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-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7T4r0Wpi50OKXxxaaGkMTedySCjjBE+THzaG4N4OXEHgtViL+Bqec0Wm1NSOIBRVi8m0x59tiKUOJOvbcAbM150Q==910<SEC-DOCUMENT>0000897101-01-500161.txt : 2001041811<SEC-HEADER>0000897101-01-500161.hdr.sgml : 2001041812ACCESSION NUMBER: 0000897101-01-50016113CONFORMED SUBMISSION TYPE: 10-K40514PUBLIC DOCUMENT COUNT: 215CONFORMED PERIOD OF REPORT: 2000123116FILED AS OF DATE: 200104171718FILER:1920COMPANY DATA:21COMPANY CONFORMED NAME: APPLIED BIOMETRICS INC22CENTRAL INDEX KEY: 000081656823STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]24IRS NUMBER: 41150811225STATE OF INCORPORATION: MN26FISCAL YEAR END: 12312728FILING VALUES:29FORM TYPE: 10-K40530SEC ACT:31SEC FILE NUMBER: 000-2214632FILM NUMBER: 16039973334BUSINESS ADDRESS:35STREET 1: 501 E HGWY 13 STE 10836CITY: BURNSVILLE37STATE: MN38ZIP: 5533739BUSINESS PHONE: 61289011234041MAIL ADDRESS:42STREET 1: 501 EAST HWY 1343CITY: BURNSVILLE44STATE: MN45ZIP: 5533746</SEC-HEADER>47<DOCUMENT>48<TYPE>10-K40549<SEQUENCE>150<FILENAME>appliedbio010950_10-k.txt51<DESCRIPTION>APPLIED BIOMETRICS, INC. FORM 10-K 12-31-0052<TEXT>5354- --------------------------------------------------------------------------------5556SECURITIES AND EXCHANGE COMMISSION5758Washington, D.C. 205495960FORM 10-K6162[X] Annual Report pursuant to Section 13 or 15(d) of the63Securities Exchange Act of 19346465For the fiscal year ended December 31, 20006667or6869[ ] Transition report pursuant to Section 13 or 15(d) of the70Securities Exchange Act of 19347172For the transition period from ____ to ____7374Commission file number: 0-221467576- --------------------------------------------------------------------------------7778APPLIED BIOMETRICS, INC.79(Exact name of Registrant as specified in its charter)8081- --------------------------------------------------------------------------------8283Minnesota 41-150811284------------------------ ------------------------------------85(State of Incorporation) (I.R.S. Employer Identification No.)8687P.O. BOX 3170, BURNSVILLE, MN 5533788(Address of principal executive offices) (Zip Code)8990TELEPHONE NUMBER: (612) 338-47229192--------------------------9394The Securities Registered Pursuant to Section 12(b) of the Act: None9596Securities Registered Pursuant to Section 12(g) of the Act:9798Common Stock, $.01 par value99100---------------------------101102Indicate by check mark whether the Registrant (1) has filed all reports required103to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during104the preceding 12 months (or for such shorter period that the Registrant was105required to file such reports), and (2) has been subject to such filing106requirements for the past 90 days. Yes X No ___107108Indicate by check mark if disclosure of delinquent filers pursuant to Item 405109of Regulation S-K is not contained herein, and will not be contained, to the110best of Registrant's knowledge, in definitive proxy or information statements111incorporated by reference in Part III of this Form 10-K or any amendment to this112Form 10-K. [X]113114The Registrant has adopted liquidation basis accounting as of September 1, 2000.115116As of March 15, 2001, 5,883,404 shares of Common Stock of the Registrant were117outstanding, and the aggregate market value of the Registrant's outstanding118Common Stock (based upon the last reported sale price of the Common Stock on the119Over-The-Counter Bulletin Board) excluding outstanding shares owned beneficially120by executive officers, directors and principal shareholders, was approximately121$620,315.122123<PAGE>124125126CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-K INCLUDE "FORWARD LOOKING127STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT128OF 1995. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS129"EXPECT," ANTICIPATE," "PLAN," "MAY," "ESTIMATE" OR OTHER SIMILAR EXPRESSIONS.130SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS131WHICH MAY CAUSE THE ACTUAL RESULT TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS,132PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING133STATEMENTS. SEE ITEM 6 "MANAGEMENT'S DISCUSSION AND ANALYSIS - CERTAIN FACTORS"134FOR IMPORTANT FACTORS KNOWN TO US THAT COULD CAUSE SUCH MATERIAL DIFFERENCES.135136137PART I138139Item 1: DESCRIPTION OF BUSINESS140141INTRODUCTION142143Applied Biometrics, Inc. ("Applied Biometrics" or the "Company"), a144corporation founded in 1984 to develop and market a cardiac output monitoring145system, ceased its ongoing business operations in August 2000 because the146Company determined that it would be unable to complete the development of its147primary product, the Basis Cardiac Output Monitor and RealFlow Cardiac Output148Probe (collectively, the "Basis System"), for market and sale.149150CESSATION OF BUSINESS OPERATIONS151152As a result of its decisions to cease business operations, the153Company's Chief Executive Officer resigned and all other employees were let go.154Two of the four members of the Board of Directors resigned. In August 2000, the155Company retained Manchester Companies, Inc. ("Manchester"), a Minneapolis,156Minnesota investment banking firm, to explore options to wind-up the Company. As157part of the engagement of Manchester, the Company appointed James D. Bonneville158as the Acting Chief Executive Officer, Chief Financial Officer and Secretary of159the Company. The Company has wound down its business operations, eliminated160expenses and negotiated the termination or satisfaction of all of its161obligations.162163The Company no longer occupies any office space. The Company can be164contacted at P. O. Box 3170, Burnsville, MN 55337 or by telephone at (612)165338-4722.166167CLINICAL USE OF CARDIAC OUTPUT168169Cardiac output (or "CO") is a measure of the volume of blood pumped by170the heart into the aorta and is one of the most basic physiological parameters171of the body's hemodynamic system. There are typically two types of parameters172measured in the heart for diagnostic and monitoring purposes:173electro-physiological, such as the electrocardiogram ("ECG"), and hemodynamic,174such as heart rate, blood pressure and cardiac output. In many cases, ECG, heart1751761772178<PAGE>179180181rate and pressures are used as a proxy to understand cardiac output. Surgical,182electrical and drug therapies, as well as life support systems, such as bypass183machines and heart assist devices, are often designed to develop and sustain a184specified level of cardiac output.185186Since the advent of open-heart surgery, surgeons, anesthesiologists and187intensivists have desired a reliable, accurate, continuous and real-time measure188of cardiac output. The Company believed that medical practitioners recognize the189importance of measuring cardiac output and that there is significant demand for190accurate, real-time cardiac output capability, especially for intra-operative191and post-operative heart surgery settings. In these settings, surgeons,192anesthesiologists and intensivists require continuous, real-time information193about cardiac output to guide surgery, drug delivery and life support systems.194The Company believed that practitioners were particularly interested in195immediate cardiac output data for certain patients undergoing cardiac surgery,196including heart transplant and coronary artery bypass surgeries, where the197ability to provide real-time, beat-to-beat, continuous cardiac output data can198allow surgeons, cardiologists and anesthesiologists to react quickly to changes199in a patient's condition.200201PRODUCTS202203Prior to deciding to cease its business operations, the Company was204developing a system designed to measure CO on a continuous and real-time basis205during and after cardiac surgery called the Basis System. The Basis System was206designed for use on a broad range of aortic diameters in both adults and207children. By using ultrasound to monitor CO directly from the ascending aorta,208the Basis System was expected to provide real-time accuracy never before209available. In contrast to conventional CO techniques, the Basis System was210designed to directly measure the patient's aortic diameter and blood velocity 44211times each second for a true, real-time view of cardiac output.212213The Basis System consisted of the patented, disposable, ultrasonic214RealFlow Probe and the Basis Cardiac Output Monitor. The RealFlow Probe215consisted of an ultrasound sensor mounted in the probe head, a power cable and216an integrated release mechanism. The release mechanism involved two nitinol217"release" wires integrated into the sensor head, which the surgeon sutures to218the patient's aorta during open-heart surgery. Later, after the chest cavity has219been closed, the physician released the sutures by withdrawing the release220wires, permitting the probe to be removed from the chest without additional221surgical intervention.222223The Basis System monitor consisted of both software and electronic224hardware and display, which energized the Basis System's RealFlow probe, senses225the probe's signal, determines cardiac output and provides a graphical and226numeric display to the physician. The electro-luminescent flat panel display227provided numerical, waveform and trend information of the patient's cardiac228output, stroke volume, blood velocity, aortic diameter and blood velocity. The229monitor was designed to be automatic, requiring no user calibration, and to230automatically adjust its analysis and readout to each individual patient.231232The Basis System was specifically designed to address the need for233continuous, real-time, cardiac output data in surgical and post-operative234settings by reporting cardiac output accurately2352362373238<PAGE>239240241and without subjective user intervention. The Basis System readings were thought242to be used to guide cardiac surgeons during surgical procedures and to assist243intensivists and anesthesiologists by monitoring vital signs and managing life244support systems both during and after the procedures.245246In July of 2000, the Company determined that significant technical247issues faced the Basis System which made commercialization of the Basis System248unlikely in the near term. Two significant issues were identified. The first249issue involved the Basis System's ability to work successfully in the event of250considerable variability or turbulence in a patient's blood flow. The second251issue involved errors arising from the positioning of the Basis System's probe252during and after surgical procedures. Both of these problems significantly253impacted the performance, reliability and market potential of the Basis System.254255RESEARCH AND DEVELOPMENT256257Prior to deciding to cease its business operations, the Company's258professionals researched and developed proprietary competencies in ultrasound259transducers, signal processing, cardiac anatomy and pathology and the fluid260dynamics of blood flow. The Company's research and development expenditures for261the first eight months of 2000 were $1,500,000 and were $1,469,000 and $805,000262annually in 1999 and 1998, respectively. These funds were used primarily to263develop the Basis System and its underlying core technologies.264265PATENTS AND PROPRIETARY RIGHTS266267The Company developed extensive proprietary technology and knowledge in268a variety of fields that relate to cardiac output, blood flow and associated269diagnostic and monitoring products. These include ultrasound transducer design270and manufacturing, signal processing, cardiac anatomy, pathology and clinical271procedures, the fluid dynamics of blood flow and acoustic properties of the272human anatomy.273274The Company obtained U.S. and foreign patents and patents pending,275which relate to devices and methods used to measure blood flow through a major276mammalian artery using ultrasound technology, the release mechanism employed by277the RealFlow probe, and certain methods and techniques which relate to minimally278invasive surgery, beating heart surgery and advanced signal processing. In279addition to its patented technology, the Company relied heavily on trade secrets280and unprotected proprietary technology. The Company always maintained the281confidentiality of such information through its internal security and secrecy282measures and the employment agreements requiring employees and agents of the283Company to maintain the confidentiality of Company information and to assign to284the Company inventions developed in the course of work for the Company.285286Basis(TM) and RealFlow(TM) are trademarks of the Company.287288On January 31, 2001, as part of its decision to cease business289operations, the Company sold certain patented technology to Transonic Systems,290Inc. for a purchase price of $23,000.2912922934294<PAGE>295296297This patented technology consisted of technology that relates to devices and298methods used to measure blood flow through arteries using ultrasound technology,299and certain methods and techniques which relate to minimally invasive surgery,300beating heart surgery and advanced signal processing.301302EMPLOYEES303304As of December 31, 2000, the Company had no employees. James D.305Bonneville, the Company's Acting Chief Executive Officer, Chief Financial306Officer and Secretary has been retained by the Company under the agreement with307Manchester.308309Item 2: PROPERTIES310311Until October 2000, the Company occupied a leased facility located at312501 East Highway 13, Burnsville, Minnesota 55337. On October 30, 2000, the313Company terminated the lease of this facility and paid a one time lease314termination payment of $75,000. The Company does not currently occupy any space.315316Item 3: LEGAL PROCEEDINGS317318None.319320Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS321322No matter was submitted to a vote of security holders during the fourth323quarter of the fiscal year covered by this Report.324325Item 4A: EXECUTIVE OFFICERS OF THE REGISTRANT326327With the decision to cease business operations, all employees and328executive officers of the Company were terminated. As of March 15, 2001, the329Company, pursuant to its arrangement with Manchester, engages one individual as330its Acting Chief Executive and Chief Financial Officer his age and biographical331information is as follows:332333NAME AGE POSITION WITH COMPANY334---- --- ---------------------335336James D. Bonneville 61 ACTING CHIEF EXECUTIVE OFFICE, CHIEF337FINANCIAL OFFICER AND SECRETARY338339JAMES D. BONNEVILLE - Mr. Bonneville has been a Vice President at340Manchester Companies since March 2000. Mr. Bonneville served as the Chief341Executive Officer of Linguistic Technologies, Inc. from March 1999 to January3422000. During 1999 Mr. Bonneville served as a consultant to MinCorp Investment343Network. From 1993 to 1998 Mr. Bonneville served as the President and Chief344Operating Officer of Connect Computer Company, which merged into Norstan in3451996.3463473485349<PAGE>350351352PART II353354Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS355356Prior to November 30, 2000, the Company's Common Stock was traded on357the Nasdaq SmallCap Market under the symbol "ABIO." Effective as of November 30,3582000, the Company's Common Stock is no longer quoted on the Nasdaq Small Cap359Market because the Company no longer met, and currently does not meet, the360minimum net tangible assets and capital and surplus requirements for continued361quotation. The Common Stock currently trades on the Over-The-Counter Market on362the NASD "Electronic Bulletin Board" under the symbol "ABIO." The following363table sets forth, for the periods indicated, the high and low closing sale364prices per share as reported by the Nasdaq SmallCap Market and the OTC Bulletin365Board. These prices do not include adjustments for retail mark-ups, markdowns or366commissions and may not necessarily represent actual transactions.3673682000 HIGH LOW369---- ---- ---370371First Quarter............. $4.00 $2.28372Second Quarter............ 3.50 2.38373Third Quarter............. 2.19 0.25374Fourth Quarter............ 0.34 0.093753761999 HIGH LOW377---- ---- ---378379First Quarter............. $8.50 $7.63380Second Quarter............ 8.00 4.38381Third Quarter............. 5.25 3.88382Fourth Quarter............ 5.00 2.38383384385The Company has not declared or paid any cash dividends on its Common386Stock since its inception. As of March 15, 2001, there were approximately 606387beneficial owners of the Company's Common Stock.3883893906391<PAGE>392393394Item 6: SELECTED FINANCIAL DATA395396SUMMARY STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION DATA:397398FOUR MONTHS ENDED399DECEMBER 31, 2000400-----------------401402Net assets in liquidation, beginning of period.............. $925,557403404Changes in net assets in liquidation........................ (193,030)405---------406407Net assets in liquidation, end of period.................... $732,527408========409410SUMMARY STATEMENTS OF OPERATIONS DATA:411412<TABLE>413<CAPTION>414EIGHT MONTHS415ENDED416AUGUST 31, YEARS ENDED DECEMBER 31,4174182000 1999 1998 1997(1) 1996419---- ---- ---- ------- ----420<S> <C> <C> <C> <C> <C>421Net revenue ....................... $ -- $ -- $ -- $ 64,940 $ 125,120422423Gross margin ...................... -- -- -- 32,765 63,145424425Operating Expenses:426Selling, general &427administrative ................. 911,766 1,028,065 946,721 1,061,579 862,221428Research & development ......... 1,500,337 1,469,001 805,459 1,409,280 894,517429----------- ----------- ----------- ----------- -----------430Net Loss from continuing431operations ..................... (2,354,876) (2,445,942) (1,563,991) (2,134,604) (1,368,961)432Discontinued Operations:433Loss from operations of Trans-434catheter closure business ...... -- -- (1,838,147) (457,866) --435----------- ----------- ----------- ----------- -----------436Net Loss .......................... (2,354,876) (2,445,942) (3,402,138) (2,592,470) (1,368,961)437=========== =========== =========== =========== ===========438439Basic and diluted loss per share440Continuing operations .......... $ (0.42) $ (0.52) $ (0.36) $ (0.51) $ (0.35)441Discontinued operations ........ -- -- $ (0.43) $ (0.11) $ --442----------- ----------- ----------- ----------- -----------443$ (0.42) $ (0.52) $ (0.79) $ (0.62) $ (0.35)444=========== =========== =========== =========== ===========445Weighted average shares(2)446outstanding, basic and447diluted ........................ 5,655,380 4,659,300 4,312,077 4,186,896 3,917,268448</TABLE>449450- ---------------------------------451(1) In 1997, the Company ceased marketing efforts of two cardiac output devices:452one that was integrated into an endotrachial tube, and the other being a453predecessor to the Basis System.454455(2) The Company's weighted average shares outstanding were increased by the456issuance of 525,000 shares of Common Stock from two private placements in April4572000.4584594607461<PAGE>462463464SUMMARY BALANCE SHEET DATA:465466<TABLE>467<CAPTION>468AT DECEMBER 31,4694702000 1999 1998 1997 1996471---- ---- ---- ---- ----472<S> <C> <C> <C> <C> <C>473Cash, cash equivalents & short-474term investments .............. $1,109,537 $1,910,356 $2,369,413 $4,420,180 $6,374,452475Total assets ..................... 1,218,263 2,827,739 3,296,711 5,437,923 7,490,300476Net assets in liquidation ........ 732,527 -- -- -- --477Shareholders' equity ............. -- 2,516,625 2,151,564 5,271,202 7,287,110478</TABLE>479480ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS481OF OPERATIONS482483The Company ceased its ongoing business operations in August of 2000484because the Company determined it would be unable to complete the development of485its primary product, the Basis System, for market and sale. The Company's Chief486Executive Officer resigned and all other employees were terminated. The Company487has wound down its business operations, eliminated expenses and negotiated the488termination or satisfaction of all of its remaining obligations. Currently, the489Company's management and accounting functions are performed through Manchester.490491The Company adopted liquidation basis accounting as of September 1,4922000. This basis of accounting is considered appropriate when liquidation of a493company appears imminent and the net realizable value of its assets are494reasonably determinable. Under this basis of accounting, assets and liabilities495are stated at their net realizable value and estimated costs through the496liquidation date are provided to the extent reasonably determinable.497498LIQUIDITY AND CAPITAL RESOURCES499500As of December 31, 2001, net assets in liquidation were $733,000. Cash,501cash equivalents and marketable securities were $1,100,000 as of December 31,5022000 as compared to $1,900,000 at December 31, 1999, a decrease of $800,000.503504Continuing operating activities in 2000 used cash of $2,486,000 as505compared to $2,095,000 used during 1999.506507Investing activities for the first eight months of 2000 provided cash508of $193,000 as compared to $116,000 for the twelve-month period ending December50931, 1999.510511Financing activities provided $1,492,000 of cash, resulting primarily512from the issuance of Common Stock by the Company in a private equity financing513in April 2000.5145155168517<PAGE>518519520Based on its expected rate of spending the Company believes that its521existing cash and cash equivalents will be more than sufficient to fund any522further expenses related to the Company for 36 months. The Company is presently523investigating liquidation options for the Company and its shareholders. There524can be no assurances that the Company will be able to find liquidation option525for the Company or the shareholders on terms satisfactory to all parties.526527RESULTS OF OPERATIONS528529EIGHT MONTHS ENDED AUGUST 31, 2000 AND TWELVE MONTHS OF 1999530531Selling costs and general and administrative expenses were $912,000 for532the first eight months of 2000, compared to selling costs and general and533administrative expenses of $1,028,000 for the twelve months ended December 31,5341999. One-time expenses in the first eight months of 2000 were $100,000 from535termination costs and a non-cash compensation charge of $153,000 related to536stock granted to the Company's three non-employee directors for prior and537current Board service. There were no selling costs for this period.538539Research and development costs for the first eight months of 2000 were540$1,500,000 compared to $1,469,000 for the twelve months ended December 31, 2000.541These expenses increased for the first eight months of 2000 because of a542$100,000 of employee termination costs related to the Company's termination of543operations and, a second quarter write-off by the Company of $210,000 of its544monitor and probe component inventory.545546Other income, primarily interest, earned was $57,000 for the first547eight months of 2000 compared to $51,000 for the twelve months ended December54831, 1999.549550The net loss for the first eight months of 2000 was $2,355,000, or551$0.40 per share, as compared to a net loss of $2,446,000, or $0.52 per share, in552the twelve-month period ending December 31, 1999.553554YEARS ENDED DECEMBER 31, 1999 AND 1998555556General and administrative expenses increased $353,000 to $935,000 in5571999 from $582,000 in 1998. The increase in 1999 reflected increased558compensation related to costs of approximately $133,000 due to higher559compensation levels and additional personnel hired in anticipation of product560launch. The balance of the year-to-year increase related to an allocation of561personnel and other costs to discontinued operations in 1998.562563Selling costs decreased $271,000 from $364,000 in 1998 to $93,000 in5641999. The Company had minimal sales and marketing activity in 1999. Of the565$93,000 total sales and marketing costs for 1999, 32% was incurred in the first566quarter and was related to marketing costs absorbed prior to the spin-off of the567transcatheter business. The remaining 68% was incurred primarily in the fourth568quarter of 1999 as the Company started adding marketing personnel and conducting569marketing research and product evaluation activities related to the Basis570System.5715725739574<PAGE>575576577Research and development expenses increased $664,000 from $805,000 in5781998 to $1,469,000 in 1999 due to increased engineering, operations and quality579personnel costs, mammal testing and manufacturing pilot costs in 1999 over 1998.580Additionally, some 1998 costs, primarily related to manufacturing and quality581personnel were allocated to discontinued operations in 1998.582583Other income, primarily interest, decreased $137,000 from $188,000 in5841998 to $51,000 in 1999. The decrease was due to lower average investment585balances in 1999 than in 1998.586587The 1999 net loss was $2,446,000, or $0.52 per share, compared to a net588loss of $1,564,000, or $0.36 per share, in 1998, excluding a loss of $1,838,000,589or $.43 per share, from discontinued operations.590591YEARS ENDED DECEMBER 31, 1998 AND 1997592593The Company had no revenue in 1998 as compared to $65,000 in 1997. In5941996, after a number of years of research and development, the Company decided595to focus its efforts on a new intra-operative cardiac output system using a596disposable ultrasound probe applied directly to the ascending aorta. Sales of an597earlier version of this device were ceased in 1997 until the completion of the598next generation product.599600Selling, general and administrative costs decreased $115,000 in 1998601from $1,062,000 in 1997 to $947,000 in 1998. Lower selling costs accounted for602$24,000 of the decrease due to the reduction in marketing activities in 1998 as603the Company focused on research and development. Reduced general and604administrative costs of $91,000 accounted for the balance of the year-to-year605decrease, primarily due to costs allocated to discontinued operations.606607Research and development decreased $604,000 from $1,409,000 in 1997 to608$805,000 in 1998. During 1998, fewer personnel and other resources were609dedicated to the cardiac output development effort as compared to the 1997610activity. The Company's research and development activities were split between611its continuing operations, cardiac output monitoring, and the transcatether612closure business, which comprises discontinued operations.613614Other income, primarily interest, was $188,000 in 1998 as compared to615$303,000 in 1997 a decrease of 115,000. The decrease was the result of fewer616funds available for investment.617618The 1998 loss from continuing operations was $1,564,000, or $0.36 per619share, as compared to a $2,135,000 loss, or $0.51 per share, in 1997. The loss620from discontinued operations was $1,838,000, or $0.43 per share, in 1998 as621compared to the 1997 loss from discontinued operations of $458,000, or $0.11 per622share.62362462510626<PAGE>627628629INFLATION630631Management believes inflation has not had a material effect on the632Company's operations or on its financial condition.633634CERTAIN FACTORS635636CESSATION OF BUSINESS OPERATIONS; NOT A GOING CONCERN.637638As indicated, the Company has terminated its business operations due to639technical difficulties with its sole product, the Basis System. The Company has640positioned itself for a sale or liquidation. Although the Company may seek to641complete a merger of the Company with another operating entity, there can be no642assurance as to the Company's ability to conclude such a transaction or the643business, financial condition or results of operations of any successor entity.644645ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK646647None.648649ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA650651The Company's financial statements can be found on pages 22 to 36 of652this Report. The index to such items is included on page 19 in Item 14(a)(1).653654ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND655FINANCIAL DISCLOSURE656657On October 18, 1999, the Company appointed Ernst & Young LLP as the658Company's independent auditors and dismissed PricewaterhouseCoopers LLP. The659report of PricewaterhouseCoopers on the financial statements of the Company for660the year ended December 31, 1998 was unqualified and did not contain an adverse661opinion, any disclaimers, qualification or modification as to uncertainty, audit662scope, or accounting principles. In connection with the audits of the financial663statements of the Company for the most recent fiscal years ending December 31,6641999, and each subsequent interim period preceding October 18, 1999, there were665no disagreements or reportable events. The decision to change firms was approved666by the Company's Board of Directors.66766866911670<PAGE>671672673PART III674675ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT676677(a) Directors of the Company as of March 15, 2001 are as follows:678679NAME AGE POSITION680---- --- --------681682Andrew M. Weiss 44 Director and Chairman of the Board683Jeffrey W. Green 60 Director684685Andrew M. Weiss was elected as a Director of the Company in March 1999.686Mr. Weiss served as the President and Chief Executive Officer of the Company687from March of 1999 to September 2000. In 1998, Mr. Weiss served as acting688President of Intellx of Boulder, Colorado, a venture stage company involved in689medical image processing. From 1995 to 1998 Mr. Weiss was Chief Executive690Officer and President of Vital Images, Inc., a Minneapolis-based provider of691diagnostic and surgical visualization systems. In 1994 and 1995, he was692Vice-President of Global Sales and Marketing for Marquette Medical Systems, a693Milwaukee, Wisconsin based manufacturer of patient monitoring systems. Prior to6941994, Mr. Weiss held various positions with General Electric Company, including695several positions with GE Medical Systems.696697Jeffrey Green, is the Co-founder and Chairman of the Board of698Hutchinson Technology, Inc., a disk drive component manufacturer. Mr. Green has699been Chairman of the Board of Hutchinson Technology, Inc. since 1983 and served700as its Chief Executive Officer from January 1983 to May 1996.701702During 2000, the Board met seven times and took action by written703consent four times. All of the members of the Board attended more than 75% of704the meetings of the Board that occurred while they were members of the Board.705706DIRECTOR COMPENSATION707708Non-employee directors did not receive cash compensation from the709Company for their services as members of the Board of Directors or its710Committees during the first eight months of 2000. Non-employee directors are711reimbursed for all out-of-pocket expenses that they incur traveling to and from712Board meetings.713714The Company, in the past, has granted options that become exercisable715in installments over several years and other stock awards, to non-employee716directors. On February 2, 2000 the Company granted unrestricted stock awards for717Board service under the Company's 1996 Stock Plan to Dr. Demetre Nicoloff and718Mr. Norman Dann, former members of the Board who resigned in August of 2000, and719Mr. Green, in amounts equal to 7,786, 15,573 and 15,573, respectively. On720February 2, 2000 the Company also granted to Messrs. Nicoloff, Dann, and Green,721non-plan grants of unrestricted stock awards of 2,214, 4,427 and 4,427,722respectively. On March 2, 2000, the Company granted Messrs. Green and Nicoloff723stock options under its 1998 Stock Plan with72472572612727<PAGE>728729730an exercise price of $3.375 per share. Mr. Green was granted options to purchase73140,000 shares, with 20,000 of such shares exercisable at the time of the grant732and 10,000 exercisable on the earlier to occur of June 1 or re-election as a733director thereafter. Mr. Nicoloff was granted an option to purchase 50,000734shares, with 30,000 of such shares exercisable at grant and 10,000 exercisable735on the earlier to occur of June 1 or re-election as a director thereafter.736737(b) Executive Officers of the Registrant738739Information concerning Executive Officers of the Company is included in740this Report under Item 4A, "Executive Officers of the Registrant."741742(c) Compliance with Section 16(a) of the Exchange Act743744Section 16(a) of the Securities Exchange Act of 1934, as amended,745requires the Company's executive officers and directors, and persons who own746more than 10% of the Company's Common Stock, to file with the Securities and747Exchange Commission (the "SEC") initial reports of ownership and reports of748changes in ownership of Common Stock and other equity securities of the Company.749Executive officers, directors and greater than 10% shareholders are required by750SEC regulations to furnish the Company with copies of all Section 16(a) reports751they file. To the Company's knowledge, based solely on review of the copies of752such reports furnished to the Company during, or with respect to, the period753ended December 31, 2000, the Company's directors, executive officers and greater754than 10% shareholders complied with the applicable Section 16(a) filing755requirements.756757ITEM 11: EXECUTIVE COMPENSATION758759SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION760761The following table shows, for the fiscal years ending December 31,7622000, 1999, and 1998, the compensation paid by the Company, as well as certain763other compensation paid or accrued for those years, to each person serving as764the Company's President and Chief Executive Officer during 2000 and each765executive officer who received more than $100,000 in compensation during 2000.76676776813769<PAGE>770771772SUMMARY COMPENSATION TABLE773774<TABLE>775<CAPTION>776- -----------------------------------------------------------------------------------------------------------------------777LONG-TERM778COMPENSATION ALL OTHER779ANNUAL COMPENSATION AWARDS COMPENSATION780---------------------------------------- ----------------- ($)(1)781SECURITIES782SALARY BONUS OTHER ANNUAL UNDERLYING783NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTIONS (#)784- -----------------------------------------------------------------------------------------------------------------------785<S> <C> <C> <C> <C> <C> <C>786Andrew M. Weiss (2) 2000 $131,250 -- $4,500 175,000 $183,200787FORMER PRESIDENT AND CHIEF788EXECUTIVE OFFICER789------------------------------------------------------------------------------------7901999 $145,833 $30,000 -- 325,000 --791------------------------------------------------------------------------------------7921998 -- -- -- -- --793- -----------------------------------------------------------------------------------------------------------------------794James D. Bonneville (3) 2000 $45,000 -- -- -- $24,000795ACTING CHIEF EXECUTIVE796OFFICER797- -----------------------------------------------------------------------------------------------------------------------798Camille Meyer(4) 2000 $75,000 -- -- 15,000 $51,500799FORMER VICE PRESIDENT AND800CHIEF FINANCIAL OFFICER801- -----------------------------------------------------------------------------------------------------------------------802Joshua Baltzell(5) 2000 $66,667 $10,000 -- 55,000 $33,000803FORMER VICE PRESIDENT -804SALES AND MARKETING805- -----------------------------------------------------------------------------------------------------------------------806</TABLE>807808- -----------------------------809810(1) Includes severance and benefits payments made to Mr. Weiss in the amount of811$183,200, to Ms. Meyer in the amount $51,500 and to Mr. Baltzell in the amount812of $33,000. Includes a commission payment of $24,000 to Manchester for sales of813certain liquidated assets.814815(2) Mr. Weiss was named President and Chief Executive Officer in March of 1999.816During his employment, Mr. Weiss received a car allowance equal to $4,500. Mr.817Weiss' employment terminated in September of 2000 and as a result he received a818severance payment equal to $175,000 and a lump-sum benefits payment equal to819$8,200.820821(3) The services of Mr. Bonneville as Acting Chief Executive Officer and Chief822Financial Officer and Secretary are provided through the agreement between the823Company and Manchester, pursuant to which the Company paid Manchester a monthly824fee equal to $10,000 for the months of August through November and $5,000 for825the month of December. Manchester received a commission payment of $24,000 under826the agreement with the Company.827828(4) Ms. Meyer was terminated on September 30, 2000 as part of the winding down829of the Company and incidental to such termination she received a severance830payment equal to $50,000, plus a lump-sum benefits payment equal to $1,500.831832(5) Mr. Baltzell was terminated as result of the winding down of the Company and833incidental to such termination he received a severance payment equal to $33,000.834835OPTION GRANTED836837The following tables summarize individual grants of options to purchase838shares of Common Stock during fiscal 2000 to each of the executive officers839named in the Summary Compensation Table above and the value of the options held840by such persons at December 31, 2000.84184284314844<PAGE>845846847OPTIONS GRANTED IN LAST FISCAL YEAR848849<TABLE>850<CAPTION>851- --------------------------------------------------------------------------------------------------------852INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE853--------------------------------------------------- AT ASSUMED ANNUAL RATES854% OF TOTAL OF STOCK PRICE855NUMBER OF OPTION APPRECIATION FOR OPTION856SECURITIES GRANTED TO EXERCISE TERM(1)857UNDERLYING EMPLOYEES OR BASE --------------------------858OPTIONS IN FISCAL PRICE EXPIRATION859NAME GRANTED YEAR ($/SH) DATE 5% 10%860- --------------------------------------------------------------------------------------------------------861<S> <C> <C> <C> <C> <C> <C>862Andrew M. Weiss 175,000 47.4% $3.063 02/02/10 -- (2) --863- --------------------------------------------------------------------------------------------------------864Camille Meyer 15,000 4.1% 3.063 02/02/10 -- (2) --865- --------------------------------------------------------------------------------------------------------866Joshua Baltzell 55,000 14.89% 3.063 02/02/10 -- (2) --867- --------------------------------------------------------------------------------------------------------868James D. Bonneville -- -- -- -- -- (2) --869- --------------------------------------------------------------------------------------------------------870</TABLE>871872- -----------------------------873874(1) Potential realizable value is calculated based on an assumption that the875price of the Company's Common Stock will appreciate at the assumed annual rates876shown (5% and 10%), compounded annually from the date of grant of the option877until the end of the option term. These assumed rates are applied pursuant to878the Securities and Exchange Commission rules and therefore are not intended to879forecast possible future appreciation, if any, of the Common Stock. Actual880gains, if any, on stock option exercises are dependent upon the future881performance of the Common Stock, overall market conditions and continued882employment of the named executive by the Company. There can be no assurance that883the amounts reflected in this table will be realized.884885(2) The right to exercise the options granted during fiscal 2000 terminated886prior to December 31, 2000 as a result of the termination of the employees.887888OPTIONS EXERCISED889890No options were exercised by the named executive officers during fiscal8912000. Options granted under the Company's 1994, 1996 and 1998 Stock Plans892(collectively, the "Stock Plans") terminated three months after the termination893of the employees, unless otherwise agreed to by the Company and the terminated894employee. The Company's option plans generally provide that the exercise price895of options must be paid in cash, except that the Compensation Committee, in its896sole discretion, may allow payment by delivery of shares of Common Stock having897an aggregate fair market value equal to the exercise price or may allow the898exercise price to be financed by the Company upon such terms and conditions as899the Compensation Committee may determine. Based upon the difference between the900fair market value of one share of Common Stock on the date exercised and the901exercise price of the options exercised.902903CHANGE OF CONTROL904905Any options granted under the Stock Plans contain change in control906provisions which provide that all outstanding non-exercisable options become907exercisable in full, regardless of any remaining vesting provisions associated908with such options, for a period specified by the Company, (but not to exceed909sixty days) prior to or subsequent to a change in control. As defined in the910Stock Plans, a "change in control" means: (i) dissolution or liquidation of the911Company other than in conjunction with a bankruptcy of the Company or any912similar occurrence, (ii) any merger, consolidation, acquisition, separation,913reorganization, or similar occurrence,91491591615917<PAGE>918919920where the Company will not be the surviving entity, or (iii) the transfer of921substantially all of the assets of the Company or acquisition of beneficial922ownership of more than 50% of any class of equity security of the Company.923Additionally, the terms of the employment agreement between Mr. Weiss and the924Company provide for six months of severance pay to be paid to him in the event925the Board of Directors terminates his employment for reasons other than cause or926lack of performance.927928EMPLOYMENT AND SEPARATION AGREEMENTS929930On August 15, 2000, the Company entered into a Separation Agreement931with Andrew M. Weiss, the former Chief Executive Officer and a director of the932Company, pursuant to which the Company agreed to provide Mr. Weiss with certain933payments and benefits, including (a) a lump-sum payment to Mr. Weiss in an934amount equal to one year of his base salary and car allowance and (b) a lump-sum935payment of $8,200 for the continuation of health and dental insurance coverage936for one year. The Company and Mr. Weiss also agreed that Mr. Weiss could937purchase outright for a payment of $31,480, or assume the lease of his938automobile, previously paid for by the Company.939940COMPENSATION COMMITTEE941942Prior to ceasing its business operations, the Company's Compensation943Committee was composed of the outside directors of the Company - Norman Dann,944Jeffrey Green and Demetre Nicoloff, M.D., Ph.D. The Compensation Committee's945responsibilities were to review compensation policies and compensation for the946Company's executive officers, review plans to provide management continuity and947administer the Company's stock-based compensation plans. With the termination of948all of the employees, these function are no longer necessary.949950COMPENSATION PHILOSOPHY951952Prior to the ceasing of its business operations, the philosophy of the953Company was to attract and retain qualified executive officers, to align the954interests of those executive officers with those of the Company's shareholders,955and to encourage the development of a cohesive management team. The Compensation956Committee of the Company, which has been eliminated, believed that the Company957should provide competitive base salaries to attract and retain qualified958executive officers, that executive officers be provided with stock ownership959opportunities that provide both a performance incentive and align their960interests with the Company's shareholders, and that provide incentive961compensation, both cash and stock-based, that recognizes individual initiative962and achievements and rewards overall Company performance.963964BASE SALARY965966Prior to the ceasing of its business operations, the Compensation967Committee reviewed the base salary of each of the Company's executive officers968using a number of factors, including the executive officer's experience and969performance, the level of skill and responsibility required, and the relative970competitive market value for an individual with similar skills, experience and971position responsibility. The Compensation Committee had the authority to adjust972the base97397497516976<PAGE>977978979salaries based on Company performance and the executive officer's impact980thereon, promotion or market factors.981982Mr. Weiss's base salary for of 2000 was $175,000 in conjunction with983his position of President and Chief Executive Officer.984985ANNUAL CASH INCENTIVE BONUS986987Cash incentive bonuses were designed to provide a direct financial988incentive to the Company's executive officers for the achievement of Company and989individual goals.990991STOCK-BASED AWARDS992993All of the Company's Stock Plans included the Company's executive994officers as eligible participants. The Compensation Committee adopted the995position that stock ownership by management and stock-based performance996compensation arrangements were beneficial in aligning management and shareholder997interests. Stock options were generally granted to executive officers at the998time they were elected or hired, to reward specific performance, or as an999incentive to meet specific Company performance goals. On February 2, 2000 the1000Company granted to Mr. Weiss an option to purchase 175,000 shares of the1001Company's Common Stock at the closing market price on the day of grant of $3.0631002per share. 87,500 or 50% of the options were exercisable in full on the date of1003grant. The remainder of the shares would have vested at a rate of 2% per month1004for ten years.10051006SECTION 162(m)10071008Section 162(m) of the Internal Revenue Code of 1986, as amended (the1009"Code"), limits the deductibility of certain compensation paid to each of the1010executive officer and four other most highly compensated executives of a1011publicly held corporation to $1,000,000. In fiscal 2000, the Company did not pay1012"compensation" within the meaning of Section 162(m) to such executive officers1013in excess of $1,000,000 and it will not do so in the future. Therefore, the1014Company does not have a policy at this time regarding qualifying compensation1015paid to its executive officers for deductibility under Section 162(m).10161017Submitted by the Compensation Committee of the Board of Directors.10181019Norman Dann1020Jeffrey Green1021Demetre Nicoloff, M.D., Ph.D.102210231024171025<PAGE>102610271028ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT10291030The following table sets forth as of March 15, 2001 the number and1031percentage of outstanding shares of Common Stock beneficially owned by each1032person who is known to the Company to beneficially own more than five percent1033(5%) of the Common Stock, by each director of the Company, by each executive1034officer named in the Summary Compensation Table, and by all directors and1035executive officers of the Company as a group:103610371038NUMBER OF SHARES PERCENTAGE1039BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(2)1040- ---------------- --------------------- ------------10411042David B. Johnson (3)1043c/o Miller, Johnson & Kuehn, Incorporated1044Suite 800 - Eighth Floor10455500 Wayzata Boulevard 420,533 7.0%1046Minneapolis, MN 5541610471048Aaron Boxer Revocable Trust (4)1049c/o Miller, Johnson & Kuehn, Incorporated1050Suite 800 - Eighth Floor 609,333 10.2%10515500 Wayzata Boulevard1052Minneapolis, MN 5541610531054Andrew M. Weiss (5) 1,000 *10551056Jeffrey W. Green (6) 90,000 1.5%10571058Camille M Meyer (7) 1,000 *10591060All directors and executive officers as a group1061(3 persons) (8) 92,000 1.6%10621063- --------------------------10641065(1) Unless otherwise indicated, each person has sole voting and dispositive1066power over such shares. Shares not outstanding but deemed beneficially owned by1067virtue of the right of a person or member of a group to acquire them within 601068days are treated as outstanding only when determining the amount and percent1069owned by such person or group.1070(2) As of March 15, 2001, there were 5,883,404 shares of Common Stock1071outstanding.1072(3) Based on a Schedule 13G dated February 13, 2001 filed with the Securities1073and Exchange Commission. Includes warrants to purchase 95,978 shares of common1074stock. Of the 420,533 shares reported, Mr. Johnson has sole voting and1075dispositive power with respect to 141,002 shares and shares voting and1076dispositive power with respect to 420,533 shares.1077(4) Based on a Schedule 13G dated February 13, 2001 filed with the Securities1078and Exchange Commission. Includes warrants to purchase 73,000 shares of common1079stock. Of the 609,333 shares reported, the Aaron Boxer Revocable Trust has sole1080voting and dispositive power with respect to 609,333 shares and shares voting1081and dispositive power with respect to 0 shares.1082(5) Includes a warrant to purchase 1,000 shares of common stock.1083(6) Includes 40,000 shares held by the Exingent Investments, Limited1084Partnership, of which Mr. Green is a 90% owner. Mr. Green shares voting and1085dispositive power with respect to all such shares. Includes options to purchase108630,000 shares of common stock.1087(7) Includes a warrant to purchase 1,000 shares of common stock.1088(8) Includes 30,000 shares issuable under stock options exercisable within sixty1089(60) days of March 15, 2001 and warrants to purchase 2,000 shares.109010911092181093<PAGE>109410951096ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS10971098RELATED TRANSACTION10991100In August of 2000, the Company entered into a six month Engagement1101Agreement with Manchester whereby Manchester would provide management services1102to facilitate the winding down or liquidation of the Company. Under the1103Engagement Agreement, the Company has retained Manchester as the Company's1104exclusive agent to assist it with a merger, sale, exchange, combination or any1105similar transaction related to the Company. Pursuant to this Engagement1106Agreement, Mr. Bonneville serves as the Company's Acting Chief Executive Officer1107and Chief Financial Officer. During 2000 the Company paid Manchester fees1108totaling $69,000, $45,000 as a monthly fee and $24,000 as a commission on the1109sales of certain liquidated assets of the Company. The Engagement Agreement1110expired in February of 2001 and the Company and Manchester have been operating1111on a month-to-month basis. The Company has decided to renew the Engagement1112Agreement for another six months on substantially the same terms.11131114David B. Johnson, a beneficial owner of more than 5% of the Company's1115Common Stock, is a principal shareholder in the firm of Miller, Johnson & Kuehn,1116Incorporated ("MJK"). MJK acts as the principal market maker for the Common1117Stock and the Company maintains an investment banking relationship with such1118firm. During 2000, the Company engaged MJK as its sales agent in connection with1119a private placement of 525,000 shares of Common Stock and warrants to purchase1120525,000 shares of Common Stock. In consideration of MJK's services, the Company1121paid MJK selling commissions of $170,625 equal to 10% of the aggregate price of1122the shares of Common Stock sold by MJK in the private placement, and issued MJK1123five-year warrants to purchase 52,500 shares of Common Stock at an exercise1124price of $3.25 per share. Subsequent to the closing of the placement, MJK1125transferred these warrants to Mr. Johnson. The Company also provided MJK with a1126non-accountable expense allowance equal to 1% of the aggregate price of the1127shares sold by MJK, and reimbursed MJK for its legal fees in connection with the1128placement. From time to time the Company may enter into similar arrangements1129with MJK regarding private placements, securities offerings or other investment1130banking activities.11311132PART IV11331134ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K11351136(a) List of documents filed as part of this Report:1137(1) Financial Statements11381139The following financial statements are included hereinafter contained1140on pages 22 to 36 in this Annual Report on Form 10-K:11411142Report of Independent Auditors1143Report of Independent Accountants1144Statement of Net Assets in Liquidation as of December 31, 2000114511461147191148<PAGE>114911501151Balance Sheet as of December 31, 19991152Statement of Changes in Net Assets in Liquidation September 1, 20001153through December 31, 20001154Statements of Operations for the Eight Months Ended August 31, 20001155and the Years Ended December 31, 1999 and 19981156Statements of Shareholders' Equity for Eight Months Ended August 31,11572000 and the Years Ended December 31, 1999, and 19981158Statements of Cash Flows for the Four Months Ended December 31, 2000,1159Eight Months Ended August 31, 2000 and Years Ended December 31, 19991160and 19981161Notes to Financial Statements11621163(2) Financial Statement Schedules11641165All information required by this section that is applicable to the1166Company is included in the Financial Statements or Notes thereto.11671168(3) Exhibits:11691170The exhibits to this Annual Report on Form 10-K are listed in the1171Exhibit Index hereinafter contained on page E-1 of this Annual Report1172on Form 10-K. The Company will furnish a copy of this report and any1173exhibit to a shareholder who requests a copy in writing upon payment to1174the Company of a fee of $5.00 per exhibit. Requests should be sent to:1175James D. Bonneville, c/o Manchester Companies, Inc. at P.O. Box 3170,1176Burnsville, Minnesota 55337.11771178The following is a list of each management contract or compensatory1179plan or arrangement required to be filed as an exhibit to this Report1180pursuant to Item 14(c):11811182A. Applied Biometrics 1996 Stock Option Plan, amended July 2, 19991183(incorporated by reference to Exhibit 10.1 to the Company's1184Quarterly Report on Form 10-Q for the period ended June 30, 1999).1185B. Applied Biometrics Amended 1994 Stock Option Plan, amended July 2,11861999 (incorporated by reference to Exhibit 10.2 to the Company's1187Quarterly Report on Form 10-Q for the period ended June 30, 1999).1188C. Applied Biometrics 1998 Stock Plan, amended January 1, 20001189(incorporated by reference to Exhibit 10.1 to the Company's1190Quarterly Report on Form 10-Q for the period ended June 30, 2000).1191D. Employment letter dated February 19, 1999, between the Company and1192Andrew M. Mr. Weiss (incorporated by reference to Exhibit 10.2 to1193the Company's Quarterly Report on Form 10-Q for the period ended1194March 31, 1999).1195E. Confidential Separation Agreement dated August 15, 2000 between the1196Company and Andrew M. Weiss.(incorporated by reference to Exhibit119710.1 to the Company's Report on Form 10-Q for the period ending1198September 30. 2000).119912001201201202<PAGE>120312041205F. Engagement Agreement, dated August 24, 2000, by and between1206Manchester Companies, Inc. and Applied Biometrics, Inc (incorporated1207by reference to Exhibit 10.1 to the Company's Report on Form 8-K/A1208filed on January 8, 2001).12091210(b) Reports on Form 8-K12111212During the quarter ended December 31, 2000, the Company did not file any Current1213Report on Form 8-K. On January 8, 2001 the Company filed an amendment to its1214Current Report on Form 8-K filed on September 8, 2000.12151216(c) Exhibits12171218The response to this portion of Item 14 is included as a separate section of1219this Report. See the Exhibit Index on page E-1 of this report.12201221(d) Financial Statement Schedules12221223The response to this portion of Item 14 is included as a separate section of1224this Report.122512261227211228<PAGE>122912301231REPORT OF INDEPENDENT AUDITORS1232123312341235BOARD OF DIRECTORS AND SHAREHOLDERS1236APPLIED BIOMETRICS, INC.12371238We have audited the accompanying balance sheet of Applied Biometrics,1239Inc. as of December 31, 1999, and the related statements of operations,1240shareholders' equity, and cash flows for the eight months ended August 31, 20001241and for the year ended December 31, 1999. In addition, we have audited the1242statement of net assets in liquidation as of December 31, 2000, and the related1243statements of changes in net assets in liquidation and cash flows in liquidation1244for the period from September 1, 2000 to December 31, 2000. These financial1245statements are the responsibility of the Company's management. Our1246responsibility is to express an opinion on these financial statements based on1247our audits.12481249We conducted our audits in accordance with auditing standards generally1250accepted in the United States. Those standards require that we plan and perform1251the audit to obtain reasonable assurance about whether the financial statements1252are free of material misstatement. An audit includes examining, on a test basis,1253evidence supporting the amounts and disclosures in the financial statements. An1254audit also includes assessing the accounting principles used and significant1255estimates made by management, as well as evaluating the overall financial1256statement presentation. We believe that our audits provide a reasonable basis1257for our opinion.12581259As described in Note 1 to the financial statements, the Company decided1260to liquidate in the third quarter of 2000 and commenced liquidation shortly1261thereafter. As a result, the Company has changed its basis of accounting for1262periods subsequent to August 31, 2000 from the going concern basis to the1263liquidation basis.12641265In our opinion, the 1999 financial statements referred to above present1266fairly, in all material respects, the financial position of Applied Biometrics,1267Inc. as of December 31, 1999, the results of operations and its cash flows for1268the eight months ended August 31, 2000 and for the year ended December 31, 1999,1269the net assets in liquidation as of December 31, 2000 and the changes in net1270assets in liquidation and cash flows in liquidation for the period from1271September 1, 2000 to December 31, 2000, in conformity with accounting principles1272generally accepted in the United States applied on the basis described in the1273preceding paragraph.12741275Ernst & Young LLP1276Minneapolis, Minnesota1277March 1, 2001127812791280221281<PAGE>128212831284REPORT OF INDEPENDENT ACCOUNTANTS1285128612871288To the Board of Directors and Shareholders1289of Applied Biometrics, Inc.:12901291In our opinion, the consolidated statements of operations, shareholders' equity1292and of cash flows for the year ended December 31, 1998, present fairly, in all1293material respects, the results of operations and cash flows of Applied1294Biometrics, Inc. and its subsidiary for the year ended December 31, 1998, in1295conformity with accounting principles generally accepted in the United States of1296America. These financial statements are the responsibility of the Company's1297management; our responsibility is to express an opinion on these financial1298statements based on our audit. We conducted our audit of these statements in1299accordance with auditing standards generally accepted in the United States of1300America, which require that we plan and perform the audit to obtain reasonable1301assurance about whether the financial statements are free of material1302misstatement. An audit includes examining, on a test basis, evidence supporting1303the amounts and disclosures in the financial statements, assessing the1304accounting principles used and significant estimates made by management, and1305evaluating the overall financial statement presentation. We believe that our1306audit provides a reasonable basis for our opinion. We have not audited the1307consolidated financial statements of Applied Biometrics, Inc. for any period1308subsequent to December 31, 1998.13091310131113121313PricewaterhouseCoopers LLP1314Minneapolis, Minnesota1315March 18, 1999131613171318231319<PAGE>132013211322APPLIED BIOMETRICS, INC.1323STATEMENT OF NET ASSETS IN LIQUIDATION13241325<TABLE>1326<CAPTION>1327- ----------------------------------------------------------------------------------------13281329December 31,133020001331----1332<S> <C>1333ASSETS13341335Cash and cash equivalents .............................................. $ 1,109,5371336Prepaid expenses and other current assets .............................. 85,7261337Patents and other intangibles, net ..................................... 23,0001338------------1339Total assets ........................................................ $ 1,218,2631340============13411342LIABILITIES13431344Accounts payable ....................................................... $ 119,9541345Other current liabilities .............................................. 40,0071346Reserve for estimated costs during period of liquidation ............... 272,2501347Short-term obligations ................................................. 53,5251348------------1349Total liabilities ................................................... 485,7361350------------13511352Net assets in liquidation ........................................... $ 732,5271353============1354</TABLE>135513561357The accompanying notes are an integral part of the financial statements.135813591360241361<PAGE>136213631364APPLIED BIOMETRICS, INC.1365BALANCE SHEET AS OF DECEMBER 31, 19991366(GOING CONCERN BASIS)13671368<TABLE>1369<CAPTION>1370- --------------------------------------------------------------------------------------------13711372December 31,137319991374----1375<S> <C>1376ASSETS1377Current assets:1378Cash and cash equivalents .................................................. $ 1,910,3561379Inventories, net ........................................................... 167,1091380Prepaid expenses and other current assets .................................. 90,5771381------------1382Total current assets .................................................... 2,168,04213831384Equipment and leasehold improvements, net .................................. 550,6751385Patents and other intangibles, net ......................................... 99,4371386Other assets ............................................................... 9,5851387------------1388Total assets ............................................................ $ 2,827,7391389============13901391LIABILITIES AND SHAREHOLDERS' EQUITY1392Current liabilities:1393Accounts payable ........................................................... $ 95,2551394Accrued expenses and short-term debt obligations ........................... 195,8491395Current maturities of capital lease obligations ............................ 8,3331396------------1397Total current liabilities ............................................... 299,43713981399Non-current liabilities:1400Capital lease obligation ................................................... 11,6771401------------1402Total liabilities ....................................................... 311,1141403------------14041405Shareholders' equity:1406Undesignated stock: authorized 5,000,000 shares of $.01 par value;1407None issued December 31, 1999 ........................................... --1408Common stock: authorized 20,000,000 shares of $.01 par value;14095,229,004 issued and outstanding at1410December 31, 1999 ....................................................... 52,9901411Additional paid-in capital ................................................. 23,362,2331412Accumulated deficit ........................................................ (20,898,598)1413------------1414Total shareholders' equity .............................................. 2,516,6251415------------1416Total liabilities and shareholders' equity .............................. $ 2,827,7391417============1418</TABLE>141914201421The accompanying notes are an integral part of the financial statements.142214231424251425<PAGE>142614271428APPLIED BIOMETRICS, INC.1429STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION1430PERIOD FROM SEPTEMBER 1, 2000 THROUGH DECEMBER 31, 200014311432<TABLE>1433<CAPTION>1434- --------------------------------------------------------------------------------------14351436<S> <C>1437Net assets in liquidation as of September 1, 2000 .................... $ 925,55714381439Change in net assets in liquidation .................................. (193,030)1440------------14411442Net assets in liquidation as of December 31, 2000 .................... $ 732,5271443============1444</TABLE>144514461447The accompanying notes are an integral part of the financial statements.144814491450261451<PAGE>1452145314541455APPLIED BIOMETRICS, INC.1456STATEMENTS OF OPERATIONS1457FOR EIGHT MONTHS ENDED AUGUST 31, 2000 AND YEARS ENDED1458DECEMBER 31, 1999 AND 19981459(GOING CONCERN BASIS)14601461<TABLE>1462<CAPTION>1463- -------------------------------------------------------------------------------------------------------14641465EIGHT1466MONTHS1467ENDED1468AUGUST 31, YEARS ENDED DECEMBER 31,14692000 1999 19981470---- ---- ----1471<S> <C> <C> <C>1472Operating expenses:1473Selling, general and administrative ................. $ 911,766 $ 1,028,065 $ 946,7211474Research and development ............................ 1,500,337 1,469,001 805,4591475------------ ------------ ------------14761477Operating loss ...................................... (2,412,103) (2,497,066) (1,752,180)14781479Other income, net ................................... 57,227 51,124 188,1891480------------ ------------ ------------14811482Loss from continuing operations ..................... (2,354,876) (2,445,942) (1,563,991)14831484Discontinued operations:1485Loss from operations of discontinued1486business ............................................ -- -- (1,838,147)1487------------ ------------ ------------14881489Net loss ............................................ $ (2,354,876) $ (2,445,942) $ (3,402,138)1490============ ============ ============14911492Basic and diluted net loss per share:1493Continuing operations ............................... $ (0.42) $ (0.52) $ (0.36)1494Discontinued operations ............................. -- -- $ (0.43)1495------------ ------------ ------------14961497Net Loss ............................................ $ (0.42) $ (0.52) $ (0.79)1498============ ============ ============14991500Weighted average common shares1501outstanding ......................................... 5,655,380 4,659,300 4,312,0771502============ ============ ============1503</TABLE>150415051506The accompanying notes are an integral part of the financial statements.150715081509271510<PAGE>151115121513APPLIED BIOMETRICS, INC.1514STATEMENTS OF SHAREHOLDERS' EQUITY1515FOR EIGHT MONTHS ENDED AUGUST 31, 2000 AND1516YEARS ENDED DECEMBER 31, 1999 AND 19981517(GOING CONCERN BASIS)15181519<TABLE>1520<CAPTION>1521- --------------------------------------------------------------------------------------------------------------15221523COMMON STOCK Additional1524Paid in Accumulated1525Shares Amount Capital Deficit1526------------ ------------ ------------ ------------1527<S> <C> <C> <C> <C>1528December 31, 1997 .......................... 4,276,117 $ 42,761 $ 20,278,959 $(15,050,518)15291530Exercise of stock options .................. 61,000 610 281,890153115321998 Net loss .............................. (3,402,138)1533------------ ------------ ------------ ------------1534December 31, 1998 .......................... 4,337,117 43,371 20,560,849 (18,452,656)15351536Exercise of stock options .................. 146,887 1,469 1,076,14315371538Issuance of stock, net of offering1539costs ...................................... 815,000 8,150 2,059,41215401541Distribution of the net assets of1542Cardia, Inc. ............................... (334,171)154315441999 Net loss .............................. (2,445,942)1545------------ ------------ ------------ ------------1546December 31, 1999 .......................... 5,299,004 $ 52,990 $ 23,362,233 $(20,898,598)15471548Stock option activity ...................... 9,400 94 33,44015491550Non-employee stock awards .................. 50,000 500 152,65015511552Warrant issued in capital lease1553transaction ................................ 4,50615541555Issuance of stock, net of offering1556costs ...................................... 525,000 5,250 1,485,59015571558Net loss for the eight-month period1559ended August 31, 2000 ...................... (2,354,876)1560------------ ------------ ------------ ------------1561August 31, 2000 ............................ 5,883,404 $ 58,834 $ 25,038,419 $(23,253,474)1562============ ============ ============ ============1563</TABLE>156415651566281567<PAGE>15681569APPLIED BIOMETRICS, INC.1570STATEMENTS OF CASH FLOWS1571FOR FOUR MONTHS ENDED DECEMBER 31, 2000,1572EIGHT MONTHS ENDED AUGUST 31, 2000 AND1573YEARS ENDED DECEMBER 31, 1999 AND 199815741575<TABLE>1576<CAPTION>1577- ----------------------------------------------------------------------------------------------------------------------------15781579FOUR MONTHS EIGHT MONTHS1580ENDED ENDED1581DECEMBER 31, AUGUST 31,15822000 2000 YEARS ENDED DECEMBER 31,1583---- ----15841585(Liquidation (Going1586Basis) Concern1587Basis) 1999 19981588---- ----1589<S> <C> <C> <C> <C>1590CASH FLOWS FROM OPERATING ACTIVITIES:1591Decrease in net assets in liquidation ................... $ (193,030)1592Net loss ................................................ -- $ (2,354,875) $ (2,445,942) $ (3,402,138)1593Net loss from discontinued operations ................... -- -- -- (1,838,147)1594------------ ------------ ------------ ------------15951596Loss from continuing operations ......................... -- (2,354,875) (2,445,942) (1,563,991)1597Adjustments to reconcile net loss from1598continuing operations to net cash used in1599operating activities:1600Depreciation and amortization1601of capital leases ....................................... -- 152,428 191,391 199,1621602Amortization of patents and other1603intangible assets ....................................... -- 27,467 25,012 25,0511604Value of common stock issued in lieu of1605cash compensation ....................................... -- 153,150 -- --1606Value of stock options and warrants issued1607in lieu of cash ......................................... -- 11,901 -- --1608(Gain) loss on disposal of assets ....................... 4,047 (1,857) 31,776 --16091610Changes in operating assets and liabilities:1611Inventories ............................................. -- 167,109 7,969 (24,585)1612Prepaid expenses, other current assets and1613other assets ............................................ (11,936) 57,851 (52,744) 48,3331614Accounts payable and accrued expenses ................... (394,107) (103,795) 147,718 (23,335)1615------------ ------------ ------------ ------------1616Net cash used in continuing operations .................. (595,026) (1,890,621) (2,094,820) (1,339,365)1617Net cash used in discontinued operations ................ -- -- (120,548) (908,616)1618------------ ------------ ------------ ------------1619Net cash used in operating activities ................... (595,026) (1,890,621) (2,215,368) (2,247,981)1620------------ ------------ ------------ ------------1621</TABLE>162216231624The accompanying notes are an integral part of the financial statements.162516261627291628<PAGE>162916301631APPLIED BIOMETRICS, INC.1632STATEMENTS OF CASH FLOWS1633FOR FOUR MONTHS ENDED DECEMBER 31, 2000,1634EIGHT MONTHS ENDED AUGUST 31, 2000 AND1635YEARS ENDED DECEMBER 31, 1999 AND 19981636(CONTINUED)16371638<TABLE>1639<S> <C> <C> <C> <C>1640CASH FLOWS FROM INVESTING ACTIVITIES:1641Maturity of marketable securities .................... -- -- 500,000 3,598,5071642Purchase of equipment and improvements ............... -- (25,647) (323,148) (54,874)1643Proceeds from sale of furniture, equipment and1644machinery ............................................ 238,382 -- -- --1645Investments in patents and trademarks ................ -- (19,763) (49,375) --1646Investment in marketable securities .................. -- -- -- (500,000)1647Discontinued operations, net ......................... -- -- (10,981) (30,412)1648------------ ------------ ------------ ------------1649Net cash provided by (used in) investing1650activities ........................................... 238,382 (45,410) 116,496 3,013,2211651------------ ------------ ------------ ------------16521653CASH FLOWS FROM FINANCING ACTIVITIES:1654Proceeds from the issuance of common1655stock, net of expenses ............................... -- 1,490,840 2,067,941 --1656Proceeds from exercise of stock options .............. -- 26,139 75,001 282,5001657Repayment of capital lease obligations ............... (20,413) (4,710) (3,598) --1658------------ ------------ ------------ ------------1659Net cash provided by financing activities ............ (20,413) 1,512,269 2,139,814 282,5001660------------ ------------ ------------ ------------16611662Net increase (decrease) in cash and cash1663equivalents .......................................... (377,057) (423,762) 40,943 1,047,7401664Cash and cash equivalents at beginning of1665year ................................................. 1,486,594 1,910,356 1,869,413 821,6731666------------ ------------ ------------ ------------1667CASH AND CASH EQUIVALENTS AT END OF1668PERIOD ............................................... $ 1,109,537 $ 1,486,594 $ 1,910,356 $ 1,869,4131669============ ============ ============ ============1670</TABLE>167116721673The accompanying notes are an integral part of the financial statements.167416751676301677<PAGE>167816791680APPLIED BIOMETRICS, INC.1681NOTES TO FINANCIAL STATEMENTS16821683- --------------------------------------------------------------------------------168416851686(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:16871688BUSINESS DESCRIPTION:16891690Applied Biometrics, Inc. ("Applied Biometrics" or the "Company") is a medical1691device company that was engaged in the research and development of advanced1692cardio-vascular and hemodynamic diagnostic and monitoring systems.16931694LIQUIDATION BASIS OF ACCOUNTING16951696The consolidated financial statements for fiscal 1999 and 1998 and for the eight1697months ended August 31, 2000 were prepared on the going concern basis of1698accounting which contemplates realization of assets and satisfaction of1699liabilities in the normal course of business. As a result of the Company's plans1700to cease operations, the Company adopted the liquidation basis of accounting1701effective September 1, 2000. This basis of accounting is considered appropriate1702when, among other things, liquidation of a company appears imminent and the net1703realizable value of assets are reasonably determinable. Under this basis of1704accounting, assets are valued at their estimated net realizable values and1705liabilities are valued at their estimated settlement amounts. Upon adoption of1706the liquidation basis, the Company recorded a write-down in net assets of1707approximately $918,000. At December 31, 2000, the Company has recorded a reserve1708of $272,250 for costs to be incurred during the liquidation period.17091710USE OF ESTIMATES:17111712The preparation of financial statements in conformity with generally accepting1713accounting principles requires management to make estimates and assumptions that1714affect the reported amounts of assets and liabilities and disclosure of1715contingent assets and liabilities at the date of the financial statements and1716the reported amounts of revenues and expenses during the reporting periods.1717Actual results could differ from those estimates.17181719CASH AND CASH EQUIVALENTS:17201721Cash and cash equivalents consist of cash and highly liquid investments1722purchased with an original maturity of three months or less. Cash at December172331, 2000 and 1999 was primarily invested in a money market fund.172417251726311727<PAGE>172817291730INVENTORIES:17311732Inventories were comprised of component parts and were valued at the lower of1733first-in, first-out (FIFO) cost or market. In 2000, the Company wrote-off the1734inventories because of its determination that near term commercialization of the1735Company's product was unlikely.17361737EQUIPMENT AND LEASEHOLD IMPROVEMENTS:17381739During 2000, all of the Company's equipment and leasehold improvements were1740either sold or abandoned upon the adoption of the liquidation basis of1741accounting. Upon the adoption of the liquidation basis, the Company recorded a1742write-down of $198,456 to record the equipment and leasehold improvements at1743their net realizable value.17441745LONG-LIVED ASSETS:17461747The Company reviews its long-lived assets for impairment whenever events or1748changes in circumstances indicate that the carrying amount of the asset in1749question may not be recoverable. Impairment losses are recorded whenever1750indicators of impairment are present.17511752PATENTS AND OTHER INTANGIBLE ASSETS:17531754Patents and other intangible assets are recorded at cost and are amortized using1755the straight-line method over their estimated useful lives ranging from ten to1756fifteen years. Subsequent to year-end, the Company sold to a third party its1757rights in all of its patents.17581759RESEARCH AND DEVELOPMENT:17601761Research and development costs are expensed as incurred.17621763STOCK-BASED COMPENSATION:17641765The Company has adopted the disclosure-only provisions of Statement of Financial1766Accounting Standard ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.1767The Company continues to account for employee stock-based compensation using the1768intrinsic value method as prescribed under Accounting Principles Board Opinion1769("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related1770interpretations.177117721773321774<PAGE>177517761777INCOME TAXES:17781779The Company accounts for income taxes using the asset and liability method. The1780asset and liability method provides that deferred tax assets and liabilities are1781recorded based on the differences between the tax basis of assets and1782liabilities and their carrying amounts for financial reporting purposes1783("temporary differences").17841785LOSS PER COMMON SHARE:17861787Upon the adoption of the liquidation basis of accounting on September 1, 2000,1788the presentation of per common share information was not considered to be1789meaningful and has been omitted.17901791The basic loss per common share, for periods prior to September 1, 2000 was1792computed based upon the weighted average number of common shares outstanding.1793All outstanding options have been excluded from the calculation since the effect1794of their inclusion would have been anti-dilutive.17951796RECLASSIFICATION17971798Certain prior year items have been reclassified to conform with current year1799presentation.18001801(2) DISCONTINUED OPERATIONS:18021803The Company's Board of Directors approved a plan in December 1998 to distribute1804to the shareholders of the Company its transcatheter closure business. On1805February 11, 1999, the Company completed the spin-off distribution of Cardia,1806Inc. ("Cardia") with Cardia thereafter operating as an independent company with1807its own publicly traded securities. All Applied Biometrics shareholders of1808record received one share of Cardia common stock for every 11.563 shares of1809Applied Biometrics common stock held, comprising 75% of Cardia's common stock.18101811The spin-off distribution was recorded by reducing shareholders' equity by1812$334,000, which represents the carrying value of Cardia's net assets. Cardia's18131999 operating results through the distribution date were breakeven. No gain or1814loss was recorded on the distribution. The Company's financial statements report1815the operating results of the transcatheter closure business as discontinued1816operations. Costs of $1,001,761 were incurred as a result of amendments to1817previously issued stock options to employees departing the Company for Cardia.18181819199818201821DISCONTINUED OPERATIONS1822Net revenue $ 167,2401823Loss from operations of discontinued business (836,386)1824Costs related to spin-off of discontinued business (1,001,761)1825Loss from discontinued operations (1,838,147)182618271828331829<PAGE>183018311832(3) INCOME TAXES:18331834The Company has approximately $23,000,000 of net operating loss carryforwards1835that begin to expire in 2003 and $450,000 of research and experimentation1836credits. As a result of limitations imposed under ss.382 and ss.383 of the1837Internal Revenue Code of 1986, both the annual amount and timing of the1838utilization of these carryforwards will be limited. As the Company issues1839additional common stock, the Company's carryforwards may be subject to further1840limitation. A valuation allowance has been established that offsets the1841Company's entire net deferred tax asset, as the realization of the deferred tax1842asset is uncertain.18431844(4) SHAREHOLDERS' EQUITY:18451846The Company's authorized capital stock consists of 20,000,000 shares of common1847stock and 5,000,000 shares of undesignated stock.18481849At December 31, 2000 and 1999, the Company had 5,833,404 and 5,299,004 shares of1850common stock outstanding.18511852In 2000, the Company sold 525,000 units, resulting in net proceeds to the1853Company of approximately $1,491,000. Each unit consisted of one share of common1854stock and one warrant to purchase an additional share of common stock at an1855exercise price of $3.625 per share. The warrants are exercisable for a period of1856five years after the date of grant. In connection with the sale of units, the1857Company issued the private placement agent a warrant to purchase 52,500 shares1858of common stock at an exercise price of $3.25 per share. The warrant expires in1859April 2005.18601861Also in 2000, the Company granted a total of 50,000 shares of common stock to1862its three non-employee members of its Board of Directors for prior and current1863board service. In connection with this issuance, the Company recorded1864approximately $153,000 of non-cash compensation expense. In addition, during18652000, the Company recorded approximately $11,900 of expense related to the1866granting of warrants and options for services. Provided.18671868WARRANTS:18691870At December 31, 2000, the Company has warrants outstanding to purchase a total1871of 661,771 shares of common stock at exercise prices ranging from $3.00 to1872$3.625 per share. The warrants expire at various times between April 2005 and1873September 2009.187418751876341877<PAGE>187818791880STOCK OPTIONS:18811882The exercise price of each stock option generally equals 100% of the market1883price of the Company's stock on the date of grant and has a maximum term of up1884to ten years. A summary of the status of the Company's stock options for the1885years ended December 31 is as follows:18861887<TABLE>1888<CAPTION>18892000 1999 19981890Weighted Weighted Weighted1891Average Average Average1892Shares Exercise Price Shares Exercise Price Shares Exercise Price1893<S> <C> <C> <C> <C> <C> <C>1894Outstanding at1895beginning of1896year 860,150 $ 5.72 389,167 $ 9.68 628,667 $ 7.151897Granted 462,500 3.13 788,750 5.23 336,370 7.901898Exercised (9,400) 2.78 (21,667) 3.46 (61,000) 4.631899Canceled (1,080,750) 4.93 (296,100) 9.79 (514,870) 6.641900------------- ------------- ------------1901Outstanding at end1902of year 232,500 4.36 860,150 5.72 389,167 9.681903============= ============= ============1904</TABLE>190519061907At December 31, 2000, 1999 and 1998, the Company had options that were1908exercisable totaling 212,500, 469,733 and 239,867, respectively, at weighted1909average exercise prices of $4.45, $5.00 and $9.54 per share.19101911At December 31, 2000 the Company had options outstanding to purchase 232,5001912shares of common stock at exercises prices ranging from $3.06 to $12.63 per1913share.19141915SFAS NO. 123 DISCLOSURE:19161917For the years ended December 31, 1999 and 1998 the Company did not record any1918compensation expense for stock-based compensation awards.19191920Had compensation expense for the Company's stock-based compensation plans been1921determined based on the fair value at the grant dates consistent with SFAS No.1922123, the Company's net loss and loss per share would have been increased to the1923pro forma amounts indicated below:19241925<TABLE>1926<CAPTION>19271999 19981928<S> <C> <C>1929Net loss1930As reported $ (2,445,942) $ (3,402,138)1931Pro forma (3,388,707) (4,228,043)19321933Basic and diluted loss per share1934As reported (.52) (.79)1935Pro forma (.73) (.98)1936</TABLE>1937193819391940351941<PAGE>194219431944The weighted average fair value per option granted during 1999 and 1998 was $19452.41 and $ 5.08, respectively. The weighted average fair value was calculated by1946using the fair value of each option on the date of grant. The fair value of the1947options was estimated using the Black-Scholes option-pricing model with the1948following weighted average assumptions:194919501999 199819511952Expected option term 3 years 6 years1953Expected volatility factor 63% 59%1954Expected dividend yield 0.0% 0.0%1955Risk-free interest rate 5.2% 5.7%195619571958(5) EMPLOYEE BENEFIT PLAN:19591960SALARY REDUCTION PLAN:19611962During 1999, the Company established a salary reduction plans for all full-time1963employees, which qualify under Section 401(k) of the Internal Revenue Code.1964Employee contributions are limited to 20% of their annual compensation, subject1965to annual limitations. At its discretion, the Company may make matching1966contributions equal to a percentage of the salary reduction or other1967discretionary amount. The Company has made no contributions to the plan during19682000 and 1999.196919701971361972<PAGE>197319741975SIGNATURES19761977Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange1978Act of 1934, the registrant has duly caused this report to be signed on its1979behalf by the undersigned, thereunto duly authorized.19801981APPLIED BIOMETRICS, INC.198219831984By /s/ James D. Bonneville1985----------------------------------------1986James D. Bonneville1987Acting Chief Executive Officer19881989Dated: April 17, 200119901991Pursuant to the requirements of the Securities Exchange Act of 1934, this report1992has been signed below on April 17, 2001 by the following persons on behalf of1993the Registrant and in the capacities indicated.19941995Signature Title1996- --------- -----19971998/s/ James D. Bonneville1999- ----------------------------------2000James D. Bonneville Acting Chief Executive Officer2001(Principal Executive Officer/Principal2002Financial and Accounting Officer)20032004/s/ Andrew M. Weiss2005- ----------------------------------2006Andrew M. Weiss Director2007200820092010/s/ Jeffrey Green2011- ----------------------------------2012Jeffrey Green Director201320142015372016<PAGE>201720182019APPLIED BIOMETRICS, INC.2020EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K2021FOR THE YEAR ENDED DECEMBER 31, 200020222023- --------------------------------------------------------------------------------202420253.1 Restated Articles of Incorporation of the Company, as amended,2026(incorporated by reference to Exhibit 10.1 to the Company's Annual2027Report on Form 10-K for the fiscal year ended December 31, 1999).202820293.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the2030Company's Registration Statement on Form SB-2, Commission File No.203133-63754C).203220334.1 Restated Articles of Incorporation of the Company, as amended (see2034Exhibit 3.1).203520364.2 Bylaws of the Company (see Exhibit 3.2).203720384.3 Form of common stock Certificate of the Company (incorporated by2039reference to Exhibit 4.1 to the Company's Registration Statement on2040Form SB-2, Commission File No. 33-63754C)2041204210.1 Lease dated February 8, 1994 by and between the Company and American2043Industrial Properties REIT (incorporated by reference to Exhibit 10.12044to the Company's Annual Report on Form 10-K for the fiscal year ended2045December 31, 1993)2046204710.2 Amendment No. 1 to Lease Agreement dated December 31, 1998 between the2048Company and The Trustees under the Will and of the Estate of James2049Campbell, Deceased (incorporated by reference to Exhibit 10.1 to the2050Company's Quarterly Report on Form 10-Q for the period ended March 31,20511999).2052205310.3 Applied Biometrics 1996 Stock Plan, amended July 2, 1999 (incorporated2054by reference to Exhibit 10.1 to the Company's Quarterly Report on Form205510-Q for the period ended June 30, 1999).2056205710.4 Applied Biometrics Amended 1994 Stock Plan, amended July 2, 19992058(incorporated by reference to Exhibit 10.2 to the Company's Quarterly2059Report on Form 10-Q for the period ended June 30, 1999).2060206110.5 Applied Biometrics 1998 Stock Plan, amended January 1, 20002062(incorporated by reference to Exhibit 10.1 to the Company's Quarterly2063Report on Form 10-Q for the period ended June 30, 2000).206420652066E-12067<PAGE>20682069207010.6 Employment letter dated February 19, 1999, between the Company and2071Andrew M. Weiss (incorporated by reference to Exhibit 10.2 to the2072Company's Quarterly Report on Form 10-Q for the period ended March 31,20731999).2074207510.7 Confidential Separation Agreement dated August 15, 2000 between the2076Company and Andrew M. Weiss.(incorporated by reference to Exhibit 10.12077to the Company's Report on Form 10-Q for the period ending September207830. 2000).2079208010.8 Engagement Agreement, dated August 24, 2000, by and between Manchester2081Companies, Inc. and Applied Biometrics, Inc (incorporated by reference2082to Exhibit 10.1 to the Company's Report on Form 8-K/A filed on January20838, 2001).2084208510.9 Master Lease dated October 18, 1999 by and between the Company and2086Dexxon Capital Corporation (incorporated by reference to Exhibit 10.22087to the Company's Report on Form 10-Q filed June 30, 2000).2088208910.10 Amendment to Lease Agreement dated April 10, 2000 by and between the2090Company and Dexxon Capital Corporation (incorporated by reference to2091Exhibit 10.3 to the Company's Report on Form 10-Q filed June 30, 2000).2092209310.11 Asset Purchase Agreement dated January 31, 2001 by and between the2094Company and Transonic Systems, Inc. (filed herewith electronically).209520962097E-22098</TEXT>2099</DOCUMENT>2100<DOCUMENT>2101<TYPE>EX-102102<SEQUENCE>22103<FILENAME>appliedbio010950_ex10-11.txt2104<DESCRIPTION>EXHIBIT 10.11 ASSET PURCHASE AGREEMENT2105<TEXT>21062107ASSET PURCHASE AGREEMENT21082109THIS AGREEMENT (this "Agreement") effective as of January 31, 2001 by2110and between Applied Biometrics, Inc., a Minnesota corporation (the "Seller"),2111and Transonic Systems, Inc., a New York corporation (the "Purchaser").21122113WHEREAS, the Seller desires to sell to the Purchaser selected patents,2114patent applications and know-how relating to certain ultrasonic sensor2115technologies (the "Technology"), and the Purchaser desires to purchase such2116assets from Seller, pursuant to the terms and conditions of this Agreement.21172118NOW, THEREFORE, in consideration of the premises and the respective2119agreements hereinafter set forth, the parties agree as follows:212021211. SALE AND PURCHASE OF ASSETS.212221231.1. Sale and Purchase of Assets. Subject to the terms and2124conditions of this Agreement, the Seller hereby sells,2125conveys, assigns, transfers and delivers to the Purchaser, and2126the Purchaser hereby purchases the following assets related to2127the Technology (which are collectively referred to as the2128"Assets"):21292130(a) All right, title and interest in and to the United2131States Letters Patent and pending patent applications2132listed on Exhibit A attached to this Agreement and2133any continuations, divisions, substitutes and foreign2134patents and/or applications of such patents which may2135be filed;21362137(b) All right, title and interest in and to foreign2138patents and patent applications listed on Exhibit B2139attached to this Agreement; and21402141(c) All right, title and interest in and to all product2142designs and know-how as generally outlined on Exhibit2143C attached to this Agreement.214421451.2. Excluded Assets. The Seller and the Purchaser acknowledge and2146agree that the only assets of the Seller to be sold are the2147Assets specifically identified in Section 1.1 and that no2148other assets of the Seller are being sold under this2149Agreement.215021511.3. Purchase Price; Payment. The Purchaser shall pay to the2152Seller, by certified check or federal wire transfer as of the2153date hereof, immediately available funds of Twenty-Three2154Thousand Dollars ($23,000) for the purchase of the Assets (the2155"Purchase Price"), and the Seller acknowledges receipt of such2156amount by execution and delivery of this Agreement.215721581.4. Instruments of Transfer to the Purchaser The Seller will2159deliver to the Purchaser such bills of sale, assignments and2160other good and sufficient instruments of conveyance and2161transfer, in form and substance reasonably satisfactory to the2162Purchaser and its counsel, as shall be effective to vest in2163the Purchaser valid legal title to the Assets. As to the2164Know-How in Exhibit C, the Seller will deliver to the2165Purchaser within five (5) days of the execution of this2166Agreement all21672168<PAGE>216921702171documents listed in the Exhibit, and any other documents2172necessary to convey the Know-How as reasonably satisfactory to2173the Purchaser and its counsel.217421752. NO ASSUMPTION OF OBLIGATIONS. The Purchaser is not assuming any2176obligations or liabilities of the Seller as of the date of this2177Agreement relating to the Assets or the Technology, and all obligations2178and liabilities relating to events occurring before the date hereof2179with respect to the Assets or the Technology shall be the2180responsibility of the Seller.218121823. REPRESENTATIONS AND WARRANTIES. As of the date of this Agreement, the2183Seller represents, to the best of its knowledge, as follows:218421853.1. The Seller has clear title to the Assets, and is free to2186convey them to Purchaser.218721883.2. Seller has not encumbered the Assets, and there are no2189security interests or liens in the Assets.219021913.3. Except as set forth on Exhibit D, all maintenance fees,2192annuities or other fees are paid on those Assets which are2193required to have such fees paid to maintain them in force.219421953.4. As to any of the Assets which are listed in Exhibits A and B2196as pending patent applications, (i) the applications are2197currently pending in their respective patent offices, have not2198expired, lapsed or been abandoned, and are not under final2199rejection or appeal (or the equivalent in foreign countries);2200and (ii) no actions are pending which will require reply.220122023.5. No protest, opposition, reissue or reexamination proceeding,2203or any equivalent of such actions against a patent or2204application in any country, whatever named, is currently2205pending or threatened against any of the Assets.220622073.6. The Assets are being sold to the Purchaser AS IS, WHERE IS.2208Other than the foregoing, the Seller makes no representations2209or warranties of any kind whatsoever, including without2210limitation, any implied warranties of Merchantability or2211Fitness for a Particular Purpose.221222134. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL THE SELLER, OR2214ANY AFFILIATE OF THE SELLER, BE LIABLE TO THE PURCHASER OR ANY OTHER2215PARTY FOR AN AMOUNT IN EXCESS OF THE PURCHASE PRICE FOR DIRECT,2216INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES2217ARISING FROM OR RELATED TO THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,2218LOSS OF REVENUE OR ANTICPATED PROFITS OR LOST BUSINESS, EVEN IF THAT2219PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAAGES.22202221222222223<PAGE>2224222522265. MISCELLANEOUS.222722285.1. Expenses. Each of the parties hereto shall bear its own costs,2229fees and expenses in connection with the negotiation,2230preparation, execution, delivery and performance of this2231Agreement and the consummation of the transactions2232contemplated hereby.223322345.2. Further Assurances. From and after the date of this Agreement,2235upon the reasonable request of the Purchaser, the Seller shall2236execute, acknowledge and deliver all such assurances, deeds,2237assignments, transfers, conveyances, powers of attorney and2238other instruments and documents reasonably necessary to sell,2239assign, transfer, convey and deliver the Assets to the2240Purchaser, to vest the Purchaser with valid legal title to the2241Assets and to enable the Purchaser to protect its right, title2242and interest in and enjoyment of all of the Assets.224322445.3. Notices. Any notice, demand, request or other communication2245under this Agreement shall be in writing and shall be deemed2246to have been given on the date of service if personally served2247or on the fifth day after mailing if mailed by registered or2248certified mail, return receipt requested, addressed as follows2249(or to such other address of which either of the parties2250hereto shall have notified the other party hereto in2251accordance herewith):22522253To the Purchaser: 34 Dutch Mill Road2254Ithaca, New York 14850-97872255Fax: (607) 257-72562256Attn: Bruce Kilmartin22572258To the Seller: Manchester Companies, Inc.2259IDS Center226080 South Street, Suite 36502261Minneapolis, MN 554022262Fax: (612) 338-47232263Attn: John R. Wilcox226422655.4. Assignment and Successors. This Agreement may not be assigned2266by either party without the prior written consent of the other2267party.226822695.5. Binding Effect. Subject to Section 6.4, this Agreement shall2270be binding upon and inure to the benefit of the successors and2271permitted assigns of the parties hereto.227222735.6. Governing Law. This Agreement shall be construed in accordance2274with, and governed by, the laws of the State of Minnesota.227522765.7. Counterparts. This Agreement may be executed in any number of2277counterparts, each of which shall constitute an original and2278all of which shall constitute one agreement.227922805.8. Amendment or Modification. This Agreement may not be modified2281or amended except by a written instrument duly executed by2282each of the parties hereto.22832284228532286<PAGE>2287228822895.9. Entire Agreement. This Agreement, including the Exhibits2290attached hereto, sets forth the entire agreement of the2291parties with respect to the subject matter hereof, all prior2292and contemporaneous oral and written discussions and2293understandings are superseded.22942295IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be2296duly executed as of the date first written above.22972298PURCHASER: SELLER:22992300TRANSONIC SYSTEMS, INC. APPLIED BIOMETRICS, INC.23012302/s/ Bruce Kilmartin /s/ James D. Bonneville2303- ------------------------------------ ------------------------------------2304By: Bruce Kilmartin By: James D. Bonneville2305--------------------------------- ---------------------------------2306Its: President Its: Acting Chief Executive Officer2307-------------------------------- --------------------------------23082309231042311<PAGE>231223132314EXHIBIT A23152316US Patent Application No. 09/432,347 filed November 2, 1999 entitled "Encasement2317and Transducer Shuttle Assembly For Removable Implanted Device"23182319US Patent No. 5,205,292 issued April 27, 1993 entitled "Removable Implanted2320Device"23212322US Patent No. 5,284,146 issued February 8, 1994 entitled "Removable Implanted2323Device"232423252326A-12327<PAGE>232823292330EXHIBIT B23312332Canadian Patent Application No. 2,103,237 filed June 2, 1992 entitled "Removable2333Implantable Device"23342335Japanese Patent Application No. HEI 5-500587 filed June 2, 1992 entitled2336"Removable Implantable Device"23372338United Kingdom Patent No. 0 602 048 issued March 22, 2000 entitled "Removable2339Implantable Device"23402341German Patent No. 692 30 826.1 issued March 22, 2000 entitled "Removable2342Implantable Device"23432344France Patent No. 0 602 048 issued March 22, 2000 entitled "Removable2345Implantable Device"234623472348B-12349<PAGE>235023512352EXHIBIT C23532354Applied Biometrics Product Design and Know-How includes all information related2355to the design, manufacturing, testing, and use of ultrasonic products,2356including:23572358>> Ultrasonic Sensor Designs (including sensor configuration drawings and2359layouts, sensor material guidelines, electrical connection configurations2360and sensor backing guidelines).23612362>> Sensor Packaging and Housing Designs (including sensor housing materials2363selections, housing configuration drawings, and housing manufacturing2364processes).23652366>> Support Electronics Designs (including all circuit layouts, electronic2367schematic diagrams, signal processing logic, computational logic, and2368display circuitry).23692370>> Ultrasonic Sensor Handling and Manufacturing Methods.23712372>> Manufacturing Facility Design and Layout.23732374>> Blood Flow Sensing Application Considerations23752376>> Electrical Connection Methods (including cabling designs, and optimum2377connector configurations).23782379>> Data Processing Methodologies and Logic23802381>> Testing Procedures.23822383>> Test Equipment Design.23842385>> Product Packaging Design.23862387>> Medical Device Handling Know-How.23882389In addition to the above listed and reference know-how assets, Applied2390Biometrics also has valuable information related to the sales and marketing of2391medical devices, which it will transfer to Transonic in writing within five (5)2392days of the execution of this Agreement.239323942395C-12396<PAGE>239723982399EXHIBIT D24002401The 7 1/2 year maintenance fee has not yet been paid on patent no. 5,205,292.2402This fee can be paid with a surcharge until March 27, 2001.24032404A registration fee of approximately $675.00 is currently due to register2405Japanese Patent application Hei 5-500587. If this fee is not paid, the2406application will be abandoned. The due date for instructing the foreign2407associate is December 25, 2000.2408</TEXT>2409</DOCUMENT>2410</SEC-DOCUMENT>2411-----END PRIVACY-ENHANCED MESSAGE-----241224132414