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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                               ----------------

                                   Form 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

                  For the Fiscal Year Ended December 31, 1998

                                      OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
   1934

                 For the transition period from       to

                        Commission File Number 0-19606

                             American BioMed, Inc.
            (Exact name of registrant as specified in its charter)

              Delaware                                 76-0136574
   (State of other jurisdiction of                  (I.R.S. Employer
   Incorporation or organization)                  Identification No.)

        10077 Grogan's Mill Road, Suite 100, The Woodlands, Texas 77380
              (Address of principal executive office) (Zip Code)

                                (281) 367-3895
              (Registrant's telephone number including area code)

          Securities registered pursuant to Section 12(b) of the Act:

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.001 par value
                               (Title of Class)

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]  No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [_]

  The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 27, 1999, was $5,827,499.

  The number of outstanding shares of Common Stock, $.001 par value, of the
registrant was 40,115,375 shares as of May 27, 1999.

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                               TABLE OF CONTENTS

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                                     PART I

 <C>      <S>                                                              <C>
 ITEM 1.  Business......................................................     1
 ITEM 2.  Properties....................................................    19
 ITEM 3.  Legal Proceedings.............................................    20
 ITEM 4.  Submission of Matters to a Vote of Security Holders...........    21


                                    PART II

 ITEM 5.  Market For Registrant's Common Stock and Related Stockholder
           Matters......................................................    21
 ITEM 6.  Selected Financial Data.......................................    21
 ITEM 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................    22
 ITEM 8.  Financial Statements and Supplementary Data...................    27
 ITEM 9.  Disagreements on Accounting and Financial Disclosure..........    27


                                    PART III

 ITEM 10. Directors and Executive Officers of the Registrant............    27
 ITEM 11. Executive Compensation........................................    29
 ITEM 12. Security Ownership of Certain Beneficial Owners and
           Management...................................................    31
 ITEM 13. Certain Relationships and Related Transactions................    31


                                    PART IV

 ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
           K............................................................    33
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                                    PART I

Item 1. Business

  Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995

  We believe that certain statements contained in this Annual Report on Form
10-K constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements, or industry results, to
vary materially from our predicted results, performance or achievements, or
those of the industry. Our factors include, among others, the following:

  . General economic and business conditions;

  . Changes in political, social and economic conditions and local
    regulations, particularly in Europe and Asia;

  . Changes in, or failure to comply with government regulations;

  . Demographic changes;

  . Changes in sales mix;

  . Maintaining current pricing levels;

  . The reduction in sales to, or loss of, any significant customers;

  . Maintaining ISO 9001 and CE Mark certification;

  . Changes in methods of distribution and technology;

  . Competition; availability of silicone;

  . Changes in business strategy or development plans;

  . The research or development of particular products or technologies;

  . The anticipated results of research and development activities, related
    clinical trials and required regulatory approvals;

  . Availability of liquidity sufficient to meet the Company's need for
    capital;

  . Availability of qualified personnel; and

  . Various other factors referenced in this Annual Report on Form 10-K.

  We will not update the forward-looking information to reflect actual results
or changes in the factors affecting the forward-looking information.

  The forward-looking information referred to above includes, but is not
limited to:

  (a) order backlog information;
  (b) expectations regarding sales growth, sales mix, gross margins,
      manufacturing productivity and selling, general and administrative
      expenses;
  (c) the availability and utilization of net operating loss carry-forwards
      and other deferred tax assets for income tax purposes;
  (d) expectations regarding the company's financial condition and liquidity,
      as well as future cash flows;
  (e) the ability to obtain substantial additional funds;

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  (f) the ability to obtain and maintain all necessary patents or licenses;
  (g) the ability to meet applicable regulatory standards and receive
      required regulatory approvals;

  (h) expectations regarding capital expenditures; and

  (i) expectations regarding the cost of research and development.

General

  American BioMed, Inc. ("Parent Company") develops, manufactures and markets
medical, surgical and diagnostic devices. The Parent Company was incorporated
September 4, 1984 and closed its initial public offering in October 1991. In
1992 the Parent Company acquired Cathlab Corporation ("Cathlab"). Unless
otherwise described herein, references to "The Company" are to American BioMed
Inc. and its subsidiary.

  American BioMed, Inc., including its wholly-owned subsidiary, (the
"Company"), a development stage enterprise, is engaged in the development,
manufacture and marketing of medical devices. The Company's primary technology
is directed at interventional cardiology, endovascular surgery and minimally
invasive surgical devices. The principal products are atherectomy catheters,
stents, clot filters, 100%-silicone balloon catheters and drug delivery
catheter systems. The Company's primary business strategy is to design and
develop minimally invasive medical devices to treat atherosclerotic disease.
The Company holds patents on its OmniCath(R) atherectomy catheter, a device
that mechanically removes the atherosclerotic disease ("plaque") from within
blood vessels or other synthetic implanted vessel devices. The Company also
has patent and/or proprietary rights to stent devices, the OmniStent(TM) and
the OmniFilter, a catheter-mounted temporary blood filter. These devices are
implantable within the vessel of the body to maintain an open lumen allowing
necessary rates of blood flow.

  The third product area, 100%-silicone balloon catheters from which the
Company currently derives the majority of its revenue, is protected by a
series of patents for the ten 510(k) product approvals which the Company is
currently marketing. The Company's subsidiary, Cathlab Corporation
("Cathlab"), manufactures and markets a series of non-angioplasty 100%-
silicone balloon catheter products. These products are used to remove arterial
blockages and gallstones, to measure the cardiac output of the heart (through
thermodilution) and to angioscopically view the interior of the blood vessel.

  The fourth product area is a toposcopic catheter, the Evert-O-Cath(TM), a
drug delivery catheter which is used to precisely inject fluids or drugs to
the lesion or diseased area. This product group is also protected by patents
and has 510(k) approval for sale in the U.S. It is believed that
drugs/coatings applied to the treated disease site will further reduce the
incidence of restenosis as coatings should allow for a smoother artery lining
after an atherectomy or stent procedure. The clinical success objective of
interventional cardiologists, radiologists and vascular surgeons in treating
atherosclerosis is to facilitate an acceptable rate of blood flow through the
vessel and to eliminate or minimize subsequent reoccurrence of plaque re-
buildup (restenosis).

  Efforts are underway to bring the Company's core technologies to market. The
Company received Institutional Review Board (IRB) approval at the University
of California at Los Angeles authorizing the start of Phase II human clinical
trials for the OmniCath(R) peripheral atherectomy catheter to begin in August
1996. The clinical trials at UCLA commenced August 1, 1996 and were
temporarily suspended as the Company filed an amended protocol with the FDA
for the peripheral indication. The amended protocol was approved on May 8,
1998. The Company expects to resume the clinical trials by mid-1999 and
submission to the FDA approximately 18 months later. Currently the Company has
eight clinical sites and intends to expand the number of sites to 10 in 1999.

  In addition, the Company plans to amend its Investigative Device Exemption
(IDE) with the FDA in 1999 to conduct human clinical trials for its
OmniCath(R) atherectomy catheter for hemodialysis A-V fistula restenosis and
expects to receive this approval to start the trials in late 1999. These
clinical trials will be conducted in parallel with the ongoing peripheral
clinical trials. The Company anticipates completion of these trials before the

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end of 2000 and hopes to make an FDA submission in the U.S. within six months
after conclusion of the clinical trials.

  The Company is moving forward in its efforts to commercialize its
OmniStent(TM) and stent delivery system technologies. Management hopes to
start clinical trials for these products within twelve months. The Company
will require significant additional financing to fund the clinical trials for
OmniCath(R), OmniStent(TM) and OmniFilter. (See "Liquidity and Capital
Resources.")

Industry Background

 Interventional Cardiology and Endovascular Surgery

  Over 65 million Americans suffer from some form of coronary or peripheral
vascular disease. The most noted of these diseases is cardiovascular. This
disease is progressive and degenerative, and is characterized by a buildup of
fatty materials ("plaque") within the lining of the arterial blood vessels.
The buildup of plaque results in an obstruction (stenosis) that reduces blood
flow through the arteries and may eventually lead to total blockage causing
tissue damage and death. The plaque forms at varying degrees of hardness,
eccentrically or concentrically within the artery, reducing the elastic nature
of the vessel and thereby compromising the vessel's ability to efficiently
pump blood to vital organs.

  Despite significant advances in product technologies, the disease continues
to be the leading cause of mortality in the U.S. today. Degenerative
atherosclerotic narrowing of the arteries that feed the heart ("coronary
arteries"), known as coronary heart disease, afflicts over six million persons
in the U.S. alone. It is largely responsible for approximately 1.5 million
"heart attacks" each year in the U.S., of which approximately 500,000 result
in death. Atherosclerosis also affects arteries in the kidneys ("renal
arteries") and in the abdomen, groin and legs ("peripheral arteries") and is a
leading cause of strokes, reno-vascular hypertension (a type of high blood
pressure) and peripheral vascular disease.

  Prior to the late 1960's, pharmaceuticals represented the most common form
of treatment for coronary heart disease and other forms of atherosclerosis.
While often effective in alleviating many symptoms, pharmaceuticals did not
address the underlying problems of narrowed arteries and reduced blood flow.
During the late 1960's, cardiovascular surgeons pioneered a new type of open
heart surgery that grafted a blood vessel from the patient's leg to the
diseased coronary artery to bypass the blockage, thereby providing a longer-
term treatment, but one that was highly invasive, costly and required a
lengthy hospital stay. Today, bypass graft surgeries of the coronary arteries
and of other peripheral vessels account for over 600,000 procedures annually
in the United States. Bypass surgery generally is performed when the patient
displays extensive deposits of atherosclerotic plaque throughout the length of
one or more vessels thereby rendering impractical the attempted opening
("dilating") of the blocked ("occluded") arteries due to the procedural time
required, the critical location of the occlusion, or the inability to safely
access the blockage.

  In the late 1970's, cardiologists developed a less-invasive method of
treating atherosclerosis, the method known as balloon angioplasty. In its
simplest form, balloon angioplasty involves threading a small balloon-tipped
catheter through the arterial system to the site of the blockage. The balloon
is inflated, dilating the vessel and thereby displacing the plaque by pressing
it against the artery wall. The arterial opening is thereby enlarged,
restoring blood flow.

  There are inherent risks in balloon angioplasty, including vessel
dissection, acute closure due to over stretching of the vessel, and the
potential that small pieces of plaque will break off and move downstream to
block critical parts of the blood vessel. The blood supply to critical heart
tissue is temporarily cut off while the balloon is inflated, increasing the
risk of a heart attack during the procedure. The balloon-dilated artery may
spasm during and/or immediately after the procedure and cut off the blood
supply to critical tissues. Balloon angioplasty is generally not considered
suitable for patients with extensive atherosclerosis nor for patients who
suffer from very severe blockages of arteries that supply large areas of the
heart with blood. Additionally, since

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the atherosclerotic plaque is not removed during the balloon procedure and
because certain damage to the inner lining of the arteries can occur when the
balloon is inflated, there is a high rate of re-blockage or "restenosis" of
the treated artery(ies).

  The limitations inherent in balloon angioplasty have created a significant
opportunity for alternative types of angioplasty devices, including stents and
atherectomy devices. A third method, lasers, has been shown to be damaging to
the arterial walls and now is used only for narrowly defined clinical
indications. Laser systems are expensive and require special facilities and
maintenance. Stents and atherectomy devices are rapidly becoming the growth
products in atherosclerotic procedures.

  The number of angioplasty (including atherectomy) procedures performed and
the market for coronary and peripheral angioplasty devices and accessories
have grown at a rapid rate as a result of a number of factors, including the
general aging of the world's population. Currently, industry sources estimate
the worldwide stent market to be between $1.6--1.9 billion.

Products

 Cathlab Catheters--General

  The Company's Cathlab subsidiary has ten FDA approved balloon catheters,
seven of which are currently being marketed within the United States and
abroad. In addition, the Company has submitted a 510(k) Notification to the
FDA for approval of an infusion catheter. The 100%-silicone design of these
catheters is resistant to environmental factors, unaffected by body
temperature, and more biocompatible than latex balloons or polyvinyl chloride
(PVC) tubing. The patented one-piece balloon design eliminates glue and ties,
providing superior smoothness and preventing the possibility of balloon
dislodgement.

  Allergy to latex has been increasingly recognized as a cause of life-
threatening intraoperative anaphylaxis (a systemic reaction). Frequent use of
latex in patients or by health care workers can result in sensitization that
may place some individuals at risk for such a life-threatening allergic
reaction. The 100%-silicone design of Cathlab's catheters negates the
potential risk of intraoperative anaphylaxis.

 Embolectomy and Bi-Lumen Catheters

  Cathlab manufactures and markets an embolectomy catheter, which is used in
procedures to remove arterial blockages (generally, clotted blood), bacteria
and other substances ("emboli"). The catheter is passed through a surgical
cutting or opening in an artery (an "arteriotomy"), along the artery, and
through any suspected emboli, with the balloon deflated. The balloon is then
inflated with saline solution and the embolus is removed by withdrawing the
catheter tip through the arteriotomy.

  Cathlab manufactures and markets a bi-lumen embolectomy and irrigation
catheter which is used to assist in the removal of clotted blood from inside a
vessel, as well as, to irrigate a vessel with saline or other drug solutions
during a surgical procedure. The Company is currently developing other
versions of its bi-lumen catheters utilizing its dual balloon technology. (See
Ahn Thrombectomy Catheter.)

 Ahn Thrombectomy Catheter

  The Company received 510(k) approval from the FDA in January 1998 for its
new, safer thrombectomy catheter for the treatment of thromboemboli, the
removal of clots from blood vessels. The product is named after Dr. Samuel S.
Ahn, the product's developer and the Company's Chief Clinical Investigator.
This unique catheter incorporates a distal dual balloon design to more
effectively remove emboli, as well as a proximal safety balloon indicator
which allows the surgeon to visually determine inflation volume. A patent
application has been filed with the US Patent and Trademark Office for this
product, and the Company launched product sales during the second quarter of
1998.

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 Occlusion Catheter

  Cathlab manufactures and markets an occlusion catheter which is used to
occlude the flow of blood in a vessel during a surgical procedure. Occlusion
of vessels during surgical procedures with a balloon catheter is much less
traumatic to the vessel than other methods of occlusion (i.e. clamps or
sutures).

 Thermodilution Catheter

  Cathlab manufactures and markets a thermodilution catheter which is used in
the assessment of a patient's hemodynamic condition (the efficiency of the
heart muscle) through direct intracardiac and pulmonary artery pressure
monitoring and cardiac output determination. This catheter is also used for
blood sampling and infusing solutions.

 Angiographic/Angioscopic Irrigation Catheter

  Cathlab manufactures and markets an angiographic/angioscopic irrigation
catheter which is used as a sheath for insertion of an appropriate size
angioscope to visually examine the interior of circulatory vessels. The
flexibility of this catheter permits its navigation through tortuous vessels
of the circulatory system. The variety of sizes and lengths of this catheter
provide compatibility with a variety of angioscopes.

 Biliary Catheter

  Cathlab manufactures and markets a biliary catheter which is used for the
removal of intraductal stones and debris from the biliary tree.

 The OmniCath(R) Atherectomy Catheter

  The OmniCath(R) is an "atherectomy catheter," designed to allow physicians
to remove atherosclerotic plaque from obstructed blood vessels throughout the
body, enlarging the narrowed vessel openings and thereby restoring normal
blood flow. The Company is developing the OmniCath(R) with catheter shafts of
several different diameters for use in coronary arteries which feed the heart
(5.8 to 7 French) and in peripheral arteries in the abdomen, groin and legs (7
French and 8 French). "French" is a measure of diameter, one French is
equivalent to 1/3 of a millimeter. The OmniCath(R) is self-contained and
disposable and is powered by a small battery pack and motor assembly in the
handle. Connected to the handle is the catheter shaft which will vary in
length depending on the distance needed from insertion to the treatment site.
The weight of the OmniCath(R) is approximately 11 ounces.

  The OmniCath(R)'s shaft has a side-window and a small rotating cylindrical
blade near its distal end (the end of the catheter or farthest part of the
catheter which is inserted into the body). At the surface opposite the side-
window are two deflector wires which, when advanced against the arterial wall
opposite the plaque using controls in the handle, stabilize the catheter shaft
and allow the window to cover a larger volume of the plaque, compressing it
into the path of the rotating blade. Once the deflector wires are engaged and
the side window is in position, using controls on the OmniCath(R) handle, the
rotating blade can be advanced and retracted across the side-window at
approximately 11,000 RPM to shave the atherosclerotic plaque from the interior
surface of the vessel walls. The blade does not come into contact with the
non-diseased arterial walls during the atherectomy procedure. The shaved
plaque is aspirated into an annular space in the catheter and evacuated
through a removal port at the proximal end of the catheter (the end at the
OmniCath(R) handle) via a vacuum system. This enables the excised plaque to be
collected and examined while the atherectomy is taking place. There is very
little loss of blood during the procedure as the OmniCath(R) is designed to
restrict the amount of blood which enters the catheter system. Further, the
blockage of blood circulation by an inflated balloon, which often occurs in
balloon angioplasty, does not occur in a procedure using the OmniCath(R). The
deflectable system which holds the catheter in place is designed to allow for
continuous blood flow. This allows more time to complete a procedure although
a procedure using the OmniCath(R) should generally require less time than a
procedure utilizing multiple balloon

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inflations to break up the plaque. As opposed to balloon angioplasty, which
cracks and displaces plaque, the shaving mechanism of the OmniCath(R) removes
plaque and is designed to leave the artery clean and smooth, free of fissures,
ruptures, and flaps.

  Overall, the OmniCath(R) is designed for ease of use and provides the
physician with the capability to multiple lesion atherectomy procedures with a
single placement as opposed to the multiple placements often required with
balloon angioplasty and competitive atherectomy devices. The OmniCath(R)'s
features, including its lightweight and compact construction are designed to
provide a competitive advantage over existing atherectomy catheters. (See
"Business--Competition.")

  The Company had commenced limited human clinical trials in the United States
with the 8 French OmniCath(R) for peripheral use. The device was initially
used on patients during 1991 and 1992. Although no adverse effects or
complications were observed or reported from the use of the OmniCath(R) on any
patient, the trials indicated that the OmniCath(R) needed certain
modifications. In July 1992, the Company contracted with an independent third
party to conduct a product design review of the OmniCath(R). Based on the
results of that review, improvements to the OmniCath(R) were made including
increasing battery and motor power for guiding the catheter through the body,
strengthening the deflector wires which hold the catheter in place, enhancing
the cutter and debris-removal system, and creating a better ergonomically
profiled product for the end user. The Company informed the FDA of the
improvements in July 1992, and the FDA requested additional information on the
modifications before human clinical testing could resume. The Company
submitted the additional information and received permission from the FDA to
resume Phase I clinical trials in July 1993. The Company completed its Phase I
trials and submitted its data to FDA. The Company received approval by the FDA
for its Phase II peripheral OmniCath(R) atherectomy clinical trials in 1995
and commenced Phase II on August 1, 1996 at the University of California at
Los Angeles. However, the clinical trials were temporarily suspended as the
Company filed an amended protocol with the FDA which was approved on May 8,
1998. The Company expects to resume the clinical trials in mid-1999 and
submission to the FDA approximately 18 months later. Currently the Company has
eight clinical sites and intends to expand the number of sites to 10 in 1999.

  The Company intends to shift its emphasis on Omnicath(R) Clinical Trials for
peripheral use to A-V Fistula use as the Company believes A-V Fistula use has
greater market opportunities for the Omnicath(R). The Company is amending its
Investigational Device Exemption (IDE) with the FDA to conduct human clinical
trials for the Omnicath(R) for hemodialysis A-V Fistula restinosis and expects
to receive FDA approval to start the trials in late 1999. Submission of the
clinical trial data to the FDA is anticipated to be 18 months after FDA
approval to initiate the clinical trials is received by the Company.

  The Company has not yet applied for U.S. FDA approval of the OmniCath(R) for
coronary use but expects to file for investigative device exemption (IDE) at
the successful conclusion of the OmniCath(R) peripheral clinical trials. There
can be no assurance that required regulatory approvals will be received on a
timely basis or at all. (See "Business--Government Regulation.") The Company
received from the U.S. Patent and Trademark Office its sixth patent for the
OmniCath(R) on March 17, 1998.

 The OmniFilter

  The Company is developing a percutaneous temporary filter which is mounted
on a guide wire and is used to prevent stroke-causing blood clots from
reaching various organs of the human body. The filter is deployed remotely,
opened within a vessel and then remotely closed, safely and reliably removed
with clots intact within a mesh filter containing the entrapped material. The
size of the filter is such that blood flow is not significantly reduced
through straining, but embolytic debris is caught and retained by the filter.
On December 9, 1997 the Company received U.S. Patent No. 5,695,519 titled
Percutaneous Filter for Carotid Angioplasty.

  The Company believes that the OmniFilter, which has not been submitted to
the FDA for approval, will find significant use in such emerging procedures as
percutaneous angioplasty and stenting for carotid arteries, acute lytic
procedures for limb salvage, and endoluminal stent grafting for such
procedures or endoluminal

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aortic abdominal aneurysm. There can be no assurances that the product will be
approved by the FDA. (See "Business--Government Regulation.")

 The OmniStent(TM)

  Although angioplasty and atherectomy contributed greatly to less invasive
treatment of atherosclerosis, it was not until 1994 that a third less invasive
means of treatment was developed. This new means consists of simple spring-
like devices called stents which when placed in a treated vessel, greatly
reduces acute and chronic clinical failure rate of restenosis.

  Stents provide a foundation for support to a weakened vessel. The most
common design is the metal stent which comprises a tubular structure, normally
having a pattern of slots which when expanded produce a tiny tubular grillwork
which can hold a diseased vessel open, thereby providing a channel for blood
flow to the heart or limbs.

  It appears that the majority of flow-limiting lesions, whether in a duct
(biliary), tract (esophageal) or vessel (vascular stenosis, aneurysm,
arteriovenous shunts, etc.), are stent treatable. The stent is placed in a
relatively conventional manner for angioplasty. The lesion is crossed with a
conventional guide wire, and the lesion is pre-dilated using a conventional
balloon catheter; using the exchange technique, the delivery balloon catheter
is then advanced over the wire to the lesion being treated. At the site of the
lesion, initial inflation to 5-6 atm is carried out. To further imbed the
coiled stent into the subintimal layers of the arterial wall, higher inflation
pressures that expand the compliant delivery balloon to larger diameters are
then used.

  The OmniStent(TM) has been successfully manufactured using a unique,
patented proprietary process that makes a one piece, endless loop without
welding, soldering or annealing. The Company also has a proprietary process in
which it forms and shapes the stents prior to use. The Company is also looking
at metals other than stainless steel (which it has previously used) and is
designing its own delivery catheter which may use a variation of its Evert-O-
Cath(TM).

  The Company has patented two distinct stent configurations, the coil stent
and the bifurcated stent. The coil stent is a straight coil wound in helix
which would be used in supporting a longitudinal section of vessel such as a
major coronary vessel, (i.e., left anterior descending or right coronary
artery or a major peripheral vessel such as the aortic iliac or femoral). The
coil is formed from an endless loop of wire formed in a plurality of arcuate
sections.

  The bifurcated OmniStent(TM) is a Y-shaped bifurcated stent designed for use
in aortic bifurcation. However, small versions may be used at any branched
blood vessel. The bifurcated version is also an endless stent overcoming the
deficiencies of prior art in construction. However, it is unique in design as
no other company has solved the dilemma of manufacturing and deploying a
bifurcated stent. All rely on a series of single stents, placed in close
proximity, and usually requiring an access from each artery (lateral and
contralateral femoral). This is very distressful to the patient requiring a
surgical prep, artery puncture and catheter sheath on each side of the groin.
Potentially it is twice as difficult, dangerous and time consuming to both
patient and doctor as the bifurcated OmniStent(TM). In addition, the Company
has developed a process of reproducing the stents using photo etching which
significantly reduces cost and production error.

  The Company's stent technology is protected by three patents, U.S. Patent
No. 5,342,387 issued August 30, 1994 titled Artificial Support for a Blood
Vessel, and U.S. Patent No. 5,607,445 issued March 4, 1997 titled Method and
Apparatus for Making a Stent and U.S. Patent No. 5,772,668 issued June 30,
1998 titled Method and Apparatus for Placing and Endoprosthesis. All patents
are assigned to the Company.

  The Company's patent includes a proven biocompatible coating used to coat
the interior surface of artificial hearts. This neutralized collagen compound
is considered to be one of the most blood- and tissue-compatible biomaterials
used to construct a smooth blood flow around the device. When applied as a
thin film it provides a smooth, biochemically stable protein coating with non-
pseudo intimal properties, very little platelet adhesion,

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and high blood compatibility. In addition, when used as a substrate, the
coating bonds easily with various anti-coagulant molecules such as Heparin and
phospholipids which are used to further reduce thrombosis. The Company has
developed a concept for covering its stents with graft material and plans to
file a patent on this process in the future. The endoprosthesis will enable
the Company to become active in the endovascular graft market. The greatest
advantage in using the endless loop, self-expanding metals is the potential
for generating mural pressures within a stenosis sufficient for precise stent-
vessel apposition.

  Once the vessel is acutely dilated, the stent could be passed through the
stenosis on a guide wire, in its endless, elongated configuration, then
released to allow the coils to reform at the stenosis. The gradual mural
pressure of the "memory" reforming coil produces a subsequent chronic vessel
dilation over a period of several hours or days until the "memory" diameter of
the coil is reached. This could greatly impact the restenosis problem in that
the acute trauma of angioplasty (i.e., rapid vessel wall stretching,
dissection of internal elastic lamina and media) could be modulated over the
succeeding days after angioplasty by gentle though constant vessel wall
"remolding."

  The OmniStent(TM) has several advantages over competitive products. It is a
dual, endless coil which gives the stent versatility in using almost any
material; the dual coil gives more than two times the hoop strength of a
single coil; the continuous loop allows easy deployment whether on a balloon,
guidewire, or through a sheath (such as the Schneider Wallstent). When coiled,
according to the reversible arurate sections (the preferred embodiment in U.S.
Patent 5,342,387), the open sections can be used to place at vessel branches
allowing open flow into these branches. In addition, the patent claims a
bifurcated stent made of the same endless loop, that presents wide
applications in peripheral stenting and grafts (the aortoileal stenosis is the
most common pathology in peripheral vascular disease). The endless, bifurcated
stent can thus be inserted into both iliac vessels from a unilateral (one
puncture) technique. It is the most versatile stent in the interventional
field.

  Although the Company intends to commercialize the OmniStent(TM) as quickly
as possible, there can be no assurances that the product will be approved
within a timeframe which will permit the stents to contribute to the Company's
need for short-term capital, nor can there be any assurances that the FDA will
ever approve the OmniStent(TM).

 The Evert-O-Cath(TM) Drug Delivery Catheter

  The Evert-O-Cath(TM) is a "toposcopic catheter" used to inject fluids and
drugs, such as thrombolytic agents (drugs that dissolve blood clots) and
chemotherapeutic agents, in the body in an extremely precise and localized
manner and to withdraw fluids from the body. The Evert-O-Cath(TM) features a
flexible and extremely soft-tipped catheter (the "primary catheter"), inside
of which lies a second, interior catheter known as a "topo" element. The thin
and flexible toposcopic catheter adapts to the contours of lumen permitting it
to be extended further into the body than a conventional catheter. The
toposcopic catheter also can be extended around near-total obstructions,
causing less friction and less damage to the lumen and allowing passage of the
catheter through tight strictures that, otherwise, would be impassable. The
Evert-O-Cath(TM) is designed to be useful for reaching remote or extremely
fragile places in the body that, currently, are inaccessible to other
catheters.

  The most applicable use of the Evert-O-Cath(TM) is in conjunction with
balloon angioplasty where it can be used to both dilate and deliver localized
drugs to the angioplasty site to modulate restenosis or thrombus formations.

  The Company is developing a dilating version of the Evert-O-Cath(TM) to
combine drug delivery with angioplasty. As an angioplasty catheter, the Evert-
O-Cath(TM) is expected to provide a method of extruding a drug delivery
balloon from the interior of a catheter. In addition, the eversion of the
balloon from within the Evert-O-Cath(TM) makes the placement through narrow
and tortuous blood vessels, such as saphenous vein grafts, much easier than
with conventional balloon catheters. This procedure, when used in fragile
grafts, should result in less abrasion to arterial walls, and fewer cases of
downstream blockage of the blood vessel by dislodged plaque. The everting
balloon could remain extruded continually during dilatation from the Evert-O-
Cath(TM) allowing perfusion through the lumen and thus making multiple and
prolonged dilations easy to perform without withdrawing the catheter from the
vessel.

                                       8
<PAGE>

  A version of the Evert-O-Cath(TM) was approved by the FDA for certain non-
coronary applications in July 1994. The Company developed prototypes during
1994 and, based on feedback from potential users of the dilating Evert-O-
Cath(TM) the prototypes have been modified to better satisfy existing medical
needs. The Company intends to file a 510(k) Notification with the FDA with
respect to these modifications when the Company is convinced there is a
commercial market application for this product. There can be no assurance that
a favorable determination with respect to the Company's 510(k) Notification
will be obtained. (See "Business--Government Regulation.")

 Cardiac-Assist Devices

  Angioplasty and other therapies involving the removal or displacement of
plaque from the arteries are intended to increase blood flow but do not
relieve the heart muscle ("myocardium") from its continual job of pumping
blood throughout the circulatory system. The Company holds four issue patents
on a cardiac-assist pump for future development of cardiac-assist devices
which have the basic objective of assisting the myocardium in moving blood
through the body at a physiologically acceptable rate. The Company has no
plans to develop these pumps at the present time and is a prime candidate for
divestiture.

 Spinal Dissector

  The Company has patented and developed prototypes of minimally invasive
devices for use in spinal surgery, which have been evaluated in vivo. In
August 1994, the Company licensed its "Spinal Dissector" spinal instrument to
Wright Medical Technology, Inc. for a license fee of $300,000 plus royalties.
This device is used for both anterior and posterior lumbar disc decompression
procedures.

                         Regulatory Status of Products
                            As of December 31, 1998

<TABLE>
<CAPTION>
                                              510(k)*       FDA        Revenue
                   Product                    Number       Status        Y/N
                   -------                    ------- ---------------- -------
<S>                                           <C>     <C>              <C>
Arterial Embolectomy Catheter (3Fr--7Fr)..... K881455  Approved 4/6/88     Y
Bi-lumen Irrigation Catheter (5Fr--7Fr)...... K893680  Approved 8/1/89     Y
Bi-lumen Irrigation Catheter (3Fr--4Fr)...... K897184 Approved 3/14/90     Y
Foley Urological Catheter.................... K862124 Approved 8/14/86     N
Thermodilution Catheter...................... K893435  Approved 5/2/89     Y
Arterial Embolectomy Catheter (2Fr).......... K905139  Approved 2/5/91     Y
Angioscopic/Angiographic Irrigation Catheter
 (6Fr--8Fr).................................. K897051 Approved 3/16/90     N
Biliary Catheter............................. K910917  Approved 8/2/91     Y
Occlusion Catheter........................... K910916 Approved 6/24/91     Y
Thrombectomy Catheter (dual balloon)......... K972572 Approved 1/13/98     Y
Evert-O-Cath(TM) Catheter (drug delivery).... K922455  Approved 7/7/94     N
OmniCath(R)..................................     N/A      IDE Filed**     Y
OmniFilter Guidewire Micro Filter............     N/A      Development     N
OmniStent(TM)................................     N/A      Development     N
Spinal Dissector.............................     N/A      Development     N
Heart Assist Pump............................     N/A      Development     N
Needle Scope.................................     N/A      Development     N
</TABLE>
--------
 * See "Business--Government Regulations"
** Investigational Device Exemption ("IDE")

                                       9
<PAGE>

Scientific Advisory Board

  American BioMed, Inc. has established relationships with outside scientific
advisors and views access to such advisors as an important resource. The
advisors counsel the Company with respect to its research and development
programs, new technological advances and medical requirements. The Company's
Scientific Advisory Board was reformulated in February 1996 and the advisors
are:

  Samuel S. Ahn, M.D., F.A.C.S. -- Dr. Ahn has served as Chief Clinical
Advisor to the Company since January 1996. Dr. Ahn is Associate Clinical
Professor of Surgery at the University of California at Los Angeles. He serves
on the editorial board of the Journal of Vascular Surgery, and is a reviewer
or guest reviewer for Surgery, Arteriosclerosis, Thrombosis and Vascular
Biology, Journal of Endovascular Surgery, Annals of Vascular Surgery, Vascular
Surgery, and others. He is author or co-author of over 70 peer review
articles, a visiting professor at University of Louisville; Yonsei University,
Seoul, Korea; University of Ulm, Ulm, Germany; Ultrech Hospital, Ultrech,
Netherlands; Ochsner Clinic and others. He holds membership in the American
Medical Association, Association for Academic Surgery, American College of
Surgeons (Fellow), Western Vascular Society, Los Angeles Surgical Society,
etc.

  Larry Stuart-Deutsch, M.D. -- Dr. Deutsch is Professor and Chief of Vascular
and Interventional Radiology at the University of California at Irvine. He is
a Research Radiologist and is involved in numerous scientific projects.

  Darwin Eton, M.D., F.A.C.S. -- Dr. Eton is Associate Professor of Surgery at
the University of Southern California, Los Angeles, with major research
activities in gene therapy of intimal hyperplasia, stented vascular grafts and
approaches to less invasive aortic surgery with laparoscopic instrumentation.

  Lawrence A. Yeatman, M.D., F.A.C.C. -- Dr. Yeatman is Professor of
Cardiology and Chief of Cardiac CathLab at University of California at Los
Angeles Medical Center is the Company's advisor regarding coronary
applications for the OmniCath(R) and OmniStent(TM).

  David A. Lee, M.D. -- Dr. Lee is Associate Professor of Ophthalmology and
Director of Tissue Culture Laboratory at University of California at Los
Angeles Medical Center, and Chief of Glaucoma Division at Jules Stein Eye
Institute. For many years he has specialized in experimental and clinical
ocular pharmacology and pharmaceutics. He will lead the investigations of
molecular and cellular reactions to the Company's products.

  J. Patrick Johnson, M.D. -- Dr. Johnson is Associate Professor of
Neurosurgery at the University of California at Los Angeles, and a director of
the Comprehensive Spine Center. He specializes in spine, nerve roots and the
spinal cord. Dr. Johnson advises the Company regarding its MIS Spinal
Dissector and Needlescope products.

  Richard Stout, M.D. -- Dr. Stout is a professional clinical and regulatory
affairs consultant in the medical device field. He reviews, comments and
advises the Company on all FDA, Enzyme Commission and other regulatory
matters.

Marketing Plans and Arrangements

  The Company is focused on increasing the exposure in the market place for
the Company's proprietary products and technologies. The identification and
selection of qualified distributorships, both international and domestic, is a
key component to this strategy. Currently the Company has ten North American
and thirty international distributors.

  Sales to Sorin BioMedica ("Sorin"), (based in Italy), and K's Projects,
(based in Japan), represented 13.3% and 10.5% of the Company's total 1998 net
sales, respectively. Revenues from Original Equipment Manufacturing ("OEM")
for Polamedco, (based in California), represented 15.6% of the Company's total
1998 net sales. The remainder of net sales to any one customer were less than
10%. Sorin, K's Projects and Polamedco are not affiliated with the Company.
The loss of these major accounts would be material to the Company's overall
results of operations, financial position and cash flow.

                                      10
<PAGE>

  The following summary indicates the Company's percentage of sales within
geographic regions for the years 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                          Region                  1998 1997 1996
                          ------                  ---- ---- ----
         <S>                                      <C>  <C>  <C>
         United States........................... 45.3 34.5 45.5
         Italy................................... 13.3 16.9 18.7
         South America...........................  1.5 12.0 16.0
         Japan................................... 11.3  9.1  1.3
         Other European Countries................ 19.3 15.7 12.1
         Other (1)...............................  9.3 11.8  6.4
</TABLE>
--------
(1) Includes India, Mexico, Latin America, and Canada

  A network of independent manufacture representatives will support the
Company's domestic distributors commencing in late 1999. These representatives
will be compensated by commission on actual sales and will be the liaison and
marketing support to our rapidly growing distributor network. The continual
focusing of distributor sales people is paramount to a successful distributor
based marketing program. Management believes that by bringing the sales and
marketing support to the field level, the Company will enhance customer
service support to both the distributor and to end user customers. The
Company's application engineers and clinical support personnel will supplement
the efforts of the manufacturer's sales representative and distributors by
providing all customers with in-service training and product education.
Management will continue to attend key industry symposiums and conventions
where the concentrated exposure to important decision-makers can be achieved
and enhance the marketing visibility of our products. Journal advertising,
strategic mailings, and sponsorship of academic-based research articles are
planned for 1999 to support the Company's sales efforts.

  The Company continues to add additional international distributors to its
distributor network. These distributors aid in the completion of the
regulatory procedures needed to gain approval to sell the Company's products
in a given geographical area. In 1998 regulatory approval was granted for the
Company's silicone balloon catheter products in the countries of Japan, Korea,
and Australia. The registration process is continuing in China and Brazil. In
addition, the regulatory process continues on the Company's OmniCath(R)
atherectomy catheter product in Japan, Korea, and those countries utilizing CE
Mark. The Company plans to add up to twenty international distributorships
during calendar year 1999 in targeted global markets where the Company's
products are currently not represented.

  Augmenting the distribution strategy will be a focused effort on securing
Group Purchasing Organization ("GPO") contracts. Securing these contracts with
GPO's like the Premier Group, a GPO representing more than fifteen hundred
hospitals, is key to achieving rapid success in the marketplace. The Company
is currently in negotiations with numerous GPO's to secure contracts with
these groups because of its unique product offerings and competitive pricing.

  The Company received ISO 9001 certification January 12, 1998. In February
1998 the Company entered into an OEM agreement with Polamedco, Inc. to
manufacture up to 300,000 units annually of its nasopharyngeal airway products
in assorted sizes. Polamedco represents the Company's first OEM contract and
is a direct result of the Company's receipt of ISO 9001 certification. By
securing suitable OEM arrangements, the Company hopes to achieve greater
marketing coverage while maintaining sales increases with its distributor
network. The Company is currently in discussions with other medical
manufacturers/strategic partners for OEM distribution of the Company's
products. In addition, the Company is pursuing private label opportunities to
provide OEM manufacturing for existing products and products not currently
manufactured but that capitalize on the Company's existing silicone balloon
technologies.

  The Company is uncertain today that the distributors now in place will be
able to effectively market and sell the Company's core product technologies,
the OmniCath(R), OmniStent(TM) and Evert-O-Cath(TM). As such, the Company has
undertaken efforts to identify healthcare companies with similar technologies
or companies seeking

                                      11
<PAGE>

new proprietary products to strengthen their existing market position. This
strategy is directed toward the formation of strategic alliances, joint
venture arrangements, licensing and distributor agreements, and research and
development agreements/projects. An integral part of this strategy is to
aggressively pursue the sale of ancillary technologies (not core technologies)
which will enable the Company to focus its resources exclusively on its core
technologies and commercial non-angioplasty balloon catheter products.

  The Company has begun formulating a comprehensive marketing and sales
strategy and has determined that the most expeditious and cost-effective
method of marketing the OmniCath(R) is to ally itself with a strategic partner
whose marketing and distribution networks are global in scope and is selling
to healthcare providers who are high volume users of angioplasty, atherectomy
and stent devices. By selecting one or more strategic partners, the Company
can focus its efforts on manufacturing, product development and securing
regulatory approvals while the strategic partner or partners can focus on
selling with their existing, experienced sales organizations. The Company is
currently marketing the OmniCath(R) in selected international markets through
existing Cathlab distributors and will continue to do so until the Company
gains FDA approval for U.S. sales and/or strategic partners are selected.

  However, there can be no assurance that these OEM and private label
opportunities or the Company's efforts to secure distributors and GPO
contracts will result in contracts and subsequent revenue to the Company. Many
of these potential strategic partners bring with them the added benefits of
GPO contracts and the advantage of the bundling of products to the end user,
thereby increasing the visibility of our products in the global marketplace.

Government Regulation

  The 100%-silicone balloon catheters, atherectomy catheters, guidewire
microfilter and stent devices which have been and are being developed by the
Company (and any products intended to be researched, developed or marketed in
the future) are all medical devices subject to regulation by the FDA. Pursuant
to the Federal Food, Drug, and Cosmetic Act and regulations promulgated
thereunder (the "FDC Act"), the FDA regulates and must approve the
manufacture, distribution and promotion of medical devices in the United
States. Various states and foreign countries in which the Company's products
may be sold in the future may impose additional regulatory requirements. For
example, the countries of Japan, Korea, India, China and Australia have
Ministries of Health and have an approval process that may take as much as
nine months to gain import sales approval. European countries (comprising the
European Union) now require the CE Mark on medical devices before they can be
imported. Other countries require administrative product registration which is
a process that takes approximately three weeks.

  If the manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a device that is legally
marketed, the manufacturer or distributor may seek FDA marketing clearance for
the device by filing a "510(k) Notification." The 510(k) Notification and the
claim of substantial equivalence must be supported by various types of data
and materials, including test results. Following submission of the 510(k)
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. The order is
generally sent within 90 days of the submission and the order may declare the
FDA's determination that the device is substantially equivalent to another
legally marketed device and allow the proposed device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as
additional test data, before the FDA is able to make a determination regarding
substantial equivalence.

  If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, whether or not the FDA has made a
determination in response to a 510(k) Notification, the manufacturer or
distributor will have to seek "premarket approval" of the proposed device. A
premarket approval application would be submitted supported by extensive data,
including preclinical and human clinical trial data, as well as extensive
literature, to provide recommendations to the FDA. While the FDA has responded

                                      12
<PAGE>

to 510(k) Notifications and premarket approval applications ("PMAs") within
the allotted time period, reviews more often than not occur over a
significantly protracted time period, usually 12 to 18 months for a PMA, and
possibly as much as a year or more for certain 510(k) Notifications supported
by clinical data. A number of devices have never been cleared for marketing
under either the PMA or 510(k) Notification process.

  If human clinical trials of a proposed device are required and the device
presents significant risk, the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, including the results of animal and mechanical testing. If
the IDE application is approved, human clinical trials may begin.

  In June 1991, the Company's IDE application with respect to the OmniCath(R)
for peripheral use was approved allowing the Company to commence limited human
clinical trials with one physician investigator at one institution, who could
use the device on a total of ten patients to mechanically remove accumulations
of plaque from peripheral arteries. During 1992, an additional institution was
approved by the FDA to conduct human clinical trials. The Company concluded
Phase I of the IDE as approved by the FDA and submitted an IDE Supplement to
the FDA in August 1994. The Supplement contained the clinical data (generated
on 12 patients) which demonstrated the performance of the device. The Company
was granted conditional approval by the FDA to expand the clinical trials in
the United States for peripheral vessels. To date, the OmniCath(R) device has
been used, domestically and internationally, on more than 60 patients. The
Company must accumulate case study data on at least 50 patients for the
peripheral trials and have follow-up for at least six months, before the
510(k) Notification can be prepared and initially filed. With respect to the
OmniCath(R) for hemodialysis A-V fistula restenosis, clinical trials represent
an expansion from peripheral applications of the OmniCath(R) to include A-V
grafts. Animal studies have been completed to demonstrate safety and to
provide the basis of efficacy in debulking A-V grafts in hemodialysis
patients. It is anticipated that these clinical trials will be completed
before the end of 1999 and FDA 510(k) submission is anticipated three months
after completion of the required number of clinical trial cases.

  By virtue of the additional risk associated with the use of a mechanical
catheter in the arteries of the heart, the OmniCath(R) for coronary
application, presently under development, will require more extensive animal
and mechanical testing than did the peripheral OmniCath(R) before an IDE
application can be filed and human clinical trials undertaken. The Company
does not intend to pursue the coronary application until the peripheral and A-
V fistula indications are approved by the FDA.

  The Evert-O-Cath(TM) was cleared to market by the FDA for certain non-
coronary applications (see previous discussion under "General"). The Company
developed prototypes during the fourth quarter of 1991 and, based on feedback
from potential users of the Evert-O-Cath(TM), the prototypes were modified to
better satisfy medical needs. The Company received clearance from the FDA to
market the Evert-O-Cath(TM) commercially in July 1994. The Company is
developing a therapeutic version of the Evert-O-Cath(TM) for angioplasty
applications and expects that mechanical, animal and human testing and follow-
up will be required under an IDE to support the filing of a premarket approval
application with respect to that version of the Evert-O-Cath(TM) (see previous
discussion under "General"). In the second quarter of 1993, the Company
completed mechanical testing and in the first quarter 1994 completed animal
testing of the therapeutic version of the Evert-O-Cath(TM).

  The heart pumps under development by the Company would require extensive
evaluation prior to use on humans. These proposed products would ultimately
require tests on humans under an IDE, and premarket approval. Although design
and preclinical engineering has been completed, the Company will not commit
further significant resources to these products until such time as the Company
secures a strategic partner in the global healthcare industry to collaborate
in the development efforts as well as to provide the substantial funds
required.

  Cathlab has ten specialty products which have all received marketing
clearance via the 510(k) Notification process. The Company is currently
marketing the embolectomy catheter, bi-lumen irrigation catheter, occlusion
catheter, biliary gall stone removal catheter, thermodilution catheter and the
angiographic/angioscopic catheter.

                                      13
<PAGE>

The new Ahn Thrombectomy catheter was launched in the second quarter 1998. The
facility housing Cathlab has been inspected by both the federal and state FDA
and has been licensed for operation as a medical device manufacturer. The
Company passed its latest FDA inspection in May 1996 and received no 483
violations during the inspection. In addition, the Company received ISO 9001
certification in January 1998, EN46001 certification in September 1998 and
successfully registered the above named products for the CE Mark.

  Any products distributed or to be distributed by the Company are subject to
pervasive and continuing regulation by the FDA. Products must be manufactured
in registered establishments and be manufactured in accordance with "Good
Manufacturing Practices," as such term is defined under the FDC Act. Labeling
and promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. The export of devices is also
subject to regulation in certain instances.

  The Medical Device Reporting ("MDR") regulation obligates the Company to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures which could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that the
Company is not in compliance with the law, the FDA can institute proceedings
to detain or seize products, enjoin future violations, or assess civil and/or
criminal penalties against the Company, its officers or employees. Any action
by the FDA could result in disruption of the Company's operations for an
undetermined time.

  In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other
similar regulators, have jurisdiction to take actions that could have a
materially adverse effect upon the Company's ability to do business.

Third Party Reimbursement

  Hospitals, physicians and other healthcare providers that purchase medical
devices, such as the Cathlab products, OmniCath(R), OmniStent(TM) or the
Evert-O-Cath(TM) for use in furnishing care to their patients, typically rely
on third-party payers, principally Medicare, Medicaid, and private health
insurance plans, to reimburse all or part of the costs or fees associated with
the medical procedures performed with those devices, and/or of the costs of
acquiring those devices. Cost control measures adopted by third-party payers
in recent years, including the Medicare prospective payment system for
inpatient hospital patients, and reductions in Medicare payments for hospital
outpatient services and capital costs, have had and may continue to have a
significant effect on the purchasing practices of many providers, generally
causing them to be more selective in the purchase of medical devices.
Limitations may be imposed upon the conditions for which procedures may be
performed or on the cost of procedures for which third-party reimbursement is
available, which may adversely affect the market for the Company's products.
In addition, if competing devices or procedures are available, choices may be
made on the basis of price. While the Company cannot predict the cost of its
devices, or the procedures to be performed with its products, or the relative
cost and efficacy of competing products or procedures, changes in third-party
payer reimbursement practices regarding the procedures performed with medical
devices sold by the Company may adversely affect the Company's financial
position, results of operations, and cash flows.

  While third-party payers generally make their own decision regarding which
items and services to cover, Medicaid and other third-party payers often apply
standards similar to Medicare's in determining whether to provide coverage for
a particular medical procedure. The Medicare statute prohibits payment for any
items or services that are not reasonable and necessary for the diagnosis or
treatment of illness or injury or to improve the functioning of a malformed
body member, and the Health Care Financing Administration ("HCFA"), an agency
within the Department of Health and Human Services responsible for
administering the Medicare program, has interpreted this provision to prohibit
Medicare coverage of procedures that, among other things, are not deemed safe
and effective treatments for the conditions for which they are being used, or
which are still investigational. For medical devices, FDA clearance for
marketing is required, but is not determinative of whether these prerequisites
for Medicare coverage have been met.


                                      14
<PAGE>

  While a limited number of national coverage decisions are made by HCFA, in
general, the determination of whether a procedure satisfies these standards is
made by the Medicare carrier or intermediary which processes claims for
reimbursement within that carrier's or intermediary's jurisdiction. The
Company has not requested a national coverage decision with respect to
procedures to be performed using the OmniCath(R), the OmniStent(TM) or the
Evert-O-Cath(TM) because the Company believes that procedures utilizing other
catheter products are currently covered by Medicare, the Company does not
intend to request a decision. The unavailability of third-party coverage or
inadequacy of third-party reimbursement for procedures using the OmniCath(R),
the OmniStent(TM) or the Evert-O-Cath(TM) could adversely affect the Company's
ability to market those products.

  The Company is unable to predict what additional legislation or regulations,
if any, may be enacted or adopted in the future relating to the Company's
business or the healthcare industry, including third-party coverage and
reimbursement, or what effect any such legislation or regulation may have on
the Company.

Manufacturing

  The manufacturing facility received ISO 9001 certification on January 12,
1998. ISO (International Standards Organization) is an international
federation of national normalization organizations representing approximately
100 countries. ISO 9001 is a quality-assurance model that conforms to
internationally accepted guidelines on management and system elements, and is
used by companies that design, produce, inspect, test, install and service
items. Certification by the Registrar significantly validates a company's
commitment to product quality and customer service. To expand international
activities, the Company contracted with a large European Notified Body to
obtain the CE Mark for certification of product quality for its entire product
line. The European Commission currently requires CE Marking for many products
sold in the European marketplace. On September 7, 1998 the Company received
the CE Mark along with certification to EN46001.

  The Company's primary manufacturing and research and development center
operates within the Cathlab Division. Cathlab is located in a modern, 13,000
square foot facility in Irvine, California and benefits from the close
proximity of medical research facilities associated with various universities,
as well as UCLA Medical Center and our Scientific Advisory Board. Cathlab has
ten FDA approved balloon catheters that are used primarily in vascular surgery
for the removal of embolus (blood clots). Six of the catheters are currently
being marketed within the domestic and international marketplace. The
Company's newest product, the Ahn Thrombectomy Catheter, a dual balloon
catheter, was launched in the second quarter 1998.

  The all-silicone catheters are designed to be resistant to environmental
factors, unaffected by body temperature and more biocompatible than latex
balloons or polyvinyl chloride (PVC) tubing. Allergy to latex has been
increasingly recognized as a cause of life threatening intraoperative
anaphylaxis, a systemic reaction. Frequent use of latex in patients or by
health care workers can result in sensitivity which may place some individuals
at risk for such a life threatening allergic reaction. The all-silicone design
of Cathlab's catheters negates the potential risk of intraoperative
anaphylaxis.

  Cathlab's catheters utilize a patented one piece balloon design, thereby
eliminating glue and ties which in turn provide superior smoothness and
prevent the possibility of balloon dislodgement.

  Cathlab is currently producing 30,000 embolectomy, thrombectomy (dual
balloon), bi-lumen irrigation, occlusion, angioscopy, biliary and cardiac
output catheters of advanced silicone technology. Cathlab has the capacity to
manufacture approximately 120,000 balloon catheters annually. In addition, the
OmniCath(R) is presently being manufactured in the facility for clinical
trials on a limited production basis but the plant has the capacity to
manufacture 12,000 annually. On March 26, 1999, the Company entered into a
strategic manufacturing alliance with Manufacturing & Research, Inc. ("MRI")
and will relocate its manufacturing facility to Tucson, Arizona. The facility
will be managed and operated by MRI (See "Subsequent Events.")

  Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies.
Since receiving ISO 9001 certification in January 1998, and CE Mark
certification in September 1998, the Company has received unsolicited requests
to manufacture unique devices to the specifications of third parties,
indicating growth potential in the OEM market. One OEM contract for 100,000
units per year is currently in force and another incorporating the manufacture
of other product lines is being discussed.

                                      15
<PAGE>

Research and Development

  The Company's research and development efforts as well as its ongoing
technical support activities were consolidated in the Irvine, California
facility in September 1996. The consolidation resulted in a better utilization
of resources, annual cost savings, improved communication and reduced product
development lead times. As a result of this decision the 4,800 square foot
facility in The Woodlands, Texas was closed and all R&D prototypes, Computer-
Aided Design (CAD), testing apparatus, ink drawing plotters and computer
simulation work stations have been consolidated in Irvine, California, greatly
improving the utilization of this equipment. As a result of the MRI strategic
alliance, all research and development for silicone balloon catheters will be
conducted in MRI's Tucson facility utilizing the Company's ISO 9001 and CE
Mark specifications. Research and development activities for other products
will be subcontracted to outside development organizations under the Company's
oversight.

  The Company's research and development efforts in interventional cardiology
are aimed at increasing the convenience, ease and speed for use of
percutaneous transluminal coronary angioplasty ("PTCA") and percutaneous
transluminal angioplasty ("PTA") devices (including balloon and atherectomy
catheters) while expanding the clinical applications for which PTCA and PTA
are appropriate. The development of superior PTCA and PTA catheters requires
the resolution of several conflicting performance parameters, including
catheter profile (diameter), trackability (the ability to follow the paths of
tortuous arteries) and pushability (the ability to push through tight
strictures). Meeting these conflicting objectives requires expertise in a
number of technical disciplines that the Company must develop and retain
internally. Research and development expenses in the fiscal years ended
December 31, 1998, 1997, and 1996 were $471,724, $648,049, and $640,792,
nearly all of which was applied to the development of the OmniCath(R),
OmniStent(TM) and Evert-O-Cath(TM). Research and development expenses
decreased 27.2% in 1998 over 1997 and increased 1.1% in 1997 over 1996.
Research and development efforts for the foreseeable future will be focused on
the Company's core technologies which include balloon catheters, OmniCath(R),
OmniStent(TM), OmniFilter and Evert-O-Cath(TM) drug delivery system. The
Company anticipates that research and development expenses will increase as
products approach commercial viability and may be funded by increased revenue
generated through Cathlab Division sales, from the sale of ancillary
technology or through joint development agreements with strategic partners.
(See "Management's Discussion and Analysis of Financial Condition and Results
of Operations.")

  The Company has entered into agreements with various persons and entities to
conduct contract research and development and for the provision of consulting
services. These consultants are paid consulting fees plus out-of-pocket
expenses associated with their consulting efforts.

Patents and Proprietary Information

  The medical device industry traditionally has placed considerable importance
on obtaining and maintaining patents and trade secret protection for
significant new technologies, products and processes. The Company pursues a
policy of generally obtaining patent protection in both the U.S. and abroad
for patentable subject matter in its proprietary devices. The Company has been
issued five U.S. patents and one Notice of Allowance ("NOA") relating to
atherectomy catheters and two relating to cardiac-assist pumps, and the
Company has a 50% interest in two other U.S. patents relating to cardiac-
assist pumps. The Company has received two patents on the OmniStent(TM) and
one on the spinal dissector. In addition, the Company has received an NOA from
the US Patent and Trademark Office on its stent delivery system. The Company
has applications pending for additional U.S. patents and foreign patents
relating to the OmniCath(R) and OmniStent(TM), and has foreign applications
pending with respect to the cardiac-assist pumps.

  The U.S. patents currently have terms expiring at various dates from 2001 to
2015, with the earliest of the current patents relating to the OmniCath(R)
expiring in 2008. The foreign patents expire on various dates commencing in
2009. As the Company develops modifications or improvements of existing
methods or products or develops new products or processes, it will seek
additional patents. The Company believes, although there can be no assurances,
that the patented aspects of its products enhance the functionality of its
products and suitability for their intended purposes which, in turn, may
increase their likelihood of commercial acceptance. The patents may limit, to
some extent, the ability of others to develop competing products.

                                      16
<PAGE>

  In connection with the Company's acquisition of Cathlab Corporation, the
Company is now the owner of rights relating to two United States patents
concerning the method of attaching the balloon to the catheter, as well as
owning patent rights relating to the same process in the United Kingdom,
Germany and Spain. Various foreign patent applications relating to the same
process are pending.

  Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents owned by the subsidiary,
Cathlab Corporation (the "Cathlab Patents"), to Aberlyn in return for
$500,000. The Cathlab Patents were exclusively licensed back to the Company
for three years for a monthly license fee of $16,355, after which Aberlyn was
required to reassign the Cathlab Patents to the Company in exchange for
$50,000. Under its terms, if the Company declined to purchase the Cathlab
Patents, the Patent and License Agreement would automatically be extended for
an additional nine months for a monthly license fee of $17,099, after which
the Cathlab Patents would automatically revert back to the Company.

  The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was
exclusively leased back to the Company for three years for a monthly fee of
$6,706, after which Aberlyn was required to return the equipment to the
Company in exchange for $20,500. Under the terms, if the Company opted not to
purchase the equipment, the Equipment Lease would automatically be extended
for an additional three months for a monthly payment of $7,011, after which
the equipment would automatically revert back to the Company.

  Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which
the Company assigned certain equipment to Aberlyn in consideration of
$100,000. The equipment was exclusively leased back to the Company for three
years for a monthly fee of $3,271, after which Aberlyn was required to return
the equipment to the Company in exchange for $10,000. If the Company declined
to purchase the equipment, the term of the Second Equipment Lease was to be
automatically extended or an additional three months for a monthly payment of
$3,420, after which the equipment would automatically revert back to the
Company.

  The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease (the "Leases") were modified. The payment terms of
the license fee pursuant to the Patent and License Agreement were revised to
semiannual payments of $97,445 and the payment terms of the Equipment Lease
were similarly revised to semiannual payments of $39,100 and $20,281,
respectively. In consideration to Aberlyn for making these modifications, the
Company issued warrants to Aberlyn to purchase 150,000 shares of the Company's
common stock at an exercise price of $1.50 per share exercisable over a five-
year period. On May 28, 1996, Aberlyn and the Company reached an agreement to
restructure the Leases which resulted in a revised schedule of lease payments
over a twenty-four month period, with the initial payment commencing on June
1, 1996. The payments were based on an outstanding principal amount of
approximately $500,000 and total accrued interest of approximately $148,000.
In addition, 115,000 shares of common stock were issued in payment of
consulting fees, investment banking service fees and miscellaneous expenses
totaling $115,728.

  Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998. The leases are
currently being restructured.

  The Company believes that its future success does not depend solely upon
patents, but rather depends, to a significant extent, upon the technical
competence and creative skills of its personnel, the execution of its
strategic plan and on its significant unpatented proprietary technology. The
Company has no knowledge that it is

                                      17
<PAGE>

infringing any existing patent such that it would be liable for material
damages or prevented from manufacturing or marketing its planned products.
However, competitors continue to obtain new patents and to file applications
to modify or expand claims of existing patents that could lead to possible
conflict with the Company's products or proposed products.

  The Company may decide for business reasons to retain a patentable invention
as a trade secret. In that event, or if patent protection is unobtainable, the
Company must rely upon trade secrets, know-how and continuing technological
innovation to maintain its competitive position. Employees and consultants of
the Company who have access to proprietary information have signed
confidentiality agreements with the Company.

  The Company has four trademarks: the OmniCath(R), the OmniStent(TM), the
Evert-O-Cath(TM) and Cathlab Corporation(R). The Company has applied to
register the OmniStent(TM), however, there can be no assurance that federal
registration will be obtained. "Cathlab Corporation(R)" and "OmniCath(R)" are
registered trademarks.

Competition

  Competition in the biomedical industry is intense. Cathlab's catheters
compete directly with similar products sold by a number of companies including
Baxter, Applied Vascular and Ideas for Medicine. There can be no assurance
that these products will be able to obtain or maintain a sizable market share,
if any. There are many companies and academic institutions that are capable of
developing products of similar design, and that have developed and are capable
of developing products based on other technologies, that are or may be
competitive with the Company's current and proposed products. Many of those
companies and academic institutions are well-established, have substantially
greater financial and other resources than the Company, and have established
reputations for success in the development, sale and service of products.
These companies and academic institutions may succeed in developing competing
products that are more effective than those of the Company or that receive FDA
approval more quickly than the Company's products. The Company's ability to
compete will be dependent upon its ability to get products approved by
regulatory authorities and introduced to the market, including the arrangement
of a distribution network, and to provide products with advanced performance
features, none of which can be assured.

  In addition to competition from other atherectomy devices, other angioplasty
modalities, such as lasers, thermal systems (e.g. hot-tip, hot-balloon, and
spark ablation), disruptive devices (e.g., ultrasonic angioplasty), and stents
may provide competition to the OmniCath(R) and the OmniStent(TM). The current
atherectomy devices anticipated to be competitive to the OmniCath(R) are the
Simpson Atherocath (Devices for Vascular Intervention, Inc., a division of Eli
Lilly, Inc.), the Transluminal Extraction Catheter, or "TEC" device
(InterVentional Technologies, Inc.), the Auth Rotablator (Heart Technology,
Inc.), and the Kensey Catheter (Theratek International, Inc., a division of
Dow Corning Wright, a subsidiary of Dow Corning Corp.). If the product
receives regulatory approval on a timely basis, the Company believes the
OmniCath(R)'s competitive position will be enhanced by its closed aspiration
system (which eliminates down-stream debris), low cost disposability,
microangioscope capability, and conventional guidewire capability, as well as
by the positioning of its side-window which allows the rotating blade to shave
plaque from inside the catheter as opposed to from the tip of the catheter.
Competition to the Company's OmniStent(TM) is expected to come from Johnson &
Johnson, which had its Palmaz-Schatz Stent approved by the FDA in 1994, the
Cook Gianturco, from Medtronic's Wiktor Stent and from Schneider's Wallstent,
neither of which has obtained full FDA approval.

  While lasers, ultrasonic angioplasty devices and other new modalities have
proliferated over the past several years, none of these technologies has yet
been shown to reduce the restenosis rate or to reduce the overall procedural
cost of angioplasty. Lasers are particularly expensive (most laser angioplasty
systems sell for $100,000-$300,000), and the Company believes lasers will be
accepted only if significantly better results can be shown clinically. Lasers
have been found to be damaging to the arterial wall, and non-laser versions
including thermal balloon devices, spark ablation systems, and other new
modalities are currently under development and have not reached
commercialization. The Company believes that direct removal of tissue without
thermal effect may be the most desirable approach for angioplasty, as most
thermal systems cause trauma to the arterial wall, resulting in proliferation
of fibrous tissue and early restenosis.

                                      18
<PAGE>

  The Company does not know of any person or entity currently marketing a
toposcopic catheter with features similar to the Evert-O-Cath(TM).

Employees

  As of March 31, 1999, the Company had 25 full-time employees, 1 in research
and development, 1 in sales and marketing, 1 in regulatory affairs, 14 in
manufacturing, 2 in quality control and 6 in corporate management and
administration. None of the Company's employees are represented by labor
unions. As of April 30, 1999 the Company will relocate its manufacturing
operation to Arizona and close the California facility. The facility will be
staffed and managed by the Company's new strategic partner. (See Subsequent
Events.)

Executive Officers of the Registrant

  The following table sets forth information pertaining to executive officers
of the Company:

<TABLE>
<CAPTION>
            Name         Age                      Position
            ----         ---                      --------
    <C>                  <C> <S>
    Steven B. Rash......  51 President, Chief Executive Officer and Chairman of
                             the Board
    Marshall Kerr.......  48 Vice President, Sales and Marketing
    Colene Blankinship..  49 Controller, Chief Accounting Officer, Secretary
                             and Treasurer
</TABLE>

  Steven B. Rash has served as President, Chief Executive Officer and director
of the Company since July 15, 1995 and as Chairman of the Board since February
4, 1997. From 1994 until June 1995, Mr. Rash served as Vice President of
Operations of Blue Rhino Corporation, an industrial products manufacturer.
From 1992 to 1994, Mr. Rash served as President of the Technical Services
Division of the Maxum Health Corporation, a company engaged in providing
mobile MRI services. From 1989 to 1992, Mr. Rash served as the President of
Intex Medical Technologies, Inc., a medical equipment manufacturer. Prior
thereto, Mr. Rash held various positions with BOC Group, plc., an
international manufacturer of industrial gases and healthcare products and
services. Mr. Rash holds an MBA from Southern Illinois University and served
for four years in the U.S. Army, where he reached the rank of Captain.

  Marshall Kerr joined the Company October 10, 1997 as a sales consultant and
was appointed Vice President, Sales and Marketing December 15, 1997. From 1996
to 1997 Mr. Kerr served as Vice President, Sales and Marketing at US Medical
Instruments, Inc., a manufacturer of disposable medical products where he
established and directed both the domestic and international sales forces. He
served as Vice President Sales with ICU Medical, Inc. from 1993 to 1996 where
he directed their national sales efforts and reconstructed its distribution
network. Prior to ICU Medical Inc. Mr. Kerr was Executive Vice President of
Professional Hospital Supply from 1985 to 1993.

  Colene Blankinship, CPA joined the Company February 7, 1995 as Controller
and became the Chief Accounting Officer November 1995. She was elected
Secretary/Treasurer February 4, 1997. From 1992 through 1994 Mrs. Blankinship
served as Controller of Excel Resources, Inc., a gas marketing company in
Houston, Texas. She has 13 years experience in public accounting which
includes 9 years with the local firm of Tribolet, Fuller & Associates, P.C.,
Humble, Texas. Mrs. Blankinship attended Texas Tech University and North
Harris County College and is a CPA. Mrs. Blankinship is the national secretary
of the American Society of Women Accountants, a position she has held since
July 1998 and has been a national board member since July 1996.

Item 2. Properties

  The Company leases approximately 2,400 square feet of space at 10077
Grogan's Mill Road, Suite 100, The Woodlands, Texas, which houses its
corporate headquarters. The three-year lease commenced June 1, 1997. The
Company believes that this facility is adequate for its operations during the
remaining term of the lease.

                                      19
<PAGE>

  In connection with the Company's acquisition of Cathlab Corporation, it now
leases approximately 13,000 square feet of space at 17991 Fitch, Irvine,
California, which houses the manufacturing, research and development, and
sales facilities. The lease commenced on September 1, 1990, and beginning in
September 1998, the lease is on a month-to-month basis. Currently the plant is
utilizing 90% of the available floor space and is operating at approximately
40% of capacity for one shift and will add employees as the demand for product
increases. The Company will relocate its manufacturing facility on April 30,
1999 to its strategic manufacturing partner's facility in Tucson, Arizona. The
Company's strategic manufacturing partner, Manufacturing & Research, Inc.
("MRI"), will staff and manage the facility and will manufacture the Company's
products under a licensing agreement. (See Subsequent Events.) The Company's
Irvine facility will be closed once it transitions to MRI's facility.

  The Company subleased 3,000 square feet to an unrelated party in January
1996 for $3,000 per month, which terminated April 30, 1997 upon early
notification by the lessee.

Item 3. Legal Proceedings

  In May 1997, a former Chairman and Chief Scientific Officer and director of
the Company filed a lawsuit in the State District Court of Harris County,
Texas seeking an unspecified amount of damages and alleging oppressive action
toward a minority shareholder, breach of contract, failure of consideration
for the assignment of certain patent rights, wrongful termination and unpaid
debts and advances. The February 1998 mediation conference, which was mandated
by the Court, did not result in a settlement agreement. The case came to trial
in October 1998 and was settled on terms favorable to the Company. The Company
agreed to give the plaintiff an agreed judgment totaling $400,000, which may
not be executed until after February 15, 1999 with post judgment interest at
the rate of 10% per year. In addition, the Company agreed that upon the sale
of its guidewire micro-filter patent (the OmniFilter), the plantiff will be
entitled to payment totaling $200,000. In the event of a licensing agreement,
the plaintiff will receive 5% of the licensing agreement revenues until a
total of $200,000 has been paid. The payment of $200,000 is secured by the
OmniFilter patent and such security interest will be subordinated to any
lender requesting the OmniFilter patent as collateral. At the Company's
discretion the security interest in the OmniFilter may be moved to the stent
patent with the same stipulation as to subordination. The judgment was paid in
April 1999.

  In August 1997, a former Chief Financial Officer, Secretary and Treasurer
and director of the Company filed a lawsuit in the State District Court of
Harris County, Texas alleging breach of contract with respect to a letter
agreement executed in connection with his employment separation and
resignation from the Board of the Company and is seeking specific performance
and monetary damages of approximately $307,000. On August 24, 1998 the parties
reached a settlement through mediation. The Company agreed to (a) pay $2,800
in cash in 45 days; (b) issue at no cost the plaintiff's stock options to
purchase 150,000 shares of common stock at an exercise price of $0.6875; and
(c) execute an agreed judgment in the amount of $85,000 at 10% interest
payable November 1, 1999.

  In September 1997, a former distributor filed a lawsuit in the State
District Court of Harris County, Texas alleging the letter agreement
terminating their distribution agreement was breached by the Company due to
the non-issuance of options to purchase 437,500 shares of common stock at
$0.40 per share. On May 1, 1998 the Company reached an agreement to settle
this lawsuit with the issuance of options to purchase 225,000 shares for an
exercise price of $0.40 per share, exercisable for six months with
registration requirements. The former distributor attempted to void the
agreement and continue the pending litigation. The case was finally resolved
by extending the exercise period to three years from the date the new option
agreement was signed by the Company. Compensation expense of approximately
$56,250 was recorded to reflect the value of the options granted.

  In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and is seeking $34,000 plus pre-
judgment interest. In the opinion of management, the ultimate outcome of these
matters will not materially affect the Company's financial position, results
of operations or cash flows.

                                      20
<PAGE>

  The Company is occasionally a party to litigation (other than that
specifically noted) arising in the ordinary course of business. Management
regularly analyzes current information and, as necessary, provides accrual for
probable liabilities for the eventual disposition of these matters. In the
opinion of management, the ultimate outcome of these matters will not
materially affect the Company's financial position, results of operations or
cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

  None

                                    PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

  The Company's Common Stock traded on the Nasdaq Small-Cap Market under the
symbol ABMI from October 22, 1991 through October 13, 1994. On October 13,
1994, the Company was delisted from NASDAQ because the Company's equity fell
below the required $1,000,000 on June 30, 1994. The following table sets
forth, for the periods indicated, the range of high and low bid prices for the
Common Stock as reported by OTC Bulletin Board(R). The quotes represent
"Inter-dealer" prices without adjustment or markups, markdowns or commissions
and do not necessarily represent actual transactions.


<TABLE>
<CAPTION>
                                                                Common Stock
                                                              -----------------
                                                                High     Low
                                                              -------- --------
      <S>                                                     <C>      <C>
      Year Ending December 31, 1997
        First Quarter........................................ $1.62500 $1.00000
        Second Quarter.......................................  1.09375  0.68750
        Third Quarter........................................  0.71875  0.40625
        Fourth Quarter.......................................  0.59000  0.21000
      Year Ending December 31, 1998
        First Quarter........................................  0.82000  0.31000
        Second Quarter.......................................  0.95000  0.50000
        Third Quarter........................................  0.58000  0.27000
        Fourth Quarter.......................................  0.30000  0.16000
</TABLE>

  As of March 4, 1999 there were 335 holders of record and approximately 3,000
additional beneficial shareholders of the Company's common stock. The closing
Inter-dealer prices for the Company's common stock on March 4, 1999 was $0.19.

  To date the Company has not paid any dividends on its common stock. The
payment of future dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, its capital requirements
and financial condition, as well as, other relevant factors. The Company does
not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company's business
operations.

Item 6. Selected Financial Data

  The selected financial data presented below has been derived from the
consolidated financial statements of the Company (A Development Stage
Enterprise). The Company declared no common stock dividends during any period
presented. The operating results of Cathlab Corporation since the respective
dates of acquisition are included in the selected operating statement data
below. This data should be read in conjunction with the consolidated financial
statements included elsewhere herein.

                                      21
<PAGE>

Selected Operating Statement Data:

<TABLE>
<CAPTION>
                                                                                                      Inception,
                          Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year     Fiscal Year      September 4,
                             Ended         Ended         Ended         Ended           Ended            1984 To
                          December 31,  December 31,  December 31,  December 31,    December 31,     December 31,
                              1998          1997          1996          1995            1994             1998
                          ------------  ------------  ------------  ------------    ------------     -------------
<S>                       <C>           <C>           <C>           <C>             <C>              <C>
Sales, net..............  $    550,717  $    545,473  $    579,533  $    660,770    $    637,375     $   4,410,837
Cost of sales...........      (546,409)     (482,360)     (420,838)     (649,355)       (782,729)       (4,261,675)
Interest income.........         2,429        44,200         4,252         7,239             902           156,363
Other income (expense)..       (36,499)       25,766      (114,762)    1,561,203(2)      (56,209)(1)     1,906,051
Interest expense........      (144,774)     (183,538)     (313,914)     (276,688)       (182,606)       (3,023,750)
Research and development
 expense................      (471,724)     (648,049)     (640,792)     (537,962)     (1,167,773)       (8,369,766)
Selling, general and
 administrative
 expense................    (1,983,824)   (2,075,695)   (1,718,595)   (2,169,591)     (2,235,116)      (19,516,454)
Distributor settlement..            --            --            --            --              --        (1,080,915)
                          ------------  ------------  ------------  ------------    ------------     -------------
Net loss................    (2,630,084)   (2,774,203)   (2,625,116)   (1,404,384)     (3,786,156)      (29,779,309)
Less preferred stock
 dividends..............     ( 170,031)           --    (1,183,413)           --              --        (1,353,444)
                          ------------  ------------  ------------  ------------    ------------     -------------
Net loss available to
 common shareholders....  $ (2,800,115) $ (2,774,203) $ (3,808,529) $ (1,404,384)   $ (3,786,156)    $ (31,132,753)
                          ============  ============  ============  ============    ============     =============
Net loss per common
 share..................  $      (0.11) $      (0.18) $      (0.34) $      (0.15)   $      (0.46)
                          ============  ============  ============  ============    ============
Average number of common
 shares outstanding.....    26,302,790    15,528,231    11,310,592     9,362,198       8,188,980
                          ============  ============  ============  ============    ============
</TABLE>
--------
(1) Other expense in December 31, 1994 includes the write-off of the Superstat
    assets.
(2) Other income in December 31, 1995 includes $1,000,000 forfeited escrow
    deposit received from USSC and sale of OmniCath(R) EPO patent to Guerbet.

Selected Balance Sheet Data:

<TABLE>
<CAPTION>
                                                 December 31
                         ---------------------------------------------------------------
                            1998         1997         1996         1995         1994
                         -----------  -----------  -----------  -----------  -----------
<S>                      <C>          <C>          <C>          <C>          <C>
Working capital
 (deficit).............. $(1,852,718) $  (627,151) $  (256,206) $(3,827,287) $(3,246,020)
Total assets............   1,615,469    1,945,056    3,069,151    1,883,278    2,445,076
Long-term debt, net of
 current maturities.....      29,928       71,855      110,472           --          611
Capital lease
 obligations, net of
 current maturities.....       2,274           --      302,766        7,095       18,033
Total liabilities.......   2,817,701    1,847,905    2,940,556    4,685,133    4,002,192
Preferred stock.........          42            2            3           --           --
Deficit accumulated
 during the development
 stage.................. (29,779,309) (27,149,225) (24,375,022) (21,749,906) (20,345,522)
Total stockholders'
 equity (deficit).......  (1,202,232)      97,151      128,595   (2,801,855)  (1,557,116)
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Results of Operations

  The Company is in the development stage and has had limited operating
revenues since its inception on September 4, 1984. From its inception through
December 31, 1998, the Company had an accumulated deficit of $29,779,309.
During 1998 the Company focused on CE Mark certification, product development,
launch of the Ahn thrombectomy catheter and continuing the addition of North
American distributors, as well as securing distributors in key international
markets. The Company achieved full sales coverage for North America for the
first time in the Company's existence.

                                      22
<PAGE>

Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

  During the year ended December 31, 1998, the Company's net sales increased
1.0% to $550,717 compared with net sales of $545,473 for the same period in
1997. Year to date domestic sales increased 32.4% to $249,397 from $188,391,
while foreign export net sales decreased 15.6% for the year to $301,320 from
$357,083. Foreign export sales decreased primarily due to the requirement by
the European Union that all medical device products sold in the European Union
after mid-June 1998 must bear the CE Mark. The Company received CE Mark
certification in September 1998 resulting in interrupted sales to our European
distributors for approximately four months. Revenues for other services and
projects for the year ended 1998, which are included in domestic sales,
increased to $119,857 from $40,083 or 199.0% compared to the same period in
1997. This is primarily attributable to Original Equipment Manufacturing
("OEM") contracts.

  Cost of sales represented 99.2% and 88.4% of net sales for the years ended
1998 and 1997, respectively. The higher percentage in 1998 is due primarily to
the cost of implementing ISO 9001 and CE Marking procedures as well as start-
up costs associated with the OEM contracts and the Ahn thrombectomy catheter
launch. In addition the Company sold samples to distributors for use in
training at reduced prices and has increased sales of products whose gross
margins are lower than the majority of its existing products.

  Selling, general and administrative expenses decreased 4.4% to $1,983,824
during 1998, compared to $2,075,695 in 1997. Selling expenses increased 41.7%
to $255,072 as compared to $180,057 for 1997, while general and administrative
expenses decreased 8.8% to $1,728,753 as compared to $1,895,638 in 1997. Sales
and marketing personnel expenses increased approximately $25,000, sales-
related travel increased approximately $35,400 and approximately $22,000 more
samples were distributed at no charge in 1998. Administrative personnel costs
decreased approximately $185,000 due to several factors. Salary and related
compensation expense was reduced because of a favorable settlement of a
lawsuit, approximately $34,000 was reclassed to cost of goods sold and changes
in staff during 1998. Expenses related to the CE Mark and to ISO 9001
increased by approximately $75,000 during 1998 as compared to 1997. In
addition, the Company incurred substantial legal and accounting fees related
to ongoing litigation and SEC filings required by the Series D and Series E
agreements.

  Research and development expenses totaled $471,724 during 1998, a decrease
of 27.2% from the 1997 total of $648,049. Most research and development
activities have been significantly reduced until the Company receives funding
to ensure that, once initiated, projects can be completed as scheduled. It is
anticipated that research and development expenses will increase once funding
is received and the Company focuses on development of its OmniFilter and
expanded Phase II OmniCath(R) clinical trials. As the OmniCath(R) Peripheral
Atherectomy and A-V Fistula catheters proceed through clinical trials,
management estimates that the market is approximately $250 million for both
uses of this device. The market for the OmniFilter is estimated by management
to be $500 million.

  Interest expense decreased 21.1% to $144,774 for 1998, compared to $183,538
for 1997. During 1997 the Company recorded approximately $57,000 for lawsuit
settlements offset by interest on debt acquired during the latter part of
1998. The Company earned approximately $2,400 from interest-bearing checking
accounts.

  Other income for 1998 includes $367 for royalty income, approximately
$22,000 from net gain on sale of machine shop equipment and $60,000
amortization of the license fee received from Wright Medical Technologies,
Inc. for the spinal dissector transaction in 1994. Compensation expense of
$82,119 was recorded for the issuance of options and warrants to purchase
common stock.

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996

  During 1997 the Company focused on productivity improvements, ISO 9001
certification, CE Mark certification process, product development and clinical
investigational programs. The addition of domestic distributors became the
focus during the fourth quarter of 1997 and continues to receive priority in
1998.


                                      23
<PAGE>

  Net sales decreased 5.9% for 1997 compared to 1996. The decline is due to
the ineffectiveness of the Company's sales team during the first nine months
of 1997. Quotas were not met, leads were not diligently pursued and customer
service deteriorated. Corrective action was taken and the sales staff was
replaced in October resulting in fourth quarter 1997 net sales of $184,852
compared to $162,336 fourth quarter 1996 net sales. Foreign export net sales
increased to 65.5% in 1997 compared to 54.5% in 1996. Four new domestic
distributors were added during the fourth quarter 1997. The first will
concentrate its sales efforts in California, Nevada and Arizona; the second
will focus its efforts in Pennsylvania, Ohio and Indiana markets; the third
serves the Northwestern U.S. market, primarily Oregon, Washington, Montana and
Idaho; and the fourth will concentrate its efforts in the Southwest and Rocky
Mountain regions.

  Cost of sales percentage is 88.4% of 1997 net sales as compared to 72.6% of
1996 net sales. The increase in cost of sales percentage is due primarily to a
year-end adjustment to inventory standard cost as well as to the increased
sales of one of the Company's least profitable items. Standard costs increased
due to vendor changes for some items, a change in standard quantities
purchased, and normal price increases for component parts that had not been
reflected in pricing for more than two years.

  During 1997 total selling, general and administrative expenses increased
20.8% to $2,075,695 from $1,718,595. The overall increase is due to several
factors. First, the sublease of 3,000 square feet of the Cathlab facility for
$3,000 per month which began in January 1996 terminated April 30, 1997 upon
proper notification by the lessee. Sales and marketing expenses increased
approximately $19,000 primarily due to salaries and payroll-related expenses.
Other salaries and payroll-related expenses increased approximately $239,000
due to the hiring of two additional corporate personnel and a quality
assurance manager, as well as salary and benefit increases. Two other areas
increased significantly. Legal and accounting expenses increased approximately
$35,000 or 25.3% and insurance increased approximately $34,000 or 49.8%.
Product liability insurance was added during the third quarter 1997 as the
Company became more proactive in risk management. The Company began the ISO
9001 certification process in the fourth quarter of 1996 and the CE Mark
certification process in the second quarter 1997. Expenses related to the two
certification processes during 1997 were approximately $54,000.

  Research and development expenses for 1997 increased 1.1% compared to the
same period in 1996.

  Interest expense decreased 41.5% to $183,538 in 1997 compared to $313,914 in
1996 due to the decrease of over $1 million in notes payable and capital lease
obligations.

  For the period from inception to December 31, 1997, the Company's other
income of $1,942,550 consisted primarily of $1 million received in connection
with a forfeited option fee from United States Surgical Corporation ("USSC"),
approximately $495,000 realized gain from the sale of the European patent for
the OmniCath(R) atherectomy catheter to Guerbet S.A. of France ("Guerbet") for
a purchase price of $500,000 cash, $400,000 received from Guerbet in 1991 in
connection with the development of certain of the Company's products, and
$200,000 amortization of the license fee received from Wright Medical
Technologies, Inc.

Liquidity and Capital Resources

  During 1998 the Company raised equity capital via private placements and
continues to convert trade debt to common stock to improve the Company's
financial position and cash flows. The Company had a working capital
deficiency as of December 31, 1998 of $1,852,718, and cash and cash
equivalents of $36,463 compared to a deficiency of $627,151 and cash and cash
equivalents of $82,789 as of December 31, 1997.

  The net cash used by operating activities of $1,588,625 for 1998 was
approximately $700,000 less than during the same period in 1997. This is due
in part to improved accounts receivable collection procedures. In addition,
because of cash shortages the Company has increased payment time to vendors
from 30 to 45 days to 90 to 120 days. Purchases were also reduced and lead
time decreased. During 1998 the cash flow was favorably

                                      24
<PAGE>

impacted by the negotiations of debt to equity conversions of $122,333. In
addition, the sale of machine shop equipment provided total cash of $26,000.
Financing activities, consisting of note proceeds and repayments, capital
lease obligations and repayments and proceeds from sale of common stock and
warrants, provided cash of $1,579,758. This includes proceeds from private
placements of $468,000 and from the issuance of Series D and E of $675,000
less $89,503 offering costs.

  The net cash used by operating activities in 1997 of approximately $2.3
million was 38.2% more than in 1996. In 1996 the cash flow was favorably
impacted by the negotiations of debt to equity conversions of approximately
$1.5 million with various stockholders, vendors and a bank. In addition, two
consultants were paid in stock rather than cash.

  Cash flows of $37,459 were used by investing activities in 1998 as compared
to cash used by investing activities of $185,046 and $76,923 in 1997 and 1996,
respectively. In 1998 capital expenditures were reduced pending additional
funding; capital expenditures were $35,161, $142,206 and $46,773 in 1998, 1997
and 1996 respectively. Additions in 1996 included new computers and leasehold
improvements to the Cathlab facility to facilitate the relocation of the
research and development activities from Texas. During 1997 the Company
purchased additional computers, accounting software upgrades, manufacturing
equipment and molds. The vendor upgrades made to each of the Company's
computer-based applications accommodates the millenium change. The Company is,
however, in the process of identifying any current suppliers who are not
prepared to offer assurances that their systems will be Year 2000 compliant.
In addition, the Company continues to invest in the development and
maintenance of its patents as evidenced by the expenditure of $28,298,
$44,356, and $31,414 for the years ended December 31, 1998, 1997 and 1996,
respectively. Since inception, the Company has expended $509,642 on internally
developed patents.

  Cash flows of $1,579,758, $1,371,414, and $2,906,223 were provided by
financing activities for the years ended December 31, 1998, 1997, and 1996,
respectively. Since inception, financing activities have provided net cash of
$22,096,038. Financing activities consist of proceeds from and repayments of
notes, capital lease obligations and repayments, proceeds from the sale of
debentures, preferred stock, common stock, warrants and options, offering and
financing costs, cash dividends on preferred stock and the acquisition of
treasury stock.

  In March 1997 the Company raised $2.5 million capital pursuant to an
offering of the Company's equity securities. Offering costs of $287,590 were
paid from the proceeds of this transaction.

  In February 1996, the Company and Zanett, a financial consulting firm,
signed an agreement whereby Zanett agreed to assist the Company in raising
capital pursuant to an offering of the Company's equity securities. (See
"Related Party Transactions.") Funds of approximately $1.7 million were raised
in the first offering. An additional $1.5 million was received pursuant to an
offering of the Company's securities in November 1996. As a result of
Securities and Exchange Commission guidance issued in early 1997 with respect
to beneficial conversion features in connection with the issuance of
convertible preferred stock, the Company was deemed to recognize noncash
preferred stock dividends totaling approximately $1.2 million in fiscal year
1996. This amount is equivalent to the discount from the fair market value of
the common stock given to the purchasers of the Series A and B calculated as
of the date of the sale of such stock.

  On May 28, 1996, Aberlyn and the Company reached an agreement to restructure
the Leases which resulted in a revised schedule of lease payments over a
twenty-four month period, with the initial payment commencing on June 1, 1996.
In addition, 115,000 shares of common stock were issued in payment of
consulting fees, investment banking service fees and accumulated miscellaneous
expenses totaling $115,728. Effective November 1, 1997, the Company and
Aberlyn entered into modification agreements of the Leases which revised the
schedule of lease payments and extended the maturity date to October 1, 1998.
The Company is currently in default on the lease payments and is negotiating a
restructure agreement to include all of its patents and equipment in a
sale/leaseback arrangement.

                                      25
<PAGE>

  In June 1996, the Company executed an installment note payable to a vendor
in the amount of $157,263, payable in monthly installments of $3,858 including
interest, beginning September 1, 1996 and maturing August 1, 2000. The note
bears interest at 8.25% per year and is uncollateralized. The Company is
currently in arrears. Under terms of the note agreement, the vendor can elect
to impose an interest rate of 18%. The vendor has not made this election.

  During 1997 the Company received cash proceeds of $3,750 from the exercise
of options and $320,033 from the exercise of warrants. Cash proceeds of
$97,000 from the exercise of options, $391,325 from the exercise of warrants
and $3,231 from the purchase of stock by individuals were received in 1996.

  In December 1996, the Company received proceeds of $1 million from a 30-day
note payable to bridge any potential funding shortfalls (regarding clinical
trial costs) until such time as warrants were exercised or new equity funding
was received. The note was paid in full in January 1997 and the interest was
paid by the issuance of 11,722 shares of common stock.

  The Company requires significant additional funds to enable it to complete
development and, subject to obtaining required regulatory approvals,
commercialization of the OmniCath(R) for peripheral and A-V fistula use, to
enter into marketing and distribution arrangements for the OmniCath(R) to
commence and continue the development of other products which include the
OmniStent(TM), Evert-O-Cath(TM) and other products as well as product
enhancements to its existing 100%-silicone balloon catheters, the OmniCath(R),
Evert-O-Cath(TM) and OmniStent(TM) and to expand its manufacturing and
distribution abilities with respect to the Cathlab products. Research and
development expenditures for 1999, including amounts for clinical affairs, are
expected to be approximately $1.2 million. If the Company experiences delays
in the introduction, manufacturing or sale of the OmniCath(R), or if the
OmniCath(R) does not achieve market acceptance for any reason, substantial
additional financing may be required by the Company to continue its
operations, and to improve, complete the development of, obtain regulatory
approvals for, and manufacture or market products. The Company receives some
revenues and expects to continue to receive revenues from the sale of
Cathlab's products. The Company anticipates that Cathlab's revenues should
increase during 1999; however, this increase will not be sufficient to satisfy
the Company's funding needs.

  The Company has experienced significant cash flow problems in the past.
Since its inception, the Company has operated at a loss and is dependent upon
equity investments and issuance of debt instruments to meet its obligations.
The Company has not always received funding from financing and operations in a
timely manner and has, in the past, been delinquent on notes and accounts
payable. The Company has also satisfied certain debts with equity and has been
able to renegotiate terms of payment on others, such as the Aberlyn lease
obligations. However, there can be no assurance that the Company will be able
to obtain additional funding on acceptable terms or in time to fund any
necessary or desirable expenditures. In the event such funding is not
obtained, the Company's research and development projects will be delayed or
scaled back. Failure to receive additional financing will have a material
adverse effect on the Company's operations. In order to continue as a going
concern, the Company must raise additional funds as noted above and ultimately
must achieve profitable operations.

  Though still a developmental stage company engaged in the development,
manufacture and marketing of medical devices, the Company has ten products
presently available to market and has a comprehensive business strategy which
it believes will enable it to capitalize on its technologies and on developing
trends in the healthcare industry. The Company's strategic plan consists of
focusing on increased market penetration of its ten existing FDA-approved
products, continuing to revamp its distribution network, continuing to focus
on the commercialization of its core technologies by pursuing U.S. and
international regulatory approval, aggressively pursuing the sale of ancillary
technology to meet future cash requirements and to validate the proprietary
nature of its technologies and continuation of efforts to identify and pursue
strategic alliances.

                                      26
<PAGE>

Subsequent Events

  On March 3, 1999, the Company and an investor entered into a securities
purchase agreement for a Series 1999-A Nine Percent (9%) Redeemable
Convertible Debenture (the "Debenture") in the amount of $400,000. Offering
costs of $47,500 were incurred in this transaction. The Debenture matures
December 31, 2001 with interest payable quarterly. The Company granted the
holder a security interest in the OmniCath(R) and the Evert-O-Cath(TM). As
additional consideration a warrant to purchase 40,000 shares of common stock
at an exercise price of $0.175 per share, which is equal to 125% of the
closing bid price for the common stock on March 3, 1999. The warrant is
exercisable for three years.

  The Debenture is convertible into common stock at a conversion price equal
to the lesser of $0.15 per share or 75% of the lowest of the closing bid
prices for the five business days immediately preceding the conversion date.
As a part of the agreement registration rights were granted regarding the
warrant, the conversion shares, the interest shares and the security shares,
and the Company must make reasonable efforts to file a registration statement
within 45 days after closing.

  The Company has a right to redeem all or a portion of the Debenture at any
time prior to receiving a notice of conversion. The cash redemption amount
shall be equal to:

  . 115% of the face amount to be redeemed if redeemed within the first
  thirty days;

  . 120% of the face amount to be redeemed if redeemed between thirty-one and
  sixty-one days; or

  . 125% of the face amount to be redeemed if redeemed after 60 days.

  On March 26, 1999, the Company entered into an exclusive license agreement
with MRI for its Cathlab(R) patents. Pursuant to such license agreement, the
Company relocated its manufacturing facility to MRI's facility in Tucson,
Arizona. MRI will staff and manage the facility and will manufacture the
Company's Cathlab and balloon cardiovascular products under the licensing
agreement. Management anticipates this will save the Company approximately
$600,000 in operating, production and engineering costs. This license
agreement provides for a one-time license fee in the amount of $25,000. In
addition, MRI shall pay a royalty interest on the net amount received from all
sales to their customers under the licensing agreement that utilizes the
Company's proprietary technology.

  The Company entered into an exclusive worldwide, royalty-bearing license
agreement on April 14, 1999 with IntraTherapeutics, Inc. for its OmniFilter
technology, a percutaneous guidewire micro-filter to be used in carotid
angioplasty procedures. The Company will receive a one-time license fee of
$1,000,000 and a 5% royalty fee for the life of the patents. The license term
is the later of the expiration of all patents, including patent applications,
or ten years from the first commercial sale of the licensed product.

Item 8. Financial Statements and Supplementary Data

  See Index to Consolidated Financial Statements and Financial Statement
Schedule on page F-1 herein.

Item 9. Disagreements on Accounting and Financial Disclosure

  None.
                                   PART III

Item 10. Directors and Executive Officers of the Registrant

  The following table sets forth information pertaining to executive officers
of the Company:

<TABLE>
<CAPTION>
             Name           Age                           Position
             ----           ---                           --------
   <S>                      <C> <C>
   Steven B. Rash..........  51 President and Chief Executive Officer Chairman of the Board
   Lawrence M. Hoffman.....  55 Director
   Richard S. Serbin.......  54 Director
   Marshall Kerr...........  48 Vice President Sales & Marketing
   Colene Blankinship......  49 Controller, Chief Accounting Officer Secretary and Treasurer
</TABLE>


                                      27
<PAGE>

  Steven B. Rash has served as President, Chief Executive Officer and director
of the Company since July 15, 1995. Mr. Rash was appointed Chairman of the
Board on February 4, 1997. From 1994 until June 1995, Mr. Rash served as Vice
President of Operations of Blue Rhino Corporation, an industrial products
manufacturer. From 1992 to 1994, Mr. Rash served as President of the Technical
Services Division of the Maxum Health Corporation, a company engaged in
providing mobile MRI services. From 1989 to 1992, Mr. Rash served as the
President of Intex Medical Technologies, Inc., a medical equipment
manufacturer. Prior thereto, Mr. Rash held various positions with BOC Group,
PLC, an international manufacturer of industrial gases and healthcare products
and services. Mr. Rash holds an MBA from Southern Illinois University and
served for four years in the U.S. Army, where he reached the rank of Captain.

  Lawrence M. Hoffman has served as a director of the Company since April 1991
and as Vice President of Corporate Relations from July 1990 to December 1991,
when he was appointed Vice President of Business Development, a position he
held until June 28, 1995. From March 28, 1995 until June 28, 1995, Mr. Hoffman
served as the interim Treasurer. Mr. Hoffman is also President and Chief
Executive Officer of Aberlyn Group, Inc., a financial consulting firm that he
founded in 1989. Prior to founding Aberlyn Group, Inc., Mr. Hoffman was
employed as Director of Corporate Finance at Monmouth Investments, a New
Jersey-based securities brokerage firm. From January 1986 to May 1988, Mr.
Hoffman served as Chairman of Nicholas, Lawrence & Co., a securities brokerage
firm specializing in institutional trading and biotechnology companies. Mr.
Hoffman holds a B.S. in Economics from New York University.

  Richard S. Serbin has served as a director of the Company since July 17,
1996. Since 1991, Mr. Serbin has served as Executive Vice President and a
director of Bio-Imaging Technologies, Inc. which provides specialized
consulting services to pharmaceutical and biotechnology companies. From
January 1991 to March 1992, Mr. Serbin was Chairman of the Board of Radius
Scientific, Inc., a medical communications company which he founded. From June
1989 to January 1990, he served as President of Bradley Pharmaceuticals, Inc.
and from September 1988 to May 1989, held the position of Senior Vice
President of Lifetime Corporation, a holding company whose major asset,
Kimberly Quality Care, is a provider of home healthcare and temporary nursing
services. Mr. Serbin is a registered patent attorney, registered pharmacist,
member of the Board of Trustees of the Mountainside Hospital, and a member of
the Board of Health of Roseland, New Jersey. Mr. Serbin holds a B.S. from
Rutgers College of Pharmacy, a J.D. from Seton Hall Law School and a LL.M in
Trade Regulation from New York University School of Law.

  Marshall Kerr joined the Company October 10, 1997 as a sales consultant and
was appointed Vice President, Sales and Marketing December 15, 1997. From 1996
to 1997 Mr. Kerr served as Vice President, Sales and Marketing at US Medical
Instruments, Inc., a manufacturer of disposable medical products where he
established and directed both the domestic and international sales forces. He
served as Vice President Sales with ICU Medical, Inc. from 1993 to 1996 where
he directed their national sales efforts and reconstructed its distribution
network. Prior to ICU Medical Inc. Mr. Kerr was Executive Vice President of
Professional Hospital Supply from 1985 to 1993.

  Colene Blankinship, CPA joined the Company February 7, 1995 as Controller
and became the Chief Accounting Officer November 1995. She was elected
Secretary and Treasurer on February 4, 1997. From 1992 through 1994, Ms.
Blankinship served as Controller of Excel Resources, Inc., a gas marketing
company in Houston, Texas. She has 13 years experience in public accounting
which includes 9 years with the local firm of Tribolet, Fuller & Associates,
P.C., Humble, Texas. Ms. Blankinship attended Texas Tech University and North
Harris County College and is a CPA. Ms. Blankinship is the national secretary
of the American Society of Women Accountants, a position she has held since
July 1998, and has served on the national board since July 1996.

                                      28
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

  To the Company's best knowledge, upon its review of Forms 3, 4 and 5 and any
amendments thereto furnished to the Company pursuant to Section 16 of the
Securities Act of 1934, as amended, all required reports for fiscal year 1998
have been filed on a timely basis by reporting persons except for Ms.
Blankinship who was late in filing her Form 4 and Messrs. Hoffman and Serbin
who were late in filing their Form 5.

Item 11. Executive Compensation

  The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to executive officers whose annual compensation exceeded $100,000 for the
fiscal year ended December 31, 1998, for services during the fiscal years
ended December 31, 1998, 1997 and 1996.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                        Long-Term Compensation
                                                            -------------------------------------------------
                  Annual Compensation                                 Awards                   Payouts
----------------------------------------------------------- --------------------------   --------------------
                                                               (f)
                                                   (e)      Restricted       (g)           (h)
          (a)                   (c)       (d)  Other Annual   Stock    Shares/Options/     LTP       (i)
        Name and         (b)  Salary     Bonus Compensation Awards(s)       SARs         Payouts  All Other
   Principal Position    Year   ($)       ($)     ($)(1)       ($)           (#)           ($)   Compensation
   ------------------    ---- -------    ----- ------------ ---------- ---------------   ------- ------------
<S>                      <C>  <C>        <C>   <C>          <C>        <C>               <C>     <C>
Steven B. Rash.......... 1998 165,000      --     9,600         --              --          --        --
President, Chief         1997 165,000      --     9,600         --         927,000(2)(3)    --        --
Executive Officer        1996 141,875      --     7,496         --              --          --        --
Marshall Kerr........... 1998 105,667      --        --         --              --          --        --
Vice President           1997  20,000(4)   --        --         --         400,000          --        --
Sales and Marketing
</TABLE>
--------
(1) Cost of auto allowance.
(2) Represents options issued in connection with a three-year employment
    agreement, vesting on various dates during the term of the agreement. See
    "Employment Agreement."
(3) Includes options to purchase 27,000 shares of common stock received as
    director.
(4) Annual compensation of $80,000 prorated from October 1997, when Mr. Kerr
    began his service with the Company.

  The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1998 by
each of the named executive officers and the number and value of unexercised
options held by such named executive officers as of December 31, 1998.

              AGGREGATED OPTION/SAR EXERCISES IN 1998 FISCAL YEAR
                     AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                     Number Of       Value Of
                                                    Securities      Unexercised
                                                    Underlying     in-the-Money
                                                    Unexercised       Options
                              Shares               Options/SARs     At Year-End
                            Acquired on  Value      At Year-End    Exercisable/
                             Exercise   Realized   Exercisable/    Unexercisable
           Name                 (#)       ($)    Unexercisable (#)      ($)
           ----             ----------- -------- ----------------- -------------
<S>                         <C>         <C>      <C>               <C>
Steven B. Rash.............       0         0    1,227,000/300,000      0/0
Marshall Kerr..............       0         0      125,000/175,000      0/0
</TABLE>

                                      29
<PAGE>

Employment Agreements

  Steven B. Rash entered into a three-year employment agreement (the
"Agreement") with the Company dated July 15, 1995. Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases
plus bonuses of up to 50% and an option to purchase 600,000 shares of common
stock. In 1997 Mr. Rash's agreement was extended to December 31, 1999. The
base salary was increased to $165,000 per year. Options to purchase an
additional 900,000 shares of common stock at $.6875 per share were granted. In
December 1998 the Board extended his contract to December 31, 2000.

  Effective December 15, 1997, Marshall Kerr entered into a two-year
employment agreement with the Company. The employment agreement provides for a
salary of $80,000 per year through January 31, 1998 and $108,000 annually
thereafter with annual increases as determined by the Board of Directors and
annual bonuses of up to 50% of the base salary. In addition, the Company
granted options to purchase 300,000 shares of common stock; 100,000 shares at
$0.50 per share and 200,000 shares at $.42 per share. In December 1998 the
Board extended his contract to December 31, 2000.

Compensation Committee's Interlocks and Insider Participation

  Effective November 26, 1996 the Board of Directors elected Mr. Hoffman and
Claudio Guazzoni to serve on the Compensation Committee. In December 1998, Mr.
Guazzoni resigned from the Board of Directors and Mr. Hoffman became the sole
member of this committee. Mr. Hoffman is a consultant of the Company and was
Vice President of Corporate Relations from July 1990 to December 1991 and from
December 1991 to June 28, 1995 served as Vice President of Business
Development. In addition, Mr. Hoffman served as the Company's interim
Treasurer from March 28, 1995 until June 28, 1995. (See Item 13. Certain
Relationships and Related Transactions.)

Audit Committee

  The Audit Committee assists the Board in fulfilling its responsibilities to
stockholders and other matters relating to the corporate accounting and
reporting practices of the Company and the quality and integrity of the
financial reports of the Company. From January 1, 1996 to November 26, 1996
Mr. Hoffman served as the sole member of the Audit Committee. Effective
November 26, 1996 Messrs. Hoffman and Serbin were elected to serve on the
Audit Committee.

Compensation of Directors

  It has been the Company's policy to compensate the directors only for their
reasonable travel expenses in relation to in-person board meetings and
stockholder meetings. Effective November 22, 1996 the directors each received
an option to purchase 12,000 shares of common stock at an exercise price of
$1.00 per share, to be vested November 22, 1997. For each 1997 board meeting
attended, either telephonically or in person, the directors received options
to purchase 2,000 shares of common stock. The Chairman of the Board received
an option to purchase 15,000 shares of common stock vested upon issuance. The
options are exercisable for five years at an exercise price ranging from
$0.46875 to $1.3125 which equaled fair market value at the time of issuance.
At December 31, 1996 no one had been elected Chairman of the Board. New
officers were elected February 4, 1997 at which time Mr. Rash became Chairman.
No compensation or options were paid to directors for 1998.

                                      30
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

  The following table sets forth certain information, as of March 31, 1999,
regarding the beneficial ownership of the common stock by (i) each person or
group known to the Company to beneficially own more than 5% of the outstanding
common stock, (ii) each director of the Company, (iii) certain executive
officers, individually, and (iv) all directors and officers as a group. As of
March 31, 1999, the Company had issued and outstanding 36,626,440 shares of
common stock.

<TABLE>
<CAPTION>
                                                    Amount and
                                                     Nature of
                                                    Beneficial    Percent of
        Name and Address of Beneficial Owner(1)   Ownership(2)(3)    Class
        ---------------------------------------   --------------- -----------
       <S>                                        <C>             <C>
       Steven B. Rash............................    1,228,900(4)         3.3%

       Marshall Kerr.............................      125,000(6)          .3%

       Lawrence M. Hoffman.......................    1,275,674(5)         3.4%
        701 Mohican Court
        Morganville NJ

       Richard Serbin............................       22,000(6) Less than 1%
        61 Monroe Ave.
        Roseland, NJ 07068

       All Directors and Officers as a Group
        (6 persons)..............................    2,671,574(7)         6.9%
</TABLE>
--------
(1) Unless otherwise specified, the address of each beneficial owner is
    American BioMed, Inc., 10077 Grogan's Mill Road, Suite 100, The Woodlands,
    Texas 77380.
(2) Unless otherwise noted, the Company believes that all persons named in the
    table have sole voting and investment power with respect to all shares of
    common stock beneficially owned by them.
(3) A person is deemed to be the beneficial owner of securities that can be
    acquired by such person within 60 days upon the exercise of options or
    warrants or other convertible securities.
(4) Includes 1,227,000 shares which may be acquired within 60 days upon the
    exercise of vested options. Excludes options to purchase 300,000 shares
    not vested.
(5) Includes 425,000 shares issuable upon the exercise of warrants held by
    Aberlyn Capital Management ("Aberlyn Partnership"). Mr. Hoffman owns a
    limited partnership interest in Aberlyn Partnership, and is an officer,
    director and stockholder of Aberlyn Capital Management, Inc., which is a
    general partner of Aberlyn Partnership. Also, includes 547,000 shares
    which may be acquired within 60 days upon the exercise of options by Mr.
    Hoffman.
(6) These shares may be acquired upon the exercise of options.
(7) Includes 2,352,000 shares which may be acquired within 60 days upon the
    exercise of options or warrants.

Item 13. Certain Relationships and Related Transactions

  For the period from inception, September 4, 1984, to December 31, 1998, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,157,072. Of this amount, $37,500 related to each of the years ended
December 31, 1998, 1997 and 1996, respectively.

  On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPO patent to Guerbet, a stockholder of the Company, of Paris, France for
$500,000 cash.

  Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the
Agreement, Mr. Rash is employed as President and Chief Executive Officer of
the Company. The Agreement provides for a salary of $135,000 per year with
annual increases, plus bonuses of up to fifty percent, and options to purchase
600,000 shares of common stock. In 1997 Mr. Rash's

                                      31
<PAGE>

agreement was extended to December 31, 1999. The base salary was increased to
$165,000 per year. Options to purchase an additional 900,000 shares of common
stock at $.6875 per share were granted vesting equally over three years. In
December 1998 the Board extended his contract to December 31, 2000.

  Effective December 15, 1997, Marshall Kerr entered into a two-year
employment agreement with the Company. The employment agreement provides for a
salary of $80,000 per year through January 31, 1998 and $108,000 annually
thereafter with annual increases as determined by the Board of Directors and
annual bonuses of up to 50% of the base salary. In addition, the Company
granted options to purchase 300,000 shares of common stock; 100,000 shares at
$0.50 per share and 200,000 shares at $.42 per share. In December 1998 the
Board extended his contract to December 31, 2000.

  Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents as collateral which are owned
by the subsidiary, Cathlab Corporation (the "Cathlab Patents"), to Aberlyn in
return for $500,000. The Cathlab Patents were exclusively licensed back to the
Company for three years for a monthly license fee of $16,355, after which
Aberlyn was required to reassign the Cathlab Patents to the Company in
exchange for $50,000. Under its terms, if the Company declined to purchase the
Cathlab Patents, the Patent and License Agreement would automatically be
extended for an additional nine months for a monthly license fee of $17,099,
after which the Cathlab Patents would automatically revert back to the
Company.

  The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was
exclusively leased back to the Company for three years for a monthly fee of
$6,706, after which Aberlyn was required to return the equipment to the
Company in exchange for $20,500. Under the terms, if the Company opted not to
purchase the equipment, the Equipment Lease would automatically be extended
for an additional three months for a monthly payment of $7,011, after which
the equipment would automatically revert back to the Company.

  Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which
the Company assigned certain equipment to Aberlyn in consideration of
$100,000. The equipment was exclusively leased back to the Company for three
years for a monthly fee of $3,271, after which Aberlyn was required to return
the equipment to the Company in exchange for $10,000. If the Company declined
to purchase the equipment, the term of the Second Equipment Lease was to be
automatically extended or an additional three months for a monthly payment of
$3,420, after which the equipment would automatically revert back to the
Company.

  The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual
payments of $97,445 and the payment terms of the Equipment Lease were
similarly revised to semiannual payments of $39,100 and $20,281, respectively.
In consideration to Aberlyn for making these modifications, the Company issued
warrants to Aberlyn to purchase 150,000 shares of the Company's common stock
at an exercise price of $1.50 per share exercisable over a five-year period.
On May 28, 1996, Aberlyn and the Company reached an agreement to restructure
the Leases which resulted in a revised schedule of lease payments over a
twenty-four month period, with the initial payment commencing on June 1, 1996.
The payments were based on an outstanding principal amount of approximately
$500,000 and total accrued interest of approximately $148,000. In addition,
115,000 shares of common stock were issued in payment of consulting fees,
investment banking service fees and accumulated miscellaneous expenses
totaling $115,728.

                                      32
<PAGE>

  Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases, which revised the schedule of lease
payments and extended the maturity date to October 1, 1998. The leases are
currently being restructured.

  On February 18, 1996, the Company and Zanett Capital, Inc. ("Zanett"), a
financial consulting firm, signed an agreement whereby Zanett agreed to help
the Company raise capital pursuant to an offshore private placement of equity.
Claudio M. Guazzoni, a member of the Company's Board of Directors from March
1996 to December 1998, is Zanett's President and Chief Executive Officer. As a
retainer for availability of services by Zanett, the Company agreed to grant
Zanett warrants to purchase shares of common stock at a rate of 1 for every 10
shares of common stock or warrants issued in connection with equity and bridge
financings raised by Zanett. Each of the warrants will be exercisable at an
exercise price of $0.50 per share for five years from the date it is granted,
which shall be the date of the closing of the particular equity or bridge
financing in question. During 1996 through the efforts of Zanett, the Company
sold 1,250,001 shares of common stock, 1,390 shares of Series A Preferred and
1,500 shares of Series B Preferred pursuant to Regulation S of the Securities
Act of 1933, as amended. In connection with these placements, the Company
issued warrants to purchase 811,310 shares of common stock to unrelated third
parties upon assignment of such warrants by Zanett. In addition a 10%
placement fee of approximately $319,000 has been paid to Zanett or their
designated representative in connection with the sale of the Series A and
Series B Preferred.

  In September 1996, Zanett was granted a warrant to purchase 25,000 shares of
common stock at $.9375 in connection with the placement of bridge financing.
The warrants are exercisable for five years.

  The Company does not have a policy against employing relatives. During the
years ended December 31, 1997, 1996 and 1995, the Company paid salaries and
wages to relatives of officers of the Company amounting to $7,797, $22,692,
and $51,600, respectively. The terms of all the related party transactions in
this section are no less favorable to the Company than could be obtained from
non-affiliated parties.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

  a. and d. Financial Statements and Financial Statement Schedule See Index to
Consolidated Financial Statements and Consolidated Financial Statement
Schedule on Page F-1 herein.

  b. Reports on Form 8-K

  None.

  c. Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibit
 -------                         ----------------------
 <C>     <S>
   2.1   --Agreement and Plan of Merger among American BioMed, Inc., ABI
          Acquisition, Inc. and Cathlab Corporation dated March 30, 1992(3)

   3.1   --Certificate of Incorporation.(1)

   3.2   --By-laws.(1)

   3.3   --Certificate of Designations, Preferences and Rights of 1996 Series A
          Convertible Preferred Stock(7)

   3.4   --Certificate of Designations, Preferences and Rights of 1996 Series B
          Convertible Preferred Stock(7)

   3.5   --Certificate of Designations, Preferences and Rights of 1997 Series C
          Convertible Preferred Stock(10)

   3.6   --Certificate of Designations, Preferences, Limitations and Relative
          Rights of 1998 Series D Convertible Preferred Stock(12)

   3.7   --Certificate of Designations, Preferences, Limitations and Relative
          Rights of 1998 Series E Convertible Preferred Stock(12)
</TABLE>

                                      33
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  4.2    --Specimen Common Stock Certificate(13)

 10.28   --1992 Stock Option Plan of the Company and forms of incentive stock
          option agreement and non-qualified stock option agreement(2)

 10.57   --Patent License, Research & Development Agreement between Wright
          Medical Technology, Inc. and American BioMed, Inc.(4)

 10.69   --Stipulation of Settlement, Scott Printing Corporation v. American
          BioMed, Inc.(6)

 10.70   --Employment contract with Steven B. Rash(6)

 10.71   --Purchase of Technology Agreement, Guerbet, S.A.(6)

 10.80   --1996 Incentive Stock Option Plan(8)

 10.81   --Aberlyn Schedule No. 3 to Master Lease Agreement No. 0001E and
          Patent Schedule No. 2 to Patent Assignment and License Agreement No.
          0001P, effective June 1, 1996(9)

 10.82   --Securities Purchase Agreement, dated February 20, 1996, between the
          Company and certain investors relating to the issuance and sale of
          common stock and 200 shares of the 1996 Series A Convertible
          Preferred Stock(10)

 10.83   --Securities Purchase Agreement, dated February 20, 1996, between the
          Company and certain investors relating to the issuance and sale of
          1,190 shares of the 1996 Series A Convertible Preferred Stock(10)

 10.84   --Form of Registration Rights Agreement, dated February 20, 1996,
          between the Company and holders of the 1996 Series A Convertible
          Preferred Stock(10)

 10.85   --Securities Purchase Agreement, dated November 7, 1996, between the
          Company and certain investors relating to the issuance and sale of
          the 1996 Series B Convertible Preferred Stock(10)

 10.86   --Form of Registration Rights Agreement, dated November 7, 1996,
          between the Company and holders of the 1996 Series B Convertible
          Preferred Stock(10)

 10.87   --Securities Purchase Agreement, dated March 21, 1997, between the
          Company and certain investors relating to the issuance and sale of
          the 1997 Series C Convertible Preferred Stock(10)

 10.88   --Registration Rights Agreement, dated March 21, 1997, between the
          Company and holders of the 1997 Series C Convertible Preferred
          Stock(10)

 10.89   --Lease Agreement dated June 19, 1997 between the Company and
          Woodlands Office Equities--'95 Limited(11)

 10.90   --Modification Agreement--Patent Schedule No. 002 between Aberlyn
          Capital Management Co., Inc. and the Company(11)

 10.91   --Modification Agreement--Lease Schedule No. 003 between Aberlyn
          Capital Management Co., Inc. and the Company(11)

 10.92   --Employment agreement with Marshall Kerr(11)

 10.93   --Securities Purchase Agreement, dated April 29, 1998, Series D
          Preferred and Series E Preferred Stock(12)

 10.96   --Registration Rights Agreement of Series D Preferred and Series E
          Preferred(12)

 10.97   --Augustine Fund, L.P. Warrant dated April 29, 1998 to purchase 60,000
          shares of Common Stock(12)

 10.98   --1994 Stock Option Plan of the Company(5)

 10.99   --Securities Purchase Agreement, dated March 3, 1999, Series 1999-A,
          9% Redeemable Convertible Debentures

 10.100  --Registration Rights Agreement, dated March 3, 1999, between the
          Company and holders of the Series 1999-A 9% Redeemable Convertible
          Debentures

 10.101  --License Agreement, dated March 26, 1999, between the Company and
          Manufacturing & Research, Inc.
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                               Description
 -------                              -----------
 <C>     <S>
  21     --Subsidiaries of the Registrant(9)

  23.1   --Consent of Karlins, Arnold & Corbitt, PC

  27     --Financial Data Schedule
          All schedules are omitted because they are not applicable or because
          the required information is contained in the financial statements or
          notes thereto.
</TABLE>
--------
 (1) Incorporated by reference to the Company's Registration Statement on Form
     S-1, as amended, File No. 33-42472, dated October 22, 1991.
 (2) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1991.
 (3) Incorporated by reference to the Company's Current Report on Form 8-K for
     April 30, 1992.
 (4) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.
 (5) Incorporated by reference to the Company's Proxy Statement for the April
     27, 1994 Annual Meeting.
 (6) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
 (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1996.
 (8) Incorporated by reference to the Company's Proxy Statement for the
     November 22, 1996 Annual Meeting.
 (9) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K/A-1
     for the year ended December 31, 1996.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.
(13) Incorporated by reference to the Company's Registration Statement on Form
     S-1, as amended, File No. 333-52301, dated September 11, 1998.

                                      35
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

     Index to Consolidated Financial Statements and Consolidated Financial
                              Statement Schedule

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Consolidated Financial Statements
  Report of Independent Accountants.......................................  F-2
  Consolidated Balance Sheets at December 31, 1998 and 1997...............  F-3
  Consolidated Statements of Operations for the years ended December 31,
   1998, 1997 and 1996 and for the period from inception, September 4,
   1984, to December 31, 1998.............................................  F-5
  Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
   the period from inception to December 31, 1993, for the years ended
   December 31, 1998, 1997, 1996, 1995 and 1994 and for the period from
   inception, September 4, 1984, to December 31, 1998.....................  F-6
  Consolidated Statements of Cash Flows for the years ended December 31,
   1998, 1997, and 1996, and for the period from inception, September 4,
   1984, to December 31, 1998.............................................  F-9
  Notes to Consolidated Financial Statements.............................. F-11
Consolidated Financial Statement Schedule
  Report of Independent Accountants....................................... F-33
  Schedule II--Valuation and Qualifying Accounts.......................... F-34
</TABLE>

  All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission, which are not
presented, are not required under the related instructions or are
inapplicable, and therefore have been omitted.

                                      F-1
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
American BioMed, Inc.:

  We have audited the accompanying consolidated balance sheets of American
BioMed, Inc. and Subsidiary (the "Company") (a development stage enterprise)
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements of the Company for
the period from inception, September 4, 1984 to December 31, 1996, were
audited by other auditors whose report dated March 21, 1997 on those
statements included an explanatory paragraph that described the ability of the
Company to continue as a going-concern as discussed in Notes 1 and 17 to the
consolidated financial statements.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
BioMed, Inc. and Subsidiary as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.

  The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 17 to the consolidated financial statements, the Company has
operated as a development stage enterprise since its inception by devoting
substantially all of its efforts to financial planning, raising capital,
research and development and developing markets for its products.
Consequently, as shown in the accompanying consolidated financial statements
through December 31, 1998, the Company had a cumulative loss of $29,779,309
since its inception and had a working capital deficit of ($1,852,718) at
December 31, 1998. The above conditions raise substantial doubt about the
Company's ability to continue as a going concern. Accordingly, the Company's
continued existence is dependent upon its ability to obtain additional working
capital, to develop and market its products and, ultimately, upon its ability
to attain profitable operations. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

                                          KARLINS ARNOLD & CORBITT, P.C.

The Woodlands, Texas
March 26, 1999

                                      F-2
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                          CONSOLIDATED BALANCE SHEETS

                           December 31, 1998 and 1997

<TABLE>
<CAPTION>
                         ASSETS                               1998       1997
                         ------                            ---------- ----------
<S>                                                        <C>        <C>
Current assets:
  Cash and cash equivalents..............................  $   36,463 $   82,789
  Accounts receivable, trade, net of allowance for
   doubtful accounts of $40,000 and $57,167 for 1998 and
   1997, respectively....................................     128,844    158,724
  Accounts receivable, other.............................      11,850     13,716
  Inventories............................................     569,209    648,957
  Other current assets...................................     146,415    144,713
                                                           ---------- ----------
    Total current assets.................................     892,781  1,048,899
Property and equipment, net..............................     131,446    167,991
Patents, net of accumulated amortization of $960,862 and
 $920,330 in 1998 and 1997, respectively.................     145,526    158,695
Goodwill, net of accumulated amortization of $820,559 and
 $697,475 in 1998 and 1997, respectively.................     410,277    533,361
Other assets.............................................      35,439     36,110
                                                           ---------- ----------
    Total assets.........................................  $1,615,469 $1,945,056
                                                           ========== ==========
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      F-3
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         1998         1997
                                                      -----------  -----------
<S>                                                   <C>          <C>
Current liabilities:
  Notes payable to stockholders and others........... $   616,309  $   300,976
  Current maturities of long-term debt...............      51,881       41,694
  Current maturities of capital lease obligations....     414,845      416,901
  Accounts payable...................................     640,572      254,234
  Accrued liabilities................................   1,021,892      662,245
                                                      -----------  -----------
    Total current liabilities........................   2,745,499    1,676,050
Long-term debt, net of current maturities............      29,928       71,855
Capital lease obligations, net of current
 maturities..........................................       2,274           --
Deferred revenue.....................................      40,000      100,000
                                                      -----------  -----------
    Total liabilities................................   2,817,701    1,847,905
                                                      -----------  -----------
Commitments and contingencies
Stockholders' equity (deficit):
  Preferred stock, $.001 par value, 2,000,000 shares
  authorized,
  Series A: Convertible preferred stock, 1,390
   shares authorized, 683 and 1,390 shares issued and
   outstanding at December 31, 1998 and 1997,
   respectively, $1,000 per share or $683,000 and
   $1,390,000 aggregate liquidation preference.......           1            1
  Series B: Convertible preferred stock, 2,500 shares
   authorized, 500 shares issued and outstanding at
   December 31, 1997, $1,000 per share or $500,000
   aggregate liquidation preference plus an
   additional 10% per year from the date of
   issuance..........................................          --            1
  Series C: Convertible preferred stock, 125 shares
   authorized, 112 shares issued and outstanding at
   December 31, 1997, $20,000 per share or $2,240,000
   aggregate liquidation preference plus an
   additional 7% per year from the date of issuance..          --           --
  Series D: Convertible preferred stock, 60,000
   shares authorized, 34,000 shares issued and
   outstanding at December 31, 1998, $10 per share or
   $340,000 aggregate liquidation preference
   increasing 8% per year from date of issuance......          34           --
  Series E: Convertible preferred stock, 500,000
   shares authorized, 7,500 shares issued and
   outstanding at December 31, 1998, $10 per share or
   $75,000 aggregate liquidation preference
   increasing at 8% per year from date of issuance...           7           --
  Common stock, $.001 par value, 50,000,000 and
   25,000,000 shares authorized in 1998 and 1997
   respectively, 32,648,075 and 18,457,426 shares
   issued at December 31, 1998 and 1997,
   respectively......................................      32,648       18,457
  Additional paid-in capital.........................  28,544,387   27,479,517
  Deficit accumulated during the development stage... (29,779,309) (27,149,225)
  Less treasury stock at cost, 68,323 shares.........          --     (251,600)
                                                      -----------  -----------
    Total stockholders' equity (deficit).............  (1,202,232)      97,151
                                                      -----------  -----------
    Total liabilities and stockholders' equity
     (deficit)....................................... $ 1,615,469  $ 1,945,056
                                                      ===========  ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      F-4
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       Inception
                          Year Ended    Year Ended    Year Ended   September 4, 1984
                         December 31,  December 31,  December 31,   to December 31,
                             1998          1997          1996            1998
                         ------------  ------------  ------------  -----------------
<S>                      <C>           <C>           <C>           <C>
Sales, net.............. $   550,717   $   545,473   $   579,533     $  4,410,837
Cost of sales...........    (546,409)     (482,360)     (420,838)      (4,261,675)
                         -----------   -----------   -----------     ------------
Gross profit............       4,308        63,113       158,695          149,162
                         -----------   -----------   -----------     ------------
Operating expenses:
  Selling, general and
   administrative.......  (1,983,824)   (2,075,695)   (1,718,595)     (19,516,454)
  Research and
   development..........    (471,724)     (648,049)     (640,792)      (8,369,766)
  Distributor
   settlement...........          --            --            --       (1,080,915)
                         -----------   -----------   -----------     ------------
                         (2,455,548)    (2,723,744)   (2,359,387)     (28,967,135)
                         -----------   -----------   -----------     ------------
    Loss from
     operations.........  (2,451,240)   (2,660,631)   (2,200,692)     (28,817,973)
                         -----------   -----------   -----------     ------------
Other income (expense):
  Interest income.......       2,429        44,200         4,252          156,363
  Interest expense......    (144,774)     (183,538)     (313,914)      (3,023,750)
  Other income
   (expense)............     (36,499)       25,766      (114,762)       1,906,051
                         -----------   -----------   -----------     ------------
  Other income
   (expense), net.......    (178,844)     (113,572)     (424,424)        (961,336)
                         -----------   -----------   -----------     ------------
  Net loss..............  (2,630,084)   (2,774,203)   (2,625,116)     (29,779,309)
  Less preferred stock
   dividends............    (170,031)           --    (1,183,413)      (1,353,444)
                         -----------   -----------   -----------     ------------
  Net loss available to
   common shareholders.. $(2,800,115)  $(2,774,203)  $(3,808,529)    $(31,132,753)
                         ===========   ===========   ===========     ============
  Net loss per common
   share................ $     (0.11)  $     (0.18)  $     (0.34)
                         ===========   ===========   ===========
  Weighted average
   number of common
   shares outstanding...  26,302,790    15,528,231    11,310,592
                         ===========   ===========   ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      F-5
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

       CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDER'S EQUITY DEFICIT

<TABLE>
<CAPTION>
                                                                            Deficit
                            Preferred                                     Accumulated
                              Stock         Common Stock      Additional   During the    Treasury Stock
                          --------------  ------------------   Paid-In    Development  ------------------
                           Shares   Par     Shares     Par     Capital       Stage      Shares    Costs     Total
                          --------  ----  ----------  ------  ----------  ------------ -------- --------- ---------
<S>                       <C>       <C>   <C>         <C>     <C>         <C>          <C>      <C>       <C>
Issuance of $1 par value
common stock on
September 4, 1984.......                       1,000  $1,000                                              $   1,000
Redemption of $1 par
value common stock......                      (1,000) (1,000)                                                (1,000)
Issuance of $.001 par
value common stock......                   1,000,000   1,000                                                  1,000
Issuance of $.001 par
value common stock at
fair market value of
services rendered.......                     100,000     100  $  19,900                                      20,000
Issuance of Series A
preferred stock.........   156,250  $156                        499,844                                     500,000
Issuance of common stock
pursuant to a three-for-
one stock split
subsequent to December
31, 1990, retroactively
applied.................                   2,200,000   2,200     (2,200)
Redemption of common
stock pursuant to a one-
for 2.325 reverse stock
split subsequent to
December 31, 1990,
retroactively applied...                  (1,880,645) (1,881)     1,881
Issuance of $.001 par
value common stock in
connection with Bridge
Notes...................                     182,000     182     45,318                                      45,500
Issuance of stock
purchase warrants.......                                        100,000                                     100,000
Sale of common stock,
net of offering costs...                     800,000     800  3,059,472                                   3,060,272
Conversion of Series A
preferred stock.........  (156,250) (156)    223,214     223        (67)
Conversion of $255,000
principal amount of
debenture...............                      63,750      64    254,936                                     255,000
Exercise of
underwriter's over
allotment option, net of
offering costs..........                     111,700     112    483,367                                     483,479
Issuance of $.001 par
value common stock in
connection with
acquisition of Freedom
Machine, Inc............                      60,000      60    206,940                                     207,000
Conversion of $385,000
principal amount of
debentures..............                      96,250      96    384,904                                     385,000
Issuance of $.001 par
value common stock in
connection with
acquisition of Cathlab
Corporation.............                     450,000     450  2,024,550                                   2,025,000
Issuance of $.001 par
value common stock in
connection with
acquisition of VMS,
Inc.....................                      27,777      28    124,971                                     124,999
Issuance of $.001 par
value common stock in
connection with 6%
promissory notes........                      58,576      59    263,533                                     263,592
Issuance of $.001 par
value common stock in
connection with purchase
of assets of SuperStat,
Inc.....................                      18,182      18     81,801                                      81,819
Issuance of $.001 par
value common stock in
connection with a
$500,000 loan from a
bank....................                      79,365      79    357,064                                     357,143
Issuance of $.001 par
value common stock in
connection with Therex
settlement..............                      58,823      59    499,941                                     500,000
Issuance of Series B
preferred stock, net of
offering costs .........   287,500   288                      2,545,858                                   2,546,146
Exercise of stock
purchase warrants.......                     678,717     679  2,800,341                                   2,801,020
Issuance of $.001 par
value common stock in
connection with Therex
settlement..............                      77,000      77        (77)
Issuance of $.001 par
value common stock in
connection with
consulting agreement....                      50,000      50    174,950                                     175,000
</TABLE>

                                             (Table continued on following page)

                                      F-6
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

  CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDER'S EQUITY DEFICIT--Continued

<TABLE>
<CAPTION>
                                                                          Deficit
                            Preferred                                   Accumulated
                              Stock          Common Stock   Additional   During the     Treasury Stock
                          ---------------  ----------------  Paid-In    Development   -------------------
                           Shares    Par    Shares    Par    Capital       Stage       Shares     Costs       Total
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
<S>                       <C>       <C>    <C>       <C>    <C>         <C>           <C>       <C>        <C>
Exercise of stock
options.................                     166,880 $  167 $   38,795                                     $     38,962
Reacquire $.001 par
value common stock
originally issued in
connection with Therex
settlement..............                                                              (135,823) $(500,000)     (500,000)
Treasury stock reissued,
67,500 common shares at
cost....................                                         1,600                  67,500    248,400       250,000
Issuance of 193,500
warrants in connection
with 9% promissory
notes...................                                       574,176                                          574,176
Dividend requirement on
Series B preferred
stock...................                                      (135,209)                                        (135,209)
Conversion of Series B
preferred stock into
$.001 par value common
stock...................  (287,500) $(288) 1,268,465  1,268    134,091                                          135,071
Sale of common stock for
cash, net of offering
costs...................                   1,500,000  1,500  3,501,299                                        3,502,799
Net loss for the
period..................                                                $(16,559,366)                      (16,559,366)
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
Balance, December 31,
1993....................        --     --  7,390,054  7,390 18,041,979   (16,559,366)  (68,323)  (251,600)    1,238,403
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
Issuance of shares in
connection with private
placements..............                     684,395    684    566,734                                          567,418
Issuance of shares in
connection with officer
subscription............                      40,000     40     31,460                                           31,500
Issuance of shares to an
officer in connection
with private placement..                      15,000     15      2,985                                            3,000
Exercise of stock
options.................                     400,000    400    224,600                                          225,000
Issuance of shares to
employees in lieu of
salary..................                      11,500     12     11,738                                           11,750
Issuance of shares
previously paid for but
not issued..............                       8,548      9         (9)
Conversion of
shareholder loan........                     111,111    111     49,889                                           50,000
Issuance of shares in
payment of expenses.....                     117,812    118     70,396                                           70,514
Issuance of shares for
services................                     524,554    524     55,726                                           56,250
Additional accrual of
1993 offering expenses..                                       (24,795)                                         (24,795)
Net loss for the year...                                                 (3,786,156)                        (3,786,156)
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
Balance, December 31,
1994....................        --     --  9,302,974  9,303 19,030,703   (20,345,522)  (68,323)  (251,600)   (1,557,116)
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
Issuance of shares in
connection with officer
loan....................                       2,000      2                                                           2
Issuance of shares to an
officer in lieu of
salary..................                      15,000     15      6,161                                            6,176
Issuance of shares in
payment of expenses.....                      34,300     34     47,239                                           47,273
Issuance of shares in
connection with private
placement...............                     151,000    151     60,349                                           60,500
Issuance of options.....                                        37,500                                           37,500
Issuance of warrants....                                         8,400                                            8,400
Other...................                                          (206)                                            (206)
Net loss for the year...                                                 (1,404,384)                        (1,404,384)
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
Balance, December 31,
1995....................        --     --  9,505,274 $9,505 19,190,146  $(21,749,906)  (68,323) $(251,600) $ (2,801,855)
                          --------  -----  --------- ------ ----------  ------------  --------  ---------  ------------
</TABLE>

                                             (Table continued on following page)

                                      F-7
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

 CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDER'S EQUITY DEFICIT--Continued

<TABLE>
<CAPTION>
                                                                            Deficit
                           Preferred                                      Accumulated
                             Stock         Common Stock      Additional    During the    Treasury Stock
                          ------------  -------------------    Paid-In    Development   ------------------
                          Shares   Par    Shares      Par      Capital       Stage      Shares     Costs       Total
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
<S>                       <C>      <C>  <C>         <C>      <C>          <C>           <C>      <C>        <C>
Issuance of shares in
connection with private
placements, net of
offering costs..........    2,890  $ 3   1,250,001  $ 1,250  $ 2,870,066                                    $ 2,871,319
Exercise of stock
options.................                   197,000      197      142,220                                        142,417
Exercise of warrants....                   744,165      744      390,581                                        391,325
Issuance of options.....                                         237,087                                        237,087
Issuance of shares in
payment of certain
liabilities.............                 1,245,579    1,246    1,545,263                                      1,546,509
Issuance of shares for
services................                   600,000      600      366,900                                        367,500
Issuance of shares to
individuals.............                     2,000        2        3,229                                          3,231
Other...................                                          (3,822)                                        (3,822)
Net loss for the year...                                                  $ (2,625,116)                      (2,625,116)
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
Balance, December 31,
1996....................    2,890    3  13,544,019   13,544   24,741,670   (24,375,022) (68,323) $(251,600)     128,595
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
Issuance of shares in
connection with private
placements, net of
offering costs..........      125                              2,212,410                                      2,212,410
Exercise of stock
options.................                    20,000  $    20        3,730                                          3,750
Exercise of warrants....                   802,583      803      319,230                                        320,033
Conversion of preferred
stock...................   (1,013)  (1)  3,881,102    3,881       (3,880)
Issuance of shares in
payment of certain
liabilities.............                   172,222      172      178,114                                        178,286
Issuance of shares for
services................                    37,500       37       28,243                                         28,280
Net loss for the year...                                                    (2,774,203)                      (2,774,203)
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
Balance, December 31,
1997....................    2,002    2  18,457,426   18,457   27,479,517   (27,149,225) (68,323) $(251,600)      97,151
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
Issuance of shares in
connection with private
placement net of
offering costs..........   67,500   67   1,171,844    1,172    1,052,259                                      1,053,498
Conversion of preferred
stock...................  (27,319) (27) 12,562,128   12,562      (12,535)
Issuance of shares in
payment of certain
liabilities.............                   400,000      400      121,934                                        122,334
Issuance of options and
warrants................                                          82,119                                         82,119
Issuance of shares for
services................                   125,000      125       72,625                                         72,750
Retire treasury shares..                   (68,323)     (68)    (251,532)                68,323    251,600
Net loss for the year...                                                    (2,630,084)                      (2,630,084)
                          -------  ---  ----------  -------  -----------  ------------  -------  ---------  -----------
Balance, December 31,
1998....................   42,183  $42  32,648,075  $32,648  $28,544,387  $(29,779,309)       0  $       0  $(1,202,232)
                          =======  ===  ==========  =======  ===========  ============  =======  =========  ===========
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                      F-8
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

                CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Inception,
                                                                      September 4,
                             Year Ended    Year Ended    Year Ended     1984, to
                            December 31,  December 31,  December 31,  December 31,
                                1998          1997          1996          1998
                            ------------  ------------  ------------  ------------
<S>                         <C>           <C>           <C>           <C>
Cash flows from operating
 activities:
 Net loss.................  $(2,630,084)  $(2,774,203)  $(2,625,116)  $(29,779,309)
                            -----------   -----------   -----------   ------------
 Adjustments to reconcile
  net loss to cash used by
  operating activities
  Depreciation and
   amortization...........      232,061       237,633       334,012      3,245,261
  Write off of goodwill...                                                 120,000
  Expenses paid by
   transfer of equipment..                                                  37,134
  Loss (gain) on sale of
   assets.................      (21,804)                     24,972       (497,875)
  Interest expense
   recorded upon issuance
   of common stock and
   warrants in connection
   with notes payable.....                                               1,250,907
  Issuance of common stock
   and warrants for
   services...............       72,750                     604,587      1,139,097
  Write off of note
   receivable from
   officer................                                                  25,000
  Noncash compensation....       82,120                                    128,020
  Gain on sale of
   investment securities..                                                  (4,190)
  Distributor settlement..                                                 625,915
  Write off of investment
   in joint venture.......                                                 227,256
  Write off of patents....                                      600         79,167
  Write off of obsolete
   inventory..............                                                 367,688
  Changes in operating
   assets and liabilities:
  Accounts receivable,
   net....................       31,746        15,767         2,570        (83,136)
  Inventories.............       79,749      (186,860)      (91,967)    (1,031,335)
  Other assets............       (1,031)      181,378        51,145        167,401
  Accounts payable........      471,653       (33,460)     (135,640)     1,443,001
  Accrued liabilities.....      154,215       332,553       239,973      1,290,062
  Deferred revenue........      (60,000)      (60,000)      (60,000)        40,000
                            -----------   -----------   -----------   ------------
   Total adjustments......    1,041,459       487,011       970,252      8,569,373
                            -----------   -----------   -----------   ------------
   Net cash used by
    operating activities..   (1,588,625)   (2,287,192)   (1,654,864)   (21,209,936)
                            -----------   -----------   -----------   ------------
Cash flows from investing
 activities:
 Capital expenditures.....      (35,161)     (142,206)      (46,773)      (612,593)
 Issuance of notes
  receivable..............                                                 (85,000)
 Proceeds from repayment
  of notes receivable.....                                                  35,000
 Investments in patents...      (28,298)      (44,356)      (31,414)      (509,642)
 Investment in joint
  venture.................                                                (229,271)
 Organization costs.......                                                  (1,000)
 Purchase of investment
  securities..............                                                  (4,391)
 Proceeds from sale of
  investment securities...                                                   8,581
 Proceeds from sale of
  assets..................       26,000         1,516         1,264        535,893
 Cash acquired in
  acquisition of Freedom
  Machine.................                                                   6,338
 Cash acquired in
  acquisition of Cathlab
  Corporation.............                                                   6,446
                            -----------   -----------   -----------   ------------
   Net cash used by
    investing activities..      (37,459)     (185,046)      (76,923)      (849,639)
                            -----------   -----------   -----------   ------------
</TABLE>

                                             (Table continued on following page)

                                      F-9
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

           CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOWS--Continued

<TABLE>
<CAPTION>
                                                                    Inception,
                                                                   September 4,
                             Year Ended   Year Ended   Year Ended    1984, to
                            December 31, December 31, December 31, December 31,
                                1998         1997         1996         1998
                            ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
Cash flows from financing
 activities:
 Cash dividends on
  preferred stock.........                                         $      (138)
 Offering costs...........   $  (89,503)  $ (287,590)  $ (322,859)  (1,029,746)
 Financing costs..........                                             (59,309)
 Proceeds from notes
  payable to banks........                                           2,333,880
 Proceeds from notes
  payable to
  stockholders............                                 34,750    1,225,921
 Proceeds from notes
  payable to others.......      722,209      116,250    1,835,576    6,580,796
 Repayments of notes
  payable to bank.........                                 (5,000)  (2,070,000)
 Repayments of notes
  payable to
  stockholders............                               (286,260)    (822,992)
 Repayments of notes
  payable to others.......     (192,217)  (1,129,086)  (1,932,618)  (6,096,320)
 Proceeds from patent
  assignment and
  leaseback...............                                             500,000
 Proceeds from equipment
  assignment and
  leaseback...............                                             305,000
 Principal payments under
  capital lease
  obligations.............       (3,731)    (151,943)     (99,278)    (785,841)
 Proceeds from sale of
  debentures..............                                             640,000
 Proceeds from sale of
  preferred stock.........      675,000    2,500,000    2,890,356    9,111,502
 Proceeds from sales of
  common stock and
  exercise of unregistered
  warrants................      468,000      320,033      694,556    9,522,350
 Proceeds from exercise of
  stock options...........                     3,750       97,000      339,917
 Treasury stock acquired..                                            (500,000)
 Proceeds from issuance of
  registered stock
  purchase warrants.......                                             100,000
 Proceeds from exercise of
  registered stock
  purchase warrants.......                                           2,801,018
                             ----------   ----------   ----------  -----------
   Net cash provided by
    financing activities..    1,579,758    1,371,414    2,906,223   22,096,038
                             ----------   ----------   ----------  -----------
Net increase (decrease) in
 cash and cash
 equivalents..............      (46,326)  (1,100,824)   1,174,436       36,463
Cash and cash equivalents
 at beginning of period...       82,789    1,183,613        9,177
                             ----------   ----------   ----------  -----------
Cash and cash equivalents
 at end of period.........   $   36,463   $   82,789   $1,183,613  $    36,463
                             ==========   ==========   ==========  ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      F-10
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

  American BioMed, Inc. (the "Company") was incorporated on September 4, 1984,
for the purpose of developing, manufacturing and marketing medical, surgical
and diagnostic devices. The Company markets its products to health care
providers that are high volume users of angioplasty, atherectomy and stent
devices, to third-party distributors and to independent representatives that
are both geographically located in, and sell in North and South America,
Western Europe, the Middle East, the Far East and Southeast Asia. Domestic and
foreign export sales comprise approximately 45.3% and 54.7%, respectively, of
the Company's sales. The percentage of sales by geographic region is as
follows: 45.3% in the United States, 13.3% in Italy, 19.3% in other European
countries, 11.3% in Japan and 10.8% in other countries. The Company faces
competition from primarily two other companies. The Company has operated as a
development stage enterprise since its inception by devoting substantially all
of its efforts to research and development, developing markets for its
products and raising capital to support these efforts. The following is a
summary of the Company's significant accounting policies.

 Principles of Consolidation

  The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Cathlab Corporation after elimination of all
intercompany accounts and transactions. The Company operates in a single
segment, which accounts for in excess of 90% of the Company's total revenues,
loss and identifiable assets.

  The Company's financial statements have been prepared using accounting
principles applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the ordinary course of business.
The financial statements do not include any adjustments relating to the
recoverability and classifications of recorded assets and liabilities that
might be necessary should the Company be unable to continue in existence.

 Cash and Cash Equivalents

  For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity date of three
months or less to be cash equivalents. The Company primarily invests its
excess cash in deposits with major banks and other financial institutions, and
at times, these deposits may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company selects depository
institutions based upon management's review of the financial stability of the
institution. For these short-term instruments, the carrying amount
approximates estimated fair value.

 Inventories

  Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.

 Property and Equipment

  Property and equipment are recorded at cost. Maintenance and repairs that do
not improve or extend the life of the assets are expensed as incurred.
Expenditures for renewals and betterments are capitalized. The cost of assets
retired and the related accumulated depreciation are removed from the accounts
and any gain or loss is included in the results of operations when incurred.
Depreciation for property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets for financial reporting
purposes and the modified accelerated cost recovery system for tax reporting
purposes.

                                     F-11
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Technology and Patents

  Patents represent the cost of obtaining the rights to utilize and develop
certain atherectomy catheters, heart-assist pumps and related devices. The
costs of the patents are amortized using the straight-line method over the
estimated useful lives of the patents (5 years). The market for the Company's
products is characterized by rapidly changing technology, evolving industry
standards and changing customer needs. The Company believes that its future
success will depend, in part, upon its ability to change, identify and develop
technical innovations and apply them to new products designed for specific
applications. The Company's success depends, in part, on its ability to
continue to have patent protection for its products, maintain trade secret
protection and operate without infringing on the proprietary rights of others.
The Company intends to vigorously defend its patents against any
infringements. The Company has been issued several patents and several others
are pending, all of which were internally developed.

 Goodwill

  Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the net assets at the date of acquisition and
is being amortized using the straight-line method over ten years. The purchase
price is allocated to assets and liabilities based upon their fair values.
Amounts allocated to intangible assets are the same for financial and tax
reporting purposes. The Company periodically compares the carrying value of
its goodwill to the anticipated undiscounted future operating income from the
businesses whose acquisition gave rise to the goodwill.

 Revenue Recognition

  Revenue is recognized when products are shipped, based upon the accrual
method of accounting.

 Research and Development

  Research and development costs are expensed as incurred.

 Loss Per Share

  The Company has adopted FASB Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings (loss) per share. Basic earnings (loss) per share is
computed based on the weighted average number of shares of common stock and
common stock equivalents outstanding during the periods. Diluted earnings per
share includes the number of shares issuable upon exercise of stock options,
less the number of shares that could have been repurchased with the exercise
proceeds, using the treasury stock method. The effect of the computation is
antidilutive due to continuing losses, therefore, only basic earnings (loss)
per share is presented.

 Concentration of Credit Risk

  The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on its trade receivables. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations.

 Estimates

  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and

                                     F-12
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

 Regulation

  The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The FDA regulates and must approve
the manufacture, distribution and promotion of medical devices in the United
States. Various states and foreign countries in which the Company's products
may be sold impose additional regulatory requirements. Certain of the
Company's products have received marketing clearance from the FDA through the
510(k) Notification process, other products are pending FDA approval, and
other products are being evaluated.

 Third-Party Reimbursement

  The Company sells its products to distributors, hospitals, physicians and
other health care providers for use in furnishing care to their patients.
Substantially all, except the distributors rely on third-party payors,
principally Medicare, Medicaid, and private health insurance plans, to
reimburse all or part of the costs or fees associated with the medical
procedures performed. While the Company cannot predict the cost of its
devices, or the procedures to be performed with its products, or the relative
cost and efficacy of competing products or procedures, changes in third-party
payor reimbursement practices regarding the procedures performed with medical
devices sold by the Company may adversely affect the Company.

 Millennium Change

  The Company installed vendor upgrades for each of its computer-based
applications that will accommodate the millennium change. The Company does not
believe that the millennium change will have an adverse impact on its
operations.

 Recent Pronouncements

  The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129"). SFAS 129 requires all
entities, public and nonpublic that have issued securities which provide
evidence of debt or ownership or a related right to adequately disclose within
the financial statement, information regarding the Company's capital structure
and is effective for financial statements issued for periods ending after
December 15, 1997. The adoption of SFAS 129 did not impact its presentation of
financial information

  The FASB has issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 established standards
for reporting and display of comprehensive income and its components in a
financial statement that is displayed with the same prominence as other
financial statements. It requires the items of other comprehensive income be
classified by their nature and the accumulated balance of other comprehensive
income be displayed separately from retained earnings and additional paid-in
capital in the equity section. SFAS 130 was adopted at the beginning of the
fiscal year. The adoption of SFAS 130 did not impact its presentation of
financial information.

  The FASB has issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") which is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards requiring public business enterprises to report
information about operation segments in annual financial statements on the
basis that is used internally for evaluating segment

                                     F-13
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

performance and allocating resources, and requires selected information be
reported in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company operates in only one segment, thus SFAS 131 is not
applicable.

2. Inventories:

  Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                               -----------------
                                                                 1998     1997
                                                               -------- --------
      <S>                                                      <C>      <C>
      Raw materials........................................... $206,800 $225,340
      Work in process.........................................  120,188  169,657
      Finished goods..........................................  242,221  253,960
                                                               -------- --------
                                                               $569,209 $648,957
                                                               ======== ========
</TABLE>

3. Property and Equipment, net:

  Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                           --------------------
                                                             1998       1997
                                                           ---------  ---------
      <S>                                                  <C>        <C>
      Furniture and fixtures.............................. $  74,777  $  72,887
      Machinery and equipment.............................   644,336    733,577
      Leasehold improvements..............................    34,872     28,949
      Equipment under capital lease agreements............     7,123     24,243
                                                           ---------  ---------
                                                             761,108    859,656
      Less accumulated depreciation and amortization......  (629,662)  (691,665)
                                                           ---------  ---------
                                                           $ 131,446  $ 167,991
                                                           =========  =========
</TABLE>

  Included in accumulated depreciation and amortization at December 31, 1998
and 1997 is $1,068 and $23,865, respectively, of accumulated amortization on
equipment acquired under capital lease agreements. Depreciation expense for
the years ended December 31, 1998, 1997 and 1996 was approximately $68,000,
$54,000, and $133,000, respectively.

4. Deferred Revenue

  On August 26, 1994, the Company signed a Patent License, Research &
Development Agreement with Wright Medical Technologies, Inc. (WMT) in which
the Company licensed to WMT the world-wide manufacturing and distribution
rights to the "spinal dissector". The Company received a $300,000 license fee
and will receive 5% royalty from sales by WMT through the life of the patent.
The Company granted to WMT a stock purchase warrant for 150,000 shares with an
exercise price of $2.00. The warrant is exercisable through August 1999. The
contract called for the Company to continue to develop the spinal dissector on
behalf of WMT and granted the Company the first right of refusal for the
manufacturing of the spinal dissector. The $300,000 license fee is being
amortized over five years, the life the Company uses to amortize patents. The
unamortized balance of $40,000 and $100,000 is reflected as deferred revenue
as of December 31, 1998 and 1997, respectively.

                                     F-14
<PAGE>

                      AMERICAN BIOMED, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5. Notes Payable and Long-Term Debt:

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
<S>                                                         <C>       <C>
Notes payable and long-term debt consisted of the
 following:
Uncollateralized promissory note to individual, bearing
 interest at 10.0%, payable quarterly with principal due
 on demand................................................            $242,450
Notes payable to insurance companies with varying interest
 rates up to 8.9% per year maturing at various dates
 through 1999.............................................  $ 36,509    58,526
Uncollateralized thirty day discounted notes payable to
 officers bearing default interest of 10.0% per year,
 matured in 1998..........................................    19,800
Uncollateralized promissory note, bearing interest at
 10.0%, maturing November, 1999...........................    50,000
Note payable bearing interest at 15.0% per year, maturing
 October 1999 secured by guaranty.........................   150,000
Note payable to an individual, bearing interest at 20.0%,
 maturing in December 1999 with interest payable monthly,
 secured by officer options to purchase 1,527,000 shares
 of common stock..........................................   260,000
Note payable to an individual, bearing interest at 20.0%,
 maturing in December 1999 with interest payable
 quarterly, secured by officer options to purchase
 1,527,000 shares of common stock.........................   100,000
                                                            --------  --------
                                                            $616,309  $300,976
                                                            ========  ========
Long-term debt consisted of the following:
Note payable to a law firm bearing interest at 8.25% per
 year payable in monthly installments of $3,858 including
 interest, maturing August 2000, unsecured................  $ 81,809  $113,549
Less current maturities...................................   (51,881)  (41,694)
                                                            --------  --------
                                                            $ 29,928  $ 71,855
                                                            ========  ========
</TABLE>

  The Company has failed to make monthly payments to the law firm when due.
Under the terms of the note agreement, the law firm can elect to impose an
interest rate of 18%. The law firm has not made this election.

  Future maturities of notes payable and long-term debt are as follows:

<TABLE>
      <S>                                                               <C>
      1999............................................................. $668,190
      2000.............................................................   29,928
                                                                        --------
                                                                        $698,118
                                                                        ========
</TABLE>

6. Accrued Liabilities:

  Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                December 31
                                                            -------------------
                                                               1998      1997
                                                            ---------- --------
      <S>                                                   <C>        <C>
      Accrued interest payable............................. $   67,901 $208,007
      Accrued payroll and related taxes....................      4,849  122,306
      Accrued offering costs...............................    109,500  102,000
      Accrued consulting fees..............................    222,375   60,000
      Accrued settlement...................................    555,173  125,000
      Other................................................     62,094   44,932
                                                            ---------- --------
                                                            $1,021,892 $662,245
                                                            ========== ========
</TABLE>

                                      F-15
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. Commitments and Contingencies:

 Lease Obligations

  The Company leases certain patents and equipment under agreements classified
as capital leases. In addition, the Company leases its office space and other
properties under noncancelable operating leases through November 2002. Future
minimum payments under the capital leases and noncancelable operating leases
with initial or remaining terms of one year or more consisted of the following
at December 31, 1998:

<TABLE>
<CAPTION>
                                                             Capital   Operating
                                                              Leases    Leases
                                                             --------  ---------
      <S>                                                    <C>       <C>
      1999.................................................. $458,924  $ 62,908
      2000..................................................    2,154    28,414
      2001..................................................      180     5,640
      2002..................................................              3,488
                                                             --------  --------
      Total minimum lease payments..........................  461,258  $100,450
                                                                       ========
      Amounts representing interest.........................  (44,139)
                                                             --------
      Present value of future lease payments................  417,119
      Less current maturities...............................  414,845
                                                             --------
                                                             $  2,274
                                                             ========
</TABLE>

  Rental expense under operating leases for the years ended December 31, 1998,
1997 and 1996 and for the period from inception, September 4, 1984, to
December 31, 1998 amounted to $218,398, $166,480, $157,972, and $1,516,008,
respectively.

 Litigation

  In May 1997, a former Chairman and Chief Scientific Officer and director of
the Company filed a lawsuit in the State District Court of Harris County,
Texas seeking an unspecified amount of damages and alleging oppressive action
toward a minority shareholder, breach of contract, failure of consideration
for the assignment of certain patent rights, wrongful termination and unpaid
debts and advances. The February 1998 mediation conference, which was mandated
by the Court, did not result in a settlement agreement. The case came to trial
in October 1998 and was settled on terms favorable to the Company. The Company
agreed to give the plaintiff an agreed judgment totaling $400,000, which may
not be executed until after February 15, 1999 with post judgment interest at
the rate of 10% per year. In addition, the Company agreed that upon the sale
of its guidewire micro-filter patent (the OmniFilter), the plaintiff will be
entitled to payment totaling $200,000. In the event of a licensing agreement,
the plaintiff will receive 5% of the licensing agreement revenues until a
total of $200,000 has been paid. The payment of $200,000 is secured by the
OmniFilter patent and such security interest will be subordinated to any
lender requesting the OmniFilter patent as collateral. At the Company's
discretion the security interest in the OmniFilter may be moved to the stent
patent with the same stipulation as to subordination. The judgment was paid in
April 1999.

  In August 1997, a former Chief Financial Officer, Secretary and Treasurer
and director of the Company filed a lawsuit in the State District Court of
Harris County, Texas alleging breach of contract with respect to a letter
agreement executed in connection with his employment separation and
resignation from the Board of the Company and is seeking specific performance
and monetary damages of approximately $307,000. On August 24, 1998 the parties
reached a settlement through mediation. The Company agreed to (a) pay $2,800
in cash within 45 days; (b) issue at no cost the plaintiff's stock options to
purchase 150,000 shares of common stock at an

                                     F-16
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

exercise price of $0.6875; and (c) execute an agreed judgment in the amount of
$85,000 at 10% interest payable November 1, 1999.

  In September 1997, a former distributor filed a lawsuit in the State
District Court of Harris County, Texas alleging the letter agreement
terminating their distribution agreement was breached by the Company due to
the non-issuance of options to purchase 437,500 shares of common stock at
$0.40 per share. On May 1, 1998 the Company reached an agreement to settle
this lawsuit with the issuance of options to purchase 225,000 shares for an
exercise price of $0.40 per share, exercisable for six months with
registration requirements. The former distributor attempted to void the
agreement and continue the pending litigation. The case was finally resolved
by extending the exercise period to three years from the date the new option
agreement was signed by the Company. Compensation expense of approximately
$56,250 was recorded in 1998 to reflect the value of the options granted.

  In January 1999, a former distributor filed a lawsuit in the State District
Court of Georgia alleging breach of contract and is seeking $34,000 plus pre-
judgment interest. In the opinion of management, the ultimate outcome of this
matter will not materially affect the Company's financial position, results of
operations or cash flows.

  The Company is occasionally a party to litigation (other than that
specifically noted) arising in the ordinary course of business. Management
regularly analyzes current information and, as necessary, provides accrual for
probable liabilities for the eventual disposition of the matter. In the
opinion of management, the ultimate outcome of these matters will not
materially affect the Company's financial position, results of operations or
cash flows.

8. Federal Income Taxes:

  At December 31, 1998, the Company had net operating loss (NOL) and research
and development (R&D) credit carryforwards available to offset future taxable
income approximately as follows:

<TABLE>
<CAPTION>
      Year Expires                                              NOL       R&D
      ------------                                          ----------- --------
      <S>                                                   <C>         <C>
      2003................................................. $    71,500
      2004.................................................      14,300
      2005.................................................     450,300 $  7,635
      2006.................................................   1,462,000   50,550
      2007.................................................   3,122,800  143,632
      2008.................................................   7,432,100  163,052
      2009.................................................   2,181,300   73,637
      2010.................................................     925,000   34,286
      2011.................................................   3,409,000   41,669
      2012.................................................   2,456,000   36,000
      2013.................................................   2,249,000   18,000
                                                            ----------- --------
                                                            $23,773,300 $568,461
                                                            =========== ========
</TABLE>

  Net operating loss carryforwards for financial reporting purposes and
alternative minimum tax reporting purposes are approximately the same as those
under the regular tax method. Special limitations exist under the tax law
which may restrict the utilization of the regular tax and alternative minimum
tax net operating loss carryforwards. The amount of this restriction, if any,
has not been determined.

                                     F-17
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company adopted the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 "Accounting
For Income Taxes" ("SFAS 109"). Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their
financial amounts at year-end. The Company provides a valuation allowance to
reduce deferred tax assets to their net realizable value. The tax-effected
components of deferred tax assets at December 31, 1998 and 1997, are as
follows:

<TABLE>
<CAPTION>
                                                          1998         1997
                                                       -----------  -----------
      <S>                                              <C>          <C>
      Total deferred tax assets:
        Net operating losses and other................ $ 9,660,000  $ 8,827,000
        Valuation allowance...........................  (9,660,000)  (8,827,000)
                                                       -----------  -----------
                                                       $        --  $        --
                                                       ===========  ===========
</TABLE>

  The Company has significant net operating loss carryforwards for which
realization of tax benefits is uncertain and therefore all deferred tax assets
have been fully reserved at December 31, 1998 and 1997, respectively. The
change in the total valuation allowance for the year ended December 31, 1998
and 1997 was a net increase of approximately $833,000 and $832,000,
respectively. Contributing primarily to this change were operating losses
incurred during 1998 and 1997.

9. Related Party Transactions:

  For the period from inception, September 4, 1984, to December 31, 1998, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,157,072. Of this amount, $37,500 related to each of the years ended
December 31, 1998, 1997 and 1996, respectively.

  On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPO patent to Guerbet S.A., a stockholder of the Company, of Paris, France for
$500,000 cash.

  Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the
Agreement, Mr. Rash is employed as President and Chief Executive Officer of
the Company. The Agreement provides for a salary of $135,000 per year with
annual increases, plus bonuses of up to fifty percent, and options to purchase
600,000 shares of common stock at $0.50 per share. The options vest at varying
times during the term of Mr. Rash's three-year employment agreement. In 1997
Mr. Rash's agreement was extended to December 31, 1999 and the base salary
increased to $165,000 per year. In addition, options to purchase an additional
900,000 shares of common stock at $.6875 per share were granted. In December
1998 the Board extended his contract to December 31, 2000.

  Effective December 15, 1997, Marshall Kerr entered into a two-year
employment agreement with the Company. The employment agreement provides for a
salary of $80,000 per year through January 31, 1998 and $108,000 annually
thereafter with annual increases as determined by the Board of Directors and
annual bonuses of up to 50% of the base salary. In addition, the Company
granted options to purchase 300,000 shares of common stock; 100,000 shares at
$0.50 per share and 200,000 shares at $.42 per share. In December 1998 the
Board extended his contract to December 31, 2000.

  Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn.

                                     F-18
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective December 31, 1992, the Company and Aberlyn entered into a Patent
Assignment and License Agreement (the "Patent and License Agreement") pursuant
to which the Company assigned patents as collateral which are owned by the
subsidiary, Cathlab Corporation (the "Cathlab Patents"), to Aberlyn in return
for $500,000. The Cathlab Patents were exclusively licensed back to the
Company for three years for a monthly license fee of $16,355, after which
Aberlyn was required to reassign the Cathlab Patents to the Company in
exchange for $50,000. Under the terms, if the Company declined to purchase the
Cathlab Patents, the Patent and License Agreement would automatically be
extended for an additional nine months for a monthly license fee of $17,099,
after which the Cathlab Patents would automatically revert back to the
Company.

  The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment as collateral to Aberlyn in consideration of $205,000. The equipment
was exclusively leased back to the Company for three years for a monthly fee
of $6,706, after which Aberlyn was required to return the equipment to the
Company in exchange for $20,500. Under the terms, if the Company opted not to
purchase the equipment, the Equipment Lease would automatically be extended
for an additional three months for a monthly payment of $7,011, after which
the equipment would automatically revert back to the Company.

  Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which
the Company assigned certain equipment to Aberlyn in consideration of
$100,000. The equipment was exclusively leased back to the Company for three
years for a monthly fee of $3,271, after which Aberlyn was required to return
the equipment to the Company in exchange for $10,000. If the Company declined
to purchase the equipment, the term of the Second Equipment Lease was to be
automatically extended or an additional three months for a monthly payment of
$3,420, after which the equipment would automatically revert back to the
Company.

  The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual
payments of $97,445 and the payment terms of the Equipment Lease were
similarly revised to semiannual payments of $39,100 and $20,281, respectively.
In consideration to Aberlyn for making these modifications, the Company issued
warrants to Aberlyn to purchase 150,000 shares of the Company's common stock
at an exercise price of $1.50 per share exercisable over a five-year period.
On May 28, 1996, Aberlyn and the Company reached an agreement to restructure
the Leases which resulted in a revised schedule of lease payments over a
twenty-four month period, with the initial payment commencing on June 1, 1996.
The payments were based on an outstanding principal amount of approximately
$500,000 and total accrued interest of approximately $148,000. In addition,
115,000 shares of common stock were issued in payment of consulting fees,
investment banking service fees and accumulated miscellaneous expenses
totaling $115,728.

  Effective November 1, 1997, the Company and Aberlyn entered into
modification agreements of the Leases which revised the schedule of lease
payments and extended the maturity date to October 1, 1998. The leases are
currently being restructured.

  On February 18, 1996, the Company and Zanett Capital, Inc. ("Zanett"), a
financial consulting firm, signed an agreement whereby Zanett agreed to help
the Company raise capital pursuant to an offshore private placement of equity.
Claudio M. Guazzoni, a member of the Company's Board of Directors from March
1996 through December 1998, is Zanett's President and Chief Executive Officer.
As a retainer for availability of services by Zanett, the Company agreed to
grant Zanett warrants to purchase shares of common stock at a rate of 1 for
every 10 shares of common stork or warrants issued in connection with equity
and bridge financings raised by Zanett.

                                     F-19
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Each of the warrants will be exercisable at an exercise price of $0.50 per
share for five years from the date it was granted which shall be the date of
the closing of the particular equity or bridge financing in question. During
1996 through the efforts of Zanett, the Company sold 1,250,001 shares of
common stock, 1,390 shares of Series A preferred and 1,500 shares of Series B
preferred stock pursuant to Regulation S of the Securities Act of 1933, as
amended. In connection with these placements, the Company issued warrants to
purchase 811,310 shares of common stock to unrelated third parties upon
assignment of such warrants by Zanett. In addition, a 10% placement fee of
approximately $319,000 has been paid to Zanett or their designated
representative in connection with the sale of the Series A and Series B
Preferred.

  In September 1996, Zanett was granted a restricted exercise warrant to
purchase 25,000 shares of common stock at $.9375 in connection with the
placement of bridge financing. The warrants are exercisable for five years.

  The Company does not have a policy against employing relatives. During the
years ended December 31, 1997 and 1996, the Company paid salaries and wages to
relatives of officers of the Company amounting to $7,797, and $22,692,
respectively. No relatives of officers were employed in 1998.

10. Capital Stock:

 Common Stock

  The Company is authorized to issue 50,000,000 shares of common stock, $.001
par value per share. The holders of outstanding shares of common stock are
entitled to share ratably on a share-for-share basis with respect to any
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. Each holder of common stock is entitled to one
vote for each share held of record. The common stock is not entitled to
conversion or preemptive rights and is not subject to redemption. Upon
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in the net assets legally available for
distribution.

 Preferred Stock

  The Company is authorized to issue 2,000,000 shares of preferred stock with
such designation, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's common stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company.

  In February 1996 the Company sold 1,390 shares of its Series A convertible
preferred stock, of which 683 shares are outstanding at December 31, 1998, par
value $.001 per share ("Series A Preferred"), at a purchase price of $1,000
per share, to a group of foreign investors (the "Investors"). The Series A
Preferred, which bears no dividends and confers no voting rights, is senior in
priority to the Company's other equity securities (except with the consent of
a majority of the holders of the Series A Preferred) and is convertible at any
time after October 30, 1996 at the option of the holders into such number of
common shares (the "Series A Conversion Shares") as is equal to $1,000 divided
by the lesser of (i) $.24 or (ii) 80% of the average of closing bid price of
the common stock for the five consecutive days ending two days prior to the
day the election to convert is made (the "Conversion Price"). The number of
Conversion Shares is subject to adjustment from time to time upon the
occurrence of stock splits, reverse stock splits and similar events. In July
1999 any outstanding shares of the Series A Preferred will be automatically
converted based on the Conversion Price then in effect. In addition,
registration rights were granted to the Investors for the common stock
issuable upon conversion of the Series A

                                     F-20
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Preferred. The term of the registration rights is three years and includes
three demand registration rights and unlimited piggyback rights. In the event
that the Company conducts an underwritten offering during such term, the
number of shares offered by the holders pursuant to a piggyback registration
may be cut back on a pro rata basis at the discretion of the managing
underwriter. In the event of the dissolution or winding up of the Company, the
holders of Series A Preferred shall have a liquidation preference equal to the
stated value of $1,000 per share. The Series A Preferred is subject to
mandatory redemption at the option of the holders of at least 50% of then
outstanding shares of Series A Preferred if the Company fails to issue shares
of common stock, fails to transfer shares of common stock or fails to remove
any restrictive legend on any certificate or any shares of common stock upon
the exercise of the conversion rights by the holders of the Series A
Preferred.

  In November 1996 the Company issued units consisting of (i) 1,500 of its
1996 Series B convertible preferred stock of which none are outstanding, par
value $.001 per share (the "Series B Preferred"), and (ii) an equal number of
warrants to purchase common stock (the "Warrants") to a group of foreign
investors (the "Series B Investors") for a total purchase price of $1,500,000,
or $1,000 per unit. The Series B Preferred was fully converted into a total of
4,191,853 shares of common stock. Each Warrant entitles the holder to the
number of shares of common stock equal to the quotient of $1,000 divided by
the market price of the common stock on the closing date of the Series B
issuance. The exercise price of the Warrants is equal to the average of the
market price for the common stock for the ten consecutive days prior to the
sixtieth day after the closing date of the Series B issuance. The warrants
terminate five years after issuance and the exercise price of the warrants and
the number of shares of common stock underlying the warrants are both subject
to adjustment upon the occurrence of stock splits, reverse stock splits, the
issuance of below-market securities, and other events. The Series B Investors
were given registration rights with the respect to the shares of common stock
issuable upon conversion of the Series B Preferred and exercise of the
Warrants and was included in the 1997 registration statement.

  As a result of Securities and Exchange Commission guidance issued in early
1997 with respect to beneficial conversion features in connection with the
issuance of convertible preferred stock, the Company was deemed to recognize
non-cash preferred stock dividends totaling approximately $1.2 million in
fiscal year 1996. This amount is equivalent to the discount from the fair
market value of the common stock given to the purchasers of the Series A and B
calculated as of the date of the sale of such stock.

  In March 1997 the Company issued 125 shares of its Series C convertible
preferred stock, par value $.001 per share (the "Series C Preferred") to
Nelson Partners, an unaffiliated investor, for a total purchase price of
$2,500,000 or $20,000 per share. The Series C Preferred was fully converted
into a total of 6,471,954 shares of common stock. Registration rights were
conferred upon the Series C Preferred requiring the Company to file a
registration statement covering the resale of the Series C Conversion Shares
on or before the ninetieth day following the issuance date ("Scheduled
Effective Date"). The Registration Statement became effective July 25, 1997
which was after the Scheduled Effective Date.

  The Series D preferred convertible stock (the "Series D Preferred") and
Series E preferred convertible stock (the "Series E Preferred"), which bear no
dividends and confer no voting rights, rank equal with each other, rank junior
to the Series A Preferred, Series B Preferred and Series C Preferred and rank
senior to the Company's other securities (except with the consent of the
majority of the holders of Series D Preferred or the consent of the majority
of the holders of Series E Preferred respectively). In the event of the
dissolution or winding up of the Company, the holders of Series D Preferred
and Series E Preferred shall have liquidation preferences of $10 per share
plus any accumulated but unpaid dividends, and no more, before any payment or
distribution of assets of the Company is made to or set apart from the holders
of the common stock. The Series D Preferred shall not be redeemable at any
time prior to September 30, 1999. After that date, the Company may, at its
option and at any time prior to notice of the Series D Preferred at the time
issued and outstanding for an amount in cash equal to $11.75 per share plus
any accumulated and unpaid dividends. If less than all the Series

                                     F-21
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

D Preferred are to be redeemed, then such redemption shall be pro rata based
on the number of Series D Preferred owned of record by each preferred
shareholder. The Series E Preferred shall not be redeemable at any time prior
to September 30, 2001. After that date, the Company may, at its option and at
any time prior to notice of conversion of the Series E Preferred by the holder
thereof, redeem all or any part of the Series E Preferred at the time issued
and outstanding for an amount in cash equal to $11.75 per share plus any
accumulated and unpaid dividends. If less than all the Series E Preferred are
to be redeemed, then such redemption shall be pro rata based on the number of
shares of Series E Preferred owned of record by each preferred shareholder.

  The Company authorized 60,000 shares of Series D Preferred and 500,000
shares of Series E Preferred on April 29, 1998. Both Series D Preferred and
Series E Preferred have a stated value of $10 per share and 8% cumulative
dividends payable in either cash or stock at the option of the Company. At
December 31, 1998, 34,000 shares of Series D Preferred and 7,500 shares of
Series E Preferred are issued and outstanding. Each share of the Series D is
convertible based upon a conversion price that is equal to the lesser of (a)
110% of the closing bid price five day average preceding the date of purchase
of the Series D by the holder; or (b) 80% of the closing bid price five day
average preceding the date such conversion is made. The Series D and Series E,
which confer no voting rights, rank equal with each other, rank junior to the
Series A, B and C convertible preferred stock and senior to the Company's
other securities (except with the consent of the majority of the holders of
Series D or the consent of the majority of the holders of Series E,
respectively). In the event of the dissolution or winding up of the Company,
the holders of Series D and Series E shall have liquidation preferences of $10
per share plus any accumulated but unpaid dividends, and no more, before any
payment or distribution of assets of the Company is made to or set apart for
the holders of the Common Stock.

  Each share of the Series E Preferred are convertible any time after issuance
at 82.5% of the five day average of the closing bid prices for the five
trading days preceding the date such conversion is made. The conversion ratio
for Series D Preferred and Series E Preferred is subject to adjustment from
time to time upon the occurrence of stock splits, reverse stock splits and
similar events. No additional shares of Series E may be issued due to the
interpretations of the SEC regarding equity lines of credit.

  The Company received $600,000 less offering costs for the issuance of 60,000
shares of Series D on April 29, 1998 and $75,000 less offering costs for the
issuance of 7,500 shares of Series E on July 27, 1998. Due to the beneficial
conversion features in connection with the issuance of Series D and Series E,
the Company was deemed to recognize noncash preferred stock dividends totaling
approximately $170,000. This amount is equivalent to the discount from the
fair market value of the common stock given to the purchasers of the Series D
and Series E calculated as of the date of the sale of such stock.

11. Stock Purchase Warrants:

  Under the terms of the agreement with Aberlyn Capital Management Limited
Partnership (See Note 9), the Company issued Aberlyn and Aberlyn Holdings
Company, Inc., an affiliate of Aberlyn, warrants to purchase 15,000 and 60,000
shares of common stock, respectively, at $7.50 per share. The warrants expired
in January 1998.

  In September and October 1993 the Company issued warrants to purchase a
total of 193,500 shares of its common stock. These warrants are exercisable at
any time during the five-year period from date of issue at a per share price
of $1.00. During 1996 warrants for 2,500 shares were exercised. The remainder
expired in 1998.

  In July 1993 the Company issued stock purchase warrants to the holders of
the Series B preferred stock to purchase an aggregate of 288,203 shares of the
Company's common stock at an exercise price of $6.65 per share. The warrants
expired in June 1998.

                                     F-22
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In August 1993 the Company issued warrants to purchase 848,002 shares of
common stock at an exercise price of $2.16 per share in connection with a 30-
day lock-up agreement upon the conversion of the Series B preferred stock on
October 22, 1993. The warrants expired in 1998.

  In connection with the offering of 1,500,000 shares in October 1993, the
Company issued warrants to its underwriters to purchase 150,000 shares of
common stock at prices ranging from $2.50 to $3.60 per share. The warrants
expired in 1998.

  In March 1994, the Company issued warrants to purchase 20,000 shares of
common stock at $1.00 per share in connection with a loan guarantee. In June
1994, the Company issued an additional 50,000 warrants to purchase common
stock in connection with the renewal and extension of the note. The warrants
are exercisable for five years.

  In connection with the modification of the lease terms with Aberlyn in May
1996, the Company issued warrants to purchase 150,000 shares of common stock
at $1.50 per share. The warrants are exercisable for five years.

  In connection with the private placement of 552,042 shares of common stock
in January and February, 1994, the Company issued warrants to purchase 224,139
shares of common stock at $1.35 per share. The warrants are exercisable for
five years.

  In June 1994, the Company issued warrants to purchase 282,634 shares of
common stock at prices ranging from $1.00 per share to $3.60 per share. These
warrants were issued as a result of transactions during 1993 in connection
with various bridge loans and are exercisable for five years. Warrants for
8,333 shares and 105,665 shares were exercised during 1997 and 1996,
respectively. One warrant was under exercised by one share in 1996 and is
therefore forfeited. The remaining warrants for 168,635 shares expired in
1998.

  In August 1994, in connection with a licensing agreement with Wright Medical
Technologies (See Note 4), the Company issued warrants to purchase 150,000
shares of common stock at $2.00 per share. The warrants are exercisable for
five years.

  In October 1994, the Company granted to one of its investment bankers, in
consideration for past services performed, warrants to purchase 100,000 shares
of common stock at $2.50 per share. The warrants are exercisable for five
years.

  On June 16, 1995, the Board authorized warrants to Aberlyn Capital
Management Limited Partnership in order to induce Aberlyn to not accelerate
the repayment of loans in the amount of $455,298. The warrants are to purchase
100,000 shares of common stock at $.1875 per share and 100,000 shares of
common stock at $.50 per share and are exercisable for five years. An expense
of $37,500 was recorded in 1995 for the difference between the fair market
value of the stock and the warrant prices.

  In connection with the issuance of promissory notes in September 1996, the
Company issued warrants to purchase an aggregate of 250,000 shares of the
Company's common stock (the "Bridge Warrants") and certain registration rights
in connection with such stock. The Bridge Warrants, issued pursuant to
Regulation S of the Securities Act, have a term of five years from the date of
issuance and an exercise price of $0.9375. In addition, the lenders were given
registration rights with respect to the shares of common stock issuable upon
exercise of the Bridge Warrants. The term of the registration rights is three
years and includes three demand registration rights and unlimited piggyback
rights. In the event the Company conducts an underwritten offering during such
term, the number of shares offered by the holders pursuant to a piggyback
registration may be cut back on a pro rata basis at the discretion of the
managing underwriter.

                                     F-23
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In connection with a consulting agreement, the Company issued warrants to
purchase 836,310 shares of common stock at prices ranging from $0.50 to $1.40
for fees in connection with the Series A Preferred, Series B Preferred and
bridge loan financing and are exercisable for five years from date of grant.
Warrants to purchase 1,209,677 shares at $1.40 were issued in connection with
the issuance of Series B Preferred Stock, exercisable for five years.

  In December 1996 warrants to purchase 25,000 shares of common stock at $1.50
per share were issued for fees in connection with a short-term loan. The
warrants are exercisable for five years.

  In connection with the private placement of 1,171,844 shares of common stock
during January through April 1998, the Company granted warrants to purchase
317,000 shares of common stock at exercise prices ranging from $0.34 to $0.69
per share. The warrants are exercisable for two years.

  In February 1998 the Company issued a warrant to purchase 125,000 shares of
common stock to Aberlyn Capital Management Limited Partnership as an
inducement to enter into a modification agreement on the repayment of an
existing lease agreement. The warrant is exercisable for five years at an
exercise price of $0.44 per share.

  In connection with private placement of preferred stock, the Company issued
to the investor a warrant to purchase 60,000 shares of common stock at an
exercise price of $0.85 per share exercisable for three years. In addition,
warrants to purchase 200,000 shares of common stock were issued to consultants
as part of a finders fee agreement.

  In September 1998, the Company issued a warrant to purchase 50,000 shares of
common stock for an exercise price of $0.35 per share exercisable for two
years. The warrants were issued in connection with a bridge loan. In December
1998, warrants to purchase 10,000 shares of common stock at an exercise price
of $0.35 were issued due to the late payment of the note. The additional
warrants are also exercisable for two years. Warrants to purchase 200,000
shares at an exercise price of $0.55 exercisable for five years were issued to
consultants as part of a finders fee agreement for this transaction.

  In September 1998, the Company issued a warrant to purchase 500,000 shares
at an exercise price of $0.35 to a consultant in connection with a consulting
agreement.

  In connection with bridge financing during October and December 1998, the
Company issued warrants to purchase 374,000 shares of common stock at an
exercise price ranging from $0.195 to $0.225 per share exercisable for two
years.

                                     F-24
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Cumulative shares issuable under warrants and their expiration dates as of
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                   Expiration  Number   Exercise
      Grant Date                                      Date    of Shares  Price
      ----------                                   ---------- --------- --------
      <S>                                          <C>        <C>       <C>
      January-February 1994.......................    1999      224,139 $1.3500
      March 1994..................................    1999      150,000 $1.5000
      March-June 1994.............................    1999       70,000 $1.0000
      August 1994.................................    1999      150,000 $2.0000
      October 1994................................    1999      100,000 $2.5000
      June 1995...................................    2000      100,000 $0.1875
      June 1995...................................    2000      100,000 $0.5000
      February 1996...............................    2001      704,167 $0.5000
      September 1996..............................    2001      275,000 $0.9375
      November 1996...............................    2001    1,209,677 $1.4000
      November 1996...............................    2001      107,143 $1.4000
      December 1996...............................    2001       25,000 $1.5000
      January 1998................................    2000      200,000 $0.3700
      February 1998...............................    2003      125,000 $0.4400
      March 1998..................................    2000       22,000 $0.3400
      March 1998..................................    2000        5,000 $0.4200
      April 1998..................................    2000       40,000 $0.3400
      April 1998..................................    2000       50,000 $0.6900
      April 1998..................................    2001       60,000 $0.8500
      April 1998..................................    2003      200,000 $0.8500
      September 1998..............................    2000       50,000 $0.3500
      September 1998..............................    2003      200,000 $0.5500
      September 1998..............................    2003      500,000 $0.3500
      October 1998................................    2000        4,000 $0.2250
      October 1998................................    2000       10,000 $0.2000
      October 1998................................    2000      100,000 $0.1950
      November 1998...............................    2000       10,000 $0.3500
      December 1998...............................    2000      260,000 $0.1950
                                                              ---------
                                                              5,051,126
                                                              =========
</TABLE>

                                     F-25
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. Stock Options:

  At December 31, 1998, the Company had two stock-based compensation plans
which are described below. Additionally, the Company has issued options that
are not part of these plans to various employees and consultants (the "Other
Plan"). The Company applies APB Opinion 25 and related interpretations in
accounting for options issued to employees and directors. Options issued to
consultants and other non-employees are recorded at fair market value. The
compensation cost that has been charged against income for its stock option
plans was approximately $59,250, $122,800, and $238,000 for 1998, 1997 and
1996, respectively. Had compensation cost for the Company's two stock-based
compensation plans and Other Plan been determined consistent with Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
   Year                                    1998         1997         1996
   ----                                 -----------  -----------  -----------
   <S>                                  <C>          <C>          <C>
   Net loss
     As reported....................... $(2,630,084) $(2,774,203) $(2,625,116)
     Pro forma......................... $(2,764,781) $(3,084,982) $(2,814,845)
   Net loss available to common
    shareholders
     As reported....................... $(2,800,115) $(2,774,203) $(3,808,529)
     Pro forma......................... $(2,934,812) $(3,084,982) $(3,998,258)
   Net loss per common share
     As reported....................... $      (.11) $      (.18) $      (.34)
     Pro forma......................... $      (.11) $      (.20) $      (.35)
</TABLE>

  The Company's fixed option plans include the 1996 Incentive Stock Option
Plan (the "1996 Plan"), the 1994 Stock Option Plan (the "1994 Plan") and the
Other Plan. Effective June 30, 1997 the Board terminated the 1990 and the 1992
Stock Option Plans. There were no outstanding options at the time of
termination. Options under the plans, except the Other Plan, generally vest
20% per year over five years after one year of service and have a maximum term
of ten years. Options under the Other Plan vest over various periods ranging
from immediate to three years.

  The 1996 Plan provides for the grant of (i) stock options, including
incentive stock options and non-qualified stock options, (ii) shares of
restricted stock, (iii) performance awards payable in cash or common stock,
(iv) shares of phantom stock, (v) stock bonuses, and (vi) cash bonuses
(collectively, the "Incentive Awards"). As of December 31, 1998, 215,000
shares of common stock and options to purchase 330,000 shares have been
granted to consultants, and 25,000 shares of common stock and options to
purchase 905,000 shares have been granted to employees. The number of shares
of common stock subject to the 1996 Plan is 1,500,000 and is effective
October 10, 1996 as approved by the stockholders at the annual meeting held
November 22, 1996. The 1996 Plan will terminate October 10, 2006 unless
earlier terminated by the Company.

  Under the 1994 Plan, options to purchase an aggregate of 1,500,000 shares
are available for grants to employees and consultants of the Company and its
subsidiaries. The 1994 Plan will terminate on April 8, 2004 unless terminated
earlier by the Company.

  In April 1995, in consideration for termination of a distribution agreement,
the Company granted a distributor an option to purchase 437,500 shares at
$0.40 per share. In settlement of litigation on May 1, 1998 these options were
replaced with options to purchase 225,000 shares at $0.40 per share,
exercisable for six months with registration requirements. In 1999 the final
resolution of the case resulted in the exercise period being extended to three
years from the date a new agreement was signed by the Company.

                                     F-26
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In connection with his employment in 1995 as President and CEO, the Company
granted Steven B. Rash options to purchase 600,000 shares of common stock at
$.50 per share vesting at various times during his three-year contract. The
options are exercisable through 2002.

  In connection with a consulting agreement, the Company issued options to
purchase 100,000 shares at $.001 per share and 300,000 shares at $.56 per
share to a medical consultant in December 1995, exercisable for ten years. The
options are exercisable through 2005.

  In connection with their employment in 1996, the Company granted hiring
options to three employees for a total of 115,000 at exercise prices ranging
from $.50 to $1.25 which equaled fair market value at the time of issuance.
During 1997 options to purchase 30,000 shares were forfeited due to
termination of employment and failure to exercise within the required time
frame. The options are exercisable for five years.

  In connection with settlement agreements, the Company granted options to
purchase 225,000 shares of common stock which are exercisable through 1999 to
Lawrence M. Hoffman and 150,000 shares of common stock to a former officer at
an exercise price of $.6875. The former officer exercised his options in 1998
as part of a litigation settlement.

  In connection with a consulting agreement, the Company issued options to
purchase 60,000 shares of stock at $1.00 exercisable for two years. These
options expired in 1998.

  The Company granted options to purchase common stock totaling 93,000 shares
as a retainer to each of its four directors and for attendance at the Board of
Directors meetings during 1997. The options are exercisable for five years at
an exercise price ranging from $0.46875 to $1.3125 which equaled fair market
value at the time of issuance.

  In connection with his employment agreement in December 1997 as Vice
President, Sales and Marketing, the Company granted Marshall Kerr options to
purchase 100,000 shares at $.50 and 200,000 shares at $0.42 vesting at various
times during his two-year contract and expiring December 2004.

                                     F-27
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  A summary of the status of the Company's stock options granted to employees
as of December 31, 1998, December 31, 1997 and December 31, 1996 and the
changes during the year ended on these dates is presented below:

<TABLE>
<CAPTION>
                               Employee Stock Options
-------------------------------------------------------------------------------------
                                 1998                1997                1996
                          ------------------- ------------------- -------------------
                           # Shares  Weighted  # Shares  Weighted  # Shares  Weighted
                              of     Average      of     Average      of     Average
                          Underlying Exercise Underlying Exercise Underlying Exercise
                           Options    Prices   Options    Prices   Options    Prices
                          ---------- -------- ---------- -------- ---------- --------
<S>                       <C>        <C>      <C>        <C>      <C>        <C>
Outstanding at beginning
 of the year............  2,295,000   $0.73   1,465,476   $1.09   2,972,194   $0.89
Granted at-a-discount...          0     n/a      59,000   $0.94      15,000   $0.75
Granted at-the-money....          0     n/a   1,134,000   $0.67           0     n/a
Granted at-a-premium....          0     n/a     105,000   $0.55     110,000   $0.95
Total options granted...          0     n/a   1,298,000   $0.67     125,000   $0.93
Exercised...............          0     n/a      20,000   $0.19     101,000   $1.00
Forfeited...............          0     n/a      30,000   $1.04   1,253,418   $0.24
Expired.................          0     n/a     418,476   $1.73     277,300   $2.77
Outstanding at end of
 year...................  2,295,000   $0.73   2,295,000   $0.73   1,465,476   $1.09
Exercisable at end of
 year...................  1,514,000   $0.79     886,000   $0.90     542,000   $1.14
Weighted-average FV of
 options granted at-a-
 discount...............                n/a               $0.79               $0.67
Weighted-average FV of
 options granted at-the-
 money..................                n/a               $0.49                 n/a
Weighted-average FV of
 options granted at-a-
 premium................                n/a               $0.34               $0.55
Weighted-average FV of
 all options granted....                n/a               $0.49               $0.56
</TABLE>

  The following table summarizes information about stock options for employees
and directors outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                   Options Outstanding          Options Exercisable
                          ------------------------------------- --------------------
                                      Weighted                              Weighted
                            Number    Average  Weighted Average   Number    Average
                          Outstanding Exercise    Remaining     Exercisable Exercise
Range of Exercise Prices  at 12/31/98  Price   Contractual Life at 12/31/98  Price
------------------------  ----------- -------- ---------------- ----------- --------
<S>                       <C>         <C>      <C>              <C>         <C>
$0.42 to $0.99..........   1,850,000   $0.58       5.70701       1,069,000  $0.55221
$1.00 to $2.99..........     370,000   $1.02       1.51130         370,000  $1.01537
$3.00...................      75,000   $3.00       0.58000          75,000  $3.00000
                           ---------                             ---------
$0.42 to $3.00..........   2,295,000   $0.73       4.86303       1,514,000  $0.78666
</TABLE>

  The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
                           Assumption                      1998   1997    1996
                           ----------                      -----  -----  ------
      <S>                                                  <C>    <C>    <C>
      Expected Term.......................................   n/a   4.82    3.18
      Expected Dividend Yield.............................  0.00%  0.00%   0.00%
      Expected Volatility................................. 96.87% 95.00% 109.45%
      Risk-Free Interest Rate.............................  6.50%  6.29%   6.01%
</TABLE>

                                     F-28
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  A summary of the status of the Company's stock options granted to non-
employees as of December 31, 1998, December 31, 1997 and December 31, 1996 and
the changes during the year ended on these dates is presented below:

<TABLE>
<CAPTION>
                             Non-Employee Stock Options
-------------------------------------------------------------------------------------
                                 1998                1997                1996
                          ------------------- ------------------- -------------------
                           # Shares  Weighted  # Shares  Weighted  # Shares  Weighted
                              of     Average      of     Average      of     Average
                          Underlying Exercise Underlying Exercise Underlying Exercise
                           Options    Prices   Options    Prices   Options    Prices
                          ---------- -------- ---------- -------- ---------- --------
<S>                       <C>        <C>      <C>        <C>      <C>        <C>
Outstanding at beginning
 of the year............  1,602,500   $0.62   1,272,500   $0.52   1,690,167   $0.84
Granted at-a-discount...    225,000   $0.40      60,000   $1.00     435,000   $0.73
Granted at-the-money....          0     n/a           0     n/a           0     n/a
Granted at-a-premium....    100,000   $0.70     270,000   $1.00           0     n/a
Total options granted...    325,000   $0.49     330,000   $1.00     435,000   $0.73
Exercised...............    150,000   $0.69           0     n/a      96,000   $1.00
Forfeited...............    437,500   $0.40           0     n/a     616,667   $0.19
Expired.................     60,000   $1.00           0     n/a     140,000   $6.21
Outstanding at end of
 year...................  1,280,000   $0.63   1,602,500   $0.62   1,272,500   $0.52
Exercisable at end of
 year...................  1,280,000   $0.63   1,602,500   $0.62   1,122,500   $0.50
Weighted-average FV of
 options granted at-a-
 discount...............              $0.31               $0.81               $0.68
Weighted-average FV of
 options granted at-the-
 money..................                n/a                 n/a                 n/a
Weighted-average FV of
 options granted at-a-
 premium................              $0.37               $0.34                 n/a
Weighted-average FV of
 all options granted....              $0.33               $0.42               $0.68
</TABLE>


  The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
      Assumption                                           1998   1997    1996
      ----------                                           -----  -----  ------
      <S>                                                  <C>    <C>    <C>
      Expected Term.......................................  1.12   5.00    1.26
      Expected Dividend Yield.............................  0.00%  0.00%   0.00%
      Expected Volatility................................. 96.87% 95.00% 109.45%
      Risk-Free Interest Rate.............................  6.50%  6.15%   5.61%
</TABLE>

  The following summarizes information about fixed stock options for
employees, directors and non-employees outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                Options Outstanding        Options Exercisable
                          -------------------------------- --------------------
                                                Weighted
                                      Weighted   Average               Weighted
                            Number    Average   Remaining    Number    Average
                          Outstanding Exercise Contractual Exercisable Exercise
Range of Exercise Prices  at 12/31/98  Price      Life     at 12/31/98  Price
------------------------  ----------- -------- ----------- ----------- --------
<S>                       <C>         <C>      <C>         <C>         <C>
$0.001 to $0.99..........    950,000  $0.50820   3.59673      950,000  $0.50820
$1.00 to $2.99...........    330,000  $1.00000   8.65909      330,000  $1.00000
$0.001 to $2.99..........  1,280,000  $0.63499   4.90187    1,280,000  $0.63499
</TABLE>

                                     F-29
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


13. Supplemental Information for Consolidated Statement of Cash Flows:

<TABLE>
<CAPTION>
                                                                    Inception
                                                                   September 4,
                             Year Ended   Year Ended   Year Ended    1984, to
                            December 31, December 31, December 31, December 31,
                                1998         1997         1996         1998
                            ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
Interest paid.............   $ 113,161    $ 108,660    $ 392,580    $1,368,699
Noncash investing and
 financing activities:
Equipment acquired through
 capital lease
 agreements...............                                             266,539
Equipment and leasehold
 improvements acquired
 through notes payable....                                              35,775
Conversion of accrued
 interest payable to
 principal on notes
 payable to stockholders..                                             105,170
Conversion of Series A and
 Series B preferred stock
 to common stock..........                                                 444
Conversion of 1996 Series
 A and B, 1997 Series C,
 and 1998 Series D
 preferred stock to common
 stock....................   3,280,579    1,260,000                  4,540,579
Conversion of debentures
 to common stock..........                                             640,000
Deferred offering costs
 incurred in prior year
 charged against offering
 proceeds.................                                              41,000
Issuance of common stock
 in connection with
 purchase of assets of
 VMS, Inc.................                                             124,999
Issuance of common stock
 in connection with
 purchase of assets of
 Superstat, Inc...........                                              81,819
Conversion of notes
 payable to common stock..                               488,671       538,671
Common stock and warrants
 issued in lieu of
 interest.................                                58,139     1,387,300
Patent assignment and
 leaseback................                                             500,000
Issuance of common stock
 in connection with Therex
 settlement...............                                                  77
Transfer of note
 receivable from officer..                                              25,000
Write-up of property and
 equipment on Cathlab due
 to sale and leaseback
 agreement................                                             221,616
Issuance of common stock
 and warrants for
 services.................      72,750       28,280      367,500     1,108,457
Issuance of common stock
 for certain liabilities..     122,334      178,286    1,546,509     1,847,129
</TABLE>

14. Sales Information:

  During the year ended December 31, 1998 sales to three customers represented
15.6%, 13.3% and 10.5% of the Company's total net sales. The remainder of net
sales to any one customer was less than 10%. Sales to one customer during the
year ended December 31, 1997 represented 16.9% of net sales while sales to
three customers during 1996 represented 18.7%, 18.2% and 12.9% of net sales.
The loss of any of these major accounts would be material to the Company's
overall results of operations, financial position and cash flows. Foreign
export net sales for 1998, 1997 and 1996 were approximately 55%, 62% and 55%,
respectively.

15. Acquisition and Purchase Agreements:

  During October 1992, the Company acquired the assets of SuperStat, Inc.
("SuperStat") in exchange for 18,182 shares of the Company's common stock,
valued at $81,819. Superstat has developed a patented modified collagen
hemostatic sponge for use to control bleeding in vascular and general surgery.

  In March 1995, under an agreement with SuperStat, the Company transferred
the license agreement to BioCell, Inc. and was relieved of the obligation to
pay royalties in consideration of receiving a .5% royalty on future product
sales by BioCell, Inc. The Company received royalties in the amount of $367 in
1998.

                                     F-30
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


16. Subsequent Event:

  On March 3, 1999, the Company and an investor entered into a securities
purchase agreement for a Series 1999-A Nine Percent (9%) Redeemable
Convertible Debenture (the "Debenture") in the amount of $400,000. Offering
costs of $47,500 were incurred in this transaction. The Debenture matures
December 31, 2001 with interest payable quarterly. The Company granted the
holder a security interest in the OmniCath(R) and the Evert-O-Cath(TM). As
additional consideration a warrant to purchase 40,000 shares of common stock
at an exercise price of $0.175 per share, which is equal to 125% of the
closing bid price for the common stock on March 3, 1999. The warrant is
exercisable for three years.

  The Debenture is convertible into common stock at a conversion price equal
to the lesser of $0.15 per share or 75% of the lowest of the closing bid
prices for the five business days immediately preceding the conversion date.
As a part of the agreement registration rights were granted regarding the
warrant, the conversion shares, the interest shares and the security shares,
and the Company must make reasonable efforts to file a registration statement
within 45 days after closing.

  The Company has a right to redeem all or a portion of the Debenture at any
time prior to receiving a notice of conversion. The cash redemption amount
shall be equal to:

  . 115% of the face amount to be redeemed if redeemed within the first
    thirty days;

  . 120% of the face amount to be redeemed if redeemed between thirty-one and
    sixty-one days; or

  . 125% of the face amount to be redeemed if redeemed after 60 days.

  On March 26, 1999, the Company entered into an exclusive license agreement
with Manufacturing & Research, Inc. ("MRI") for its Cathlab(R) patents.
Pursuant to such license agreement, the Company will relocate its
manufacturing facility  to MRI's facility in Tucson, Arizona. MRI will staff
and manage the facility and will manufacture the Company's Cathlab and balloon
cardiovascular products under the licensing agreement. Management anticipates
this will save the Company approximately $600,000 annually in operating,
production and engineering costs. This license agreement provides for a one-
time license fee in the amount of $25,000. In addition, MRI shall pay a
royalty interest on the net amount received from all sales to their customers
under the licensing agreement that utilizes the Company's proprietary
technology.

  The Company entered into an exclusive worldwide, royalty-bearing license
agreement on April 14, 1999 with IntraTherapeutics, Inc. for its OmniFilter
technology, a percutaneous guidewire micro-filter to be used in carotid
angioplasty procedures. The Company will receive a one-time license fee of
$1,000,000 and a 5% royalty fee for the life of the patents. The license term
is the later of the expiration of all patents, including patent applications,
or ten years from the first commercial sale of the licensed product.

17. Operations:

  The Company has incurred recurring operating losses and negative cash flow.
In order to continue as a going concern, the Company must raise additional
capital and ultimately achieve profitable operations. Though still a
developmental stage company engaged in the development, manufacture and
marketing of medical devices, the Company has eleven products presently
available to market and has a comprehensive business strategy which it
believes will enable it to capitalize on its technologies and developing
trends in the healthcare industry. Management believes it will be able to
raise the capital necessary to fund the commercialization of its existing
technologies and current working capital for the foreseeable future by
"unbundling" its core technologies and identifying a strategic partner for
each technology and product in a specific international market.

  The Company's strategic plan consists of focusing on increased market
penetration of its eleven existing FDA-approved products, continuing to
upgrade and expand its distribution network, continuing to focus on the
commercialization of its core technologies by pursuing US and international
regulatory approval, aggressively

                                     F-31
<PAGE>

                     AMERICAN BIOMED, INC. AND SUBSIDIARY
                       (A Development Stage Enterprise)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

pursuing the sale of ancillary technology to meet future cash requirements and
to validate the proprietary nature of its technologies and continuation of
efforts to identify and pursue strategic alliances.

  Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies.
Since receiving ISO 9001 certification in January 1998 and CE Mark
Certification in September 1998, the Company has received unsolicited requests
to manufacture unique devices to the specifications of third parties,
indicating growth potential as an OEM manufacturer. One OEM contract for
100,000 units per year is currently in force and other OEM contracts are in
the discussion phase.

  In addition, during 1998, management has undertaken efforts to identify
healthcare companies with similar technologies or companies seeking new
proprietary products to strengthen their existing market position. This
strategy is directed toward the formation of strategic alliances, joint
venture arrangements, licensing and distribution agreements, and research and
development agreements and projects. An integral part of this on-going
strategy is to aggressively pursue the sale of all ancillary technology which
will enable the Company to focus its resources exclusively on its core
technologies and commercial non-angioplasty balloon catheter products.
Although there can be no assurances, the Company does not foresee any risks
associated with these initiatives.

                                     F-32
<PAGE>

                    AMERICAN BIOMED, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
American BioMed, Inc.

  Our report on the consolidated financial statements of American BioMed, Inc.
and Subsidiary (a development stage enterprise), which refers to substantial
doubt regarding the Company's ability to continue as a going concern, is
included on Page F-2 in this Form 10-K. In connection with our audits of such
consolidated financial statements, we have also audited the related
consolidated financial statement schedule listed in the index on Page F-1 of
this Form 10-K.

  In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.

KARLINS ARNOLD & CORBITT, P.C.

The Woodlands, Texas
March 26, 1999

                                     F-33
<PAGE>

                                                                     SCHEDULE II

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES

                       Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
        COLUMN A          COLUMN B  COLUMN C   COLUMN D    COLUMN E   COLUMN F
                                         Additions
                                    --------------------
                                       (1)       (2)
                           Balance   Charged   Charged
                             at     to costs   to other                Balance
                          Beginning    and    accounts-- Deductions-- at end of
       Description        of Period expenses   describe    describe    period
       -----------        --------- --------  ---------- ------------ ---------
<S>                       <C>       <C>       <C>        <C>          <C>
December 31, 1996
  Allowance for doubtful
   accounts..............    45,480    13,238                1,218(1)    57,500
  Allowance for deferred
   tax assets............ 6,836,000 1,159,000                         7,995,000
December 31, 1997
  Allowance for doubtful
   accounts..............    57,500    68,721               69,054(1)    57,167
  Allowance for deferred
   tax assets............ 7,995,000   832,000                         8,827,000
December 31, 1998
  Allowance for doubtful
   accounts..............    57,167                         17,167(1)    40,000
  Allowance for deferred
   tax assets............ 8,827,000   833,000                         9,660,000
</TABLE>
--------
(1) Write-off of bad debts.

                                      F-34
<PAGE>

                                  SIGNATURES

  Pursuant to the Requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
The Woodlands, State of Texas, on the 2nd day of June, 1999.

                                          AMERICAN BIOMED, INC.

                                                   /s/ Steven B. Rash
                                          By:__________________________________
                                             Steven B. Rash
                                             Chairman of the Board

  Pursuant to the requirements of the Securities Act of 1933, to this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<S>  <C> <C>
</TABLE>

   /s/    Steven B. Rash             Chairman of the Board,     June 2, 1999
-----------------------------------   President and Chief
          Steven B. Rash              Executive Officer

   /s/  Colene Blankinship           Controller (Principal      June 2, 1999
-----------------------------------   Financial and
        Colene Blankinship            Accounting Officer)

   /s/  Lawrence M. Hoffman          Director                   June 2, 1999
-----------------------------------
        Lawrence M. Hoffman

                                     Director
-----------------------------------
          Richard Serbin

                                     F-35
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
   2.1   --Agreement and Plan of Merger among American BioMed, Inc., ABI
          Acquisition, Inc. and Cathlab Corporation dated March 30, 1992(3)

   3.1   --Certificate of Incorporation.(1)

   3.2   --By-laws.(1)

   3.3   --Certificate of Designations, Preferences and Rights of 1996 Series A
          Convertible Preferred Stock(7)

   3.4   --Certificate of Designations, Preferences and Rights of 1996 Series B
          Convertible Preferred Stock(7)

   3.5   --Certificate of Designations, Preferences and Rights of 1997 Series C
          Convertible Preferred Stock(10)

   3.6   --Certificate of Designations, Preferences and Relative Rights of 1998
          Series D Convertible Preferred Stock(12)

   3.7   --Certificate of Designations, Preferences and Relative Rights of 1998
          Series E Convertible Preferred Stock(12)

   4.2   --Specimen Common Stock Certificate(13)

  10.28  --1992 Stock Option Plan of the Company and forms of incentive stock
          option agreement and non-qualified stock option agreement(2)

  10.57  --Patent License, Research & Development Agreement between Wright
          Medical Technology, Inc. and American BioMed, Inc.(4)

  10.69  --Stipulation of Settlement, Scott Printing Corporation v. American
          BioMed, Inc.(6)

  10.70  --Employment contract with Steven B. Rash(6)

  10.71  --Purchase of Technology Agreement, Guerbet, S.A.(6)

  10.80  --1996 Incentive Stock Option Plan(8)

  10.81  --Aberlyn Schedule No. 3 to Master Lease Agreement No. 0001E and
          Patent Schedule No. 2 to Patent Assignment and License Agreement No.
          0001P, effective June 1, 1996(9)

  10.82  --Securities Purchase Agreement, dated February 20, 1996, between the
          Company and certain investors relating to the issuance and sale of
          Common Stock and 200 shares of the 1996 Series A Convertible
          Preferred Stock(10)

  10.83  --Securities Purchase Agreement, dated February 20, 1996, between the
          Company and certain investors relating to the issuance and sale of
          1,190 shares of the 1996 Series A Convertible Preferred Stock(10)

  10.84  --Form of Registration Rights Agreement, dated February 20, 1996,
          between the Company and holders of the 1996 Series A Convertible
          Preferred Stock(10)

  10.85  --Securities Purchase Agreement, dated November 7, 1996, between the
          Company and certain investors relating to the issuance and sale of
          the 1996 Series B Convertible Preferred Stock(10)

  10.86  --Form of Registration Rights Agreement, dated November 7, 1996,
          between the Company and holders of the 1996 Series B Convertible
          Preferred Stock(10)

  10.87  --Securities Purchase Agreement, dated March 21, 1997, between the
          Company and certain investors relating to the issuance and sale of
          the 1997 Series C Convertible Preferred Stock(10)

  10.88  --Registration Rights Agreement, dated March 21, 1997, between the
          Company and holders of the 1997 Series C Convertible Preferred
          Stock(10)

  10.89  --Lease Agreement dated June 19, 1997 between the Company and
          Woodlands Office Equities--'95 Limited(11)

</TABLE>


                                      F-36
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
 10.90   --Modification Agreement--Patent Schedule No. 002 between Aberlyn
          Capital Management Co., Inc. and the Company(11)

 10.91   --Modification Agreement--Lease Schedule No. 003 between Aberlyn
          Capital Management Co., Inc. and the Company(11)

 10.92   --Employment agreement with Marshall Kerr(11)

 10.93   --Securities Purchase Agreement, dated April 29, 1998, Series D
          Preferred and Series E Preferred Stock(12)

 10.96   --Registration Rights Agreement of Series D Preferred and Series E
          Preferred(12)

 10.97   --Augustine Fund, L.P. Warrant dated April 29, 1998 to purchase 60,000
          shares of Common Stock(12)

 10.98   --1994 Stock Option Plan of the Company(5)

 10.99   --Securities Purchase Agreement, dated March 3, 1999, Series 1999-A,
          9% Redeemable Convertible

 10.100  --Registration Rights Agreement, dated March 3, 1999, between the
          Company and holders of the Series 1999-A 9% Redeemable Convertible
          Debentures

 10.101  --License Agreement, dated March 26, 1999, between the Company and
          Manufacturing & Research, Inc.

 21.1    --Subsidiaries of the Registrant(9)

 23.1    --Consent of Karlins, Arnold & Corbitt, PC

 27      --Financial Data Schedule
</TABLE>
--------
 (1) Incorporated by reference to the Company's Registration Statement on Form
     S-1, as amended, File No. 33-42472, dated October 22, 1991.
 (2) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1991.
 (3) Incorporated by reference to the Company's Current Report on Form 8-K for
     April 30, 1992.
 (4) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.
 (5) Incorporated by reference to the Company's Proxy Statement for the April
     27, 1994 Annual Meeting.
 (6) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.
 (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1996.
 (8) Incorporated by reference to the Company's Proxy Statement for the
     November 22, 1996 Annual Meeting.
 (9) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K/A-1
     for the year ended December 31, 1996.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1997.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1998.
(13) Incorporated by reference to the Company's Registration Statement on Form
     S-1, as amended, File No. 333-52301, dated September 11, 1998.

                                     F-37