-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DuNGkPbipL6doWsmf64VM9oKPGyrszNVSBQ6MZGC2zUSBHYrFP1T7zPQddmfRgbX wVXVd/xOhdCo2Rd48tzZTg== 0000897101-99-001100.txt : 19991117 0000897101-99-001100.hdr.sgml : 19991117 ACCESSION NUMBER: 0000897101-99-001100 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED BIOMETRICS INC CENTRAL INDEX KEY: 0000816568 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411508112 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22146 FILM NUMBER: 99756278 BUSINESS ADDRESS: STREET 1: 501 E HGWY 13 STE 108 CITY: BURNSVILLE STATE: MN ZIP: 55337 BUSINESS PHONE: 6128901123 MAIL ADDRESS: STREET 1: 501 EAST HWY 13 CITY: BURNSVILLE STATE: MN ZIP: 55337 10-Q 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended September 30, 1999 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 --------------------------------------------------- APPLIED BIOMETRICS, INC. (Exact name of Registrant as specified in its charter) State of Incorporation: Minnesota I.R.S. Employer Identification No.: 41-1508112 Principal Executive Offices: 501 East Highway Thirteen, Suite 108 Burnsville, Minnesota 55337 Telephone Number: (612) 890-1123 --------------------------------------------------- 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 ___ On November 12, 1999, there were 5,299,004 shares of the Registrant's common stock, par value $.01 per share, outstanding. ITEM 1. FINANCIAL STATEMENTS APPLIED BIOMETRICS, INC. CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 - --------------------------------------------------------------------------------
September 30, December 31, 1999 1998 ---- ---- (Unaudited) ASSETS Current assets: Cash and cash equivalents .................................... $ 2,709,718 $ 1,869,413 Marketable securities, short-term ............................ -- 500,000 Inventories, net ............................................. 169,374 175,078 Other ........................................................ 48,020 37,833 ------------ ------------ Total current assets ..................................... 2,927,112 2,582,324 Equipment and leasehold improvements, net .................... 608,934 427,086 Intangibles, net ............................................. 70,568 75,074 Other ........................................................ 9,585 9,585 Net assets of discontinued operations ........................ -- 202,642 ------------ ------------ Total assets ............................................. $ 3,616,199 $ 3,296,711 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................. $ 102,557 $ 56,186 Accrued expenses ............................................. 241,872 87,200 ------------ ------------ Total current liabilities ................................ 344,429 143,386 ------------ ------------ Non-current liabilities: Liability for pending issuance of common stock ............... -- 1,001,761 Capital lease obligation ..................................... 14,121 -- ------------ ------------ Total non-current liabilities ............................ 14,121 1,001,761 ------------ ------------ Shareholders' equity: Common stock: authorized 10,000,000 shares of $.01 par value; 5,299,004 issued and outstanding at September 30, 1999 and 4,337,117 at December 31, 1998 ........................... 52,990 43,371 Additional paid-in capital ................................... 23,685,933 20,560,849 Accumulated deficit .......................................... (20,481,274) (18,452,656) ------------ ------------ Total shareholders' equity ............................... 3,257,649 2,151,564 ------------ ------------ Total liabilities and shareholders' equity ............... $ 3,616,199 $ 3,296,711 ============ ============
The accompanying notes are an integral part of the interim unaudited financial statements. 2 APPLIED BIOMETRICS, INC. CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) (Unaudited) Operating expenses: Selling, general and administrative ....... $ 287,625 $ 336,469 $ 778,949 $ 739,430 Research and development .................. 417,192 120,435 972,210 599,777 ----------- ----------- ----------- ----------- Operating loss ............................ (704,817) (456,904) (1,751,159) (1,339,207) Other income, net ......................... 10,554 44,171 56,711 153,789 ----------- ----------- ----------- ----------- Net loss from continuing operations ....... (694,263) (412,733) (1,694,448) (1,185,418) Discontinued operations: Loss from operations of transcatheter closure business .................... -- (195,109) -- (614,367) ----------- ----------- ----------- ----------- Net loss .................................. $ (694,263) $ (607,842) $(1,694,448) $(1,799,785) =========== =========== =========== =========== Basic and diluted loss per share: Continuing operations ............... $ (0.15) $ (0.10) $ (0.38) $ (0.28) Discontinued operations ............. (0.00) (0.05) (0.00) (0.14) ----------- ----------- ----------- ----------- Net loss ............................ $ (0.15) $ (0.14) $ (0.38) $ (0.42) =========== =========== =========== =========== Weighted-average common shares outstanding 4,501,721 4,329,264 4,443,723 4,303,917 =========== =========== =========== ===========
The accompanying notes are an integral part of the interim unaudited financial statements. 3 APPLIED BIOMETRICS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE PERIODS ENDED DECEMBER 31, 1997, 1998 AND SEPTEMBER 30, 1999 - --------------------------------------------------------------------------------
Common Stock Additional Accumulated Shares Amount Paid in Capital Deficit ------------------------------------------------------------- December 31, 1996 ...................... 4,168,987 $ 41,690 $ 19,703,468 $(12,458,048) Shares issued for purchase of transcatheter closure product line ..... 85,000 850 509,150 Exercise of stock options .............. 22,130 221 66,341 Net loss ............................... (2,592,470) ------------------------------------------------------------- December 31, 1997 ...................... 4,276,117 42,761 20,278,959 (15,050,518) Exercise of stock options .............. 61,000 610 281,890 Net loss ............................... (3,402,138) ------------------------------------------------------------- December 31, 1998 ...................... 4,337,117 43,371 20,560,849 (18,452,656) Issuance of stock, net of offering costs 815,000 8,150 2,049,791 Exercise of stock options .............. 146,887 1,469 1,075,293 Distribution of the net assets of Cardia, Inc. ........................... (334,170) Net loss for the nine months ended September 30, 1999 ..................... (1,694,448) ------------------------------------------------------------- September 30, 1999 (unaudited) ......... 5,299,004 $ 52,990 $ 23,685,933 $(20,481,274) =============================================================
The accompanying notes are an integral part of the interim unaudited financial statements. 4 APPLIED BIOMETRICS, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 - --------------------------------------------------------------------------------
Nine Months Ended September 30, 1999 1998 ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ............................................................... $(1,694,448) $(1,799,785) Net loss from discontinued operations .................................. -- 614,367 ----------- ----------- Loss from continuing operations ........................................ (1,694,448) (1,185,418) Adjustments to reconcile net loss from continuing operations to net cash used by operating activities: Depreciation ........................................................... 145,585 153,142 Amortization ........................................................... 10,848 6,885 Changes in operating assets and liabilities: Inventory .............................................................. 5,704 (12,223) Prepaid expenses and other current assets .............................. (10,187) 12,801 Accounts payable and accrued expenses .................................. 193,016 10,999 ----------- ----------- Net cash used by continuing operations .............................. (1,349,482) (1,013,814) Net cash used by discontinued operations ............................ (120,548) (635,628) ----------- ----------- Net cash used by operating activities ............................... (1,470,030) (1,649,442) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales and maturities of short-term investments ......................... 500,000 664,647 Purchase equipment and improvements .................................... (303,824) (46,907) Investments in patents and trademarks .................................. (6,323) Discontinued operations, purchase of equipment ......................... (10,981) (22,142) ----------- ----------- Net cash provided by investing activities ........................... 178,872 595,598 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from sale of common stock ................................. 2,057,941 -- Proceeds from exercise of stock options ................................ 75,001 277,500 Repayment of capital lease obligations ................................. (1,479) -- ----------- ----------- Net cash provided by financing activities ........................... 2,131,463 277,500 ----------- ----------- Net increase (decrease) in cash and cash equivalents ................... 840,305 (776,344) Cash and cash equivalents at beginning of year ......................... 1,869,413 821,673 ----------- ----------- Cash and cash equivalents at end of the period ......................... $ 2,709,718 $ 45,329 =========== ===========
The accompanying notes are an integral part of the interim unaudited financial statements. 5 APPLIED BIOMETRICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION: The accompanying unaudited condensed financial statements of Applied Biometrics, Inc. ("Applied Biometrics" or "the Company") have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company's 1999 Annual Report to Shareholders and incorporated by reference in the Company's Form 10-K for the year ended December 31, 1998. In the opinion of management, all adjustments considered necessary, consisting only of items of a normal recurring nature, for a fair presentation of the financial position, results of operations and cash flows of the Company as of and for the interim periods presented have been included. Operating results and cash flows for the nine months ended September 30, 1999 are not necessarily indicative of the results of operations and cash flows of the Company that may be expected for the year ending December 31, 1999. (2) DISCONTINUED OPERATIONS: In December 1998, the Board of Directors of the Company approved a plan to distribute its transcatheter closure business through a wholly owned subsidiary, Cardia, Inc. ("Cardia") to the shareholders. The distribution was completed on February 11, 1999 to shareholders of record on January 25, 1999. Shareholders received one share of Cardia, Inc. common stock for every 11.563 common shares of Applied Biometrics held. The Company's financial statements report Cardia as a discontinued operation. Cardia's 1999 operating results through the distribution date were break-even. Net assets attributable to Cardia of $334,171 were distributed at their net book value and were reflected as a dividend and the Company recorded no gain or loss as a result of the distribution. 6 APPLIED BIOMETRICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (3) EARNINGS PER SHARE: The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, during fiscal year 1998. Earnings per share for the periods presented have been prepared in accordance with the provisions of SFAS No. 128. The following table sets forth the computation of shares outstanding used in the calculation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) (Unaudited) Denominator for basic earnings per share: Weighted-average common shares ........ 4,501,721 4,329,264 4,443,723 4,303,917 Effect of dilutive securities: Shares associated with option plans ... -- -- -- -- Dilutive potential common shares ...... -- -- -- -- --------- --------- --------- --------- Denominator for diluted earnings per share: Adjusted weighted-average common shares and dilutive potential common shares .. 4,501,721 4,329,264 4,443,723 4,303,917 ========= ========= ========= =========
As of September 30, 1999 1998 ---- ---- (Unaudited) Options outstanding 616,650 884,537 Exercise prices ....................................... $3.00-12.625 $3.00 - 12.625 Expiration dates ...................................... 2000 - 2009 1999 - 2008
For the three and nine-month periods ended September 30, 1999 and 1998, none of the options outstanding were included in the computation of diluted earnings per share for those periods because the Company had incurred net losses, and the inclusion of options would have been anti-dilutive. (4) COMPREHENSIVE INCOME: Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"), Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in the financial statements. The Company currently has no items that would be included as a component of other comprehensive income. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS: CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q 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. SUCH FACTORS MAY INCLUDE, THE COMPANY'S DEPENDENCE ON AND NEED FOR FURTHER DEVELOPMENT OF ITS SOLE PRODUCT, THE COMPANY'S LIMITED EXPERIENCE AND FINANCIAL RESOURCES AND UNCERTAINTY OF FUTURE RESULTS, THE NEED FOR FURTHER DEVELOPMENT ON AND THE UNCERTAINTY OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCT, THE COMPANY'S NEED FOR ADDITIONAL FINANCING, THE REGULATED NATURE OF THE MEDICAL DEVICE MARKET, COMPETITIVE FACTORS AND OTHER RISK FACTORS DISCUSSED IN EXHIBIT 99.1 TO THIS REPORT AND FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. OVERVIEW Applied Biometrics, Inc. ("Applied Biometrics" or "the Company") is a development stage medical device company engaged in the research, development, manufacture and marketing of advanced cardio-vascular and hemodynamic diagnostic and monitoring systems. The Company believes that its core competencies in ultrasound transducer technology, signal processing, cardiac anatomy, pathology and hemodynamics position it to develop and commercialize a range of cardiac diagnostic and patient monitoring products. The Company's Basis(TM) Cardiac Output Monitor and RealFlow(TM) Cardiac Output Probe are U.S. Food and Drug Administration ("FDA") cleared medical devices designed to provide real time, beat-to-beat, cardiac output monitoring in surgical and post-operative, intensive care unit settings. During the nine months ended September 30, 1999, the Company continued development of its Basis Cardiac Output Monitoring System and RealFlow Probe, focusing on product refinement, upgrading its manufacturing facility, beginning production, and completing an equity financing to provide necessary capital for the Company's development and commercialization plans for Basis and RealFlow. The Company's plans currently call for product evaluations to be conducted at a number of adult and pediatric clinical sites in the U.S. prior to commercial release of the system. These product evaluations were commenced in October 1999 at one clinical site in the U.S. While the early results from these evaluations indicated that the product performed well in a number of respects, the results also indicated the need for modifications to the Basis Cardiac Output Monitoring System in order to meet the Company's product performance expectations. The Company intends to make these modifications before continuing with further product evaluations at its clinical sites. As a result, the Company anticipates that its planned product evaluations will continue into the first half of 2000. The Company intends to commercialize the Basis Cardiac Output Monitoring System following the successful completion of these product evaluations. The Company's ability to meet the timelines in these forward-looking statements will depend upon the Company's ability to timely and successfully develop the necessary product modifications, begin manufacturing modified products, and the outcome of evaluations of the modified products. The Company's recent private equity-financing was completed on September 29, 1999 and resulted in net proceeds of $2.1 million. The Company issued 815,000 shares of Common Stock at an offering price of $3.00 per share. The infusion of additional capital will be used to complete the development of the Company's Basis and RealFlow products and prepare for the market launch of these products in 2000. Earlier in the year, the Company completed the distribution of Cardia, Inc. ("Cardia") to the Company's shareholders. The distribution was effective on February 11, 1999 to shareholders of record on January 25, 1999. The completion of the Cardia distribution allows the Company to focus all of its resources on completing the development of its cardiac output monitoring system. RESULTS OF CONTINUING OPERATIONS COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED - -------------------------------------------------------------------------------- Selling, general and administrative expenses decreased $48,000 in the third quarter of 1999 from $336,000 during the 1998 period to $288,000 during the 1999 period. Selling, general and administrative costs for the 1998 period were generally allocated between continuing and discontinued operations, while these costs for the 1999 period were fully absorbed by continuing operations. The decrease in costs in the 1999 quarter compared to the 1998 quarter are primarily related to higher than usual costs in the third quarter of 1998 for legal and ISO certification services related principally to the Cardia transcatheur closure product but not fully absorbed by discontinued operations. Research and development expenses increased $297,000 from $120,000 in 1998 to $417,000 in 1999 due to increased engineering, operations and quality personnel costs, mammal testing and manufacturing pilot costs in the 1999 period related to the Company's Cardiac Output Monitoring System and due to the allocation of 1998 period costs to discontinued operations. Operating costs are expected to continue to increase as the Company adds personnel, equipment and other costs to complete the development and bring to market its Basis Cardiac Output Monitoring System. This forward looking statement will be influenced primarily by the Company's estimate of time and resources needed to complete development (including the necessary modification discussed above), the Company's ability to establish manufacturing and quality systems necessary to produce the product, success of the Company's field product evaluations and market acceptance of the cardiac output monitoring system. Other income, primarily interest income, decreased $34,000 from $44,000 in the third quarter of 1998 to $10,000 in the 1999 quarter. The decrease is due to lower average investment balances in the 1999 quarter than in the 1998 quarter. The 1999 third quarter net loss was $694,000, or $0.15 per share, compared to a net loss of $608,000, or $0.14 per share in 1998, including a $195,000, or $.05 per share, loss from discontinued operations. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Selling, general and administrative expenses increased $40,000 from $739,000 during the 1998 nine-month period to $779,000 in the 1999 period. Costs during the 1999 period were generally higher than the 1998 period due to 1998 costs allocated between continuing and discontinuing operations. The 1999 selling, general and administrative costs are expected to end the year higher than the 1998 period due to continued operations fully absorbing these costs since the spin-off of Cardia in the first quarter of 1999 and due to staff added during the 1999 year in connection with the Company's plans for commercialization of the Basis Cardiac Output Monitoring System. Research and development expenses increased $372,000 from $600,000 in 1998 to $972,000 in 1999 as increased spending for engineering, operations and quality personnel, prototype testing, mammal testing and pilot manufacture costs related to the Company's Cardiac Output Monitoring System exceeded research and development costs that were allocated to discontinued operations in the 1998 period. Other income, primarily interest income, decreased $97,000 from $154,000 in the nine-months of 1998 to $57,000 in the 1999 period. The decrease is due to lower average investment balances in the 1999 period than in the 1998 period. Investment resources were used throughout 1998 and the first quarter of 1999 for development efforts toward both the Company's Cardiac Output Monitoring System and the transcatheter closure device, which comprised the core technology distributed with Cardia, Inc. Investment resources during the second and third quarters of 1999 have continued to fund the Basis Cardiac Output Monitoring System and RealFlow Probe development. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED - -------------------------------------------------------------------------------- The net loss for the nine months ended September 30, 1999 was $1,694,000, or $0.38 per share, compared to a net loss of $1,800,000, or $0.42 per share, in 1998, which included a $614,000, or $0.14 per share, loss from discontinued operations. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $2,700,000 at September 30, 1999 as compared to $2,400,000 of cash, cash equivalents and marketable securities at December 31, 1998, an increase of $300,000. During the third quarter the Company completed a private equity-financing resulting in net proceeds of $2.1 million. The cash inflow from the equity-financing was offset by the year to date loss from operations and cash used for leasehold improvements and equipment purchases. Continuing operating activities in 1999 used cash of $1,349,000 as compared to $1,014,000 used during the 1998 nine-month period. Discontinued operations used cash of $121,000 during the 1999 period as compared to $636,000 in the prior nine-month period. Investing activities provided $179,000 in the 1999 period as compared to $596,000 in the 1998 period. Short-term investments of $500,000matured in the 1999 period and were offset by $300,000 of leasehold improvements and equipment purchases. The 1998 period also had $665,000 of short-term investments maturing, offset by $47,000 of equipment purchases. Discontinued operations used $11,000 and $22,000 in the 1999 and 1998 periods, respectively. The Company intends to spend approximately $100,000 on capital expenditures in the fourth quarter of the year. These expenditures will continue to expand the manufacturing and information technology capabilities of the Company and directly support the commercialization of the Company's Basis Cardiac Output Monitoring System. The Company has financing for these expenditures that will be secured by the equipment and requires the Company to issue the lenders a warrant to purchase the Company's common stock. Financing activities in the nine-month period provided $2,131,000 of cash, resulting primarily from the issuance of Common Stock. Based on its expected rate of spending the Company believes, , that its existing cash and cash equivalents will enable the Company to meet its cash requirements for approximately the next six months. As a result the Company will need additional financing in order to successfully meet its current product development, market commercialization plans for its Basis Cardiac Output Monitoring System and capital expenditure needs. This forward-looking statement will be influenced by the Company's ability to meet its operational and development plans, as well as unanticipated changes to commit cash primarily for additional personnel and capital expenditures. The Company continues to pursue alternatives for obtaining additional working capital. NEW ACCOUNTING STANDARDS Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"), Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in the financial statements. The Company currently has no items that would be included as a component of other comprehensive income. Other than the above statement, no other new accounting pronouncements have been issued that will have an impact on the Company's financial statements. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED - -------------------------------------------------------------------------------- YEAR 2000 READINESS - UPDATE The following Year 2000 disclosure update is required by the rules and regulations of the Securities and Exchange Commission and constitutes a "Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act. The "Year 2000" or "Y2K" problem references the problem caused by computer systems that have historically been written using two digits rather than four digits to define the applicable year. Additionally, the Y2K problem includes a problem calculating leap year if a computer system does not correctly identify the year 2000 as being a leap year. Company computer systems and other equipment and technology having date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000 and may not recognize the year 2000 as a leap year. The Company defines "Year 2000 compliant" to mean that a product or service accurately process dates and times into and between the twentieth and twenty-first centuries, into and between the years 1900 and 2000, performs correct leap year calculations and properly exchanges date and time information with other products or services when used in combination. STATE OF READINESS. The Company has tested and validated that its Basis Cardiac Output Monitoring System is Y2K compliant. The Company is in the process of documenting this validation process and the underlying components in the system. The Company has not as of the date of this report initiated a formal Y2K Plan as it had earlier intended with regard to IT and non-IT hardware, operating systems, software and the Year 2000 compliance status of its vendors and other service providers. However, the Company information technology ("IT") and non-information technology ("non-IT") systems are minimal and non-critical. HARDWARE. The Company believes that its IT hardware have been upgraded for Y2K compliance and are compliant. OPERATING SYSTEMS. The Company's operating systems are Microsoft NT, Novell Netware, Microsoft Windows 98 and Microsoft Windows NT. Novell has certified Netware to be Y2K compliant. Microsoft has certified Windows 98 and Windows NT to be Y2K compliant. Microsoft has also certified its NT 4.x network operating system is Y2K compliant upon installation of service release four. The Company has completed all such operating system upgrades. SOFTWARE APPLICATIONS. The Company's software systems consist of "off-the-shelf" software. None of these software programs are critical to the Company's ability to accurately and timely process transactions. The Company believes that all software applications are either Y2K compliant or not dependent on date/time accuracy. THIRD PARTY RELATIONSHIPS. Because Y2K issues may also impact the Company by affecting the business and operations of the Company's vendors and other business partners, the Company has begun to communicate with these parties regarding their Y2K compliance status as part of its ongoing normal day-to-day business communications. The Y2K compliant status of the Company's vendors will be part of the Company's vendor qualification program. These communications will not be completed by the end of 1999 and accordingly, the Company will not been able to determine if the failure of a third-party to be Y2K compliant will have a material adverse affect on the Company. COSTS TO ADDRESS YEAR 2000 ISSUES. Although the ultimate cost of attaining Year 2000 compliance is not fully known at this time, management anticipates that any external costs will not be material. Any costs incurred will be funded from operations. The Company does not track internal personnel time spent on IT projects. To date, no IT projects have been delayed as a result of the Y2K problem. If the Company needs to devote more resources to the Y2K problem than currently anticipated, additional costs may be incurred. Such a situation could have a material adverse effect on the Company's financial condition and results of operations. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED - -------------------------------------------------------------------------------- The costs of Year 2000 compliance and the anticipated impact of the Y2K problem are the best estimates of Company management. Estimated costs and the anticipated impact of the Y2K problem are forward-looking statements that may be affected by the Company's current assessment of its internal exposure to the Y2K problem, the timeliness and accuracy of information provided by the Company's vendors and other business partners, the cost and availability of upgrades, corrections or replacements for IT and non-IT systems identified as non-compliant, and the cost of and the Company's ability to procure the services of consultants or qualified personnel if needed to assist with any unexpected Y2K problems. WORST CASE SCENARIO. The Company believes that its most reasonably likely, worst case scenario as a result of the Year 2000 problem will be the failure of one or more significant vendors or business partners to become Year 2000 compliant and the inability of the Company to determine or react on a timely basis in order to mitigate the effects on the Company. If the operations of any significant vendor or other business partner are disrupted due to the Year 2000 problem and the Company is unable to develop and implement an effective contingency plan, the Company's ability to carry on essential activities could be materially affected. There can be no assurance that this scenario or any other impact of the Y2K problem will not have a material adverse effect on the Company's business, financial condition and results of operations. CONTINGENCY PLANS. To date, the Company has not yet developed any detailed contingency plans to address Year 2000 compliance deficiencies. To the extent that the Company identifies Year 2000 compliance issues that cannot be addressed on a timely basis, it will seek to develop appropriate contingency plans in order to mitigate its risks. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12 PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 29, 1999, the Company completed a private placement of 815,000 shares of its Common Stock at an aggregate price of $2,445,000, resulting in net proceeds of $2.1 million after deducting agents' commissions of $244,500 and other expenses. The sale of securities was made to "accredited investors" as defined in Rule 501(a) of Regulation D and in reliance on Regulation D and Section 4(2) under the Securities Act of 1933, as amended. Miller Johnson & Kuehn, Inc. of Minneapolis, MN and Fleming Securities, Inc. of Scottsdale, AZ acted as the Company's agents in the private placement. In connection with the private placement the Company issued the agents together warrants to purchase an aggregate of 81,500 shares of Common Stock at an exercise price of $3.00 per share. The Company intends to use the net proceeds from this offering to fund research and development activities, build manufacturing capacity, develop a sales and marketing organization, increase working capital and for other general corporate purposes. ITEM 3. DEFAULT UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits to this quarterly report on Form 10-Q are listed in the exhibit index beginning on page 15. (b) Form 8-K. None. 13 SIGNATURES - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report signed on its behalf by the undersigned hereunto duly authorized. APPLIED BIOMETRICS, INC. Dated: November 15, 1999 /s/ Camille M. Meyer --------------------------------------------------- Camille M. Meyer Vice President, Finance and Chief Financial Officer (Principal Financial Officer) 14 APPLIED BIOMETRICS, INC. INDEX TO EXHIBITS - -------------------------------------------------------------------------------- 27.1 Financial Data Schedule for the nine-month period ended September 30, 1999 (filed herewith electronically). 99.1 Important Factors (filed herewith electronically). 15 EX-99.1 2 IMPORTANT FACTORS EXHIBIT 99.1 IMPORTANT FACTORS HISTORY OF LOSSES; ANTICIPATED FUTURE LOSSES The Company has experienced continued and significant operating losses since its inception in 1984 and has an accumulated deficit. The Company anticipates continuing operating losses for the foreseeable future. The Company's ability to generate revenues from operations and achieve profitability depends upon a number of factors, including its ability to successfully complete development work on and commercialize the Basis(TM) Cardiac Output Monitoring System and the costs and related timing of implementation of its marketing, sales and manufacturing activities. There can be no assurance that the Company will be able to successfully introduce the Basis Cardiac Output Monitoring System or that the Company will generate revenues or achieve profitability at any time in the future. DEPENDENCE ON AND NEED FOR FURTHER DEVELOPMENT OF THE BASIS CARDIAC OUTPUT MONITORING SYSTEM The Company's success depends upon the Basis Cardiac Output Monitoring System, which currently is its sole product. Although product prototypes were found to perform consistently with the Company's expectations in Company lab and mammal tests, early results from the Company's product evaluations of the Basis Cardiac Output Monitoring System and RealFlow Probe indicated the need for modifications in order to meet the Company's product performance expectations. While the Company intends to make these modifications before continuing with further product evaluations at its clinical sites, there can be no assurance that the necessary modifications can be timely and successfully developed. Any inability to timely and successfully make the necessary product modifications could delay or prevent successful commercialization of the Basis Cardiac Output Monitoring System, which would have a material, adverse effect on the Company's business, financial condition and results of operations. FAILURE OF PRIOR CARDIAC OUTPUT MONITORING SYSTEM In the Company's early stages - from the years 1984 to 1994 - it developed and marketed two ultrasound-based cardiac output devices: one that was integrated into an endotrachial tube, and the other being a predecessor to the current Basis Cardiac Output Monitoring System. Both products were sold or distributed in the 1990's in small quantities. After a small commercialization effort, the Company ceased marketing due to unreliable product performance caused by a variety of factors, including inadequate probe sensitivity and signal processing, and hardware performance constraints. Although management believes that the Basis Cardiac Output Monitoring System incorporates design changes that address the shortcomings of the prior systems, there can be no assurance that performance problems will not occur in clinical use of the Basis Cardiac Output Monitoring System. NEED FOR ADDITIONAL FINANCING The Company expects that additional financing will be needed in the first quarter of 2000 to fund its development and product commercialization plans. Such additional financing may include sales of debt or equity securities or loans from banks or other financial institutions. Equity securities of the Company could result in substantial additional dilution to shareholders. Additionally, equity securities sold in the future could include shares of previously undesignated preferred stock that could have rights and preferences adversely affecting the rights of holders of Common Stock. If the Company's operational plans do not progress as anticipated, the Company's ability to attract additional financing could be impaired. No assurance can be given that the Company will be able to obtain any additional financing on acceptable terms or at all, and failure to do so would have a material, adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF MARKET ACCEPTANCE The commercial success of the Company's Basis Cardiac Output Monitoring System will require acceptance by cardiac surgeons and other medical specialists. Such acceptance will depend, in part, upon clinical validation results and the conclusion by these medical professionals that the Basis Cardiac Output Monitoring System is accurate, reliable and effective and that that Basis Cardiac Output Monitoring System 1 EXHIBIT 99.1 offers enhanced functionality relative to current cardiac output monitoring technologies. There can be no assurance that the Basis Cardiac Output Monitoring System will provide clinical benefits considered superior by these professionals or that a sufficient number of such professionals will use the Basis Cardiac Output Monitoring System for commercial success to be achieved. Because the Basis Cardiac Output Monitoring System represents a different method of clinical assessment and an improved product compared to the Company's earlier development efforts that failed to achieve commercial success, there may be greater reluctance to accept this product than would occur with products using well-established technologies. Substantial efforts may need to be devoted to educating the market to the Company's technologically different approach and the improvements in the Basis Cardiac Output Monitoring System over the Company's prior cardiac output monitoring systems. Failure of the Company's product to achieve market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. LACK OF MANUFACTURING EXPERIENCE The Company's current plans call for it to manufacture the Basis Cardiac Output Monitoring System internally. The Company has only limited manufacturing experience and could encounter difficulties in scaling up production. These problems may include estimating optimal product volume and mix requirements, production yields, controlling and anticipating product costs, quality control and assurance, component supply and contending with shortages of qualified personnel. There can be no assurance that manufacturing difficulties will not occur. Such difficulties could have a material adverse effect on the Company. LACK OF MARKETING EXPERIENCE A key element of the Company's business strategy is to market and sell the Basis Cardiac Output Monitoring System through a direct sales organization in the United States and through an international distribution network. The Company has no experience in marketing the Basis Cardiac Output Monitoring System and no current sales capabilities. There can be no assurance that the Company's proposed marketing efforts will result in commercial sales or that the Company will be able to develop an effective sales force and distribution network without incurring substantial delays or costs or at all. Failure to develop an effective direct sales organization or an effective international distribution network would have a material adverse effect on the Company. COMPETITION Competition in the medical device industry in general and in the market for cardiac output monitoring in particular is intense. The cardiac output monitoring market is currently dominated by companies such as Edwards Critical Care (a division of Baxter Healthcare Corporation), Johnson and Johnson and Abbott Critical Care who make and sell catheters, thermodilution cardiac monitors and peripheral products used to measure cardiac output by the widely used thermodilution method. While the Company believes its Basis Cardiac Output Monitoring System represents significant improvements over existing products in the marketplace, the Company must be able to effectively demonstrate the beneficial features of the Basis Cardiac Output Monitoring System and must maintain competitive pricing in order to successfully sell its products. Competition in the Company's market may result in pricing pressures that may adversely affect product gross margins. The Company competes with the companies listed above and other large companies, many of which have greater resources and established operations. These competitors also have greater depth in research and development, manufacturing and marketing and sales capabilities. The ability of the Company to compete effectively will depend upon the advantages and proprietary nature of the Basis Cardiac Output Monitoring System, on the Company's ability to attain and maintain technological leadership and to generate sales. There can be no assurance that the Company will be able to successfully compete against its current or future competitors. 2 EXHIBIT 99.1 LIMITED HUMAN USE OF THE BASIS CARDIAC OUTPUT MONITORING SYSTEM To date, the Company has completed extensive research, conducted lab and animal testing and conducted limited human clinical use of the Basis Cardiac Output Monitoring System. Although the Company believes that its research and testing provide conclusive support for the Basis Cardiac Output Monitoring System's performance in humans, there can be no assurance that research and animal testing alone will identify all the technical issues or potential problems with use of the Basis Cardiac Output Monitoring System in humans in generally, or in any subset of humans having differing anatomical structures or disease characteristics. The Company began product evaluations of the Basis Cardiac Output Monitoring System and RealFlow Probe at one clinical site in the U.S. Early results from these evaluations indicate the need for modifications to the Basis Cardiac Output Monitoring System in order to meet the Company's product performance expectations. While the Company intends to make these modifications before continuing with further product evaluations at its clinical sites, there can be no assurance that the necessary modifications can be timely and successfully developed. Any failure of the Basis Cardiac Output Monitoring System to achieve acceptable results in future evaluations could lead to delays in the introduction and market acceptance of the Basis Cardiac Output Monitoring System. A delay in market introduction of the Basis Cardiac Output Monitoring System would have a material adverse effect on the Company's business, financial condition and results of operations. TECHNOLOGICAL OBSOLESCENCE; DEVELOPMENT OF NEW PRODUCTS Rapid technological advances characterize the medical device market. Even if the Basis Cardiac Output Monitoring System is successfully developed and accepted, it may be rendered obsolete by technological developments, new innovations or changes in the medical marketplace. The Company's success will depend in part on its ability to respond quickly to medical and technological changes and to develop and introduce new, cost-effective versions of its Basis Cardiac Output Monitoring System in response to competitive innovations. Development and commercialization of new products will require additional research and development expenditures and may require new regulatory approvals. There can be no assurance that the Company will successfully identify new market opportunities and develop new products or that these new products will receive necessary regulatory approvals or be successfully received by the marketplace or, if so, that the Company's products will not be rendered obsolete by changes in technology. LIMITATIONS ON THIRD PARTY REIMBURSEMENT The Basis Cardiac Output Monitoring System will generally be purchased by hospitals which then seek reimbursement from various public and private third party payers covering cardiac surgery patients, such as Medicare, Medicaid and private insurers, for the health care services provided to patients. There can be no assurance that these third party payers will consider use of the Basis Cardiac Output Monitoring System cost-effective. If the Basis Cardiac Output Monitoring System is not considered cost-effective and not approved for reimbursement, this will materially adversely affect the prospects of the Basis Cardiac Output Monitoring System and the Company itself. Even if the third party payers approve the Basis Cardiac Output Monitoring System for reimbursement, there can be no assurance that the level of reimbursement approved will be high enough to make the Company a profit from selling the Basis Cardiac Output Monitoring System. Furthermore, the amount of reimbursement for treatment for various cardiac diseases could decrease in the future and reduce the amount paid for the Basis Cardiac Output Monitoring System. Failure by hospitals and other users of the Company's products to obtain sufficient reimbursement for use of the Basis Cardiac Output Monitoring System in cardiac output monitoring could have a material adverse effect on the Company. PATENTS AND PROPRIETARY RIGHTS The Company's success depends in part on its ability to obtain and maintain patent protection for its products, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. The Company currently holds five U.S. patents, two Canadian patents, one European patent relating to devices and methods used to measure blood flow through a major mammalian artery using ultrasound technology, as well as four U.S. patents pending and patents and patent applications pending in Japan and European countries relating to an endotrachial device. The validity and breadth of claims covered in medical technology patents involve complex legal and factual questions and, therefore, may be highly uncertain. No assurances can be given that any current patents will be maintained, that patents under pending applications or any future patent applications will be issued, that the scope of any patent protection 3 EXHIBIT 99.1 will exclude competitors or provide competitive advantages to the Company, that any of the Company's patents will be held valid if subsequently challenged, that others will not claim rights in or ownership of the patents and other proprietary rights held by the Company or that the Basis Cardiac Output Monitoring System or other products and processes will not infringe, or be alleged to infringe, the proprietary rights of others. If the Company is found to have infringed on the rights of a third party, the Company may be unable to market its products without a license from such third party. There is no assurance that the Company would be able to obtain such a license on satisfactory terms, or at all. Furthermore, there can be no assurance that others have not developed or will not develop similar products or manufacturing processes, duplicate any of the Company's products or manufacturing processes, or design around the Company's patents. In addition, whether or not additional patents are issued to the Company, others may hold or receive patents that contain claims having a scope that covers products subsequently developed by the Company. The Company also relies on unpatented trade secrets to protect its proprietary technology, and no assurance can be given that others will not independently develop or otherwise acquire substantially equivalent technologies or otherwise gain access to the Company's proprietary technology or disclose such technology or that the Company can ultimately protect meaningful rights to such unpatented proprietary technology. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. Litigation, which could result in substantial cost to and diversion of effort by the Company, may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company, to defend the Company against claimed infringement of the rights of others or to determine the ownership, scope or validity of the proprietary rights of the Company and others. An adverse determination in such litigation could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties and prevent the Company from manufacturing, selling or using its products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS RELATED TO YEAR 2000 COMPLIANCE ISSUES Many computer systems and applications use two-digit date fields to identify a given year. The so-called "Year 2000" or "Y2K" problem is the failure of date-sensitive computing systems and applications to properly recognize and process dates into and after the Year 2000. These problems may cause incorrect processing of financial and operational information, and could result in business interruptions. Although the Company believes that the Basis Cardiac Output Monitoring System is Y2K compliant and is currently seeking to identify and remediate its Year 2000 risk with regard to its internal systems, there can be no assurance that the Company will identify all of its potential Year 2000 issues. Additionally, while the Company plans to evaluate the Year 2000 compliance of its material vendors, distributors and other significant business partners, there can be no assurance that these parties will successfully achieve Year 2000 compliance for their products and internal systems. If the Company or one of its significant business partners fails to identify and correct all Year 2000 problems, there could be a material adverse effect on the Company's business, financial condition and results of operations. GOVERNMENTAL REGULATION As a medical device company, the Company is subject to extensive and rigorous regulation by the FDA in the United States and by comparable agencies in foreign countries. The FDA regulates the introduction of medical devices as well as manufacturing, labeling, distribution, sale, marketing, advertising, promotion and record keeping procedures for such products. Although the 510(k) marketing clearance received from the FDA for the Company's trans-aortic system was recently reviewed by the Company and outside advisors and is believed to be valid for the Basis Cardiac Output Monitoring System, such clearance can be withdrawn temporarily or permanently by the FDA due to failure to comply with regulatory standards or the occurrence of unforeseen problems with the Basis Cardiac Output Monitoring System. The FDA also has the power to limit or prevent the manufacture 4 EXHIBIT 99.1 or distribution of the Basis Cardiac Output Monitoring System and could require its recall. FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretation made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company. The FDA and various agencies inspect the Company and its facilities from time to time to determine whether the Company is in compliance with regulations relating to medical device manufacturing, including regulations concerning manufacturing, testing, quality control and product labeling practices. A determination that the Company is in material violation of such regulations could lead to the imposition of civil penalties, including fines, product recalls, product seizures, or, in extreme cases, criminal sanctions. In addition, there can be no assurance that the government regulations will not change, and thereby prevent the Company from temporarily or permanently marketing the Basis Cardiac Output Monitoring System. The withdrawal by the FDA of its marketing approval for the Basis Cardiac Output Monitoring System, the recall of the Basis Cardiac Output Monitoring System or similar regulatory action would have a material adverse effect on the Company's business, financial condition and results of operations. As part of its strategy, the Company expects to pursue commercialization of its products in international markets, and therefore, the Company's products will be subject to regulations that vary from country to country. The process of obtaining foreign regulatory approvals in certain countries can be lengthy and require the expenditure of substantial resources. There can be no assurance that the Company will be able to obtain necessary regulatory approvals or clearances on a timely basis or at all, and delays in receipt of or failure to receive such approvals or clearances, or failure to comply with existing or future regulatory requirements, could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY OF HEALTH CARE REFORM The levels of revenue and profitability of medical device companies may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of health care through various means. In the United States there have been, and the Company expects that there will continue to be, a number of federal and state proposals to control health care costs. These proposals contain measures intended to control public and private spending on health care as well as to provide universal public access to the health care system. If enacted, such proposals may result in a substantial restructuring of the health care delivery system. Significant changes in the nation's health care system are likely to have a substantial impact on the manner in which the Company conducts its business and could have a material adverse effect on the Company's business, financial condition and results of operations. Similarly, the marketing and sale of the Company's products in foreign countries could be materially adversely affected by health care reform in such countries. NEED TO EXPAND; DEPENDENCE ON KEY PERSONNEL The Company needs to expand its management, research and development, manufacturing and sales and marketing personnel in order to support development and commercialization of the Basis Cardiac Output Monitoring System. The inability to hire personnel as needed may have a material adverse effect on the Company. The success of the Company will depend in part upon its ability to attract and retain capable technical staff as well as sales and marketing personnel in the future. The Company is currently dependent on the services of Andrew M. Weiss, the Company's President and Chief Executive Officer, and Steven R. Wedan, the Company's Vice-President, Engineering. The loss of either of Messrs. Weiss or Wedan could have a material adverse effect on the Company. RISKS RELATED TO INTERNATIONAL SALES The Company's plan to distribute the Basis Cardiac Output Monitoring System in international markets involves certain risks, including the impact of any tariffs, quotas and taxes which may be imposed by foreign governments on international sales of the Basis Cardiac Output Monitoring System, the impact of potential political and economic instability on demand for the Basis Cardiac Output Monitoring System, restrictions on import or export of technology which could prohibit or restrict international sales, and 5 EXHIBIT 99.1 potentially limited intellectual property protection which could cause the Company to refrain from selling in certain international markets. Currency fluctuations could also cause the Basis Cardiac Output Monitoring System to become less affordable or less price competitive in international markets. Any of these factors would adversely impact the Company's ability to sell the Basis Cardiac Output Monitoring System internationally, and could in turn have a material, adverse impact on the Company's business, financial condition and results of operations. DEPENDENCE ON KEY SUPPLIERS There are multiple sources for most of the components used in the Basis Cardiac Output Monitoring System. Several components, however, are currently available from only a limited number of vendors. The inability to obtain such components on a timely basis from such vendors would have an adverse impact on the Company's ability to fill orders from customers. PRODUCT LIABILITY; AVAILABILITY OF INSURANCE The medical device industry is subject to substantial litigation, and the Company faces an inherent business risk of exposure to product liability claims in the event that the use of the Basis Cardiac Output Monitoring System is alleged to have resulted in adverse effects to a patient. Although the Company intends to maintain product liability insurance, there can be no assurance that the coverage limits of its insurance policies will be adequate, or that such insurance will be available in the future on acceptable terms, if at all. A product liability claim or other claim with respect to uninsured liabilities or in excess of insured liabilities could have a material adverse effect on the business, financial conditions and results of operations of the Company. 6 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM FINANCIAL STATEMENTS AND RELATED NOTES FOR THE PERIOD ENDED SEPTEMBER 30, 1999. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,709,718 0 0 0 169,374 2,927,112 1,377,024 768,090 3,616,199 344,429 0 0 0 42,990 3,204,659 3,616,199 0 0 0 1,751,159 0 0 0 (1,694,448) 0 (1,694,448) 0 0 0 (1,694,448) (.38) (.38)
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