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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, 1996

                                       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)

<TABLE>
<C>                                            <C>
                   DELAWARE                                      76-0136574
       (State of other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</TABLE>

        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 March 20, 1997, was $16,597,204.

The number of outstanding shares of Common Stock, $.001 par value, of the
registrant was 14,260,002 shares as of March 20, 1997.
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                               TABLE OF CONTENTS

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                                                                              PAGE
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  <S>          <C>                                                            <C>
                                       PART I
  ITEM 1.      BUSINESS....................................................     2
  ITEM 2.      PROPERTIES..................................................    20
  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.........................................    22
  ITEM 6.      SELECTED FINANCIAL DATA.....................................    23
  ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS...................................    24
  ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................    28
  ITEM 9.      DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
               DISCLOSURE..................................................    28
                                      PART III
  ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........    28
  ITEM 11.     EXECUTIVE COMPENSATION......................................    29
  ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT..................................................    31
  ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............    32
                                      PART IV
  ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
               FORM 8-K....................................................    34
</TABLE>

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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

     American BioMed, Inc. is including the following cautionary statement in
this Annual Report on Form 10-K to make applicable and take advantage of the new
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
for any forward-looking statement made by, or on behalf of, the Company. The
factors identified in this cautionary statement are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company. Forward-looking statements are identified with a
footnote on the page in which they appear.

     The statements contained in all parts of this document regarding future
business activities, products and product developments, financial performance,
future regulatory approvals, business strategies, market acceptance, business
arrangements, and results and other statements which are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, those relating to: (i) the Company's business strategy; (ii)
the intention to contract with other organizations for the research, development
and, if applicable, registration of product candidates, and to seek joint
development or licensing arrangements; (iii) the research or development of
particular products or technologies; (iv) anticipated results of such
development activities and related clinical trials or of required regulatory
approvals; and (v) the reliance on collaborative partners for development,
regulatory or marketing activities. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates, including, among other things, the ability
to: (i) obtain substantial additional funds; (ii) obtain and maintain all
necessary patents or licenses; (iii) demonstrate the safety and efficacy of
product candidates at each stage of development; (iv) meet applicable regulatory
standards and receive required regulatory approvals; (v) produce product
candidates in commercial quantities at reasonable costs; (vi) compete
successfully against other products; and (vii) market products in a profitable
manner. As a result, there also can be no assurance that the forward-looking
statements included herein will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.

GENERAL

     American BioMed, Inc., including its wholly-owned subsidiaries, (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, is protected by a
series of patents for the nine 510(k) product approvals which the Company is
currently marketing. The Cathlab Corporation ("Cathlab") subsidiary manufactures
and markets our 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.

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     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. The Company expects
these clinical trials to be completed during third quarter 1997 and submission
to the FDA six months later.(1) Currently the Company has six clinical sites and
intends to expand the number of sites to 10 in 1997.(1)

     In addition, the Company filed an Investigative Device Exemption (IDE) with
the FDA in February 1997 to conduct human clinical trials for its OmniCath(R)
atherectomy catheter for hemodialysis A-V fistula restenosis. These clinical
trials will be conducted in parallel with the ongoing peripheral clinical trials
and the Company anticipates completion of these trials before the end of 1997
and hopes to make an FDA submission in the U.S. within six months after
conclusion of the clinical trials.(1)

     The Company is moving forward in its efforts to commercialize its
OmniStent(TM) and stent delivery system technologies. Management hopes to start
clinical trials within twelve months.(1)

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

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                        3
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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 overstretching 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 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. Industry sources project the stent and
atherectomy device market to grow at a rate of 50% and 30% per annum,
respectively(1). Based upon such projections, stents would become a $750 million
business by 1998, while the sale of atherectomy devices would grow to $350
million in sales by 1998(1). Delivery catheters for coatings of the treated
stenosis is projected to be over $100 million by 1998(1).

PRODUCTS

  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 1/3rd
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,

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                        4
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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 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 "Item
1 -- 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.

     The Company has applied to the government of Canada to conduct human
clinical trials for coronary arteries in Canada and is currently awaiting such
approval. 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(1). There can be no assurance that required regulatory approvals
will be received on a timely basis or at all. See "Item
1 -- 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.

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

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     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 predilated 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 photoetching which significantly reduces cost
and production error.

     A patent application was filed June 8, 1992 authored by David Summers,
Ph.D. titled Artificial Support for a Blood Vessel, and US Patent No. 5,342,387
for such patent application was issued on August 30, 1994. A
Continuation-In-Part and PCT were filed June 16, 1993. The PCT is in its
national phase in Canada, Japan and United States and the EPO in Europe. In
addition, the Company has received notification from the U.S. Patent and
Trademark Office that on March 4, 1997 the Company will receive a second patent
on its stent technology titled Method and Apparatus for Making a Stent under
patent number 5,607,445. 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
intima properties, very little platelet adhesion, and high blood compatibility.
In addition, when used as a substrate, the coating bonds easily with various
anticoagulant 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

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endovascular graft market.(1) 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(R) 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 arcuate sections (the preferred embodiment in US
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, the current regulatory climate at the FDA has made the approval
process extremely slow for new products. Therefore, 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 unpassable. 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-

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                        7
<PAGE>   9

Cath(TM), allowing perfusion through the lumen and thus making multiple and
prolonged dilations easy to perform without withdrawing the catheter from the
vessel.

     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 "Item 1. Business -- Government Regulation."

  The OmniFilter

     The Company has developed 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.

     The Company believes that the OmniFilter 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 aortic abdominal aneurysm.

  Cathlab Catheters

     The Company's Cathlab subsidiary has nine FDA approved balloon catheters,
six of which are currently being marketed within the United States and abroad.
The 100%-silicone design of these catheters is resistant to environmental
factors, unaffected by body temperature, and more bio-compatible 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.

     During second quarter 1997 the Company intends to file two 510(k)
notifications with the FDA for approval of an innovative product line of
flexible 100%-silicone balloon infusion catheters for thrombectomy and
thrombolysis which will expand the Company's existing product line.(1)
Prototypes are currently being tested and the Company believes these new
products will provide surgeons with increased effectiveness, safety and
user-friendliness and represent an improvement over existing products now on the
market. The Company plans to launch these products as soon as FDA approval is
received.(1)

  Embolectomy and Bi-Lumen Catheters

     Cathlab manufactures and markets an embolectomy catheter, which is used in
procedures to remove arterial blockages, generally clotted blood but also
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.

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(1) The previous sentence is a forward-looking statement. See page two for
    assumptions and risk factors that may affect actual results.

                                        8
<PAGE>   10

     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.

  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. Cathlab is
currently developing a biliary catheter for use during laparoscopic procedures.

  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.

  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.

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,

                                        9
<PAGE>   11

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's sales and marketing primary objective is to increase revenues
by marketing its products through specialty healthcare distributors who are
engaged in selling medical devices used in the operating room to vascular
surgeons and interventional radiologists. In fiscal year 1996 the Company
embarked on efforts to revamp and increase its global distribution network by
developing business relationships with distributors who have existing,
experienced sales organizations and by supporting their selling efforts. The
Company increased its marketing visibility by attending the Annual Society of
Vascular Surgeons meeting and the International Society of Vascular Surgeons
meeting. In addition, the Company attended the Annual Vascular Workshop meeting
in order to educate vascular surgeons on the uses and benefits of the Company's
silicone balloon and OmniCath(R) atherectomy product lines. The Company produced
marketing literature and a training program for its products in order to support
its distributors' selling efforts. These efforts resulted in the Company
enhancing its existing distribution relationships and the creation of twenty-two
(22) new distributors in 1996. The Company believes that these efforts and new
business relationships will help to increase revenues in 1997.(1)

     In 1996, the Company's product sales mix was 60% international and 40%
domestic. This was a major improvement over 1995, in which over 90% of the
Company's sales were international. Customers in the United States have included
the U.S. Department of Defense and the Company's current distributor in the
southeast, Horizon Medical Products. The Company sold directly to forty-nine
(49) hospitals in the United

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       10
<PAGE>   12

States and is in the process of developing two OEM distribution arrangements.
Internationally, the Company's largest distributors are Sorin Biomedical in
Italy, Megamed in Brazil and Argentina, and Amevisa in Spain. The Company
currently markets its products in twenty-two (22) countries through thirty-seven
(37) distributors. The Company believes it will obtain additional international
distribution agreements in 1997 as soon as it achieves its ISO 9001 and CE Mark
status for its products.(1)

     The Company is committed to finding global distribution partners who can
effectively capture at least ten (10) percent marketshare in their respective
country or territory. At present, the Company intends that additional marketing
efforts will include videotape training modules and marketing literature
produced in a country's respective language.(1) In addition, the Company hopes
to continue to enhance its marketing visibility through increased participation
in appropriately targeted trade shows.(1) The Company's strategy is to create an
established avenue for global distribution for future product launches as the
Company gains FDA approval for its products.(1)

     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 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.(1) 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.(1)

  The OmniCath(R)

     The Company, in anticipation of receiving the required commercial
regulatory approvals for peripheral and A-V fistula use, has begun formulating a
comprehensive marketing and sales strategy. The Company 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.

     If the OmniCath(R) obtains the required commercial regulatory approvals,
the Company will focus its marketing efforts to health care providers that are
high volume users of angioplasty, atherectomy and stent devices(1). The Company
has determined that the fastest and most cost-effective method of marketing its
proposed initial peripheral atherectomy catheter products, the OmniCath(R) in
the 7 French and 8 French size, is to rely on distributors of medical products
with existing, experienced sales organizations. In this way, the Company can
focus its resources on product development and regulatory approvals.(1)

  Evert-O-Cath(TM)

     If the Evert-O-Cath(TM) is successfully developed, the Company intends to
market this product through various domestic and foreign third-party
distributors or to license the rights to this product for fees and royalties.

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       11
<PAGE>   13

  Cathlab Catheters

     During 1996 Cathlab revamped its existing distribution network by adding
twenty-two new distributors globally in an effort to upgrade the professionalism
and sales efforts of its distributors. These domestic and foreign distributors
cover the continental United States, Western Europe, Central and South America,
Canada, Australia, the Far East, the Caribbean and Southeast Asia. The
distribution agreements are generally for three-year terms and are subject to
early termination for certain reasons, including failure to meet sales quotas
and minimum purchase requirements.

     In addition, Cathlab is pursuing private label opportunities to supply
third party companies with existing product lines. Additional opportunities are
being explored and are in various discussion stages to provide OEM manufacturing
capabilities to companies for products we do not currently manufacture but
capitalize on existing, proprietary silicone technologies.

GOVERNMENT REGULATION

     The catheters 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.

     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
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

                                       12
<PAGE>   14

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. The Company commenced the required trials in August 1996 and
expects to complete the trials in the third quarter 1997(1). As previously
stated, the Company filed an IDE application in February 1997 with respect to
the OmniCath(R) for hemodialysis A-V fistula restenosis clinical trials which
represents 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. Clinical data on eleven patients was presented to the FDA in June 1996
in a presubmission meeting and received a favorable review from the FDA. The
clinical trials will require 50 patients and it is anticipated that these
clinical trials will be completed before the end of 1997 and FDA 510(k)
submission three months after completion of the required number of clinical
trial cases.(1)

     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 nine specialty products which have all received marketing
clearance via the 510(k) Notification process. The Company is currently
marketing the embolectomy catheter, bilumen irrigation catheter, occlusion
catheter, biliary gall stone removal catheter, thermodilution catheter and the
angiographic/angioscopic catheter. The urological catheter is in various stages
of testing and production and is expected to be launched in the fourth quarter
1997 if all development phases are completed and satisfactory to our strategic
partner.(1) 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.

     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

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       13
<PAGE>   15

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(1). Any action by the
FDA could result in disruption of the Company's operations for an undetermined
time(1).

     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(1).

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(1).

     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.

     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

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1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       14
<PAGE>   16

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 Company has manufactured all of the OmniCath(R)s used by the Company to
date in its development and testing efforts and shipped by the Company for use
in limited human clinical trials. The Company believes it has sufficient
capacity and the capability to manufacture all of the Company's requirements for
the OmniCath(R)s for the foreseeable future.(1)

  The Cathlab Corporation

     The Company's primary facility, the Cathlab Division, was formed in January
1984 and was issued a trademark in early 1990. On April 30, 1992 American
BioMed, Inc. acquired Cathlab from founding shareholders. The Cathlab Division
is located in Irvine, California, in a highly sophisticated manufacturing
facility encompassing approximately 13,000 square feet. Cathlab has nine
FDA-approved balloon catheters used primarily for vascular surgery for removal
of embolus (blood clots). Six of the catheters are currently being marketed
within the U.S. and abroad.

     Presently, Cathlab is producing 40,000 advanced silicone technology
embolectomy catheters, bi-lumen irrigation catheters, occlusion catheters,
angioscopy catheters, biliary catheters and cardiac output catheters annually
with a capacity to manufacture approximately 500,000 catheters annually. Cathlab
also has the capacity and capability to manufacture other American BioMed
products such as the OmniCath(R), the Evert-O-Cath(TM), the OmniStent(TM) and
the Spinal Dissector. During 1996, the Company consolidated all manufacturing
operations, development efforts and technical support activities in the Irvine,
California facility.

     Cathlab is presently selling products through various domestic and foreign
third-party distributors and independent representatives. These domestic and
foreign distributors cover the continental United States, parts of Western
Europe, Central and South America, Canada, Australia, the Far East and Southeast
Asia. The distribution agreements are generally for three-year terms and are
subject to early termination for certain reasons, including failure to meet
sales quotas and minimum purchase requirements. In addition, the Company is
pursuing private label opportunities to provide OEM manufacturing opportunities
for existing products and products not currently manufactured but that
capitalizes on the Company's existing silicone technologies.

     An important element in Cathlab's growth strategy is the development of a
sales and marketing infrastructure through the employment of application
engineers, clinical support personnel and ultimately direct salesmen. Although
the Company intends to rely primarily on independent distributors or strategic
partners for the near future, it ultimately plans to establish direct sales
representation in selected U.S. geographical areas augmented by independent
distributors. The Company's application engineers and clinical support personnel
will supplement the efforts of the sales representative and distributors by
providing all customers with in-service training and product education. Export
sales will continue to be handled via a network of carefully selected foreign
distributors who have their own professional support organizations. The Company
will continue to review/revamp and expand its distributor network in order to
maximize revenues. This is being accomplished by enhancing existing distribution
relationships and the creation of 22 new distributor relationships during 1996.

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       15
<PAGE>   17

     The 100%-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
healthcare workers can result in sensitivity which may place some individuals at
risk for such a life-threatening allergic reaction. The 100%-silicone design of
Cathlab's catheters negate the potential risk of intraoperative anaphylaxis.

     The key to Cathlab's superiority lies in the patented, one-piece balloon
design of the catheters, thereby eliminating glue and ties which, in turn,
provide superior smoothness and prevent the possibility of balloon dislodgement.

     The Company has applied for the CE Mark Certification, and following the
award of the ISO 9001 Seal, the certifying body for the CE Mark will be
immediately scheduled. The ISO 9001 Quality Manual has been written with the CE
Mark in mind, and CE Mark enhancements to the ISO Standard have been designed
into the Company's Quality Manual. In addition, the Company's current FDA-GMP
Procedure Manual has been revised to reflect both the additional ISO 9001 and CE
Mark Standards.

     The Company's primary manufacturing and research and development center,
the Cathlab Division located in Irvine, California, is already implementing the
ISO 9001 procedures and current research and development projects are fully
compliant with ISO and CE Mark Standards, as well as FDA-GMP requirements.

  Freedom Machine, Inc.

     Certain assets of Freedom Machine, Inc. (Freedom) relating to its hole
punch activities were sold during the fourth quarter of 1995 for approximately
$6,500. As the assets were sold at an amount which approximates net book value,
a small gain on sale resulted and goodwill of approximately $120,000 was written
off by the Company. Effective September 30, 1996 the subsidiary was dissolved
and the remaining assets were transferred to the Company.

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.

     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 on an internal basis. Research and
development expenses in the fiscal years ended December 31, 1996, 1995, and 1994
were $640,792, $537,962, and $1,167,773, nearly all of which was applied to the
development of the OmniCath(R), OmniStent(TM) and Evert-O-Cath(TM). As of March
1, 1997, the Company has 4 employees in its research and development department.
Research and development expenses increased 19.1% in 1996 over 1995 and
decreased 53.9% between 1995 and 1994. 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), blood filter 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

                                       16
<PAGE>   18

sales, from the sale of ancillary technology or through joint development
agreements with strategic partners(1). See "Item 7 -- 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 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 patents on
the OmniStent(TM) and spinal dissector. 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 1997
to 2009, 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(1). The patents may limit, to some extent,
the ability of others to develop competing products.

     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.

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       17
<PAGE>   19

     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.

     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.(1) The Company
has no knowledge that it is 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. 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

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       18
<PAGE>   20

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(1).
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.

     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 1, 1997, the Company had 32 full-time employees, 4 in research
and development, 1 in sales and marketing, 18 in manufacturing, 2 in quality
control and 7 in corporate management and administration. None of the Company's
employees is represented by labor unions. The Company considers its relationship
with its employees to be in good standing. The Company also employs two paid
consultants (Dr. Samuel S. Ahn and Lawrence M. Hoffman) who are paid on a
monthly basis at rates ranging from $3,725 to $15,000 per month.

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..........................  49     President, Chief Executive Officer and
                                                 Chairman of the Board
Colene Stigler Blankinship..............  47     Controller and Chief Accounting Officer,
                                                 Secretary and Treasurer
</TABLE>

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       19
<PAGE>   21

     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.

     COLENE STIGLER 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 a national director of
the American Society of Women Accountants, a position she has held since July
1996.

ITEM 2. PROPERTIES

     As of March 1, 1997, the Company subleases from an unaffiliated party
approximately 2,400 square feet of space at 10077 Grogan's Mill Road, Suite 100,
The Woodlands, Texas, which houses its corporate headquarters. The sublease
expires May 1997. The lease does not have renewal provisions and requires rent
of approximately $13,000 in 1997. The Company believes that these facilities are
adequate for its operations during the remaining term of the lease.

     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 and production facilities for the
Cathlab products. The lease commenced on September 1, 1990 and was renewed in
August 1996 for an additional year. The Company subleased 3,000 square feet to
an unrelated party in January 1996 for $3,000 per month expiring August 1997.
The Company believes that this facility is adequate for its operations during
the remaining term of the lease. At this time the Company is investigating a
facility encompassing approximately 25,000 square feet which will better meet
the Company's future needs. It is undetermined at this time where this facility
will be located.

ITEM 3. LEGAL PROCEEDINGS

     On December 8, 1994, a vendor commenced a lawsuit against the Company
regarding unpaid invoices in the amount of $124,759 plus attorney fees and
accrued interest. On June 15, 1995, the parties to the lawsuit executed a
Stipulation of Settlement Agreement, a Consent Judgment and a Stipulation of
Dismissal to be held in escrow. The Company agreed to pay $125,000 to the vendor
under the settlement agreement; $25,000 was paid upon execution of this
stipulation and the balance was due on or before October 31, 1995. The amount of
$100,000 was included in accounts payable at December 31, 1995. The balance was
paid through the issuance of 116,145 shares of the Company's common stock in
1996.

     In December 1995 the American Arbitration Association awarded a consultant
$50,000 with interest at prime plus three percent from May 1, 1995. The Company
sought to have the award vacated but on July 30, 1996 the award was confirmed.
An Application for Turnover Order was filed in December 1996 requiring the
Company to pay the consultant or satisfy the judgment with the proceeds of any
consummated sale of the Company's obsolete inventory in the form of foreign-made
dental and medical surgical supplies and utensils. The resolution of this matter
will not have a material adverse impact on 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 an

                                       20
<PAGE>   22

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 impact the Company's financial position, results of operations or
cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held its annual meeting of stockholders (the "Annual Meeting")
on November 22, 1996. The stockholders of record on October 28, 1996 were
entitled to vote at the meeting. The following directors were elected to serve
until the next Annual Meeting or until their successors are duly elected and
qualified:

<TABLE>
<CAPTION>
                                                             FOR      WITHHELD
                                                          ---------   ---------
<S>                                                       <C>         <C>
Steven B. Rash..........................................  9,288,746   1,518,025
Lawrence M. Hoffman.....................................  8,818,505   1,988,266
Claudio M. Guazzoni.....................................  8,822,005   1,984,766
Richard S. Serbin.......................................  9,312,246   1,494,525
</TABLE>

     The proposal to amend the Company's Certificate of Incorporation to
increase the authorized number of shares of the Company's Common Stock, par
value $.001 per share, from twenty five million shares to fifty million shares
was approved by a vote of 8,397,800 for, 2,300,929 against, and 108,042
abstaining.

     The 1996 Incentive Stock Option Plan (the "Incentive Stock Plan") was
approved by a vote of 2,975,932 for, 2,235,924 against, 62,127 abstaining and
5,532,788 broker non-votes.

                                       21
<PAGE>   23

                                    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 the NASD's 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, 1995
  First Quarter.............................................      15/32         1/6
  Second Quarter............................................    1               11/32
  Third Quarter.............................................      11/16         1/4
  Fourth Quarter............................................      1/2           15/16

YEAR ENDING DECEMBER 31, 1996
  First Quarter.............................................      25/32         3/8
  Second Quarter............................................    2 13/16         5/8
  Third Quarter.............................................    2 1/4         1
  Fourth Quarter............................................    2               7/8
</TABLE>

     As of October 28, 1996, there were approximately 310 holders of record and
approximately 2,500 additional beneficial shareholders of the Company's common
stock. The closing Inter-dealer prices for the Company's common stock on March
20, 1997 was $1.18.

     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.

RECENT SALES OF UNREGISTERED SECURITIES.

     Pursuant to Section 4(2) of the Securities Act, in March 1997 the Company
issued 125 shares of its Series C Convertible Preferred Stock, par value $.001
per share, to Nelson Partners for a total purchase price of $2,500,000, or
$20,000 per share. For a more detailed description of the terms of this
transaction, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Subsequent Events."

                                       22
<PAGE>   24

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data presented below has been derived from the
consolidated financial statements of the Company. The Company declared no common
stock dividends during any period presented. The operating results of Freedom
Machine, Inc. and 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.

SELECTED OPERATING STATEMENT DATA:

<TABLE>
<CAPTION>
                                FISCAL          FISCAL          FISCAL          FISCAL          FISCAL        INCEPTION,
                                 YEAR            YEAR            YEAR            YEAR            YEAR        SEPT. 4, 1984
                                 ENDED           ENDED           ENDED           ENDED           ENDED          THROUGH
                             DEC. 31, 1996   DEC. 31, 1995   DEC. 31, 1994   DEC. 31, 1993   DEC. 31, 1992   DEC. 31, 1996
                             -------------   -------------   -------------   -------------   -------------   -------------
<S>                          <C>             <C>             <C>             <C>             <C>             <C>
Sales, Net.................  $    579,533     $   660,770     $   637,375    $    826,590     $   610,379    $  3,314,647
Cost of Sales..............      (420,838)       (649,355)       (782,729)       (960,232)       (419,752)     (3,232,906)
Interest Income............         4,252           7,239             902          23,663          39,176         109,734
Other Income (Expense).....      (114,762)      1,561,203(2)      (56,209)(1)        1,353         69,926       1,916,784
Interest Expense...........      (313,914)       (276,688)       (182,606)     (1,261,203)       (361,539)     (2,695,438)
Research & Devel.
  Expense..................      (640,792)       (537,962)     (1,167,773)     (2,397,405)     (1,692,793)     (7,249,993)
Selling, General & Admin.
  Expense..................    (1,718,595)     (2,169,591)     (2,235,116)     (4,381,165)     (2,898,836)    (15,456,935)
Distributor Settlement.....            --              --              --              --      (1,080,915)     (1,080,915)
                             ------------     -----------     -----------    ------------     -----------    ------------
Net Loss...................  $ (2,625,116)    $(1,404,384)    $(3,786,156)   $ (8,148,399)    $(5,734,354)   $(24,375,022)
Less Preferred Stock
  Dividends................    (1,183,413)             --              --              --              --      (1,183,413)
                             ------------     -----------     -----------    ------------     -----------    ------------
Net Loss Available to
  Common Shareholders......  $ (3,808,529)    $(1,404,384)    $(3,786,156)   $ (8,148,399)    $(5,734,354)   $(25,558,435)
                             ============     ===========     ===========    ============     ===========    ============
Net Loss per Common Share..  $       (.34)    $     (0.15)    $     (0.46)   $      (1.62)    $     (1.66)
                             ============     ===========     ===========    ============     ===========
Average Number of Common
  Shares Outstanding.......    11,310,592       9,362,198       8,188,980       5,041,698       3,459,001
                             ============     ===========     ===========    ============     ===========
</TABLE>

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

(1) Other expense in December 31, 1994 includes the write-off of the Superstat
     assets. See "Item 1 -- Business -- Products."

(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. -- See "Item 1 -- Business -- Marketing Plans and Arrangements."

SELECTED BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                            ---------------------------------------------------------------------------
                                                1996            1995            1994            1993           1992
                                            ------------    ------------    ------------    ------------    -----------
<S>                                         <C>             <C>             <C>             <C>             <C>
Working Capital (Deficit).................  $   (256,206)   $ (3,827,287)   $ (3,246,020)   $ (1,057,831)   $(1,536,621)
Total Assets..............................     3,069,151       1,883,278       2,445,076       4,000,345      5,424,303
Long-Term Debt, Net of Current
  Maturities..............................       110,472              --             611           2,784         16,679
Capital Lease Obligations, Net of Current
  Maturities..............................       302,766           7,095          18,033         485,580        433,211
Total Liabilities.........................     2,940,556       4,685,133       4,002,192       2,761,942      4,243,538
Preferred Stock...........................             3              --              --              --             10
Deficit Accumulated During the Development
  Stage...................................   (24,375,022)    (21,749,906)    (20,345,522)    (16,559,366)    (8,410,967)
Total Stockholders' Equity (Deficit)......       128,595      (2,801,855)     (1,557,116)     (1,238,403)     1,180,765
</TABLE>

                                       23
<PAGE>   25

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 September 4, 1984
through December 31, 1996, the Company had an accumulated deficit of
$24,375,022.

  Year Ended December 31, 1996 Compared With Year Ended December 31, 1995

     During the year the Company made substantial investments in five key areas.
First, we consolidated all manufacturing operations into our Irvine, California
facility, enabling us to increase our manufacturing capabilities and
efficiencies. Secondly, investments were made in our manufacturing
infrastructure resulting in productivity improvements. Third, we invested in
product development and clinical investigational programs to further the
advancement of our core product technologies. Fourth, we invested in the
expansion of our sales and marketing efforts by implementing new marketing
programs. Finally, we invested considerable time and effort in reshaping our
balance sheet via a debt to equity conversion and the raising of additional
equity capital via private placements.

     Net sales decreased $81,237 or 12.3% for 1996 compared to 1995. The decline
is due to delays encountered in product registrations in international markets
by the Company's newly appointed international distributors, discontinued
product lines and limited international OmniCath(R) sales due to U.S.
OmniCath(R) clinical trial needs. Foreign export sales decreased to 60% in 1996
compared to 81% in 1995.

     Gross profit margins increased to 27.4% in 1996 compared to 1.7% in 1995.
This increase is due primarily to better inventory management, decrease in
factory overhead and increased productivity of the plant. In February 1996 the
Company hired a director of manufacturing to assess the inefficiencies in the
current system and to ready the plant for increased production. "See Liquidity
and Capital Resources" below.

     Total selling, general and administrative expenses decreased during 1996 to
$1,718,595 from $2,169,591. The overall decrease is due to several factors. The
Company subleased 3,000 square feet of the Cathlab facility to an unrelated
party in January 1996 and downsized the corporate headquarters and consolidated
all manufacturing activities, technical support and research and development in
the Irvine, California facility. In addition, the Company renegotiated the
Cathlab facility lease in August 1996 for an additional $16,000 in savings in
1996 and an annual savings of $48,000.

     Research and development expenses increased 19.1% to $640,792 in 1996
compared to $537,962 in 1995. The increase is primarily attributed to the
Company's efforts to initiate U.S. clinical trials for the OmniCath(R). These
expenses are expected to increase in the future as the Company's products
approach commercial viability and will be funded by increased revenue generated
through Cathlab Division sales or from the sale of ancillary technologies or
through joint development agreements with strategic partners.(1)

     Interest expense increased 13.5% to $313,914 in 1996. This is primarily due
to the obligation due USSC. The Note, originally due January 20, 1996, was
subsequently extended to September 1996. Monthly payments were made from March
through August 1996. The Company borrowed sufficient funds in September 1996 to
repay the Note timely. These loans were repaid in full in November 1996.

  Year Ended December 31, 1995 Compared with Year Ended December 31, 1994

     During the fiscal year ended December 31, 1995, the Company had net sales
of $660,770, compared to net sales of $637,375 for 1994, an increase of 3.6%. Of
net 1995 sales, $568,522 or 86.04% resulted from sales of Cathlab's catheter
products, $29,849 or 4.52% resulted from sales of Freedom's catheter hole
punches, and $62,399 or 9.44% resulted from other sales. See "Liquidity and
Capital Resources" below. International sales

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       24
<PAGE>   26

accounted for approximately 81.29% of total 1995 sales, consisting primarily of
sales of the Cathlab products in Europe and Central and South America, and
American BioMed products to Europe.

     Cost of sales was $649,355 or 98.3% of total sales during 1995, compared to
$782,729 or 122% of total sales during 1994. These high percentages are due in
large measure to the lower than expected profit margins as well as much lower
than expected production while fixed manufacturing expenses were still incurred.
See "Liquidity and Capital Resources" below.

     The Company's selling, general and administrative expenses decreased during
1995 to $2,169,591 compared to $2,235,116 in 1994. The decrease from 1994 was
primarily due to reduction in personnel and significantly limiting the amount
expended on advertising and promotion.

     A significant portion of the Company's expenditures to date have been on
research and development, particularly with respect to the OmniCath(R),
OmniStent(TM), Evert-O-Cath(TM) and heart pumps. Research and development
expenses totaled $537,962 during the year ended December 31, 1995, compared to
$1,167,773 for 1994.

     The Company's interest expense increased to $276,688 in 1995 from $182,606
in December 1994. The increase in 1995 was due primarily to late charges
incurred in connection with delinquent payments related to its lease obligations
due Aberlyn Capital Management Limited Partnership. See "Liquidity and Capital
Resources," below.

     For the period from inception to December 31, 1995, the Company's other
income of $2,031,546 consisted primarily of $400,000 received from Guerbet in
1991 in connection with the development of certain of the Company's products,
proceeds of $49,900 received from the initial phase of a grant obtained from the
National Institute of Health during 1992 in connection with the development of
certain of the Company's heart pumps, $47,244 in settlement of accounts payable
to certain vendors, and $80,000 amortization of the license fee received from
Wright Medical Technologies, Inc. On May 1, 1995, the Company and United States
Surgical Corporation ("USSC"), a Delaware corporation, entered into an Option
Agreement (the "Option Agreement"), pursuant to which USSC was granted a 90-day
option to purchase the Company's technologies for stents (including the
OmniStent(TM)), atherectomy catheters (including the OmniCath(R) Atherectomy
Catheter), toposcopic catheters (including the Evert-O-Cath(TM) Drug Delivery
catheter) and all intellectual property rights, inventory, equipment and
goodwill related thereto (collectively, the "Assets"). Upon execution of the
Option Agreement, USSC paid $2.0 million to the Company (the "Initial Payment")
in consideration of the option and in partial consideration of the purchase
price.

     On July 20, 1995, USSC elected not to exercise its option to acquire
certain assets. As a result, the Company retained $1.0 million of the Initial
Payment as a forfeited option fee. The other $1.0 million was payable to USSC
plus interest at 10% per annum beginning July 20, 1995 (the "Note"). The Note,
originally due January 20, 1996 which was collateralized by the Company's stent
technology, was extended to March 15, 1996.

     The remaining $494,676 was realized on August 11, 1995 when the Company
sold the European patent for the OmniCath(R) atherectomy catheter for a purchase
price of $500,000 cash to Guerbet S.A. of France.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had a working capital deficiency as of December 31, 1996 of
$256,206, an improvement of $3,571,081. At December 31, 1996, the Company had
cash and cash equivalents of $1,183,613 compared to $9,177 at December 31, 1995.

     The net cash used by operating activities of $1.6 million was 10% more than
in 1995. 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.

                                       25
<PAGE>   27

     The Company plans to install 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.

     Capital expenditures in 1996 were $46,773 and included new computers and
leasehold improvements to the Cathlab facility to facilitate the relocation of
the research and development activities from Texas. The Company expects capital
expenditures in 1997 to increase to approximately $150,000 for additional
computers, accounting software upgrades, manufacturing equipment and molds.

     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.

     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.

     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.

     In July 1995, United States Surgical Corporation ("USSC") elected not to
exercise its option to acquire certain assets. As a result, the Company retained
$1.0 million of the initial payment as a forfeited option fee. The other $1.0
million is payable to USSC plus interest at 10% per year. The note, originally
due January 20, 1996 which is collateralized by the Company's stent technology,
was extended to September 15, 1996.

     In September 1996, the balance of the USSC note was paid from the proceeds
received in connection with the issuance of promissory notes (the "Notes") in
the amount of $835,576 to a group of foreign stockholders. The Notes, bearing
interest at 10% per annum and collateralized by the Company's OmniStent(TM),
Evert-O-Cath(TM) and Cardiac Assist technologies, matured October 17, 1996,
payable in U.S. Dollars. The Notes were paid in full in November 1996.

     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. Interest of 12% per year is payable in either cash or stock in
January 1997. The note was paid in full in January 1997 and the interest was
paid by the issuance of 11,722 shares of common stock.

     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.

     The Company requires 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 1997, 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

                                       26
<PAGE>   28

development of, obtain regulatory approvals for, and manufacture or market
products(1). 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 significantly during 1997; however, this
increase will not be sufficient to satisfy the Company's funding needs(1). 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. 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 formulated 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 launched an
aggressive cost reduction campaign which has drastically reduced operating
expenses. At the same time the Company initiated efforts to revamp its existing
distribution network by replacing underperforming distributors with professional
domestic and international distributor organizations, thereby creating a
world-class distributor network. Management believes it will be able to raise
the capital necessary to fund the commercialization efforts of its existing
technologies and current working capital for the foreseeable future by
"unbundling" its core technologies and identifying a prestigious international
healthcare corporation for each technology/product in a specific international
market(1).

     In addition, 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.
An integral part of this 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.

SUBSEQUENT EVENTS

     Pursuant to Section 4(2) of the Securities Act, 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
proceeds of the sale will be used to fund clinical trials, research and
development projects and general working capital. The Series C Preferred, which
bears no dividends and confers no voting rights, is of equal rank with shares of
the Series A Preferred and the Series B Preferred and senior to the Company's
other equity securities (except with the consent of the majority of the holders
of Series C Preferred). The Series C Preferred is convertible at any time on or
after 120 days after the initial date of issuance at the option of the holder
into a number of shares of common stock (the "Series C Conversion Shares") based
on a formula as defined in the purchase agreement.

     The Series C conversion price is the lesser of (i) $1.75 (adjusted if there
is a lock up in effect) or (ii) the average of the closing bid price for the
common stock for the five consecutive trading days immediately preceding the
date the election to convert is made (the "Series C Conversion Price"). The
number of Series C Conversion Shares is subject to adjustment from time to time
upon the occurrence of stock splits, reverse stock splits, and similar events.
On March 1, 2000 any outstanding shares of the Series C Preferred will be
automatically converted based on the Series C Conversion Price then in effect.

     Registration rights were conferred upon the Series C Preferred requiring
the Company to file an S-3 Registration Statement on or before the ninetieth day
following the issuance date covering the resale of the Series C Conversion
Shares.

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

1 The previous sentence is a forward-looking statement. See page two for
  assumptions and risk factors that may affect actual results.

                                       27
<PAGE>   29

     In the event the Company effects a lock-up on the ability of the holders of
the Series C Preferred to convert their shares into common stock, each such
holder will be entitled to a warrant (the "Lock-Up Warrant") exercisable for
that number of shares of common stock equal to (1/2) one-half of the number of
shares of common stock which would have been issuable had such holder converted,
and on the last day of the lock-up period will be entitled to an additional
Lock-Up Warrant exercisable for that number of shares of common stock equal to
one-half of the number of shares of common stock which would have been issuable
had such holder converted. The exercise price of the Lock-Up Warrant is the
fixed conversion price that is in effect at the time of issuance, but not
subject to any adjustments.

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...........................  49     President and Chief Executive Officer
                                                  Chairman of the Board
Lawrence M. Hoffman......................  53     Director
Claudio Guazzoni.........................  34     Director
Richard S. Serbin........................  52     Director
Colene Stigler Blankinship...............  47     Controller and 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. 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.

     CLAUDIO M. GUAZZONI has served as a director of the Company since March 7,
1996. Mr. Guazzoni is the President and Chief Executive Officer of Zanett
Capital, Inc. ("Zanett") and has served in that capacity since 1993. He is
engaged in the business of providing financial and strategic consulting services
to business entities.

                                       28
<PAGE>   30

Prior to his service at Zanett, Mr. Guazzoni was a Money Manager with Delphi
Capital Management, Inc. in 1992 and an associate with Salomon Brothers, Inc.
from 1985 to 1991.

     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, a 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.

     COLENE STIGLER 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 a national director of
the American Society of Women Accountants, a position she has held since July
1996.

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 1996
have been filed on a timely basis by reporting persons except for Mr. Serbin who
was late in filing a Form 3 and Messrs. Hoffman and Guazzoni who were late in
filing all their forms.

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, 1996, for services during the fiscal years ended
December 31, 1996, 1995 and 1994.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           LONG-TERM COMPENSATION
                                                                       -------------------------------
                        ANNUAL COMPENSATION                                   AWARDS           PAYOUTS
--------------------------------------------------------------------   ---------------------   -------
               (A)                  (B)      (C)      (D)      (E)        (F)         (G)        (H)         (I)
                                                              OTHER
                                                             ANNUAL    RESTRICTED   SHARES/                  ALL
                                                             COMPEN-     STOCK      OPTIONS/     LTP        OTHER
             NAME AND                      SALARY    BONUS   SATION     AWARD(S)      SARS     PAYOUTS   COMPENSATION
        PRINCIPAL POSITION          YEAR     ($)      ($)    ($)(1)       ($)         (#)        ($)         ($)
        ------------------          ----   -------   -----   -------   ----------   --------   -------   ------------
<S>                                 <C>    <C>       <C>     <C>       <C>          <C>        <C>       <C>
Steven B. Rash....................  1996   141,875            7,496
President, Chief Executive          1995    61,875(2)        19,941(3)              600,000(4)
Officer
</TABLE>

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

(1) Cost of life insurance and auto allowance.

(2) Annual compensation of $135,000 prorated from July 16, 1995, when Mr. Rash
    began his service with the Company.

(3) Includes relocation expenses paid in the amount of $19,745.

(4) Represents options issued in connection with a three-year employment
    agreement, vesting on various dates during the term of the agreement. See
    "Employment Agreements."

                                       29
<PAGE>   31

     The following table sets forth certain information with respect to stock
options granted during the fiscal year ended December 31, 1996 to each of the
named executive officers.

                             STOCK OPTIONS GRANTED

<TABLE>
<CAPTION>
                                                                                                    POTENTIAL REALIZABLE
                                                                                                     VALUE PER SHARE AT
                                                                                                      ASSUMED RATES OF
                                                        % OF                       CLOSING BID       STOCK APPRECIATION
                                                       TOTAL                         ON DATE          FOR OPTION TERM
                             DATE OF      NO. OF      OPTIONS       PRICE PER          OF           --------------------
           NAME               GRANT       SHARES      GRANTED         SHARE         GRANT(4)         5%             10%
           ----              -------      ------      --------      ---------      -----------      -----          -----
<S>                          <C>          <C>         <C>           <C>            <C>              <C>            <C>
Steven B. Rash.............     --           --           --            --              --             --             --
</TABLE>

     The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1996 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, 1996.

                AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                       VALUE OF
                                                                    NUMBER OF         UNEXERCISED
                                                                   UNEXERCISED       IN-THE-MONEY
                                                                   OPTIONS AT         OPTIONS AT
                                        SHARES                   FISCAL YEAR-END    FISCAL YEAR-END
                                      ACQUIRED ON     VALUE       EXERCISABLE/       EXERCISABLE/
                                       EXERCISE      REALIZED     UNEXERCISABLE      UNEXERCISABLE
                NAME                      (#)          ($)             (#)                ($)
                ----                  -----------    --------    ---------------    ---------------
<S>                                   <C>            <C>         <C>                <C>
Steven B. Rash......................       0            0        150,000/450,000    131,250/393,750
</TABLE>

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, with a cash bonus of $30,000 to be
paid should the Company's revenues exceed $2 million in 1997. Options to
purchase an additional 820,000 shares of common stock at $.50 per share were
granted. Additionally, options previously granted under the original agreement
which had not vested as of December 31, 1996 shall vest evenly over the next
three years.

COMPENSATION COMMITTEES INTERLOCKS AND INSIDER PARTICIPATION

     Until June 1995, the Company did not have a Compensation Committee.
Compensation matters were determined by the Board of Directors. In June 1995,
the Board created and appointed a Compensation Committee. Effective November 26,
1996 the Board of Directors elected Messrs. Hoffman and Guazzoni to serve on the
Compensation 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 Relationship and Related
Transactions.")

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 will each also
receive an option to purchase 12,000 shares of common stock at $1.00 per share,
to be vested November 22, 1997. For each board meeting attended, either
telephonically or in person, the directors will also receive options to purchase
2,000 shares of common stock. The Chairman of the Board will receive an

                                       30
<PAGE>   32

option to purchase 15,000 shares of common stock vested upon 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.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information, as of March 20, 1997,
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 20, 1997, the Company had issued and outstanding 14,260,001 shares of
common stock.

<TABLE>
<CAPTION>
          NAME AND ADDRESS OF                AMOUNT AND NATURE OF
          BENEFICIAL OWNER(1)             BENEFICIAL OWNERSHIP(2)(3)    PERCENT OF CLASS
          -------------------             --------------------------    -----------------
<S>                                       <C>                           <C>
STEVEN B. RASH..........................            151,900(4)                 1.1%
LAWRENCE M. HOFFMAN.....................            953,674(5)                 6.4%
     18 Winter Place
     Aberdeen, NJ
CLAUDIO GUAZZONI........................            274,139(6)(7)              1.9%
     10 E. 76th Street
     New York, NY
All Directors and Officers as a Group (4
  persons)..............................          1,385,713(8)                 8.9%
</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 150,000 shares which may be acquired within 60 days upon the
    exercise of vested options.

(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 225,000 shares which
    may be acquired within 60 days upon the exercise of options by Mr. Hoffman.

(6) Includes 249,139 shares issuable upon the exercise of warrants held by
    Zanett Capital. Mr. Guazzoni is President and Chief Executive Officer of
    Zanett Capital, Inc.

(7) Includes 25,000 shares issuable upon the exercise of warrants held by Zanett
    Securities. Mr. Guazzoni is a 50% owner of Zanett Securities.

(8) Includes 1,076,139 shares which may be acquired within 60 days upon the
    exercise of options or warrants.

                                       31
<PAGE>   33

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For the period from inception, September 4, 1984, to December 31, 1996, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,082,072. Of this amount, $37,500, $50,000 and $152,250 related to the years
ended December 31, 1996, 1995 and 1994, respectively.

     On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPA patent to Guerbet SEA., 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 agreement was extended to December 31, 1999.
The base salary was increased to $165,000 per year, with a cash bonus of $30,000
to be paid should the Company's revenues exceed $2 million in 1997. Options to
purchase an additional 820,000 shares of common stock at $.50 per share were
granted. Additionally, options previously granted under the original agreement
which had not vested as of December 31, 1996 shall vest evenly over the next
three years.

     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 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

                                       32
<PAGE>   34

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.

     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, 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, 1996, 1995 and 1994, the Company paid salaries and
wages to relatives of officers of the Company amounting to $22,692, $51,600, and
$88,776, respectively.

                                       33
<PAGE>   35

                                    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(5)
          3.4            -- Certificate of Designations, Preferences and Rights of
                            1996 Series B Convertible Preferred Stock(5)
          3.5            -- Certificate of Designations, Preferences and Rights of
                            1997 Series C Convertible Preferred Stock(7)
          4.2            -- Specimen Common Stock Certificate(1)
         10.17           -- Summers Note, dated September 1990, between the Company
                            and David P. Summers, as amended(1)
         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.(2)
         10.69           -- Stipulation of Settlement, Scott Printing Corporation v.
                            American BioMed, Inc.(4)
         10.70           -- Employment contract with Steven B. Rash(4)
         10.71           -- Purchase of Technology Agreement, Guerbet, S.A.(4)
         10.73           -- Corporate Communications Settlement Agreement(4)
         10.74           -- Distribution Agreement with Horizon Medical(4)
         10.80           -- 1996 Incentive Stock Option Plan(6)
         10.81           -- Aberlyn Restructure Agreement
         10.82           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1996 Series A Convertible Preferred Stock(7)
         10.83           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1996 Series B Convertible Preferred Stock(7)
         10.84           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1997 Series C Convertible Preferred Stock(7)
         11.1            -- Computation of (Loss) per Common Share
         21.1            -- Subsidiaries of the Registrant
         23.1            -- Consent of Coopers & Lybrand L.L.P.
         27              -- Financial Data Schedule
</TABLE>

                                       34
<PAGE>   36

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

(1) Incorporated by reference to the Company's Registration Statement on Form
    S-1, as amended, File No. 33-424372, dated August 4, 1992.

(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the year ended December 31, 1994.

(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, 1995.

(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1996.

(6) Incorporated by reference to the Company's Proxy Statement for the November
    22, 1996 Annual Meeting.

(7) To be filed by amendment.

                                       35
<PAGE>   37

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (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, 1996 and 1995...  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1996, 1995 and 1994 and for the period from
  inception, September 4, 1984, to December 31, 1996........  F-4
Consolidated Statements of Changes in Stockholders' Equity
  (Deficit) for the period from inception to December 31,
  1993, for the years ended December 31, 1996, 1995 and 1994
  and for the period from inception, September 4, 1984, to
  December 31, 1996.........................................  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1996, 1995 and 1994, and for the period from
  inception, September 4, 1984, to December 31, 1996........  F-7
Notes to Consolidated Financial Statements..................  F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants...........................  F-27
Schedule II -- Valuation and Qualifying Accounts............  F-28
</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>   38

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (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 Subsidiaries (the "Company") (a development stage enterprise)
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception,
September 4, 1984, to December 31, 1996. 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.

     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 Subsidiaries as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years ended December 31, 1996, 1995
and 1994, and for the period from inception, September 4, 1984, to December 31,
1996, 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 18 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, 1996, the Company had a cumulative loss of $24,375,022 since its inception
and had a working capital deficit of $256,206 at December 31, 1996. 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.

                                            COOPERS & LYBRAND L.L.P

Houston, Texas
March 21, 1997

                                       F-2
<PAGE>   39

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                              1996            1995
                                          ------------    ------------
<S>                                       <C>             <C>
                 ASSETS
Current assets:
  Cash and cash equivalents.............  $  1,183,613    $      9,177
  Accounts receivable, trade, net of
    allowance for doubtful accounts of
    $57,500 and $45,480 for 1996 and
    1995, respectively..................       168,359         158,713
  Accounts receivable, other............        19,848          32,064
  Inventories...........................       462,097         370,130
  Prepaid expenses......................       277,195          60,667
                                          ------------    ------------
         Total current assets...........     2,111,112         630,751
Property and equipment, net.............        81,315         200,736
Patents, net of accumulated amortization
  of $870,014 and $799,043 in 1996 and
  1995, respectively....................       164,655         204,812
Goodwill, net of accumulated
  amortization of $574,391 and $451,308
  in 1996 and 1995, respectively........       656,444         779,528
Other assets............................        55,625          67,451
                                          ------------    ------------
         Total assets...................  $  3,069,151    $  1,883,278
                                          ============    ============
  LIABILITIES AND STOCKHOLDERS' EQUITY
                (DEFICIT)
Current liabilities:
  Notes payable, banks..................                  $    235,000
  Notes payable to stockholders and
    others..............................  $  1,278,485       1,831,322
  Current maturities of long-term
    debt................................        38,404
  Current maturities of capital lease
    obligations.........................       266,078         512,712
  Accounts payable......................       301,184       1,283,020
  Accrued liabilities...................       483,167         595,984
                                          ------------    ------------
         Total current liabilities......     2,367,318       4,458,038
Long-term debt, net of current
  maturities............................       110,472
Capital lease obligations, net of
  current maturities....................       302,766           7,095
Deferred revenue........................       160,000         220,000
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,
     1,390 shares issued and outstanding
     at December 31, 1996, $1,000 per
     share or $1,390,000 aggregate
     liquidation preference.............             1
    Series B: Convertible preferred
     stock, 2,500 shares authorized,
     1,500 shares issued and outstanding
     at December 31, 1996, $1,000 per
     share or $1,500,000 aggregate
     liquidation preference plus an
     additional 10% per year from the
     date of issuance...................             2
  Common stock, $.001 par value,
    50,000,000 and 25,000,000 shares
    authorized in 1996 and 1995
    respectively, 13,544,019 and
    9,505,274 shares issued at December
    31, 1996 and 1995, respectively, of
    which 68,323 shares are held in
    treasury............................        13,544           9,505
  Additional paid-in capital............    24,741,670      19,190,146
  Deficit accumulated during the
    development stage...................   (24,375,022)    (21,749,906)
  Less treasury stock at cost, 68,323
    shares..............................      (251,600)       (251,600)
                                          ------------    ------------
         Total stockholders' equity
           (deficit)....................       128,595      (2,801,855)
                                          ------------    ------------
         Total liabilities and
           stockholders' equity
           (deficit)....................  $  3,069,151    $  1,883,278
                                          ============    ============
</TABLE>

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

                                       F-3
<PAGE>   40

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                        INCEPTION
                                       ENDED           ENDED           ENDED        SEPTEMBER 4, 1984,
                                    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,     TO DECEMBER 31,
                                        1996            1995            1994               1996
                                    ------------    ------------    ------------    ------------------
<S>                                 <C>             <C>             <C>             <C>
Sales, net........................  $    579,533    $   660,770     $   637,375        $  3,314,647
Cost of sales.....................      (420,838)      (649,355)       (782,729)         (3,232,906)
                                    ------------    -----------     -----------        ------------
Gross profit......................       158,695         11,415        (145,354)             81,741
                                    ------------    -----------     -----------        ------------
Operating Expenses:
  Selling, general and
     administrative...............    (1,718,595)    (2,169,591)     (2,235,116)        (15,456,935)
  Research and development........      (640,792)      (537,962)     (1,167,773)         (7,249,993)
  Distributor settlement..........            --             --              --          (1,080,915)
                                    ------------    -----------     -----------        ------------
                                      (2,359,387)    (2,707,553)     (3,402,889)        (23,787,843)
                                    ------------    -----------     -----------        ------------
          Loss from operations....    (2,200,692)    (2,696,138)     (3,548,243)        (23,706,102)
                                    ------------    -----------     -----------        ------------
Other income (expense):
Interest income...................         4,252          7,239             902             109,734
Interest expense..................      (313,914)      (276,688)       (182,606)         (2,695,438)
Other income (expense)............      (114,762)     1,561,203         (56,209)          1,916,784
                                    ------------    -----------     -----------        ------------
          Other income (expense),
            net...................      (424,424)     1,291,754        (237,913)           (668,920)
                                    ------------    -----------     -----------        ------------
          Net loss................  $ (2,625,116)   $(1,404,384)    $(3,786,156)       $(24,375,022)
          Less preferred stock
            dividends.............    (1,183,413)            --              --          (1,183,413)
                                    ------------    -----------     -----------        ------------
          Net loss available to
            common shareholders...  $ (3,808,529)   $(1,404,384)    $(3,786,156)       $(25,558,435)
                                    ============    ===========     ===========        ============
          Net loss per common
            share.................  $       (.34)   $     (0.15)    $     (0.46)
                                    ============    ===========     ===========
          Weighted average number
            of common shares
            outstanding...........    11,310,592      9,362,198       8,188,980
                                    ============    ===========     ===========
</TABLE>

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

                                       F-4
<PAGE>   41

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

      CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                                  DEFICIT
                                                                                                ACCUMULATED
                                        PREFERRED STOCK        COMMON STOCK       ADDITIONAL     DURING THE       TREASURY STOCK
                                        ----------------   --------------------     PAID-IN     DEVELOPMENT    --------------------
                                         SHARES     PAR      SHARES       PAR       CAPITAL        STAGE        SHARES      COSTS
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
<S>                                     <C>        <C>     <C>          <C>       <C>           <C>            <C>        <C>
Issuance of $1 par value common stock
  on September 4, 1984................                          1,000   $ 1,000
Redemption of $1 par value common
  stock...............................                         (1,000)   (1,000)
Issuance of $.001 par value common
  stock...............................                      1,000,000     1,000
Issuance of $.001 par value common
  stock at fair market value of
  services
  rendered............................                        100,000       100   $    19,900
Issuance of Series A preferred
  stock...............................   156,250   $ 156                              499,844
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
Issuance of stock purchase warrants...                                                100,000
Sale of common stock, net of offering
  costs...............................                        800,000       800     3,059,472
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
Exercise of underwriter's over
  allotment option, net of offering
  costs...............................                        111,700       112       483,367
Issuance of $.001 par value common
  stock in connection with acquisition
  of Freedom Machine, Inc.............                         60,000        60       206,940
Conversion of $385,000 principal
  amount of debentures................                         96,250        96       384,904
Issuance of $.001 par value common
  stock in connection with acquisition
  of Cathlab Corporation..............                        450,000       450     2,024,550
Issuance of $.001 par value common
  stock in connection with acquisition
  of VMS, Inc.........................                         27,777        28       124,971
Issuance of $.001 par value common
  stock in connection with 6%
  promissory notes....................                         58,576        59       263,533
Issuance of $.001 par value common
  stock in connection with purchase of
  assets of SuperStat, Inc............                         18,182        18        81,801
Issuance of $.001 par value common
  stock in connection with a $500,000
  loan from a bank....................                         79,365        79       357,064
Issuance of $.001 par value common
  stock in connection with Therex
  settlement..........................                         58,823        59       499,941
Issuance of Series B preferred stock,
  net of offering costs...............   287,500     288                            2,545,858
Exercise of stock purchase warrants...                        678,717       679     2,800,341
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
Exercise of stock options.............                        166,880       167        38,795
Reacquire $.001 par value common stock
  originally issued in connection with
  Therex settlement...................                                                                         (135,823)   (500,000)

<CAPTION>

                                           TOTAL
                                        ------------
<S>                                     <C>
Issuance of $1 par value common stock
  on September 4, 1984................  $      1,000
Redemption of $1 par value common
  stock...............................        (1,000)
Issuance of $.001 par value common
  stock...............................         1,000
Issuance of $.001 par value common
  stock at fair market value of
  services
  rendered............................        20,000
Issuance of Series A preferred
  stock...............................       500,000
Issuance of common stock pursuant to a
  three-for-one stock split subsequent
  to December 31, 1990, retroactively
  applied.............................
Redemption of common stock pursuant to
  a one-for 2.325 reverse stock split
  subsequent to December 31, 1990,
  retroactively applied...............
Issuance of $.001 par value common
  stock in connection with Bridge
  Notes...............................        45,500
Issuance of stock purchase warrants...       100,000
Sale of common stock, net of offering
  costs...............................     3,060,272
Conversion of Series A preferred
  stock...............................
Conversion of $255,000 principal
  amount of debenture.................       255,000
Exercise of underwriter's over
  allotment option, net of offering
  costs...............................       483,479
Issuance of $.001 par value common
  stock in connection with acquisition
  of Freedom Machine, Inc.............       207,000
Conversion of $385,000 principal
  amount of debentures................       385,000
Issuance of $.001 par value common
  stock in connection with acquisition
  of Cathlab Corporation..............     2,025,000
Issuance of $.001 par value common
  stock in connection with acquisition
  of VMS, Inc.........................       124,999
Issuance of $.001 par value common
  stock in connection with 6%
  promissory notes....................       263,592
Issuance of $.001 par value common
  stock in connection with purchase of
  assets of SuperStat, Inc............        81,819
Issuance of $.001 par value common
  stock in connection with a $500,000
  loan from a bank....................       357,143
Issuance of $.001 par value common
  stock in connection with Therex
  settlement..........................       500,000
Issuance of Series B preferred stock,
  net of offering costs...............     2,546,146
Exercise of stock purchase warrants...     2,801,020
Issuance of $.001 par value common
  stock in connection with Therex
  settlement..........................
Issuance of $.001 par value common
  stock in connection with consulting
  agreement...........................       175,000
Exercise of stock options.............        38,962
Reacquire $.001 par value common stock
  originally issued in connection with
  Therex settlement...................      (500,000)
</TABLE>

                                       F-5
<PAGE>   42

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
                            (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                  DEFICIT
                                                                                                ACCUMULATED
                                        PREFERRED STOCK        COMMON STOCK       ADDITIONAL     DURING THE       TREASURY STOCK
                                        ----------------   --------------------     PAID-IN     DEVELOPMENT    --------------------
                                         SHARES     PAR      SHARES       PAR       CAPITAL        STAGE        SHARES      COSTS
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
<S>                                     <C>        <C>     <C>          <C>       <C>           <C>            <C>        <C>
Treasury stock reissued, 67,500 common
  shares at cost......................                                            $     1,600                    67,500     248,400
Issuance of 193,500 warrants in
  connection with 9% promissory
  notes...............................                                                574,176
Dividend requirement on Series B
  preferred stock.....................                                               (135,209)
Conversion of Series B preferred stock
  into $.001 par value common stock...  (287,500)  $(288)   1,268,465   $ 1,268       134,091
Sale of common stock for cash, net of
  offering costs......................                      1,500,000     1,500     3,501,299
Net loss for the period...............                                                          (16,559,366)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Balance, December 31, 1993............        --      --    7,390,054     7,390    18,041,979   (16,559,366)    (68,323)   (251,600)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Issuance of shares in connection with
  private placements..................                        684,395       684       566,734
Issuance of shares in connection with
  Officer subscription................                         40,000        40        31,460
Issuance of shares to an officer in
  connection with private placement...                         15,000        15         2,985
Exercise of stock options.............                        400,000       400       224,600
Issuance of shares to employees in
  lieu of salary......................                         11,500        12        11,738
Issuance of shares previously paid for
  but not issued......................                          8,548         9            (9)
Conversion of shareholder loan........                        111,111       111        49,889
Issuance of shares in payment of
  expenses............................                        117,812       118        70,396
Issuance of shares for services.......                        524,554       524        55,726
Additional accrual of expenses related
  to 1993 offering....................                                                (24,795)
Net loss for the year.................                                                           (3,786,156)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Balance, December 31, 1994............        --      --    9,302,974     9,303    19,030,703   (20,345,522)    (68,323)   (251,600)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Issuance of shares in connection with
  officer loan........................                          2,000         2
Issuance of shares to an officer in
  lieu of salary......................                         15,000        15         6,161
Issuance of shares in payment of
  expenses............................                         34,300        34        47,239
Issuance of shares in connection with
  private placement...................                        151,000       151        60,349
Issuance of options...................                                                 37,500
Issuance of warrants..................                                                  8,400
Other.................................                                                   (206)
Net loss for the year.................                                                           (1,404,384)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Balance, December 31, 1995............        --      --    9,505,274     9,505    19,190,146   (21,749,906)    (68,323)   (251,600)
                                        --------   -----   ----------   -------   -----------   ------------   --------   ---------
Issuance of shares in connection with
  private placements, net of offering
  costs...............................     2,890       3    1,250,001     1,250     2,870,066
Exercise of stock options.............                        197,000       197       142,220
Exercise of warrants..................                        744,165       744       390,581
Issuance of options...................                                                237,087
Issuance of shares in payment of
  certain liabilities.................                      1,245,579     1,246     1,545,263
Issuance of shares for services.......                        600,000       600       366,900
Issuance of shares to individuals.....                          2,000         2         3,229
Other.................................                                                 (3,822)
Net loss for the year.................                                                           (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)
                                        ========   =====   ==========   =======   ===========   ============   ========   =========

<CAPTION>

                                           TOTAL
                                        ------------
<S>                                     <C>
Treasury stock reissued, 67,500 common
  shares at cost......................  $    250,000
Issuance of 193,500 warrants in
  connection with 9% promissory
  notes...............................       574,176
Dividend requirement on Series B
  preferred stock.....................      (135,209)
Conversion of Series B preferred stock
  into $.001 par value common stock...       135,071
Sale of common stock for cash, net of
  offering costs......................     3,502,799
Net loss for the period...............   (16,559,366)
                                        ------------
Balance, December 31, 1993............     1,238,403
                                        ------------
Issuance of shares in connection with
  private placements..................       567,418
Issuance of shares in connection with
  Officer subscription................        31,500
Issuance of shares to an officer in
  connection with private placement...         3,000
Exercise of stock options.............       225,000
Issuance of shares to employees in
  lieu of salary......................        11,750
Issuance of shares previously paid for
  but not issued......................
Conversion of shareholder loan........        50,000
Issuance of shares in payment of
  expenses............................        70,514
Issuance of shares for services.......        56,250
Additional accrual of expenses related
  to 1993 offering....................       (24,795)
Net loss for the year.................    (3,786,156)
                                        ------------
Balance, December 31, 1994............    (1,557,116)
                                        ------------
Issuance of shares in connection with
  officer loan........................             2
Issuance of shares to an officer in
  lieu of salary......................         6,176
Issuance of shares in payment of
  expenses............................        47,273
Issuance of shares in connection with
  private placement...................        60,500
Issuance of options...................        37,500
Issuance of warrants..................         8,400
Other.................................          (206)
Net loss for the year.................    (1,404,384)
                                        ------------
Balance, December 31, 1995............    (2,801,855)
                                        ------------
Issuance of shares in connection with
  private placements, net of offering
  costs...............................     2,871,319
Exercise of stock options.............       142,417
Exercise of warrants..................       391,325
Issuance of options...................       237,087
Issuance of shares in payment of
  certain liabilities.................     1,546,509
Issuance of shares for services.......       367,500
Issuance of shares to individuals.....         3,231
Other.................................        (3,822)
Net loss for the year.................    (2,625,116)
                                        ------------
Balance, December 31, 1996............  $    128,595
                                        ============
</TABLE>

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

                                       F-6
<PAGE>   43

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                            INCEPTION,
                                                                                                           SEPTEMBER 4,
                                                               YEAR ENDED     YEAR ENDED     YEAR ENDED      1984, TO
                                                              DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                  1996           1995           1994           1996
                                                              ------------   ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $(2,625,116)   $(1,404,384)   $(3,786,156)   $(24,375,022)
                                                              -----------    -----------    -----------    ------------
    Adjustments to reconcile net loss to cash used by
      operating activities
      Depreciation and amortization.........................      334,012        660,539        714,530       2,775,567
      Write off of goodwill.................................                     120,000                        120,000
      Expenses paid by transfer of equipment................                       3,380         33,754          37,134
      Loss (gain) on sale of assets.........................       24,972       (501,043)                      (476,071)
      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....      604,587         53,245        138,515       1,066,347
      Write off of note receivable from officer.............                                                     25,000
      Noncash compensation..................................                      45,900                         45,900
      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                        78,567          79,167
      Write off of obsolete inventory.......................                      43,325                        367,688
    Changes in operating assets and liabilities:
      Accounts receivable, net..............................        2,570        (97,115)       207,607        (130,649)
      Inventories...........................................      (91,967)       (74,007)       239,282        (924,224)
      Restricted cash.......................................                                    250,000
      Other assets..........................................       51,145        (57,495)         5,396         (12,946)
      Accounts payable......................................     (135,640)      (203,921)       627,239       1,004,808
      Accrued liabilities...................................      239,973        (12,142)       468,107         803,294
      Deferred revenue......................................      (60,000)       (60,000)       280,000         160,000
                                                              -----------    -----------    -----------    ------------
        Total adjustments...................................      970,252        (79,334)     3,042,997       7,040,903
                                                              -----------    -----------    -----------    ------------
        Net cash used by operating activities...............   (1,654,864)    (1,483,718)      (743,159)    (17,334,119)
                                                              -----------    -----------    -----------    ------------
Cash flows from investing activities:
  Capital expenditures......................................      (46,773)        (1,076)                      (435,226)
  Issuance of notes receivable..............................                                                    (85,000)
  Proceeds from repayment of notes receivable...............                                                     35,000
  Investments in patents....................................      (31,414)       (51,877)       (50,646)       (436,988)
  Investment in joint venture...............................                      (2,015)                      (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..............................        1,264        507,113                        508,377
  Cash acquired in acquisition of Freedom Machine...........                                                      6,338
  Cash acquired in acquisition of Cathlab Corporation.......                                                      6,446
                                                              -----------    -----------    -----------    ------------
        Net cash provided (used) by investing activities....      (76,923)       452,145        (50,646)       (627,134)
                                                              -----------    -----------    -----------    ------------
Cash flows from financing activities:
  Cash dividends on preferred stock.........................                                                       (138)
  Offering costs............................................     (322,859)                                     (652,653)
  Financing costs...........................................                                                    (59,309)
  Proceeds from notes payable to banks......................                                    268,880       2,333,880
  Proceeds from notes payable to stockholders...............       34,750                        40,912       1,225,921
  Proceeds from notes payable to others.....................    1,835,576      1,688,560         40,489       5,742,337
  Repayments of notes payable to bank.......................       (5,000)                     (250,000)     (2,070,000)
  Repayments of notes payable to stockholders...............     (286,260)                                     (822,992)
  Repayments of notes payable to others.....................   (1,932,618)      (614,145)       (22,961)     (4,775,017)
  Proceeds from patent assignment and leaseback.............                                                    500,000
  Proceeds from equipment assignment and leaseback..........                                                    305,000
  Principal payments under capital lease obligations........      (99,278)      (115,411)      (141,572)       (630,167)
  Proceeds from sale of debentures..........................                                                    640,000
  Proceeds from sale of preferred stock.....................    2,890,356                                     5,936,502
  Proceeds from sales of common stock and exercise of
    unregistered warrants...................................      694,556         60,500        601,918       8,734,317
  Proceeds from exercise of stock options...................       97,000                       200,205         336,167
  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...........    2,906,223      1,019,504        737,871      19,144,866
                                                              -----------    -----------    -----------    ------------
Net increase (decrease) in cash and cash equivalents........    1,174,436        (12,069)       (55,934)      1,183,613
Cash and cash equivalents at beginning of period............        9,177         21,246         77,180
                                                              -----------    -----------    -----------    ------------
Cash and cash equivalents at end of period..................  $ 1,183,613    $     9,177    $    21,246    $  1,183,613
                                                              ===========    ===========    ===========    ============
</TABLE>

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

                                       F-7
<PAGE>   44

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (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 to health care providers that are high volume
users of angioplasty, atherectomy and stent devices, third-party distributors
and independent representatives geographically located in North and South
America, Western Europe, the Middle East, the Far East and Southeast Asia, and
are also the targeted markets for the Company's developed products. Domestic and
foreign export sales comprise approximately 40% and 60% respectively, of the
Company's sales. 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 subsidiaries, Cathlab Corporation and Freedom Machine,
Inc., after elimination of all intercompany accounts and transactions. Effective
September 30, 1996, the Company dissolved Freedom Machine, Inc. and all
remaining assets were transferred to the Company. The Company operates
predominately 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-8
<PAGE>   45

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (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 and for 1996 no
impairment is indicated or expected.

  Long-Lived Assets

     In fiscal year 1996 the Company adopted the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Based on the review of the Company's long-lived assets, adoption of
SFAS 121 did not have a material impact on its financial position, results of
operations or cash flows.

  Other Assets

     Other assets consist of the long-term portion of a two-year prepaid
consulting agreement for investor relations services and long-term deposits.

  Revenue Recognition

     Revenue is recognized when products are shipped.

  Research and Development

     Research and development costs are expensed as incurred.

  Loss Per Share

     Loss per share is computed on the basis of the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods.

                                       F-9
<PAGE>   46

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

  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
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

     Hospitals, physicians and other health care providers that purchase medical
devices for use in furnishing care to their patients, typically 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 plans to install 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.

  Reclassifications

     Certain reclassifications have been made to prior year financial
information in order to conform to current year presentation.

                                      F-10
<PAGE>   47

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES:

     Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1996        1995
                                                              --------    --------
<S>                                                           <C>         <C>
Raw materials...............................................  $178,762    $146,901
Work in process.............................................   157,114     166,893
Finished Goods..............................................   126,221      56,336
                                                              --------    --------
                                                              $462,097    $370,130
                                                              ========    ========
</TABLE>

3. PROPERTY AND EQUIPMENT, NET:

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1996         1995
                                                              ---------    ---------
<S>                                                           <C>          <C>
Furniture and fixtures......................................  $  51,133    $  86,149
Machinery and equipment.....................................    627,917      571,943
Leasehold improvements......................................     15,673       46,493
Equipment under capital lease agreements....................     24,243      137,996
                                                              ---------    ---------
                                                                718,966      842,581
Less accumulated depreciation and amortization..............   (637,651)    (641,845)
                                                              ---------    ---------
                                                              $  81,315    $ 200,736
                                                              =========    =========
</TABLE>

     Included in accumulated depreciation and amortization at December 31, 1996
and 1995 is $22,195 and $104,088, respectively, of accumulated amortization on
equipment acquired under capital lease agreements. Depreciation expense for the
years ended December 31, 1996, 1995 and 1994 was approximately $133,000,
$191,000 and $313,000, respectively.

4. GOODWILL

     In November 1995 the Company sold certain assets and the associated
customer base of the catheter hole punch operations to a related party.
Accordingly, the Company wrote off approximately $120,000 of goodwill associated
with these assets.

5. 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 Company performed such development services and
included $2,400 and $66,754 in revenues as of December 31, 1995 and 1994,
respectively. No revenues were included as of December 31, 1996. The $300,000
license fee is being amortized over five years, the life the Company uses to
amortize patents. The unamortized

                                      F-11
<PAGE>   48

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. DEFERRED REVENUE -- (CONTINUED)

balance of $160,000 and $220,000 is reflected as deferred revenue as of December
31, 1996 and 1995, respectively.

6. NOTES PAYABLE AND LONG-TERM DEBT:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1996          1995
                                                              ----------    ----------
<S>                                                           <C>           <C>
  Notes payable to banks consisted of the following:
  Note payable bearing interest at the bank's prime rate
     (8.5% at December 31, 1995) plus 2% with interest and
     principal due December 31, 1994. The note was extended
     to March 30, 1996 and is guaranteed by a third party
     and by two officers of the Company, and is
     collateralized by certain equipment....................          --    $  235,000
                                                              ==========    ==========
  Notes payable to stockholders and others consisted of the
     following:
  Uncollateralized promissory note, bearing interest at 10%,
     payable quarterly with principal due on demand.........  $  242,450    $  242,450
  $651,000 uncollateralized promissory notes, bearing
     interest at 6% per year. The notes mature at the
     earlier of (a) dates ranging from July 25, 1993 to
     August 20, 1993, or (b) closing of any public or
     private offering in which the gross proceeds of the
     offering exceed $3,000,000. In connection with the sale
     of these notes the Company issued 58,576 unregistered
     shares of common stock in lieu of a higher stated
     interest rate. The value of the shares issued was
     amortized over the term of the notes...................          --       177,360
  Note payable to a stockholder bearing interest at 6% per
     year payable in monthly installments in the following
     manner: (a) $15,000 including interest by September 11,
     1995; (b) $2,500 including interest commencing October
     1, 1995; (c) $12,000 including interest commencing
     March 1, 1996; and (d) a lump sum of $188,676 including
     interest on October 1, 1996. The note is collateralized
     by Russian microsurgical instruments...................          --       276,510
  Note payable to USSC effective July 20, 1995, bearing
     interest at 10% per year, collateralized by stent
     technology maturing January 20, 1996, extended to
     September 15, 1996.....................................          --     1,000,000
  Note payable to a director bearing interest at 9% per
     year, payable on demand................................          --         2,500
  Note payable to a Company bearing interest at 10% per
     year, payable in monthly installments of $500 including
     interest, maturing May 31, 1996, collateralized by
     certain equipment......................................          --         8,685
  Note payable to an insurance company bearing interest at
     10.2% per year payable in monthly installments of
     $5,562 including interest, maturing August 10, 1996....          --        42,840
  Note payable to an insurance company bearing interest at
     9.61% per year, payable in monthly installments of $622
     including interest, maturing June 9, 1996..............          --         4,215
  Note payable to landlord bearing interest at 9% per year
     payable in monthly installments of $4,699 including
     interest, maturing January 1, 1997.....................          --        76,762
</TABLE>

                                      F-12
<PAGE>   49

6. NOTES PAYABLE AND LONG-TERM DEBT: -- (CONTINUED)

<TABLE>
<S>                                                                                   <C>           <C>
Note payable to an insurance company bearing interest at 8.7% per year payable in
  monthly installments of $5,298 including interest, maturing July 8, 1997..........        36,035            --
Uncollateralized note payable to a company bearing interest at 12% per year,
  maturing January 27, 1997.........................................................     1,000,000            --
                                                                                      ------------  ------------
                                                                                      $  1,278,485  $  1,831,322
                                                                                      ============  ============
  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 1, 2000................  $    148,876            --
Less current maturities.............................................................       (38,404)           --
                                                                                      ------------  ------------
                                                                                      $    110,472  $         --
                                                                                      ============  ============
</TABLE>

7. ACCRUED LIABILITIES:

     Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1996        1995
                                                              --------    --------
<S>                                                           <C>         <C>
Accrued interest payable....................................  $133,129    $269,539
Accrued payroll and related taxes...........................   132,672     243,811
Accrued offering costs......................................   102,000
Other.......................................................   115,366      82,634
                                                              --------    --------
                                                              $483,167    $595,984
                                                              ========    ========
</TABLE>

8. 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 August 1997.
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, 1996:

<TABLE>
<CAPTION>
                                                               CAPITAL     OPERATING
                                                               LEASES       LEASES
                                                              ---------    ---------
<S>                                                           <C>          <C>
1997........................................................  $ 338,953     $ 89,428
1998........................................................    315,981        4,110
1999........................................................         --        2,909
2000........................................................         --        2,909
2001........................................................         --        1,455
                                                              ---------     --------
Total minimum lease payments................................    654,934     $100,811
                                                                            ========
Amounts representing interest...............................    (86,090)
                                                              ---------
Present value of future lease payments......................    568,844
Less current maturities.....................................   (266,078)
                                                              ---------
                                                              $ 302,766
                                                              =========
</TABLE>

                                      F-13
<PAGE>   50

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

     Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 and for the period from inception, September 4, 1984, to
December 31, 1996 amounted to $157,972, $243,881, $251,553 and $1,131,130,
respectively.

  Litigation

     On December 8, 1994, a vendor commenced a lawsuit against the Company
regarding unpaid invoices in the amount of $124,759 plus attorney fees and
accrued interest. On June 15, 1995, the parties to the lawsuit executed a
Stipulation of Settlement, a Consent Judgment and a Stipulation of Dismissal to
be held in escrow. The Company agreed to pay $125,000 to the vendor under the
settlement agreement; $25,000 was paid upon execution of this stipulation and
the balance was due on or before October 31, 1995. The amount of $100,000 is
included in accounts payable at December 31, 1995. The balance was paid through
the issuance of 116,145 shares of the Company's common stock in 1996.

     In December 1995 the American Arbitration Association awarded a consultant
$50,000 with interest at prime plus 3% from May 1, 1995. The Company sought to
have the award vacated but on July 30, 1996 the award was confirmed. An
Application for Turnover Order was filed in December 1996 requiring the Company
to pay the consultant or satisfy the judgment with the proceeds of any
consummated sale of the Company's obsolete inventory in the form of foreign-made
dental and medical surgical supplies and utensils. The resolution of this matter
will not have a material adverse impact on 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.

9. FEDERAL INCOME TAXES:

At December 31, 1996, 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                                                 N O L        R & D
------------                                              -----------    --------
<S>            <C>                                        <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
                                                          -----------    --------
                                                          $19,068,300    $514,461
                                                          ===========    ========
</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

                                      F-14
<PAGE>   51

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. FEDERAL INCOME TAXES: -- (CONTINUED)

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.

     The Company adopted the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting For Income Taxes". 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, 1996 and 1995, are as follows:

<TABLE>
<CAPTION>
                                                               1996           1995
                                                            -----------    -----------
<S>                                                         <C>            <C>
Total deferred tax assets
Net operating losses and other............................  $ 7,995,000    $ 6,836,000
Valuation allowance.......................................   (7,995,000)    (6,836,000)
                                                            -----------    -----------
                                                            $       -0-    $       -0-
                                                            ===========    ===========
</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, 1996 and 1995, respectively. The change
in the total valuation allowance for the year ended December 31, 1996 and 1995
was a net increase of approximately $1,159,000 and $314,000, respectively.
Contributing primarily to this change were operating losses incurred during
1996.

10. RELATED PARTY TRANSACTIONS:

     For the period from inception, September 4, 1984, to December 31, 1996, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,082,072. Of this amount, $37,500, $50,000 and $152,250 related to the years
ended December 31, 1996, 1995 and 1994, 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. The base salary was increased to $165,000 per
year, with a cash bonus of $30,000 to be paid should the Company's revenues
exceed $2 million in 1997. Options to purchase an additional 820,000 shares of
common stock at $.50 per share were granted. Additionally, options previously
granted under the original agreement which had not vested as of December 31,
1996 shall vest evenly over the next three years.

     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

                                      F-15
<PAGE>   52

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. RELATED PARTY TRANSACTIONS: -- (CONTINUED)

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.

     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. A
member of the Company's Board of Directors, 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 issued at an exercise price of $0.50 per share,
exercisable for five years from date of grant. Date of grant is the date of each
closing. 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 parties. In addition, a 10%
placement fee of approximately $319,000 has been paid to Zanett or their
designated representative.

     In September 1996, Zanett was issued a restricted exercise warrant to
purchase 25,000 shares of common stock at $.9375 in connection with the
placement of bridge financing.

                                      F-16
<PAGE>   53

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. RELATED PARTY TRANSACTIONS: -- (CONTINUED)
     The Company does not have a policy against employing relatives. During the
years ended December 31, 1996, 1995 and 1994, the Company paid salaries and
wages to relatives of officers of the Company amounting to $22,692, $51,600, and
$88,776, respectively.

11.  CAPITAL STOCK:

  Common Stock

     Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 1,250,001 shares of common stock at a purchase price of $0.24 per
share to a group of foreign investors.

     On November 22, 1996 the shareholders approved the increase in authorized
shares of the Company's common stock from 25,000,000 to 50,000,000.

  Preferred Stock

     In December 1992, the Company created a new class of preferred stock, the
"Series B preferred stock", with an offering price of $10 per share, consisting
of 350,000 shares. As of December 31, 1992, the Company had sold 10,000 shares
of Series B preferred stock and had received gross proceeds of $100,000. During
the first quarter of 1993, an additional 277,500 shares of the Series B
preferred stock were sold netting $2,456,145. Annual cumulative 10% dividends
were payable quarterly commencing April 1, 1993.

     Pursuant to the Certificate of Incorporation, as amended, during the period
July 1993 through October 22, 1993 (the date of a public offering), all the
287,500 shares of the Series B preferred stock outstanding were converted into
1,202,773 shares of common stock. The accrued dividends thereon were converted
into 65,693 shares of common stock, and $138 was paid in cash.

     Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 1,390 shares of its Series A convertible preferred stock, 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 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.

     Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (i) 1,500 of its 1996 Series B convertible
preferred stock, 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 proceeds of the sale were used to pay off
notes in the amount of $835,576, with the balance to be used to fund clinical
trials and for general working capital.

                                      F-17
<PAGE>   54

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. CAPITAL STOCK: -- (CONTINUED)
     The Series B Preferred, which bears no dividends and confers no voting
rights, ranks senior to the Series A Preferred and senior in priority to the
Company's other equity securities (except with the consent of a majority of the
holders of the Series B Preferred) and is convertible at any time at the option
of the holders into a number of shares of common stock (the "Series B Conversion
Shares") based on the lesser of (i) 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, i.e., $1.40 per share or (ii) between 70%
and 86% (depending on the length of time since the closing date of the Series B
issuance) of the average of the market price for the five consecutive days prior
to the day the election to convert is made (the "Series B Conversion Price").
The number of Series B Conversion Shares is subject to adjustment from time to
time upon the occurrence of stock splits, and similar events. In November 1998,
any outstanding shares of the Series B Preferred will be automatically converted
based on the Series B Conversion Price then in effect. 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. In addition to the Series
B Preferred and the Warrants, the Series B Investors were given registration
rights with respect to the shares of common stock issuable upon conversion of
the Series B Preferred and exercise of the 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.

     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.

     The board of directors is authorized to determine, prior to issuing any
such series of preferred stock and without any vote or action by the
shareholders, the rights, preferences, privileges and restrictions of the shares
of such series, including dividend rights, voting rights, terms of redemption,
the provisions of any purchase, retirement or sinking fund to be provided for
the shares of any series, conversion and exchange rights, the preferences upon
any distribution of the assets of the Company, including in the event of
voluntary or involuntary liquidation or dissolution of the Company, and the
preferences and relative rights among each series of preferred stock.

12. STOCK PURCHASE WARRANTS:

     Under the terms of the agreement with Aberlyn Capital Management Limited
Partnership (See Note 10), 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 expire 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.

                                      F-18
<PAGE>   55

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCK PURCHASE WARRANTS: -- (CONTINUED)

     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
expire in June 1998.

     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 expire in 1998.

     Also in connection with the initial public offering, the Company issued
80,000 warrants to its underwriter, which were convertible into 40,000 shares of
common stock at $8.25 per common share. The warrants had an antidilution feature
such that at December 31, 1995, the amount was 166,244 warrants to purchase
83,122 shares of common stock at $3.97 per common share. These warrants expired
October 1996.

     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 are
exercisable for five years.

     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 which is due when the
Company raises a minimum of $1,000,000 in new equity. 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 105,665
shares were exercised during 1996. One warrant was underexercised by one share
which is thereby forfeited.

     In August 1994, in connection with a licensing agreement with Wright
Medical Technologies (See Note 5), 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.

     In March 1995, in settlement of the cancellation of a distribution
agreement with MediHeat, Inc., the Company issued warrants to purchase 65,000
shares of common stock at $.45 per share. The warrants were exercised in 1996.

     During February through April 1995, in connection with a bridge loan, the
Company issued warrants to purchase 1,374,250 shares of common stock at $.40 per
share. The warrants are exercisable for two years and were registered on an S-3
Registration Statement effective August 23, 1996. As of December 31, 1996,
620,000 shares have been issued in connection with the exercise of these
warrants.

                                      F-19
<PAGE>   56

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCK PURCHASE WARRANTS: -- (CONTINUED)

     In May 1995, the Company issued warrants to purchase 15,000 shares of
common stock at $0.6875 per share to its landlord at Cathlab in consideration
for continuing the lease in its delinquent status. The warrants were exercised
in 1996.

     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 early exercise of warrants issued for bridge loans,
the Company issued warrants to purchase 132,000 shares at $.25 per share in
September 1995. Warrants for 40,000 shares were exercised in 1996. The remaining
warrants are exercisable through September 1997.

     In connection with the sale of 1,000 shares in September 1995, the Company
issued a warrant to purchase 1,000 shares at $.50 per share. The warrant was
exercised in 1996.

     Warrants to purchase 20,000 shares of common stock at an exercise price of
$.50 per share were issued in connection with the settlement of litigation in
September 1995, exercisable for two years.

     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 equal to the lowest market price for the common
stock during the period beginning on the day prior to the date of issuance and
ending on the earlier of (i) 180 days thereafter or (ii) the day prior to the
date of exercise. The exercise price of the Bridge Warrants and the number of
shares of common stock underlying the Bridge Warrants are both subject to
adjustment upon the occurrence of stock splits, reverse stock splits, the
issuance of below-market securities, and other events. 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.

     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.

                                      F-20
<PAGE>   57

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCK PURCHASE WARRANTS: -- (CONTINUED)
     Cumulative shares issuable under warrants and their expiration dates as of
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                 GRANT                    EXPIRATION    NUMBER OF    EXERCISE
                  DATE                       DATE        SHARES       PRICE
                 -----                    ----------    ---------    --------
<S>                                       <C>           <C>          <C>
January 1993............................     1998          75,000     $7.50
June - October 1993.....................     1998         337,397     $1.00
July 1993...............................     1998         288,203     $6.65
October 1993............................     1998         848,002     $2.16
October 1993............................     1998         135,571     $3.60
October 1993............................     1998          45,000     $2.50
January - February 1994.................     1999         224,139     $1.35
March 1994..............................     1999         150,000     $1.50
March - June 1994.......................     1999          70,000     $1.00
August 1994.............................     1999         150,000     $2.00
October 1994............................     1999         100,000     $2.50
February - April 1995...................     1997         754,250     $0.40
June 1995...............................     2000         100,000     $0.1875
June 1995...............................     2000         100,000     $0.50
September 1995..........................     1997          92,000     $0.25
September 1995..........................     1997          20,000     $0.50
July 1996...............................     2001         704,167     $0.50
September 1996..........................     2001         275,000     $0.9375
November 1996...........................     2001       1,209,677     $1.40
November 1996...........................     2001         107,143     $1.40
December 1996...........................     2001          25,000     $1.50
                                                        ---------
                                                        5,810,549
                                                        =========
</TABLE>

13. STOCK OPTIONS:

     At December 31, 1996, the Company had four 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
its plans. The compensation cost that has been charged against income for its
stock option plans was approximately $238,000, and $98,000 for 1996 and 1995,
respectively. Had compensation cost for the Company's four 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                       1996           1995
                  ----                    -----------    -----------
<S>                                       <C>            <C>
Net loss
  As reported...........................  $(2,625,116)   $(1,404,384)
  Pro forma.............................  $(2,936,878)   $(1,637,082)
Net loss available to common
  shareholders
  As reported...........................  $(3,808,529)   $(1,404,384)
  Pro forma.............................  $(4,120,291)   $(1,637,082)
Net loss per common share
  As reported...........................  $      (.34)   $      (.15)
  Pro forma.............................  $      (.36)   $      (.17)
</TABLE>

                                      F-21
<PAGE>   58

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. STOCK OPTIONS: -- (CONTINUED)

     The Company's fixed option plans include the 1996 Incentive Stock Option
Plan (the "1996 Plan"), the 1994 Stock Option Plan (the "1994 Plan"), the 1992
Stock Option Plan (the "1992 Plan"), the 1990 Stock Option Plan (the "1990
Plan") and the Other Plan. 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, 1996 no Incentive Awards have been
granted under the 1996 Plan. The maximum number of shares of common stock
subject to Incentive Awards that may be granted under the 1996 Plan to any one
individual during any calendar year is 50,000. 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.

     Under the 1992 Plan, options to purchase 5,000 shares remain granted and
not exercised. The 1992 Plan will terminate on April 9, 2002 unless sooner
terminated by the Board.

     Under the 1990 Plan, 75,000 options expired December 1996. No further
grants may be made under either the 1992 Plan or the 1990 Plan.

     In April 1995, in consideration for termination of a distribution
agreement, the Company granted a distributor an option to purchase 437,500
shares at $.40 per share.

     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. The
options are exercisable for five years.

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

     The fair value of each option grant is estimated on the date of the grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; dividend yield of 0% for all
years; expected volatility of 109%; risk-free interest rate of 6.25%; and
expected term equal to 80% of the full term.

                                      F-22
<PAGE>   59

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. STOCK OPTIONS: -- (CONTINUED)

     A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
                                                 1996                 1995
                                          ------------------   ------------------
                                                   WEIGHTED             WEIGHTED
                                                    AVERAGE              AVERAGE
                                          SHARES   EXERCISE    SHARES   EXERCISE
             FIXED OPTIONS                (000)      PRICE     (000)      PRICE
             -------------                ------   ---------   ------   ---------
<S>                                       <C>      <C>         <C>      <C>
Outstanding at beginning of year........  4,662    $0.87380    3,313    $1.08786
Granted.................................    560    $0.77511    2,005    $0.45182
Exercised...............................    197    $1.00000        0
Forfeited/Expired.......................  2,287    $0.89761      656    $0.66458
Outstanding at end of year..............  2,738    $0.82464    4,662    $0.87380
Options exercisable at year end.........  1,372    $0.93222    3,126    $0.75429
Weighted average exercise price of options
  granted during the year:
  Exercise price less than fair market
     value..............................           $0.72542             $0.40877
  Exercise price equal to fair market
     value..............................           $1.01190                   --
  Exercise price greater than fair
     market value.......................           $0.50000             $0.46364
Weighted average fair value of options
  granted during the year:
  Fair value less than market value.....           $0.87514             $0.51893
  Fair value equal to market value......           $0.76818                   --
  Fair value greater than market
     value..............................           $0.32455             $0.32893
</TABLE>

     The following summarizes information about fixed stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                                   --------------------------------------     --------------------
                                                  WEIGHTED
                                                   AVERAGE       WEIGHTED                 WEIGHTED
                                                  REMAINING      AVERAGE                  AVERAGE
            RANGE OF                             CONTRACTUAL     EXERCISE                 EXERCISE
         EXERCISE PRICES            SHARES          LIFE          PRICE       SHARES       PRICE
         ---------------           ---------     -----------     --------     -------     --------
<S>                                <C>           <C>             <C>          <C>         <C>
$0.0010-0.2500...................    120,000       7.93840       $0.03208     108,000     $0.01481
$0.2501-0.999....................  1,732,500       4.86869       $0.52572     685,000     $$0.61579
$1.0000-2.9999...................    662,250       2.76117       $1.00189     443,900     $1.00000
$3.000-6.9999....................    223,226       2.50233       $3.04480     135,290     $3.04435
</TABLE>

                                      F-23
<PAGE>   60

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. SUPPLEMENTAL INFORMATION FOR CONSOLIDATED STATEMENT OF CASH FLOWS:

<TABLE>
<CAPTION>
                                                                                           INCEPTION
                                                 YEAR           YEAR           YEAR       SEPTEMBER 4,
                                                ENDED          ENDED          ENDED         1984, TO
                                             DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                 1996           1995           1994           1996
                                             ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
Interest Paid..............................   $  392,580      $178,156       $ 59,333      $1,146,878
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.............................                     26,800                        105,170
Conversion of Series A and Series B
  preferred stock to common stock..........                                                       444
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                       50,000         538,671
Common stock and warrants issued in lieu of
  interest.................................       58,139                       12,812       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.................................      367,500        56,412        138,515       1,007,427
Issuance of common stock for certain
  liabilities..............................    1,546,509                                    1,546,509
</TABLE>

15. SALES INFORMATION:

     Sales to three customers during the year ended December 31, 1994
represented 16.2%, 15.6% and 11.0% of the Company's total net sales. During the
year ended December 31, 1995 sales to three customers represented 24.8%, 20.2%
and 10.4% of net sales. Sales to three customers during the year ended December
31, 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 sales for 1995 and 1994 were approximately 81% and 59%,
respectively. Of the $579,533 in total net sales for the year ended December 31,
1996, approximately 60% was foreign sales, mainly to European and South and
Central American countries.

                                      F-24
<PAGE>   61

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. 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 unamortized value of $47,727 was expensed in 1994.

17. SUBSEQUENT EVENT:

     Pursuant to Section 4(2) of the Securities Act, 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
proceeds of the sale will be used to fund clinical trials, research and
development projects and general working capital. The Series C Preferred, which
bears no dividends and confers no voting rights, is of equal rank with shares of
the Series A Preferred and the Series B Preferred and senior to the Company's
other equity securities (except with the consent of the majority of the holders
of Series C Preferred). The Series C Preferred is convertible at any time on or
after 120 days after the initial date of issuance at the option of the holder
into a number of shares of common stock (the "Series C Conversion Shares") based
on a formula as defined in the purchase agreement:

     The Series C conversion price is the lesser of (i) $1.75 (adjusted if there
is a lock up in effect) or (ii) the average of the closing bid price for the
common stock for the five consecutive trading days immediately preceding the
date the election to convert is made (the "Series C Conversion Price"). The
number of Series C Conversion Shares is subject to adjustment from time to time
upon the occurrence of stock splits, reverse stock splits, and similar events.
On March 1, 2000 any outstanding shares of the Series C Preferred will be
automatically converted based on the Series C Conversion Price then in effect.

     Registration rights were conferred upon the Series C Preferred requiring
the Company to file an S-3 Registration Statement on or before the ninetieth day
following the issuance date covering the resale of the Series C Conversion
Shares.

     In the event the Company effects a lock-up, each holder of the Series C
Preferred will be entitled to a warrant (the "Lock-Up Warrant") exercisable for
that number of shares of common stock equal to ( 1/2) one-half of the number of
shares of common stock which would have been issuable had such holder converted,
and on the last day of the lock-up period will be entitled to an additional
Lock-Up Warrant exercisable for that number of shares of common stock equal to
one-half of the number of shares of common stock which would have been issuable
had such holder converted. The exercise price of the Lock-Up Warrant is the
fixed conversion price that is in effect at the time of issuance, but not
subject to any adjustments.

18. 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 ten products presently available
to market and has formulated a comprehensive business strategy which it believes
will enable it to capitalize on its technologies and developing trends in the
healthcare industry. The Company launched an aggressive cost reduction campaign
which has drastically reduced operating expenses. At the same time the Company
has initiated efforts to revamp its existing distribution network by replacing
underperforming distributors with professional domestic

                                      F-25
<PAGE>   62

                     AMERICAN BIOMED, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. OPERATIONS: -- (CONTINUED)

and international distributor organizations, thereby creating a world-class
distributor network. Management believes it will be able to raise the capital
necessary to fund the commercialization efforts of its existing technologies and
current working capital for the foreseeable future by "unbundling" its core
technologies and identifying a prestigious international healthcare corporation
for each technology and product in a specific international market.

     In addition, 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 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.

                                      F-26
<PAGE>   63

                     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 Subsidiaries (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.

                                            COOPERS & LYBRAND L.L.P.

Houston, Texas
March 21, 1997

                                      F-27
<PAGE>   64

                                                                     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
                                                         ------------------------------
                                            BALANCE AT       (1)              (2)
                                            BEGINNING     CHARGED TO      CHARGED TO                     BALANCE AT
                                                OF          COSTS       OTHER ACCOUNTS-   DEDUCTIONS-      END OF
               DESCRIPTION                    PERIOD     AND EXPENSES      DESCRIBE        DESCRIBE        PERIOD
               -----------                  ----------   ------------   ---------------   -----------    ----------
<S>                                         <C>          <C>            <C>               <C>            <C>
DECEMBER 31, 1994
  Allowance for doubtful accounts.........  $  88,156      $ 170,212                         $240,780(1) $   17,588
  Allowance for deferred tax assets.......  5,421,100      1,100,900                                      6,522,000
DECEMBER 31, 1995
  Allowance for doubtful accounts.........     17,588         51,919                          24,027(1)      45,480
  Allowance for deferred tax assets.......  6,522,000        314,000                                      6,836,000
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
</TABLE>

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

(1) Write-off of bad debts.

                                      F-28
<PAGE>   65

                                   SIGNATURES

     Pursuant to the Requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of The Woodlands, State of
Texas, on the 31st day of March, 1997.

                                            AMERICAN BIOMED, INC.

                                            By:      /s/ STEVEN B. RASH
                                              ----------------------------------
                                                        Steven B. Rash
                                                    Chairman of the Board

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

<TABLE>
<C>                                                      <S>                                <C>
                 /s/ STEVEN B. RASH                      Chairman of the Board, President       March 31, 1997
-----------------------------------------------------      and Chief Executive Officer
                   Steven B. Rash

               /s/ COLENE BLANKINSHIP                    Controller (Principal Financial        March 31, 1997
-----------------------------------------------------      and Accounting Officer)
                 Colene Blankinship

               /s/ LAWRENCE M. HOFFMAN                   Director                               March 31, 1997
-----------------------------------------------------
                 Lawrence M. Hoffman

                 /s/ RICHARD SERBIN                      Director                               March 31, 1997
-----------------------------------------------------
                   Richard Serbin

                                                         Director                                       , 1997
-----------------------------------------------------
                  Claudio Guazzoni
</TABLE>
<PAGE>   66

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                              EXHIBIT 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(5)
          3.4            -- Certificate of Designations, Preferences and Rights of
                            1996 Series B Convertible Preferred Stock(5)
          3.5            -- Certificate of Designations, Preferences and Rights of
                            1997 Series C Convertible Preferred Stock(7)
          4.2            -- Specimen Common Stock Certificate(1)
         10.17           -- Summers Note, dated September 1990, between the Company
                            and David P. Summers, as amended(1)
         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.(2)
         10.69           -- Stipulation of Settlement, Scott Printing Corporation v.
                            American BioMed, Inc.(4)
         10.70           -- Employment contract with Steven B. Rash(4)
         10.71           -- Purchase of Technology Agreement, Guerbet, S.A.(4)
         10.73           -- Corporate Communications Settlement Agreement(4)
         10.74           -- Distribution Agreement with Horizon Medical(4)
         10.80           -- 1996 Incentive Stock Option Plan(6)
         10.81           -- Aberlyn Restructure Agreement
         10.82           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1996 Series A Convertible Preferred Stock(7)
         10.83           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1996 Series B Convertible Preferred Stock(7)
         10.84           -- Securities Purchase Agreement between the Company and
                            certain investors relating to the issuance and sale of
                            the 1997 Series C Convertible Preferred Stock(7)
         11.1            -- Computation of (Loss) per Common Share
         21.1            -- Subsidiaries of the Registrant
         23.1            -- Consent of Coopers & Lybrand L.L.P.
         27              -- Financial Data Schedule
</TABLE>

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

(1) Incorporated by reference to the Company's Registration Statement on Form
    S-1, as amended, File No. 33-424372, dated August 4, 1992.

(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the year ended December 31, 1994.

(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, 1995.
<PAGE>   67

(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1996.

(6) Incorporated by reference to the Company's Proxy Statement for the November
    22, 1996 Annual Meeting.

(7) To be filed by amendment.