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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,7T1WeL544W/h57Iy4exvzIi6xLmW2/cMKZgaImCk6iQQs8aGS3L7g3PhzceGygqjt88WR30cKwCjtMLYew1it0tw==910<SEC-DOCUMENT>0000897101-02-000368.txt : 2002051411<SEC-HEADER>0000897101-02-000368.hdr.sgml : 2002051412ACCESSION NUMBER: 0000897101-02-00036813CONFORMED SUBMISSION TYPE: 10-K14PUBLIC DOCUMENT COUNT: 115CONFORMED PERIOD OF REPORT: 2001123116FILED AS OF DATE: 200205141718FILER: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-K30SEC ACT: 1934 Act31SEC FILE NUMBER: 000-2214632FILM NUMBER: 026468913334BUSINESS 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-K49<SEQUENCE>150<FILENAME>appbio022547_10k.txt51<DESCRIPTION>APPLIED BIOMETRICS, INC. FORM 10K52<TEXT>53================================================================================5455UNITED STATES56SECURITIES AND EXCHANGE COMMISSION57WASHINGTON, D.C. 2054958------------------------------59FORM 10-K60(Mark one)61[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES62EXCHANGE ACT OF 19346364FOR THE FISCAL YEAR ENDED DECEMBER 31, 20016566OR6768[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES69EXCHANGE ACT OF 19347071COMMISSION FILE NUMBER: 0-2214672--------------------7374APPLIED BIOMETRICS, INC.75(Exact name of Registrant as specified in its charter)76--------------------7778MINNESOTA 41-150811279(State or Other Jurisdiction of (I.R.S. Employer80Incorporation or Organization) Identification No.)8182P.O. BOX 583457 55458-345783MINNEAPOLIS, MINNESOTA (Zip Code)84(Address of Principal Executive Offices)8586(612) 338-472287(Registrant's Telephone Number, including Area Code)8889Securities Registered Pursuant to Section 12(b) of the Act: NONE9091Securities Registered Pursuant to Section 12(g) of the Act:9293COMMON STOCK, $.01 PAR VALUE9495Indicate by check mark whether the registrant (1) has filed all reports required96to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during97the preceding 12 months (or for such shorter period that the registrant was98required to file such reports), and (2) has been subject to such filing99requirements for the past 90 days. Yes _X_ No ___100101Indicate by check mark if disclosure of delinquent filers pursuant to Item 405102of Regulation S-K is not contained herein, and will not be contained, to the103best of registrant's knowledge, in definitive proxy or information statements104incorporated by reference in Part III of this Form 10-K or any amendment to this105Form 10-K. [X]106107The registrant has adopted liquidation basis accounting as of September 1, 2000.108109As of April 15, 2002, 5,883,404 shares of common stock of the registrant were110outstanding, and the aggregate market value of the registrant's outstanding111common stock (based upon the last reported sale price of the common stock on the112Over-The-Counter Bulletin Board) excluding outstanding shares owned beneficially113by executive officers, directors and principal shareholders, was approximately114$294,170.115116================================================================================117<PAGE>118119120CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-K INCLUDE "FORWARD LOOKING121STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT122OF 1995. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS123"EXPECT," ANTICIPATE," "PLAN," "MAY," "ESTIMATE" OR OTHER SIMILAR EXPRESSIONS.124SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS125WHICH MAY CAUSE THE ACTUAL RESULT TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS,126PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING127STATEMENTS. SEE ITEM 6 "MANAGEMENT'S DISCUSSION AND ANALYSIS - CERTAIN FACTORS"128FOR IMPORTANT FACTORS KNOWN TO US THAT COULD CAUSE SUCH MATERIAL DIFFERENCES.129130131PART I132133ITEM 1: DESCRIPTION OF BUSINESS134135INTRODUCTION136137Applied Biometrics, Inc. ("Applied Biometrics" or the "Company"), a corporation138founded in 1984 to develop and market a cardiac output monitoring system, ceased139its ongoing business operations in August 2000 because the Company determined140that it would be unable to complete the development of its primary product, the141Basis Cardiac Output Monitor and RealFlow Cardiac Output Probe (collectively,142the "Basis System"), for market and sale.143144CESSATION OF BUSINESS OPERATIONS145146In connection with its decision to cease business operations, in August 2000 the147Company's Chief Executive Officer resigned, all other employees were laid off148and all but two of the Company's directors resigned. At that time, the Board of149Directors retained Manchester Companies, Inc. ("Manchester"), a Minneapolis,150Minnesota investment banking firm, to provide management services to facilitate151the winding down and liquidation of the Company, and to act as the Company's152exclusive agent to assist it with a merger, sale, exchange, combination or any153similar transaction related to the Company. As part of the engagement of154Manchester, the Board of Directors appointed James D. Bonneville as the Acting155Chief Executive Officer, Chief Financial Officer and Secretary of the Company.156During the latter part of 2000, the Company wound down its business operations,157eliminated most expenses and negotiated the termination or satisfaction of all158of its obligations. This process was essentially completed in January 2001. In159April 2001, the remaining two members of the Company's Board of Directors160resigned.161162As part of its engagement by the Company's Board of Directors, Manchester has163been actively seeking merger candidates for the Company. In connection with164these activities and since the resignation of the remaining board members in165April 2001, Manchester and Mr. Bonneville have consulted from time to time with166David B. Johnson, the only beneficial owner who holds more than 5% of the Common167Stock of the Company. To date, no candidate or transaction has emerged as a168viable option for merging with the Company. Because no acceptable merger169candidate has emerged, Mr. Johnson has requested that the Company liquidate and170dissolve and distribute the remaining assets to the shareholders of the Company.171172In furtherance of this request, on May 13, 2002 the Company received a formal173notice from shareholders holding more than 10% of the Company's outstanding174stock, including Mr. Johnson, requesting that the Company call and hold a175shareholder meeting for the purposes of:176177* approving a plan of complete liquidation and dissolution of the178Company;179180* setting the number of members of the Board of Directors at one;1811821831184<PAGE>185186187* electing one director, Richard Nigon, to serve until dissolution of188the Company (or, if the Company is not dissolved for any reason, for a189term ending at the next annual shareholder meeting or until his190successor is elected and qualified); and191192* ratifying, approving and confirming the engagement of Manchester,193pursuant to the terms of its current engagement agreement with the194Company, to take all appropriate actions, on behalf of the Company, in195connection with the liquidation and dissolution of the Company.196197The Company no longer occupies any office space. The Company can be contacted at198P.O. Box 583457, Minneapolis, MN 55458-3457 or by telephone at (612) 338-4722.199200CLINICAL USE OF CARDIAC OUTPUT201202Cardiac output (or "CO") is a measure of the volume of blood pumped by the heart203into the aorta and is one of the most basic physiological parameters of the204body's hemodynamic system. There are typically two types of parameters measured205in the heart for diagnostic and monitoring purposes: electro-physiological, such206as the electrocardiogram ("ECG"), and hemodynamic, such as heart rate, blood207pressure and cardiac output. In many cases, ECG, heart rate and pressures are208used as a proxy to understand cardiac output. Surgical, electrical and drug209therapies, as well as life support systems, such as bypass machines and heart210assist devices, are often designed to develop and sustain a specified level of211cardiac output.212213Since the advent of open-heart surgery, surgeons, anesthesiologists and214intensivists have desired a reliable, accurate, continuous and real-time measure215of cardiac output. The Company believed that medical practitioners recognize the216importance of measuring cardiac output and that there is significant demand for217accurate, real-time cardiac output capability, especially for intra-operative218and post-operative heart surgery settings. In these settings, surgeons,219anesthesiologists and intensivists require continuous, real-time information220about cardiac output to guide surgery, drug delivery and life support systems.221The Company believed that practitioners were particularly interested in222immediate cardiac output data for certain patients undergoing cardiac surgery,223including heart transplant and coronary artery bypass surgeries, where the224ability to provide real-time, beat-to-beat, continuous cardiac output data can225allow surgeons, cardiologists and anesthesiologists to react quickly to changes226in a patient's condition.227228PRODUCTS229230Prior to deciding to cease its business operations, the Company was developing a231system designed to measure CO on a continuous and real-time basis during and232after cardiac surgery called the Basis System. The Basis System was designed for233use on a broad range of aortic diameters in both adults and children. By using234ultrasound to monitor CO directly from the ascending aorta, the Basis System was235expected to provide real-time accuracy never before available. In contrast to236conventional CO techniques, the Basis System was designed to directly measure237the patient's aortic diameter and blood velocity 44 times each second for a238true, real-time view of cardiac output.239240The Basis System consisted of the patented, disposable, ultrasonic RealFlow241Probe and the Basis Cardiac Output Monitor. The RealFlow Probe consisted of an242ultrasound sensor mounted in the probe head, a power cable and an integrated243release mechanism. The release mechanism involved two nitinol "release" wires244integrated into the sensor head, which the surgeon sutures to the patient's245aorta during open-heart surgery. Later, after the chest cavity has been closed,246the physician released the sutures by withdrawing the release wires, permitting247the probe to be removed from the chest without additional surgical intervention.2482492502251<PAGE>252253254The Basis System monitor consisted of both software and electronic hardware and255display, which energized the Basis System's RealFlow probe, senses the probe's256signal, determines cardiac output and provides a graphical and numeric display257to the physician. The electro-luminescent flat panel display provided numerical,258waveform and trend information of the patient's cardiac output, stroke volume,259blood velocity, aortic diameter and blood velocity. The monitor was designed to260be automatic, requiring no user calibration, and to automatically adjust its261analysis and readout to each individual patient.262263The Basis System was specifically designed to address the need for continuous,264real-time, cardiac output data in surgical and post-operative settings by265reporting cardiac output accurately and without subjective user intervention.266The Basis System readings were thought to be used to guide cardiac surgeons267during surgical procedures and to assist intensivists and anesthesiologists by268monitoring vital signs and managing life support systems both during and after269the procedures.270271In July of 2000, the Company determined that significant technical issues faced272the Basis System which made commercialization of the Basis System unlikely in273the near term. Two significant issues were identified. The first issue involved274the Basis System's ability to work successfully in the event of considerable275variability or turbulence in a patient's blood flow. The second issue involved276errors arising from the positioning of the Basis System's probe during and after277surgical procedures. Both of these problems significantly impacted the278performance, reliability and market potential of the Basis System.279280RESEARCH AND DEVELOPMENT281282Prior to deciding to cease its business operations, the Company's professionals283researched and developed proprietary competencies in ultrasound transducers,284signal processing, cardiac anatomy and pathology and the fluid dynamics of blood285flow. These funds were used primarily to develop the Basis System and its286underlying core technologies.287288PATENTS AND PROPRIETARY RIGHTS289290The Company developed extensive proprietary technology and knowledge in a291variety of fields that relate to cardiac output, blood flow and associated292diagnostic and monitoring products. These include ultrasound transducer design293and manufacturing, signal processing, cardiac anatomy, pathology and clinical294procedures, the fluid dynamics of blood flow and acoustic properties of the295human anatomy.296297The Company obtained U.S. and foreign patents and patents pending, which relate298to devices and methods used to measure blood flow through a major mammalian299artery using ultrasound technology, the release mechanism employed by the300RealFlow probe, and certain methods and techniques which relate to minimally301invasive surgery, beating heart surgery and advanced signal processing. In302addition to its patented technology, the Company relied heavily on trade secrets303and unprotected proprietary technology. The Company always maintained the304confidentiality of such information through its internal security and secrecy305measures and the employment agreements requiring employees and agents of the306Company to maintain the confidentiality of Company information and to assign to307the Company inventions developed in the course of work for the Company.308309On January 31, 2001, as part of its decision to cease business operations, the310Company sold certain patented technology to Transonic Systems, Inc. for a311purchase price of $23,000. This patented technology consisted of technology that312relates to devices and methods used to measure blood flow through arteries using313ultrasound technology, and certain methods and techniques which relate to314minimally invasive surgery, beating heart surgery and advanced signal315processing.3163173183319<PAGE>320321322EMPLOYEES323324As of December 31, 2001, the Company had no employees. James D. Bonneville, the325Company's Acting Chief Executive Officer, Chief Financial Officer and Secretary326is an employee of Manchester who is performing these functions pursuant to the327agreement between the Company and Manchester.328329ITEM 2: PROPERTIES330331The Company does not currently occupy any space.332333ITEM 3: LEGAL PROCEEDINGS334335None.336337ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS338339No matter was submitted to a vote of security holders during the fiscal year340covered by this Report.341342ITEM 4A: EXECUTIVE OFFICERS OF THE REGISTRANT343344As of April 15, 2002, the Company, through its engagement of Manchester, has one345individual who is serving as its Acting Chief Executive and Chief Financial346Officer. His age and biographical information is as follows:347348NAME AGE POSITION WITH COMPANY349---- --- ---------------------350351James D. Bonneville 62 Acting Chief Executive Office, Chief Financial352Officer and Secretary353354JAMES D. BONNEVILLE - Mr. Bonneville has been a Vice President at Manchester355Companies since March 2000. Mr. Bonneville served as the Chief Executive Officer356of Linguistic Technologies, Inc. from March 1999 to January 2000. During 1999357Mr. Bonneville served as a consultant to MinCorp Investment Network. From 1993358to 1998 Mr. Bonneville served as the President and Chief Operating Officer of359Connect Computer Company, which merged into Norstan in 1996.3603613624363<PAGE>364365366PART II367368ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS369370The Company's Common Stock has traded in the over-the-counter market on the OTC371Bulletin Board, under the symbol "ABIO," since November 30, 2000. Prior to372November 30, 2000, the Company's Common Stock was traded on the Nasdaq SmallCap373Market under the symbol "ABIO."374375The following table sets forth, for the periods indicated, the high and low sale376prices for each calendar quarter indicated, as reported by the OTC Bulletin377Board and the Nasdaq SmallCap Market. The prices in the table may not represent378actual transactions. These quotations reflect inter-dealer prices without retail379mark up, mark down or commissions and may not represent actual transactions.380381OTC BULLETIN BOARD3823832001 HIGH LOW384---- ---- ---385First Quarter............... $0.10 $0.05386Second Quarter.............. $0.10 $0.06387Third Quarter............... $0.14 $0.07388Fourth Quarter.............. $0.21 $0.06389390391NASDAQ SMALLCAP MARKET3923932000 HIGH LOW394---- ---- ---395First Quarter............... $4.00 $2.28396Second Quarter.............. $3.50 $2.38397Third Quarter............... $2.19 $0.25398Fourth Quarter.............. $0.34 $0.09399400The Company has not declared or paid any cash dividends on its Common Stock401since its inception. As of January 16, 2002, there were approximately 562402beneficial owners of the Company's Common Stock.4034044055406<PAGE>407408409ITEM 6: SELECTED FINANCIAL DATA410411SUMMARY STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION DATA:412413TWELVE MONTHS FOUR MONTHS414ENDED ENDED415DECEMBER 31, DECEMBER 31,4162001 2000417--------- ---------418Net assets in liquidation, beginning of period $ 732,527 $ 925,557419420Changes in nets assets in liquidation ........ (40,653) (193,030)421--------- ---------422423Net assets in liquidation, end of period ..... $ 691,874 $ 732,527424========= =========425426427428SUMMARY STATEMENTS OF OPERATIONS DATA:429430<TABLE>431<CAPTION>432EIGHT MONTHS ENDED433AUGUST 31434YEARS ENDED DECEMBER 31,4352000(2) 1999 1998 1997(1)436----------- ----------- ----------- -----------437<S> <C> <C> <C> <C>438Net revenue ........................ $ -- $ -- $ -- $ 64,940439Gross margin ....................... -- -- -- 32,765440Operating Expenses:441Selling, general & administrative 911,766 1,028,065 946,721 1,061,579442Research & development .......... 1,500,337 1,469,001 805,459 1,409,280443----------- ----------- ----------- -----------444Net Loss from continuing operations (2,354,876) (2,445,942) (1,563,991) (2,134,604)445Discontinued Operations:446Loss from operations of447Trans-catheter closure business . -- -- (1,838,147) (457,866)448----------- ----------- ----------- -----------449Net Loss ........................... -- -- (3,402,138) (2,592,470)450=========== =========== =========== ===========451Basic and diluted loss per share452Continuing operations ........... $ (0.42) $ (0.52) $ (0.36) $ (0.51)453Discontinued operations ......... -- -- $ (0.43) $ (0.11)454----------- ----------- ----------- -----------455$ (0.42) $ (0.52) $ (0.79) $ (0.62)456=========== =========== =========== ===========457Weighted average shares458outstanding, basic and459diluted ......................... 5,655,380 4,659,300 4,312,077 4,186,896460</TABLE>461- --------------------------------------------462(1) In 1997, the Company ceased marketing efforts of two cardiac output463devices: one that was integrated into an endotrachial tube, and the other a464predecessor to the Basis System.465466(2) The Company's weighted average shares outstanding were increased by the467issuance of 525,000 shares of Common Stock from two private placements in468April 2000.4694704716472<PAGE>473474475SUMMARY BALANCE SHEET DATA:476477<TABLE>478<CAPTION>479AT DECEMBER 31,4802001 2000 1999 1998 1997481---- ---- ---- ---- ----482<S> <C> <C> <C> <C> <C>483Cash, cash equivalents & short-484term investments ..... $ 909,510 $1,109,537 $1,910,356 $2,369,413 $4,420,180485Total assets ............ 937,010 1,218,263 2,827,739 3,296,711 5,437,923486Net assets in liquidation 691,874 732,527 -- -- --487Shareholders' equity .... -- -- 2,516,625 2,151,564 5,271,202488</TABLE>489490ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS491OF OPERATIONS492493The Company ceased its ongoing business operations in August 2000 because the494Company determined it would be unable to complete the development of its primary495product, the Basis System, for market and sale. In August 2000 the Company's496Chief Executive Officer resigned, all other employees were laid off and all but497two of the Company's directors resigned. At that time, the Board of Directors498retained Manchester Companies, Inc. to provide management services to facilitate499the winding down or liquidation of the Company, and to act as the Company's500exclusive agent to assist it with a merger, sale, exchange, combination or any501similar transaction related to the Company. As part of the engagement of502Manchester, the Board of Directors appointed James D. Bonneville as the Acting503Chief Executive Officer, Chief Financial Officer and Secretary of the Company.504During the latter part of 2000, the Company wound down its business operations,505eliminated most expenses and negotiated the termination or satisfaction of all506of its obligations. This process was essentially completed in January 2001.507Since August 2000, the Company's management and accounting functions have been508performed through Manchester. In April 2001, the remaining two members of the509Company's Board of Directors resigned.510511The Company adopted liquidation basis accounting as of September 1, 2000. This512basis of accounting is considered appropriate when liquidation of a company513appears imminent and the net realizable value of its assets are reasonably514determinable. Under this basis of accounting, assets and liabilities are stated515at their net realizable value and estimated costs through the liquidation date516are provided to the extent reasonably determinable.517518As part of its engagement by the Company's Board of Directors, Manchester has519been actively seeking merger candidates for the Company. In connection with520these activities and since the resignation of the remaining board members in521April 2001, Manchester and Mr. Bonneville have consulted from time to time with522David B. Johnson, the only beneficial owner who holds more than 5% of the Common523Stock of the Company. To date, no candidate or transaction has emerged as a524viable option for merging with the Company. Because no acceptable merger525candidate has emerged, shareholders holding more than 10% of the Company's526outstanding stock, including Mr. Johnson, have requested that the Company call527and hold a shareholder meeting for the purposes of (a) approving a plan of528complete liquidation and dissolution of the Company, which will include529distributing the Company's remaining assets to the shareholders; (b) setting the530number of directors at one and electing a director to serve until dissolution of531the Company; and (c) ratifying and approving the engagement of Manchester,532pursuant to the terms of its current engagement agreement with the Company, to533take all appropriate actions, on behalf of the Company, in connection with the534liquidation and dissolution of the Company.5355365377538<PAGE>539540541LIQUIDITY AND CAPITAL RESOURCES542543As of December 31, 2001, net assets in liquidation were $691,874. Cash, cash544equivalents and marketable securities were $909,510 as of December 31, 2001 as545compared to $1,109,537 at December 31, 2000, a decrease of $200,027.546547Net cash provided by investing activities was $20,700 for the year ended548December 31, 2001 as compared to $193,000 provided by investing activities for549the year ended December 31, 2000.550551Based on its expected rate of spending the Company believes that its existing552cash and cash equivalents will be more than sufficient to fund any further553expenses related to the Company for several years.554555RESULTS OF OPERATIONS556557EIGHT MONTHS ENDED AUGUST 31, 2000 AND TWELVE MONTHS OF 1999558559Selling costs and general and administrative expenses were $912,000 for the560first eight months of 2000, compared to selling costs and general and561administrative expenses of $1,028,000 for the twelve months ended December 31,5621999. One-time expenses in the first eight months of 2000 were $100,000 from563termination costs and a non-cash compensation charge of $153,000 related to564stock granted to the Company's three non-employee directors for prior and565current Board service. There were no selling costs for this period.566567Research and development costs for the first eight months of 2000 were568$1,500,000 compared to $1,469,000 for the twelve months ended December 31, 2000.569These expenses increased for the first eight months of 2000 because of a570$100,000 of employee termination costs related to the Company's termination of571operations and, a second quarter write-off by the Company of $210,000 of its572monitor and probe component inventory.573574Other income, primarily interest, earned was $57,000 for the first eight months575of 2000 compared to $51,000 for the twelve months ended December 31, 1999.576577The net loss for the first eight months of 2000 was $2,355,000, or $0.40 per578share, as compared to a net loss of $2,446,000, or $0.52 per share, in the579twelve-month period ending December 31, 1999.580581INFLATION582583Management believes inflation has not had a material effect on the Company's584financial condition.585586CERTAIN FACTORS587588CESSATION OF BUSINESS OPERATIONS; NOT A GOING CONCERN.589590As indicated, the Company has terminated its business operations due to591technical difficulties with its sole product, the Basis System. The Company has592attempted to position itself for a sale or liquidation. Although the Company may593seek to complete a merger of the Company with another operating entity, there594can be no assurance as to the Company's ability to conclude such a transaction595or the business, financial condition or results of operations of any successor596entity.597598ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK599600None.6016026038604<PAGE>605606607ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA608609The Company's financial statements can be found on pages 15 to 24 of this610Report. The index to such items is included on page 13 in Item 14(a)(1).611612ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL613DISCLOSURE614615None.616617618PART III619620ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT621622(a) Directors of the Registrant.623624Messrs. Andrew M. Weiss and Jeffrey Green, the last two remaining directors of625the Company resigned as directors in April of 2001. Currently, there are no626members of the Board of Directors.627628(b) Executive Officers of the Registrant.629630Information concerning Executive Officers of the Company is included in this631Report under Item 4A, "Executive Officers of the Registrant."632633(c) Compliance with Section 16(a) of the Exchange Act.634635Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the636Company's executive officers and directors, and persons who own more than 10% of637the Company's Common Stock, to file with the Securities and Exchange Commission638(the "SEC") initial reports of ownership and reports of changes in ownership of639Common Stock and other equity securities of the Company. Executive officers,640directors and greater than 10% shareholders are required by SEC regulations to641furnish the Company with copies of all Section 16(a) reports they file. To the642Company's knowledge, based solely on review of the copies of such reports643furnished to the Company during, or with respect to, the period ended December64431, 2001, the Company's directors, executive officers and greater than 10%645shareholders complied with the applicable Section 16(a) filing requirements.6466476489649<PAGE>650651652ITEM 11: EXECUTIVE COMPENSATION653654SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION655656The following table shows, for the fiscal years ending December 31, 2001 and6572000, the compensation paid by the Company, as well as certain other658compensation paid or accrued for those years, to each person serving as the659Company's President and Acting Chief Executive Officer during 2001 and each660executive officer who received more than $100,000 in compensation during 2001.661662SUMMARY COMPENSATION TABLE663664<TABLE>665<CAPTION>666LONG-TERM667ANNUAL COMPENSATION COMPENSATION668------------------- ------------669SECURITIES670UNDERLYING ALL OTHER671NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)672- --------------------------- ---- ---------- --------- ---------------- ----------------673<S> <C> <C> <C> <C> <C>674James D. Bonneville (1)................. 2001 $60,000 -- -- $0675ACTING CHIEF EXECUTIVE OFFICER 2000 45,000 -- -- 24,000676</TABLE>677- -------------------------------678(1) The services of Mr. Bonneville as Acting Chief Executive Officer and Chief679Financial Officer and Secretary are provided through the agreement between680the Company and Manchester, pursuant to which the Company paid Manchester a681monthly fee equal to $10,000 for the months of August 2000 through November6822000 and $5,000 for each month from December 2000 to December 2001.683Manchester received a commission payment in 2000 of $24,000 under the684agreement with the Company. Mr. Bonneville is an employee of Manchester and685therefore does not directly receive the payments made to Manchester by the686Company.687688OPTION GRANTED689690The following tables summarize individual grants of options to purchase shares691of Common Stock during fiscal 2001 to each of the executive officers named in692the Summary Compensation Table above and the value of the options held by such693persons at December 31, 2001.694695<TABLE>696<CAPTION>697OPTIONS GRANTED IN LAST FISCAL YEAR698INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE699--------------------------------------------------------- VALUE AT ASSUMED700NUMBER OF PERCENT OF ANNUAL RATES OF STOCK701SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR702UNDERLYING GRANTED TO OR BASE OPTION TERM (1)703OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------704NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%705- ---- --------- ------------- -------- ------ ----- -----706<S> <C> <C> <C> <C> <C> <C>707James D. Bonneville(2) -- -- -- -- -- --708</TABLE>709- -------------------------------710(1) Potential realizable value is calculated based on an assumption that the711price of the Company's Common Stock will appreciate at the assumed annual712rates shown (5% and 10%), compounded annually from the date of grant of the713option until the end of the option term. These assumed rates are applied714pursuant to the Securities and Exchange Commission rules and therefore are715not intended to forecast possible future appreciation, if any, of the716Common Stock. Actual gains, if any, on stock option exercises are dependent717upon the future performance71871972010721<PAGE>722723724of the Common Stock, overall market conditions and continued employment of725the named executive by the Company. There can be no assurance that the726amounts reflected in this table will be realized.727728(2) The services of Mr. Bonneville as Acting Chief Executive Officer and Chief729Financial Officer and Secretary are provided through the agreement between730the Company and Manchester. Mr. Bonneville is an employee of Manchester and731therefore does not directly receive the payments made to Manchester by the732Company.733734OPTIONS EXERCISED735736No options were exercised by the named executive officer during fiscal 2001.737Options granted under the Company's 1994, 1996 and 1998 Stock Plans738(collectively, the "Stock Plans") terminated three months after the termination739of the employees, unless otherwise agreed to by the Company and the terminated740employee. The Company's option plans generally provide that the exercise price741of options must be paid in cash, except that the Compensation Committee, in its742sole discretion, could have allowed payment by delivery of shares of Common743Stock having an aggregate fair market value equal to the exercise price or may744allow the exercise price to be financed by the Company upon such terms and745conditions as the Compensation Committee may determine. Based upon the746difference between the fair market value of one share of Common Stock on the747date exercised and the exercise price of the options exercised.748749COMPENSATION COMMITTEE750751Since the Company has ceased doing business, the Company no longer has a752Compensation Committee.753754SECTION 162(m)755756Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),757limits the deductibility of certain compensation paid to each of the executive758officer and four other of the most highly compensated executives of a publicly759held corporation to $1,000,000. In fiscal 2001, the Company did not pay760"compensation" within the meaning of Section 162(m) to such executive officers761in excess of $1,000,000 and it will not do so in the future. Therefore, the762Company does not have a policy at this time regarding qualifying compensation763paid to its executive officers for deductibility under Section 162(m).764765ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT766767The following table sets forth as of March 15, 2001 the number and percentage of768outstanding shares of Common Stock beneficially owned by each person who is769known to the Company to beneficially own more than five percent (5%) of the770Common Stock, by each director of the Company, by each executive officer named771in the Summary Compensation Table, and by all directors and executive officers772of the Company as a group:773774NUMBER OF SHARES PERCENTAGE775BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(2)776- ---------------- --------------------- ------------777778David B. Johnson (3)779c/o Miller, Johnson & Kuehn, Incorporated780Suite 800 - Eighth Floor7815500 Wayzata Boulevard 516,511 8.7%782Minneapolis, MN 55416783784James D. Bonneville 0 --78578678711788<PAGE>789790- ----------------------------791(1) Unless otherwise indicated, each person has sole voting and dispositive792power over such shares. Shares not outstanding but deemed beneficially793owned by virtue of the right of a person or member of a group to acquire794them within 60 days are treated as outstanding only when determining the795amount and percent owned by such person or group.796797(2) As of April 15, 2002, there were 5,883,404 shares of Common Stock798outstanding.799800(3) Based on an amended Schedule 13G dated February 14, 2002 filed with the801Securities and Exchange Commission. Of the 516,511 shares reported, Mr.802Johnson has sole voting and dispositive power with respect to 141,002803shares and shares voting and dispositive power with respect to 375,509804shares.805806ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS807808RELATED TRANSACTION809810In August 2000, the Company entered into a six month Engagement Agreement with811Manchester, pursuant to which Manchester agreed to provide management services812to facilitate the winding down or liquidation of the Company. Under the813Engagement Agreement, the Company has retained Manchester as the Company's814exclusive agent to assist it with a merger, sale, exchange, combination or any815similar transaction related to the Company. In the event the Board of Directors816of the Company approves a liquidation of the Company, Manchester is entitled817under the Engagement Agreement to receive a $25,000 payment upon the final818dissolution of the Company. Pursuant to the terms of the Engagement Agreement,819Mr. Bonneville was elected by the Board of Directors to serve as the Company's820Acting Chief Executive Officer and Chief Financial Officer. During 2001, the821Company paid Manchester monthly fees totaling $60,000. The Engagement Agreement822expired in February 2001. Currently the Company and Manchester have been823operating on a month-to-month basis.824825David B. Johnson, a beneficial owner of more than 5% of the Company's Common826Stock, is a principal shareholder in the firm of Miller Johnson Steichen827Kinnard, Inc., formerly known as Miller, Johnson & Kuehn, Incorporated ("MJK").828During 2000, the Company engaged MJK as its sales agent in connection with a829private placement of 525,000 shares of Common Stock and warrants to purchase830525,000 shares of Common Stock. In consideration of MJK's services, the Company831paid MJK selling commissions of $170,625 equal to 10% of the aggregate price of832the shares of Common Stock sold by MJK in the private placement, and issued MJK833five-year warrants to purchase 52,500 shares of Common Stock at an exercise834price of $3.25 per share. Subsequent to the closing of the placement, MJK835transferred these warrants to Mr. Johnson. The Company also provided MJK with a836non-accountable expense allowance equal to 1% of the aggregate price of the837shares sold by MJK, and reimbursed MJK for its legal fees in connection with the838placement.83984084112842<PAGE>843844845PART IV846847ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K848849(a) List of documents filed as part of this Report:850851(1) Financial Statements852853The following financial statements are included hereinafter854contained on pages 15 to 24 in this Annual Report on Form 10-K:855856Report of Independent Auditors857858Statements of Net Assets in Liquidation as of December 31, 2001859and 2000860861Statements of Changes in Net Assets in Liquidation for the year862ended December 31, 2001 and for the period from September 1, 2000863to December 31, 2000864865Statements of Operations for the Eight Months Ended August 31,8662000 and the Year Ended December 31, 1999867868Statements of Cash Flows for the year ended December 31, 2001,869the Four Months Ended December 31, 2000, Eight Months Ended870August 31, 2000 and Year Ended December 31, 1999871872Notes to Financial Statements873874(2) Financial Statement Schedules875876All information required by this section that is applicable to877the Company is included in the Financial Statements or Notes878thereto.879880(3) Exhibits:881882The exhibits to this Annual Report on Form 10-K are listed in the883Exhibit Index hereinafter contained on page E-1 of this Annual884Report on Form 10-K. The Company will furnish a copy of this885report and any exhibit to a shareholder who requests a copy in886writing upon payment to the Company of a fee of $5.00 per887exhibit. Requests should be sent to: James D. Bonneville, c/o888Manchester Companies, Inc. at P.O. Box 583457 Minneapolis,889Minnesota 55458-3457.89089189213893<PAGE>894895896The following is a list of each management contract or compensatory897plan or arrangement required to be filed as an exhibit to this Report898pursuant to Item 14(c):899900A. Applied Biometrics 1996 Stock Option Plan, amended July 2, 1999901(incorporated by reference to Exhibit 10.1 to the Company's902Quarterly Report on Form 10-Q for the period ended June 30,9031999).904905B. Applied Biometrics Amended 1994 Stock Option Plan, amended July9062, 1999 (incorporated by reference to Exhibit 10.2 to the907Company's Quarterly Report on Form 10-Q for the period ended June90830, 1999).909910C. Applied Biometrics 1998 Stock Plan, amended January 1, 2000911(incorporated by reference to Exhibit 10.1 to the Company's912Quarterly Report on Form 10-Q for the period ended June 30,9132000).914915D. Engagement Agreement, dated August 24, 2000, by and between916Manchester Companies, Inc. and Applied Biometrics, Inc917(incorporated by reference to Exhibit 10.1 to the Company's918Report on Form 8-K/A filed on January 8, 2001).919920(b) Reports on Form 8-K921922On January 8, 2001 the Company filed an amendment to its Current Report on923Form 8-K filed on September 8, 2000.924925(c) Exhibits926927The response to this portion of Item 14 is included as a separate section928of this Report. See the Exhibit Index on page E-1 of this report.929930(d) Financial Statement Schedules931932The response to this portion of Item 14 is included as a separate section933of this Report.93493593614937<PAGE>938939940REPORT OF INDEPENDENT AUDITORS941942943944BOARD OF DIRECTORS AND SHAREHOLDERS945APPLIED BIOMETRICS, INC.946947We have audited the accompanying statements of operations, shareholders' equity,948and cash flows of Applied Biometrics, Inc. for the eight months ended August 31,9492000 and for the year ended December 31, 1999. In addition, we have audited the950statement of net assets in liquidation as of December 31, 2001 and 2000 and the951related statements of changes in net assets in liquidation and cash flows in952liquidation for the year ended December 31, 2001 and the period from September9531, 2000 to December 31, 2000. These financial statements are the responsibility954of the Company's management. Our responsibility is to express an opinion on955these financial statements based on our audits.956957We conducted our audits in accordance with auditing standards generally accepted958in the United States. Those standards require that we plan and perform the audit959to obtain reasonable assurance about whether the financial statements are free960of material misstatement. An audit includes examining, on a test basis, evidence961supporting the amounts and disclosures in the financial statements. An audit962also includes assessing the accounting principles used and significant estimates963made by management, as well as evaluating the overall financial statement964presentation. We believe that our audits provide a reasonable basis for our965opinion.966967As described in Note 1 to the financial statements, the Company decided to968liquidate in the third quarter of 2000 and commenced liquidation shortly969thereafter. As a result, the Company has changed its basis of accounting for970periods subsequent to August 31, 2000 from the going concern basis to the971liquidation basis.972973In our opinion, the financial statements referred to above present fairly, in974all material respects, the results of operations and its cash flows of Applied975Biometrics, Inc. for the eight months ended August 31, 2000 and for the year976ended December 31, 1999, the net assets in liquidation as of December 31, 2001977and 2000 and the changes in net assets in liquidation and cash flows in978liquidation for the year ended December 31, 2001 and the period from September9791, 2000 to December 31, 2000, in conformity with accounting principles generally980accepted in the United States applied on the basis described in the preceding981paragraph.982983Ernst & Young LLP984985Minneapolis, Minnesota986April 23, 200298798898915990<PAGE>991992993APPLIED BIOMETRICS, INC.994STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 2001995AND DECEMBER 31, 2000996- --------------------------------------------------------------------------------997998<TABLE>999<CAPTION>1000DECEMBER 31, DECEMBER 31,10012001 20001002---------- ----------1003<S> <C> <C>1004ASSETS1005Current assets:1006Cash and cash equivalents .............................. $ 909,510 $1,107,5371007Prepaid expenses and other current assets .............. 27,500 85,7261008Patents and other intangibles, net ..................... -- 23,0001009---------- ----------1010Total current assets ................................ $ 937,010 $1,218,2631011========== ==========101210131014LIABILITIES1015Accounts payable ....................................... $ 35,510 $ 119,9541016Other current liabilities .............................. 29,199 40,0071017Reserve for estimated costs during period of liquidation 167,666 272,2501018----------1019Short-term obligations ................................. 12,761 53,5251020---------- ----------1021Total current liabilities ........................... 245,136 485,7361022---------- ----------10231024Net assets in liquidation .............................. $ 691,874 $ 732,5271025========== ==========1026</TABLE>102710281029The accompanying notes are an integral part of the financial statements.103010311032161033<PAGE>103410351036APPLIED BIOMETRICS, INC.1037STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION1038PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 31, 20011039- --------------------------------------------------------------------------------104010411042Net assets in liquidation as of January 1, 2001 . $ 732,52710431044Change in net assets in liquidation ............. (40,653)1045---------10461047Net assets in liquidation as of December 31, 2001 $ 691,8741048=========104910501051The accompanying notes are an integral part of the financial statements.105210531054171055<PAGE>105610571058APPLIED BIOMETRICS, INC.1059STATEMENTS OF OPERATIONS1060FOR EIGHT MONTHS ENDED AUGUST 31, 2000 AND YEAR1061ENDED DECEMBER 31, 19991062(GOING CONCERN BASIS)1063- --------------------------------------------------------------------------------106410651066EIGHT MONTHS ENDED YEAR ENDED1067AUGUST 31, DECEMBER 31,10682000 19991069----------- -----------1070Operating expenses:1071Selling, general and administrative . $ 911,766 $ 1,028,0651072Research and development ............ 1,500,337 1,469,0011073----------- -----------10741075Operating loss ...................... (2,412,103) (2,497,066)10761077Other income, net ................... 57,227 51,1241078----------- -----------10791080Net loss ............................ $(2,354,876) $(2,445,942)1081=========== ===========10821083Basic and diluted net loss per share:10841085Weighted average common shares1086outstanding ......................... 5,655,380 4,659,3001087=========== ===========108810891090The accompanying notes are an integral part of the financial statements.109110921093181094<PAGE>109510961097APPLIED BIOMETRICS, INC.1098STATEMENTS OF CASH FLOWS1099FOR THE YEAR ENDED DECEMBER 31, 2001,1100FOUR MONTHS ENDED DECEMBER 31, 2000,1101EIGHT MONTHS ENDED AUGUST 31, 2000 AND1102THE YEAR ENDED DECEMBER 31, 19991103- --------------------------------------------------------------------------------11041105<TABLE>1106<CAPTION>1107FOUR MONTHS EIGHT MONTHS1108YEAR ENDED ENDED ENDED YEAR ENDED1109DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,11102001 2000 2000 19991111----------- ----------- ----------- -----------11121113(Liquidation (Liquidation (Going Concern (Going Concern1114Basis) Basis) Basis) Basis)1115<S> <C> <C> <C> <C>1116CASH FLOWS FROM OPERATING ACTIVITIES:1117Increase (decrease) in net assets in liquidation $ (40,653) $ 911,766 -- --1118Net loss ....................................... -- -- $(2,354,875) $(2,445,942)1119Net loss from discontinued operations .......... -- -- -- --1120----------- ----------- ----------- -----------11211122Loss from continuing operations ................ -- -- (2,354,875) (2,445,942)1123Adjustments to reconcile net loss from1124continuing operations to net cash used in1125operating activities:1126Depreciation and amortization1127of capital leases .............................. -- -- 152,428 191,3911128Amortization of patents and other intangible1129assets ......................................... -- -- 27,467 25,0121130Value of common stock issued in lieu of cash1131compensation ................................... -- -- 153,150 --1132Value of stock options and warrants issued in1133lieu of cash ................................... -- -- 11,901 --1134(Gain) loss on disposal of assets .............. 2,300 4,047 (1,857) 31,77611351136Changes in operating assets and liabilities:1137Inventories .................................... -- -- 167,109 7,9691138Prepaid expenses, other current assets and other1139assets ......................................... 58,226 (11,936) 57,851 (52,744)1140Accounts payable and accrued expenses .......... (240,600) (394,107) (103,795) 147,7181141----------- ----------- ----------- -----------1142Net cash used in continuing operations ......... -- (595,026) (1,890,621) (2,094,820)1143Net cash used in discontinued operations ....... -- -- -- (120,548)1144----------- ----------- ----------- -----------1145Net cash used in operating activities .......... (220,727) (595,026) (1,890,621) (2,215,368)1146----------- ----------- ----------- -----------1147</TABLE>11481149The accompanying notes are an integral part of the financial statements.115011511152191153<PAGE>115411551156APPLIED BIOMETRICS, INC.1157STATEMENTS OF CASH FLOWS1158FOR THE YEAR ENDED DECEMBER 31, 2001, FOUR MONTHS ENDED DECEMBER 31, 2000, EIGHT1159MONTHS ENDED AUGUST 31, 2000 AND THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED)1160- --------------------------------------------------------------------------------11611162<TABLE>1163<CAPTION>1164FOUR MONTHS EIGHT MONTHS1165YEAR ENDED ENDED ENDED YEAR ENDED1166DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,11672001 2000 2000 19991168----------- ----------- ----------- -----------11691170(Liquidation (Liquidation (Going Concern (Going Concern1171Basis) Basis) Basis) Basis)1172<S> <C> <C> <C> <C>1173CASH FLOWS FROM INVESTING ACTIVITIES:1174Maturity of marketable securities ............. -- -- -- 500,0001175Purchase of equipment and improvements ........ -- -- (25,647) (323,148)1176Proceeds from sale of furniture, equipment and1177machinery ..................................... 20,700 238,382 -- --1178Investments in patents and trademarks ......... -- -- (19,763) (49,375)1179Investment in marketable securities ........... -- -- -- --1180Discontinued operations, net .................. -- -- -- (10,981)1181----------- ----------- ----------- -----------1182Net cash provided by (used in) investing1183activities .................................... 20,700 238,382 (45,410) 116,4961184----------- ----------- ----------- -----------11851186CASH FLOWS FROM FINANCING ACTIVITIES:1187Proceeds from the issuance of common stock, net1188of expenses ................................... -- -- 1,490,840 2,067,9411189Proceeds from exercise of stock options ....... -- 26,139 75,0011190Repayment of capital lease obligations ........ -- (20,413) (4,710) (3,598)1191----------- ----------- ----------- -----------1192Net cash provided by financing activities ..... -- (20,413) 1,512,269 2,139,8141193----------- ----------- ----------- -----------11941195Net increase (decrease) in cash and cash1196equivalents ................................... (200,027) (377,057) (423,762) 40,9431197Cash and cash equivalents at beginning of year 1,109,537 1,486,594 1,910,356 1,869,4131198----------- ----------- ----------- -----------1199CASH AND CASH EQUIVALENTS AT END OF PERIOD .... $ 909,510 $ 1,109,537 $ 1,486,594 $ 1,910,3561200=========== =========== =========== ===========1201</TABLE>12021203The accompanying notes are an integral part of the financial statements.120412051206201207<PAGE>120812091210APPLIED BIOMETRICS, INC.1211NOTES TO FINANCIAL STATEMENTS1212- --------------------------------------------------------------------------------121312141215(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:12161217BUSINESS DESCRIPTION:12181219Applied Biometrics, Inc. ("Applied Biometrics" or the "Company") is a medical1220device company that was engaged in the research and development of advanced1221cardio-vascular and hemodynamic diagnostic and monitoring systems.12221223LIQUIDATION BASIS OF ACCOUNTING:12241225The consolidated financial statements for fiscal 1999 and for the eight months1226ended August 31, 2000 were prepared on the going concern basis of accounting1227which contemplates realization of assets and satisfaction of liabilities in the1228normal course of business. As a result of the Company's plans to cease1229operations, the Company adopted the liquidation basis of accounting effective1230September 1, 2000. This basis of accounting is considered appropriate when,1231among other things, liquidation of a company appears imminent and the net1232realizable value of assets are reasonably determinable. Under this basis of1233accounting, assets are valued at their estimated net realizable values and1234liabilities are valued at their estimated settlement amounts. At December 31,12352001, the Company has recorded a reserve of $167,666 for costs to be incurred1236during the liquidation period.12371238USE OF ESTIMATES:12391240The preparation of financial statements in conformity with generally accepting1241accounting principles requires management to make estimates and assumptions that1242affect the reported amounts of assets and liabilities and disclosure of1243contingent assets and liabilities at the date of the financial statements and1244the reported amounts of revenues and expenses during the reporting periods.1245Actual results could differ from those estimates.12461247CASH AND CASH EQUIVALENTS:12481249Cash and cash equivalents consist of cash and highly liquid investments1250purchased with an original maturity of three months or less. Cash at December125131, 2001 and 2000 was primarily invested in a money market fund.12521253INVENTORIES:12541255Inventories were comprised of component parts and were valued at the lower of1256first-in, first-out (FIFO) cost or market. In 2000, the Company wrote-off the1257inventories because of its determination that near term commercialization of the1258Company's product was unlikely.125912601261211262<PAGE>126312641265APPLIED BIOMETRICS, INC.1266NOTES TO FINANCIAL STATEMENTS1267- --------------------------------------------------------------------------------126812691270EQUIPMENT AND LEASEHOLD IMPROVEMENTS:12711272During 2000, all of the Company's equipment and leasehold improvements were1273either sold or abandoned upon the adoption of the liquidation basis of1274accounting. Upon the adoption of the liquidation basis, the Company recorded a1275write-down of $198,456 to record the equipment and leasehold improvements at1276their net realizable value.12771278LONG-LIVED ASSETS:12791280The Company reviews its long-lived assets for impairment whenever events or1281changes in circumstances indicate that the carrying amount of the asset in1282question may not be recoverable. Impairment losses are recorded whenever1283indicators of impairment are present.12841285PATENTS AND OTHER INTANGIBLE ASSETS:12861287Patents and other intangible assets are recorded at cost and are amortized using1288the straight-line method over their estimated useful lives ranging from ten to1289fifteen years. In 2001, the Company sold to a third party its rights in all of1290its patents.12911292RESEARCH AND DEVELOPMENT:12931294Research and development costs are expensed as incurred.12951296STOCK-BASED COMPENSATION:12971298The Company has adopted the disclosure-only provisions of Statement of Financial1299Accounting Standard ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.1300The Company continues to account for employee stock-based compensation using the1301intrinsic value method as prescribed under Accounting Principles Board Opinion1302("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related1303interpretations.13041305INCOME TAXES:13061307The Company accounts for income taxes using the asset and liability method. The1308asset and liability method provides that deferred tax assets and liabilities are1309recorded based on the differences between the tax basis of assets and1310liabilities and their carrying amounts for financial reporting purposes1311("temporary differences").13121313LOSS PER COMMON SHARE:13141315Upon the adoption of the liquidation basis of accounting on September 1, 2000,1316the presentation of per common share information was not considered to be1317meaningful and has been omitted.131813191320221321<PAGE>132213231324APPLIED BIOMETRICS, INC.1325NOTES TO FINANCIAL STATEMENTS1326- --------------------------------------------------------------------------------132713281329The basic loss per common share, for periods prior to September 1, 2000 was1330computed based upon the weighted average number of common shares outstanding.1331All outstanding options have been excluded from the calculation since the effect1332of their inclusion would have been anti-dilutive.13331334(2) INCOME TAXES:13351336The Company has approximately $23,000,000 of net operating loss carryforwards1337that begin to expire in 2003 and $450,000 of research and experimentation1338credits. As a result of limitations imposed under ss.382 and ss.383 of the1339Internal Revenue Code of 1986, both the annual amount and timing of the1340utilization of these carryforwards will be limited. As the Company issues1341additional common stock, the Company's carryforwards may be subject to further1342limitation. A valuation allowance has been established that offsets the1343Company's entire net deferred tax asset, as the realization of the deferred tax1344asset is uncertain.13451346(3) SHAREHOLDERS' EQUITY:13471348The Company's authorized capital stock consists of 20,000,000 shares of common1349stock and 5,000,000 shares of undesignated stock.13501351At December 31, 2001 and 2000, the Company had 5,833,40 shares of common stock1352outstanding, respectively.13531354In 2000, the Company sold 525,000 units, resulting in net proceeds to the1355Company of approximately $1,491,000. Each unit consisted of one share of common1356stock and one warrant to purchase an additional share of common stock at an1357exercise price of $3.625 per share. The warrants are exercisable for a period of1358five years after the date of grant. In connection with the sale of units, the1359Company issued the private placement agent a warrant to purchase 52,500 shares1360of common stock at an exercise price of $3.25 per share. The warrant expires in1361April 2005.13621363Also in 2000, the Company granted a total of 50,000 shares of common stock to1364its three non-employee members of its Board of Directors for prior and current1365board service. In connection with this issuance, the Company recorded1366approximately $153,000 of non-cash compensation expense. In addition, during13672000, the Company recorded approximately $11,900 of expense related to the1368granting of warrants and options for services.13691370SFAS NO. 123 DISCLOSURE:13711372For the year ended December 31, 1999 the Company did not record any compensation1373expense for stock-based compensation awards.13741375Had compensation expense for the Company's stock-based compensation plans been1376determined based on the fair value at the grant dates consistent with SFAS No.1377123, the Company's net loss and loss per share would have been increased to the1378pro forma amounts indicated below:137913801381231382<PAGE>138313841385APPLIED BIOMETRICS, INC.1386NOTES TO FINANCIAL STATEMENTS1387- --------------------------------------------------------------------------------13881389139019991391Net loss1392As reported $ (2,445,942)1393Pro forma (3,388,707)13941395Basic and diluted loss per share1396As reported (.52)1397Pro forma (.73)139813991400The weighted average fair value per option granted during 1999 was $ 2.41. The1401weighted average fair value was calculated by using the fair value of each1402option on the date of grant. The fair value of the options was estimated using1403the Black-Scholes option-pricing model with the following weighted average1404assumptions:140514061407199914081409Expected option term 3 years1410Expected volatility factor 63%1411Expected dividend yield 0.0%1412Risk-free interest rate 5.2%141314141415(4) EMPLOYEE BENEFIT PLAN:14161417SALARY REDUCTION PLAN:14181419During 1999, the Company established a salary reduction plan for all full-time1420employees, which qualify under Section 401(k) of the Internal Revenue Code.1421Employee contributions are limited to 20% of their annual compensation, subject1422to annual limitations. At its discretion, the Company may make matching1423contributions equal to a percentage of the salary reduction or other1424discretionary amount. The Company has made no contributions to the plan during14252001, 2000 and 1999.142614271428241429<PAGE>143014311432SIGNATURES14331434Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange1435Act of 1934, the registrant has duly caused this report to be signed on its1436behalf by the undersigned, thereunto duly authorized.14371438Dated: May 13, 2002 APPLIED BIOMETRICS, INC.143914401441By: /s/ James D. Bonneville1442------------------------------1443James D. Bonneville1444Acting Chief Executive Officer1445144614471448Pursuant to the requirements of the Securities Exchange Act of 1934, this report1449has been signed below on May 13, 2002 by the following persons on behalf of the1450Registrant and in the capacities indicated.145114521453NAME AND SIGNATURE TITLE1454------------------ -----14551456/s/ James D. Bonneville Acting Chief Executive Officer1457- ----------------------- (Principal Executive Officer/Principal1458James D. Bonneville Financial and Accounting Officer)145914601461146214631464251465<PAGE>146614671468APPLIED BIOMETRICS, INC.1469EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K1470FOR THE YEAR ENDED DECEMBER 31, 2001147114721473EXHIBIT NO. EXHIBIT METHOD OF FILING1474- ---------- ------- ----------------147514763.1 Restated Articles of Incorporation1477of the Company, as amended........... Incorporated by reference to1478Exhibit 10.1 to the1479Company's Annual Report on1480Form 10-K for the fiscal1481year ended December 31, 1999148214833.2 Bylaws of the Company................ Incorporated by reference to1484Exhibit 3.2 to the1485Company's Registration1486Statement on Form SB-21487(Commission File No.148833-63754C)1489149010.1 Applied Biometrics 1996 Stock Plan,1491amended July 2, 1999................. Incorporated by reference to1492Exhibit 10.1 to the1493Company's Quarterly Report1494on Form 10-Q for the period1495ended June 30, 19991496149710.2 Applied Biometrics Amended 1994 Stock1498Plan, amended July 2, 1999........... Incorporated by reference to1499Exhibit 10.2 to the1500Company's Quarterly Report1501on Form 10-Q for the period1502ended June 30, 19991503150410.3 Applied Biometrics 1998 Stock Plan,1505amended January 1, 2000.............. Incorporated by reference to1506Exhibit 10.1 to the1507Company's Quarterly Report1508on Form 10-Q for the period1509ended June 30, 2000151015111512261513<PAGE>15141515151610.4 Engagement Agreement, dated August151724, 2000, by and between Manchester1518Companies, Inc. and Applied1519Biometrics, Inc...................... Incorporated by reference to1520Exhibit 10.1 to the1521Company's Report on Form15228-K/A filed on January 8,152320011524152510.5 Master Lease dated October 18, 19991526by and between the Company and1527Dexxon Capital Corporation........... Incorporated by reference to1528Exhibit 10.2 to the1529Company's Report on Form153010-Q filed June 30, 20001531153210.6 Amendment to Lease Agreement dated1533April 10, 2000 by and between the1534Company and Dexxon Capital1535Corporation.......................... Incorporated by reference to1536Exhibit 10.3 to the1537Company's Report on Form153810-Q filed June 30, 20001539154010.7 Asset Purchase Agreement dated1541January 31, 2001 by and between the1542Company and Transonic Systems, Inc... Incorporated by reference to1543Exhibit 10.11 to the1544Company's Annual Report on1545Form 10-K filed April 17,1546200115471548154915502715511552</TEXT>1553</DOCUMENT>1554</SEC-DOCUMENT>1555-----END PRIVACY-ENHANCED MESSAGE-----155615571558