH INCENTIVE BONUS
Cash incentive bonuses were designed to provide a direct financial
incentive to the Company's executive officers for the achievement of Company and
individual goals.
STOCK-BASED AWARDS
All of the Company's Stock Plans included the Company's executive
officers as eligible participants. The Compensation Committee adopted the
position that stock ownership by management and stock-based performance
compensation arrangements were beneficial in aligning management and shareholder
interests. Stock options were generally granted to executive officers at the
time they were elected or hired, to reward specific performance, or as an
incentive to meet specific Company performance goals. On February 2, 2000 the
Company granted to Mr. Weiss an option to purchase 175,000 shares of the
Company's Common Stock at the closing market price on the day of grant of $3.063
per share. 87,500 or 50% of the options were exercisable in full on the date of
grant. The remainder of the shares would have vested at a rate of 2% per month
for ten years.
SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of certain compensation paid to each of the
executive officer and four other most highly compensated executives of a
publicly held corporation to $1,000,000. In fiscal 2000, the Company did not pay
"compensation" within the meaning of Section 162(m) to such executive officers
in excess of $1,000,000 and it will not do so in the future. Therefore, the
Company does not have a policy at this time regarding qualifying compensation
paid to its executive officers for deductibility under Section 162(m).
Submitted by the Compensation Committee of the Board of Directors.
Norman Dann
Jeffrey Green
Demetre Nicoloff, M.D., Ph.D.
17
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 15, 2001 the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person who is known to the Company to beneficially own more than five percent
(5%) of the Common Stock, by each director of the Company, by each executive
officer named in the Summary Compensation Table, and by all directors and
executive officers of the Company as a group:
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(2)
---------------- --------------------- ------------
David B. Johnson (3)
c/o Miller, Johnson & Kuehn, Incorporated
Suite 800 - Eighth Floor
5500 Wayzata Boulevard 420,533 7.0%
Minneapolis, MN 55416
Aaron Boxer Revocable Trust (4)
c/o Miller, Johnson & Kuehn, Incorporated
Suite 800 - Eighth Floor 609,333 10.2%
5500 Wayzata Boulevard
Minneapolis, MN 55416
Andrew M. Weiss (5) 1,000 *
Jeffrey W. Green (6) 90,000 1.5%
Camille M Meyer (7) 1,000 *
All directors and executive officers as a group
(3 persons) (8) 92,000 1.6%
--------------------------
(1) Unless otherwise indicated, each person has sole voting and dispositive
power over such shares. Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or member of a group to acquire them within 60
days are treated as outstanding only when determining the amount and percent
owned by such person or group.
(2) As of March 15, 2001, there were 5,883,404 shares of Common Stock
outstanding.
(3) Based on a Schedule 13G dated February 13, 2001 filed with the Securities
and Exchange Commission. Includes warrants to purchase 95,978 shares of common
stock. Of the 420,533 shares reported, Mr. Johnson has sole voting and
dispositive power with respect to 141,002 shares and shares voting and
dispositive power with respect to 420,533 shares.
(4) Based on a Schedule 13G dated February 13, 2001 filed with the Securities
and Exchange Commission. Includes warrants to purchase 73,000 shares of common
stock. Of the 609,333 shares reported, the Aaron Boxer Revocable Trust has sole
voting and dispositive power with respect to 609,333 shares and shares voting
and dispositive power with respect to 0 shares.
(5) Includes a warrant to purchase 1,000 shares of common stock.
(6) Includes 40,000 shares held by the Exingent Investments, Limited
Partnership, of which Mr. Green is a 90% owner. Mr. Green shares voting and
dispositive power with respect to all such shares. Includes options to purchase
30,000 shares of common stock.
(7) Includes a warrant to purchase 1,000 shares of common stock.
(8) Includes 30,000 shares issuable under stock options exercisable within sixty
(60) days of March 15, 2001 and warrants to purchase 2,000 shares.
18
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED TRANSACTION
In August of 2000, the Company entered into a six month Engagement
Agreement with Manchester whereby Manchester would provide management services
to facilitate the winding down or liquidation of the Company. Under the
Engagement Agreement, the Company has retained Manchester as the Company's
exclusive agent to assist it with a merger, sale, exchange, combination or any
similar transaction related to the Company. Pursuant to this Engagement
Agreement, Mr. Bonneville serves as the Company's Acting Chief Executive Officer
and Chief Financial Officer. During 2000 the Company paid Manchester fees
totaling $69,000, $45,000 as a monthly fee and $24,000 as a commission on the
sales of certain liquidated assets of the Company. The Engagement Agreement
expired in February of 2001 and the Company and Manchester have been operating
on a month-to-month basis. The Company has decided to renew the Engagement
Agreement for another six months on substantially the same terms.
David B. Johnson, a beneficial owner of more than 5% of the Company's
Common Stock, is a principal shareholder in the firm of Miller, Johnson & Kuehn,
Incorporated ("MJK"). MJK acts as the principal market maker for the Common
Stock and the Company maintains an investment banking relationship with such
firm. During 2000, the Company engaged MJK as its sales agent in connection with
a private placement of 525,000 shares of Common Stock and warrants to purchase
525,000 shares of Common Stock. In consideration of MJK's services, the Company
paid MJK selling commissions of $170,625 equal to 10% of the aggregate price of
the shares of Common Stock sold by MJK in the private placement, and issued MJK
five-year warrants to purchase 52,500 shares of Common Stock at an exercise
price of $3.25 per share. Subsequent to the closing of the placement, MJK
transferred these warrants to Mr. Johnson. The Company also provided MJK with a
non-accountable expense allowance equal to 1% of the aggregate price of the
shares sold by MJK, and reimbursed MJK for its legal fees in connection with the
placement. From time to time the Company may enter into similar arrangements
with MJK regarding private placements, securities offerings or other investment
banking activities.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Financial Statements
The following financial statements are included hereinafter contained
on pages 22 to 36 in this Annual Report on Form 10-K:
Report of Independent Auditors
Report of Independent Accountants
Statement of Net Assets in Liquidation as of December 31, 2000
19
Balance Sheet as of December 31, 1999
Statement of Changes in Net Assets in Liquidation September 1, 2000
through December 31, 2000
Statements of Operations for the Eight Months Ended August 31, 2000
and the Years Ended December 31, 1999 and 1998
Statements of Shareholders' Equity for Eight Months Ended August 31,
2000 and the Years Ended December 31, 1999, and 1998
Statements of Cash Flows for the Four Months Ended December 31, 2000,
Eight Months Ended August 31, 2000 and Years Ended December 31, 1999
and 1998
Notes to Financial Statements
(2) Financial Statement Schedules
All information required by this section that is applicable to the
Company is included in the Financial Statements or Notes thereto.
(3) Exhibits:
The exhibits to this Annual Report on Form 10-K are listed in the
Exhibit Index hereinafter contained on page E-1 of this Annual Report
on Form 10-K. The Company will furnish a copy of this report and any
exhibit to a shareholder who requests a copy in writing upon payment to
the Company of a fee of $5.00 per exhibit. Requests should be sent to:
James D. Bonneville, c/o Manchester Companies, Inc. at P.O. Box 3170,
Burnsville, Minnesota 55337.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Report
pursuant to Item 14(c):
A. Applied Biometrics 1996 Stock Option Plan, amended July 2, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1999).
B. Applied Biometrics Amended 1994 Stock Option Plan, amended July 2,
1999 (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1999).
C. Applied Biometrics 1998 Stock Plan, amended January 1, 2000
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2000).
D. Employment letter dated February 19, 1999, between the Company and
Andrew M. Mr. Weiss (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1999).
E. Confidential Separation Agreement dated August 15, 2000 between the
Company and Andrew M. Weiss.(incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q for the period ending
September 30. 2000).
20
F. Engagement Agreement, dated August 24, 2000, by and between
Manchester Companies, Inc. and Applied Biometrics, Inc (incorporated
by reference to Exhibit 10.1 to the Company's Report on Form 8-K/A
filed on January 8, 2001).
(b) Reports on Form 8-K
During the quarter ended December 31, 2000, the Company did not file any Current
Report on Form 8-K. On January 8, 2001 the Company filed an amendment to its
Current Report on Form 8-K filed on September 8, 2000.
(c) Exhibits
The response to this portion of Item 14 is included as a separate section of
this Report. See the Exhibit Index on page E-1 of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is included as a separate section of
this Report.
21
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
APPLIED BIOMETRICS, INC.
We have audited the accompanying balance sheet of Applied Biometrics,
Inc. as of December 31, 1999, and the related statements of operations,
shareholders' equity, and cash flows for the eight months ended August 31, 2000
and for the year ended December 31, 1999. In addition, we have audited the
statement of net assets in liquidation as of December 31, 2000, and the related
statements of changes in net assets in liquidation and cash flows in liquidation
for the period from September 1, 2000 to December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company decided
to liquidate in the third quarter of 2000 and commenced liquidation shortly
thereafter. As a result, the Company has changed its basis of accounting for
periods subsequent to August 31, 2000 from the going concern basis to the
liquidation basis.
In our opinion, the 1999 financial statements referred to above present
fairly, in all material respects, the financial position of Applied Biometrics,
Inc. as of December 31, 1999, the results of operations and its cash flows for
the eight months ended August 31, 2000 and for the year ended December 31, 1999,
the net assets in liquidation as of December 31, 2000 and the changes in net
assets in liquidation and cash flows in liquidation for the period from
September 1, 2000 to December 31, 2000, in conformity with accounting principles
generally accepted in the United States applied on the basis described in the
preceding paragraph.
Ernst & Young LLP
Minneapolis, Minnesota
March 1, 2001
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Applied Biometrics, Inc.:
In our opinion, the consolidated statements of operations, shareholders' equity
and of cash flows for the year ended December 31, 1998, present fairly, in all
material respects, the results of operations and cash flows of Applied
Biometrics, Inc. and its subsidiary for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. We have not audited the
consolidated financial statements of Applied Biometrics, Inc. for any period
subsequent to December 31, 1998.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 18, 1999
23
APPLIED BIOMETRICS, INC.
STATEMENT OF NET ASSETS IN LIQUIDATION
----------------------------------------------------------------------------------------
December 31,
2000
----
ASSETS
Cash and cash equivalents .............................................. $ 1,109,537
Prepaid expenses and other current assets .............................. 85,726
Patents and other intangibles, net ..................................... 23,000
------------
Total assets ........................................................ $ 1,218,263
============
LIABILITIES
Accounts payable ....................................................... $ 119,954
Other current liabilities .............................................. 40,007
Reserve for estimated costs during period of liquidation ............... 272,250
Short-term obligations ................................................. 53,525
------------
Total liabilities ................................................... 485,736
------------
Net assets in liquidation ........................................... $ 732,527
============
The accompanying notes are an integral part of the financial statements.
24
APPLIED BIOMETRICS, INC.
BALANCE SHEET AS OF DECEMBER 31, 1999
(GOING CONCERN BASIS)
--------------------------------------------------------------------------------------------
December 31,
1999
----
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 1,910,356
Inventories, net ........................................................... 167,109
Prepaid expenses and other current assets .................................. 90,577
------------
Total current assets .................................................... 2,168,042
Equipment and leasehold improvements, net .................................. 550,675
Patents and other intangibles, net ......................................... 99,437
Other assets ............................................................... 9,585
------------
Total assets ............................................................ $ 2,827,739
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 95,255
Accrued expenses and short-term debt obligations ........................... 195,849
Current maturities of capital lease obligations ............................ 8,333
------------
Total current liabilities ............................................... 299,437
Non-current liabilities:
Capital lease obligation ................................................... 11,677
------------
Total liabilities ....................................................... 311,114
------------
Shareholders' equity:
Undesignated stock: authorized 5,000,000 shares of $.01 par value;
None issued December 31, 1999 ........................................... --
Common stock: authorized 20,000,000 shares of $.01 par value;
5,229,004 issued and outstanding at
December 31, 1999 ....................................................... 52,990
Additional paid-in capital ................................................. 23,362,233
Accumulated deficit ........................................................ (20,898,598)
------------
Total shareholders' equity .............................................. 2,516,625
------------
Total liabilities and shareholders' equity .............................. $ 2,827,739
============
The accompanying notes are an integral part of the financial statements.
25
APPLIED BIOMETRICS, INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
PERIOD FROM SEPTEMBER 1, 2000 THROUGH DECEMBER 31, 2000
--------------------------------------------------------------------------------------
Net assets in liquidation as of September 1, 2000 .................... $ 925,557
Change in net assets in liquidation .................................. (193,030)
------------
Net assets in liquidation as of December 31, 2000 .................... $ 732,527
============
The accompanying notes are an integral part of the financial statements.
26
APPLIED BIOMETRICS, INC.
STATEMENTS OF OPERATIONS
FOR EIGHT MONTHS ENDED AUGUST 31, 2000 AND YEARS ENDED
DECEMBER 31, 1999 AND 1998
(GOING CONCERN BASIS)
-------------------------------------------------------------------------------------------------------
EIGHT
MONTHS
ENDED
AUGUST 31, YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Operating expenses:
Selling, general and administrative ................. $ 911,766 $ 1,028,065 $ 946,721
Research and development ............................ 1,500,337 1,469,001 805,459
------------ ------------ ------------
Operating loss ...................................... (2,412,103) (2,497,066) (1,752,180)
Other income, net ................................... 57,227 51,124 188,189
------------ ------------ ------------
Loss from continuing operations ..................... (2,354,876) (2,445,942) (1,563,991)
Discontinued operations:
Loss from operations of discontinued
business ............................................ -- -- (1,838,147)
------------ ------------ ------------
Net loss ............................................ $ (2,354,876) $ (2,445,942) $ (3,402,138)
============ ============ ============
Basic and diluted net loss per share:
Continuing operations ............................... $ (0.42) $ (0.52) $ (0.36)
Discontinued operations ............................. -- -- $ (0.43)
------------ ------------ ------------
Net Loss ............................................ $ (0.42) $ (0.52) $ (0.79)
============ ============ ============
Weighted average common shares
outstanding ......................................... 5,655,380 4,659,300 4,312,077
============ ============ ============
The accompanying notes are an integral part of the financial statements.
27
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EIGHT MONTHS ENDED AUGUST 31, 2000 AND
YEARS ENDED DECEMBER 31, 1999 AND 1998
(GOING CONCERN BASIS)
--------------------------------------------------------------------------------------------------------------
COMMON STOCK Additional
Paid in Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
December 31, 1997 .......................... 4,276,117 $ 42,761 $ 20,278,959 $(15,050,518)
Exercise of stock options .................. 61,000 610 281,890
1998 Net loss .............................. (3,402,138)
------------ ------------ ------------ ------------
December 31, 1998 .......................... 4,337,117 43,371 20,560,849 (18,452,656)
Exercise of stock options .................. 146,887 1,469 1,076,143
Issuance of stock, net of offering
costs ...................................... 815,000 8,150 2,059,412
Distribution of the net assets of
Cardia, Inc. ............................... (334,171)
1999 Net loss .............................. (2,445,942)
------------ ------------ ------------ ------------
December 31, 1999 .......................... 5,299,004 $ 52,990 $ 23,362,233 $(20,898,598)
Stock option activity ...................... 9,400 94 33,440
Non-employee stock awards .................. 50,000 500 152,650
Warrant issued in capital lease
transaction ................................ 4,506
Issuance of stock, net of offering
costs ...................................... 525,000 5,250 1,485,590
Net loss for the eight-month period
ended August 31, 2000 ...................... (2,354,876)
------------ ------------ ------------ ------------
August 31, 2000 ............................ 5,883,404 $ 58,834 $ 25,038,419 $(23,253,474)
============ ============ ============ ============
28
APPLIED BIOMETRICS, INC.
STATEMENTS OF CASH FLOWS
FOR FOUR MONTHS ENDED DECEMBER 31, 2000,
EIGHT MONTHS ENDED AUGUST 31, 2000 AND
YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------------------------------------------------------------------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED
DECEMBER 31, AUGUST 31,
2000 2000 YEARS ENDED DECEMBER 31,
---- ----
(Liquidation (Going
Basis) Concern
Basis) 1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Decrease in net assets in liquidation ................... $ (193,030)
Net loss ................................................ -- $ (2,354,875) $ (2,445,942) $ (3,402,138)
Net loss from discontinued operations ................... -- -- -- (1,838,147)
------------ ------------ ------------ ------------
Loss from continuing operations ......................... -- (2,354,875) (2,445,942) (1,563,991)
Adjustments to reconcile net loss from
continuing operations to net cash used in
operating activities:
Depreciation and amortization
of capital leases ....................................... -- 152,428 191,391 199,162
Amortization of patents and other
intangible assets ....................................... -- 27,467 25,012 25,051
Value of common stock issued in lieu of
cash compensation ....................................... -- 153,150 -- --
Value of stock options and warrants issued
in lieu of cash ......................................... -- 11,901 -- --
(Gain) loss on disposal of assets ....................... 4,047 (1,857) 31,776 --
Changes in operating assets and liabilities:
Inventories ............................................. -- 167,109 7,969 (24,585)
Prepaid expenses, other current assets and
other assets ............................................ (11,936) 57,851 (52,744) 48,333
Accounts payable and accrued expenses ................... (394,107) (103,795) 147,718 (23,335)
------------ ------------ ------------ ------------
Net cash used in continuing operations .................. (595,026) (1,890,621) (2,094,820) (1,339,365)
Net cash used in discontinued operations ................ -- -- (120,548) (908,616)
------------ ------------ ------------ ------------
Net cash used in operating activities ................... (595,026) (1,890,621) (2,215,368) (2,247,981)
------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
29
APPLIED BIOMETRICS, INC.
STATEMENTS OF CASH FLOWS
FOR FOUR MONTHS ENDED DECEMBER 31, 2000,
EIGHT MONTHS ENDED AUGUST 31, 2000 AND
YEARS ENDED DECEMBER 31, 1999 AND 1998
(CONTINUED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of marketable securities .................... -- -- 500,000 3,598,507
Purchase of equipment and improvements ............... -- (25,647) (323,148) (54,874)
Proceeds from sale of furniture, equipment and
machinery ............................................ 238,382 -- -- --
Investments in patents and trademarks ................ -- (19,763) (49,375) --
Investment in marketable securities .................. -- -- -- (500,000)
Discontinued operations, net ......................... -- -- (10,981) (30,412)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities ........................................... 238,382 (45,410) 116,496 3,013,221
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common
stock, net of expenses ............................... -- 1,490,840 2,067,941 --
Proceeds from exercise of stock options .............. -- 26,139 75,001 282,500
Repayment of capital lease obligations ............... (20,413) (4,710) (3,598) --
------------ ------------ ------------ ------------
Net cash provided by financing activities ............ (20,413) 1,512,269 2,139,814 282,500
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents .......................................... (377,057) (423,762) 40,943 1,047,740
Cash and cash equivalents at beginning of
year ................................................. 1,486,594 1,910,356 1,869,413 821,673
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ............................................... $ 1,109,537 $ 1,486,594 $ 1,910,356 $ 1,869,413
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
30
APPLIED BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Applied Biometrics, Inc. ("Applied Biometrics" or the "Company") is a medical
device company that was engaged in the research and development of advanced
cardio-vascular and hemodynamic diagnostic and monitoring systems.
LIQUIDATION BASIS OF ACCOUNTING
The consolidated financial statements for fiscal 1999 and 1998 and for the eight
months ended August 31, 2000 were prepared on the going concern basis of
accounting which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As a result of the Company's plans
to cease operations, the Company adopted the liquidation basis of accounting
effective September 1, 2000. This basis of accounting is considered appropriate
when, among other things, liquidation of a company appears imminent and the net
realizable value of assets are reasonably determinable. Under this basis of
accounting, assets are valued at their estimated net realizable values and
liabilities are valued at their estimated settlement amounts. Upon adoption of
the liquidation basis, the Company recorded a write-down in net assets of
approximately $918,000. At December 31, 2000, the Company has recorded a reserve
of $272,250 for costs to be incurred during the liquidation period.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepting
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of cash and highly liquid investments
purchased with an original maturity of three months or less. Cash at December
31, 2000 and 1999 was primarily invested in a money market fund.
31
INVENTORIES:
Inventories were comprised of component parts and were valued at the lower of
first-in, first-out (FIFO) cost or market. In 2000, the Company wrote-off the
inventories because of its determination that near term commercialization of the
Company's product was unlikely.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
During 2000, all of the Company's equipment and leasehold improvements were
either sold or abandoned upon the adoption of the liquidation basis of
accounting. Upon the adoption of the liquidation basis, the Company recorded a
write-down of $198,456 to record the equipment and leasehold improvements at
their net realizable value.
LONG-LIVED ASSETS:
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Impairment losses are recorded whenever
indicators of impairment are present.
PATENTS AND OTHER INTANGIBLE ASSETS:
Patents and other intangible assets are recorded at cost and are amortized using
the straight-line method over their estimated useful lives ranging from ten to
fifteen years. Subsequent to year-end, the Company sold to a third party its
rights in all of its patents.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION:
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
The Company continues to account for employee stock-based compensation using the
intrinsic value method as prescribed under Accounting Principles Board Opinion
("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations.
32
INCOME TAXES:
The Company accounts for income taxes using the asset and liability method. The
asset and liability method provides that deferred tax assets and liabilities are
recorded based on the differences between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes
("temporary differences").
LOSS PER COMMON SHARE:
Upon the adoption of the liquidation basis of accounting on September 1, 2000,
the presentation of per common share information was not considered to be
meaningful and has been omitted.
The basic loss per common share, for periods prior to September 1, 2000 was
computed based upon the weighted average number of common shares outstanding.
All outstanding options have been excluded from the calculation since the effect
of their inclusion would have been anti-dilutive.
RECLASSIFICATION
Certain prior year items have been reclassified to conform with current year
presentation.
(2) DISCONTINUED OPERATIONS:
The Company's Board of Directors approved a plan in December 1998 to distribute
to the shareholders of the Company its transcatheter closure business. On
February 11, 1999, the Company completed the spin-off distribution of Cardia,
Inc. ("Cardia") with Cardia thereafter operating as an independent company with
its own publicly traded securities. All Applied Biometrics shareholders of
record received one share of Cardia common stock for every 11.563 shares of
Applied Biometrics common stock held, comprising 75% of Cardia's common stock.
The spin-off distribution was recorded by reducing shareholders' equity by
$334,000, which represents the carrying value of Cardia's net assets. Cardia's
1999 operating results through the distribution date were breakeven. No gain or
loss was recorded on the distribution. The Company's financial statements report
the operating results of the transcatheter closure business as discontinued
operations. Costs of $1,001,761 were incurred as a result of amendments to
previously issued stock options to employees departing the Company for Cardia.
1998
DISCONTINUED OPERATIONS
Net revenue $ 167,240
Loss from operations of discontinued business (836,386)
Costs related to spin-off of discontinued business (1,001,761)
Loss from discontinued operations (1,838,147)
33
(3) INCOME TAXES:
The Company has approximately $23,000,000 of net operating loss carryforwards
that begin to expire in 2003 and $450,000 of research and experimentation
credits. As a result of limitations imposed under ss.382 and ss.383 of the
Internal Revenue Code of 1986, both the annual amount and timing of the
utilization of these carryforwards will be limited. As the Company issues
additional common stock, the Company's carryforwards may be subject to further
limitation. A valuation allowance has been established that offsets the
Company's entire net deferred tax asset, as the realization of the deferred tax
asset is uncertain.
(4) SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of 20,000,000 shares of common
stock and 5,000,000 shares of undesignated stock.
At December 31, 2000 and 1999, the Company had 5,833,404 and 5,299,004 shares of
common stock outstanding.
In 2000, the Company sold 525,000 units, resulting in net proceeds to the
Company of approximately $1,491,000. Each unit consisted of one share of common
stock and one warrant to purchase an additional share of common stock at an
exercise price of $3.625 per share. The warrants are exercisable for a period of
five years after the date of grant. In connection with the sale of units, the
Company issued the private placement agent a warrant to purchase 52,500 shares
of common stock at an exercise price of $3.25 per share. The warrant expires in
April 2005.
Also in 2000, the Company granted a total of 50,000 shares of common stock to
its three non-employee members of its Board of Directors for prior and current
board service. In connection with this issuance, the Company recorded
approximately $153,000 of non-cash compensation expense. In addition, during
2000, the Company recorded approximately $11,900 of expense related to the
granting of warrants and options for services. Provided.
WARRANTS:
At December 31, 2000, the Company has warrants outstanding to purchase a total
of 661,771 shares of common stock at exercise prices ranging from $3.00 to
$3.625 per share. The warrants expire at various times between April 2005 and
September 2009.
34
STOCK OPTIONS:
The exercise price of each stock option generally equals 100% of the market
price of the Company's stock on the date of grant and has a maximum term of up
to ten years. A summary of the status of the Company's stock options for the
years ended December 31 is as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at
beginning of
year 860,150 $ 5.72 389,167 $ 9.68 628,667 $ 7.15
Granted 462,500 3.13 788,750 5.23 336,370 7.90
Exercised (9,400) 2.78 (21,667) 3.46 (61,000) 4.63
Canceled (1,080,750) 4.93 (296,100) 9.79 (514,870) 6.64
------------- ------------- ------------
Outstanding at end
of year 232,500 4.36 860,150 5.72 389,167 9.68
============= ============= ============
At December 31, 2000, 1999 and 1998, the Company had options that were
exercisable totaling 212,500, 469,733 and 239,867, respectively, at weighted
average exercise prices of $4.45, $5.00 and $9.54 per share.
At December 31, 2000 the Company had options outstanding to purchase 232,500
shares of common stock at exercises prices ranging from $3.06 to $12.63 per
share.
SFAS NO. 123 DISCLOSURE:
For the years ended December 31, 1999 and 1998 the Company did not record any
compensation expense for stock-based compensation awards.
Had compensation expense for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with SFAS No.
123, the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:
1999 1998
Net loss
As reported $ (2,445,942) $ (3,402,138)
Pro forma (3,388,707) (4,228,043)
Basic and diluted loss per share
As reported (.52) (.79)
Pro forma (.73) (.98)
35
The weighted average fair value per option granted during 1999 and 1998 was $
2.41 and $ 5.08, respectively. The weighted average fair value was calculated by
using the fair value of each option on the date of grant. The fair value of the
options was estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions:
1999 1998
Expected option term 3 years 6 years
Expected volatility factor 63% 59%
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 5.2% 5.7%
(5) EMPLOYEE BENEFIT PLAN:
SALARY REDUCTION PLAN:
During 1999, the Company established a salary reduction plans for all full-time
employees, which qualify under Section 401(k) of the Internal Revenue Code.
Employee contributions are limited to 20% of their annual compensation, subject
to annual limitations. At its discretion, the Company may make matching
contributions equal to a percentage of the salary reduction or other
discretionary amount. The Company has made no contributions to the plan during
2000 and 1999.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIED BIOMETRICS, INC.
By /s/ James D. Bonneville
----------------------------------------
James D. Bonneville
Acting Chief Executive Officer
Dated: April 17, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on April 17, 2001 by the following persons on behalf of
the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ James D. Bonneville
----------------------------------
James D. Bonneville Acting Chief Executive Officer
(Principal Executive Officer/Principal
Financial and Accounting Officer)
/s/ Andrew M. Weiss
----------------------------------
Andrew M. Weiss Director
/s/ Jeffrey Green
----------------------------------
Jeffrey Green Director
37
APPLIED BIOMETRICS, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company, as amended,
(incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2, Commission File No.
33-63754C).
4.1 Restated Articles of Incorporation of the Company, as amended (see
Exhibit 3.1).
4.2 Bylaws of the Company (see Exhibit 3.2).
4.3 Form of common stock Certificate of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form SB-2, Commission File No. 33-63754C)
10.1 Lease dated February 8, 1994 by and between the Company and American
Industrial Properties REIT (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993)
10.2 Amendment No. 1 to Lease Agreement dated December 31, 1998 between the
Company and The Trustees under the Will and of the Estate of James
Campbell, Deceased (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31,
1999).
10.3 Applied Biometrics 1996 Stock Plan, amended July 2, 1999 (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1999).
10.4 Applied Biometrics Amended 1994 Stock Plan, amended July 2, 1999
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1999).
10.5 Applied Biometrics 1998 Stock Plan, amended January 1, 2000
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000).
E-1
10.6 Employment letter dated February 19, 1999, between the Company and
Andrew M. Weiss (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31,
1999).
10.7 Confidential Separation Agreement dated August 15, 2000 between the
Company and Andrew M. Weiss.(incorporated by reference to Exhibit 10.1
to the Company's Report on Form 10-Q for the period ending September
30. 2000).
10.8 Engagement Agreement, dated August 24, 2000, by and between Manchester
Companies, Inc. and Applied Biometrics, Inc (incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 8-K/A filed on January
8, 2001).
10.9 Master Lease dated October 18, 1999 by and between the Company and
Dexxon Capital Corporation (incorporated by reference to Exhibit 10.2
to the Company's Report on Form 10-Q filed June 30, 2000).
10.10 Amendment to Lease Agreement dated April 10, 2000 by and between the
Company and Dexxon Capital Corporation (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q filed June 30, 2000).
10.11 Asset Purchase Agreement dated January 31, 2001 by and between the
Company and Transonic Systems, Inc. (filed herewith electronically).
E-2