U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 31, 1996.
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number: 00028666
AMERICAN BIO MEDICA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter
New York 14-1702188
- --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
102 Simons Road Ancramdale, New York 12503
- --------------------------------------------------------------------------------
Address of principal executive offices)
800-227-1243
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark, whether the registrant:: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 No X
Indicate the number of shares outstanding of each of the issuer's classes
of stock as of the close of the period covered by this report.
Class Number of Shares Outstanding
Common Shares 12,565,227
Convertible Class "A" Preferred Shares 150
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements for the periods ended October 31, 1996
included herein have been prepared by American Bio Medica Corporation, (the
"Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). In the opinion of
management, the statements include all adjustments necessary to present fairly
the financial position of the Company as of October 31, 1996, and the results of
operations and cash flows for the six month periods ended October 31, 1995 and
1996.
The Company's results of operations during the six months of the Company's
fiscal year are not necessarily indicative of the results to be expected for the
full fiscal year.
2
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
BALANCE SHEET
October 31, 1996
April 30, 1996 (unaudited)
-------------- --------------
Assets
Current assets
Cash $437,532 $188,479
Investments-short term 1,411,866
Accounts receivable 34,500 48,214
Inventory 22,301 51,042
------ ------
Current assets 494,333 1,699,601
Capital assets-net 20,575 78,073
Other assets
License rights 110,070 92,070
Patent-costs 21,000 22,595
------ ------
Total other assets 131,070 114,665
------- -------
Total assets $645,978 $1,892,339
======== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $33,248 $27,827
Notes payable
Convertible debenture payable 132,000
------- ------
Total current liabilities 165,248 27,827
Long term liabilities
Convertible debenture payable
Note payable 126,500
-------
Total long term liabilities 126,500
Capital stock
Capital stock-authorized 30,000,00
Common Shares, par value $.01 each,
at April 30, 1995 and 1996 and
October 31, 1996, the shares
outstanding were 8,350,378, 12,089,561
and 12,565,227 respectively. 120,895 125,651
Preferred stock-authorized 5,000,000
preferred shares, par value $.01 each
at October 31, 1996, the number of shares
outstanding was 150 1
Additional paid in capital 2,635,006 4,415,749
Deficit accumulated during development stage (2,401,671) (2,676,889)
----------- -----------
Total stockholders' equity 354,230 1,864,512
----------- -----------
Total liabilities and stockholders' equity $645,978 $1,892,339
=========== ===========
See accompanying notes to financial statements.
3
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the six
For the six
months
ended months ended
For the year For the year October 31,
October 31, Inception
ended ended 1995
1996 (April 10, 1986)
April 30, 1995 April 30,
(unaudited) (unaudited) to October 31,
1996
1996
-------------- -------
- ----------- ----------- ------------
<S> <C> <C> <C>
<C> <C>
Income $137,891 $158,105 $82,416
$48,587 $5,389,882
Less cost of goods sold 45,204 96,444 26,373
25,778 3,149,900
------- ------- ------
------ ---------
Gross profit 92,687 61,661 56,043
22,809 2,239,982
Operations:
General and administrative 129,719 518,826 66,672
336,113 3,757,056
Depreciation and amortization 75,600 77,600 37,800
23,000 312,664
Research and development 135,412 358,844 98,401
66,750 631,936
------- ------- ------
------ --------
Total expense 340,731 955,270 202,873
425,863 4,701,656
Income (loss) before other income (248,044) (893,609)
(146,830) (403,054) (2,461,674)
and expenses
Other income and expenses
Retirement of debt (Note 9)
126,500 126,500
Interest income 10,145 356 1,200
1,336 15,356
Interest expense 67,429 103,205 47,566
357,071
------ ------- ------
------ -------
Total other income 57,284 102,849 46,366
127,836 215,215
and expenses
------ ------- ------
------- --------
Net Profit (Loss) $(305,328) $(996,458)
$(193,196) $(275,218) $(2,676,889)
from operations
========= =========
========== ========== ===========
Net income (loss) per share $(0.02) $(0.08)
$(0.02) $(0.02) $(0.21)
========= =========
========== ========== ===========
Number of shares outstanding 12,565,227 12,565,227 12,565,227
12,565,227 12,565,227
========== ========== ==========
========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six
For the six Inception
months
ended months ended (April 10, 1986)
For the year For the year October 31,
October 31, 1996 to
ended ended 1995
(unaudited) October 31,
April 30, April 30, (unaudited)
1996
1995 1996
---------- ---------
- ---------- --------- ------------
<S> <C> <C> <C>
<C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net profit (loss) $(305,328) $(996,458)
$(193,196) $(275,218) $(2,676,889)
Amortization and depreciation 75,600 77,600 37,800
23,000 312,664
Consulting fees 306,250
50,000 305,250
Compensation agreement 125,000
125,000
Retirement of debt (Note 9)
126,500 (126,500)
Adjustments to reconcile net
income to net cash
Accounts receivable (55,234) 38,079 3,722
(13,714) (48,214)
Inventory (19,420) 5,250 2,923
(28,741) (51,042)
Prepaid expenses (40,683) 15,089 7,391
Accounts payable (36,151) (30,828) 5,489
(5,421) 27,827
-------- --------
- -------- -------- ----------
TOTAL CASH FLOWS FROM OPERATIONS (381,216) 460,018
(135,871) (123,594) (2,131,904)
CASH FLOWS FROM FINANCING
ACTIVITIES
Convertible debenture 446,278 693,000 180,500
(132,000) 1,407,000
Notes payable (89,258)
126,500
Sale of stock 150,000
1,481,903 2,209,819
Issuance of stock for services 61,006
99,253
------- -------- -------
--------- ----------
TOTAL CASH FLOWS FROM FINANCING 446,278 814,717 180,500
1,349,903 3,842,572
ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent costs
(2,000) (2,000)
Investments short term
(1,411,866) (1,411,866)
Capital assets
(61,496) (108,323)
------- --------
TOTAL CASH FLOWS FROM INVESTING
(1,475,362) (1,522,189)
ACTIVITIES
NET INCREASE (DECREASE) IN CASH 65,062 354,699 44,629
(249,053) 188,479
CASH BALANCE BEGINNING OF PERIOD 147,895 82,833 82,833
437,532 -0-
------- ------ ------
------- -------
CASH BALANCE END OF PERIOD $82,833 $437,532 $38,204
$188,479 $188,479
======= ======= ======
======== ========
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
during
development
Common Common Preferred Additional
paid stage Total
Stock Stock Stock in capital
------ ------- ---------
- ------------ --------- ------ Total
<S> <C> <C> <C> <C>
<C> <C>
4-10-1986(1) 1,600,000 $16,000 $11,727
$27,727
4-11-1986(1) 200,000 2,000
2,000
4-30-1986 Net Loss
$(612) (612)
--------- ------ ------
------ -------
4-30-1986 1,800,000 18,000 11,727
(612) 29,115
7-9-1986(2) 200,000 2,000 42,888
44,888
4-30-1987(3) 360,935 3,609 357,326
360,935
4-30-1987(4) 74,854
74,854
4-30-1987 Net Loss
(45,981) (45,981)
--------- ------ -------
------- -------
4-30-1987 2,360,935 23,609 337,087
(45,369) 406,065
4-30-1988(5) 67,056
67,056
4-30-1988 Net loss
(417,760) (417,760)
-------- ------ ------
--------- --------
4-30-1988 2,360,935 23,609 404,143
(372,391) 55,361
4-30-1989 25,000 250 6,000
6,250
4-30-1989 Net loss
(51,677) 51,677
-------- ------ ------
-------- -------
4-30-1989(5) 19,520
19,520
4-30-1989 2,385,935 23,859 429,663
(424,068) 29,454
4-30-1990 Net profit
(13,352) 13,352
----------
-------- ------
4-30-1990 2,385,935 23,859 429,663
(437,420) 16,102
4-30-1991(9) 742,000 7,420 193,229
200,649
4-30-1991 Net loss
(419,654) (419,654)
-------- ----- -------
-------- --------
4-30-1991 3,127,935 31,279 622,892
(857,074) 202,903
4-30-1992(6) 474,800 4,748
4,748
4-30-1992 Net loss
(51,194) (51,194)
-------- ------ -------
--------- --------
4-30-1992 3,602,735 36,027 622,892
(908,268) 249,349
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Deficit
accumulated
during
development
Common Common Preferred Additional
paid stage
Date Stock Stock Stock in capital
Total
------ ----- ----- ------
- -------------- ---------- -------
<S> <C> <C> <C> <C>
<C> <C>
4-30-1992 3,602,735 36,027 622,892
(908,268) 249,349
4-30-1993(12) 1,717,771 17,177 11,833
29,010
4-30-1993(7) 6,029,872 60,299 90,448
150,747
4-30-1993 Net profit
(42,374) (42,374)
---------- ------- -------
-------- --------
4-30-1993 11,350,378 $113,503 $725,173
(950,642) $111,966
4-30-1994 Net loss
(149,243) (149,243)
---------- ------- -------
---------- ---------
4-30-1994 11,350,378 113,503 725,173
(1,099,885) 261,209
10-18-1995(8) 3,000,000 30,000 30,000
4-30-1995
(305,328) (305,328)
4-30-1995 8,350,378 83,503 755,173
(1,405,213) 566,537
11-3-1995 500,000 5,000 120,000
125,000
4-30-1996(10) 1,700,002 17,000 1,258,000
1,275,000
4-30-1996(11) 25,000 250 24,750
25,000
4-30-1996(12) 250,000 2,500 122,500
125,000
4-30-1996(13) 489,181 4,892 56,083
60,975
4-30-1996(14) 125,000 1,250 61,250
62,500
4-30-1996(15) 100,000 1,000 64,000
65,000
4-30-1996(16) 550,000 5,500 173,250
178,750
4-30-1996 Net loss
(996,458) (996,458)
---------- ------- ---------
---------- ---------
4-30-1996 12,089,561 $120,895 $2,635,006
(2,401,671) $354,230
Unaudited
6-4-1996 11,333 113 8,387
8,500
6-4-1996 25,000 250 24,750
25,000
7-31-1996(10) 176,000 1,760 130,240
132,000
7-31-1996(10) 13,333 133 9,867
10,000
7-31-1996(14) 100,000 1,000 49,000
50,000
7-31-1996(17) 32,000 320 31,680
32,000
7-31-1996(18) 100,000 1,000 99,000
100,000
9-9-1996(17) 18,000 180 17,820
18,000
9-23-1996(19) $1 1,409,999
1,410,000
9-30-1996 Net loss
(275,218) (275,218)
========== ======== == ==========
============ ===========
9-30-1996 12,565,227 $125,651 $1 $4,415,749
$(2,676,889) $1,864,512
</TABLE>
7
<PAGE>
(1) Issuance of Common Shares for initial capital contribution
(2) Sale of Common Shares through private placement at $.25 per share
(3) Sale of Common Shares through Unit offering at $1.00 per Unit plus one
warrant
(4) Write off of related offering expense
(5) Forgiveness of salary
(6) Sale of Common Shares at $.001 par value for cash
(7) Common Shares issued pursuant to acquisition
(8) Return of Common Shares by Edmund Jaskiewicz
(9) Issuance of Common Shares to Jay Bender pursuant to employment contract
at $.25 per share.
(10) Common Shares issued for conversion of debt
(11) Common Shares issued pursuant to sale of 25,000 Units
(12) Common Shares issued for Warrant conversion at $.50
(13) Common Shares issued in consideration for services under Regulation D
at $.125 per share
(14) Common Shares issued pursuant to Rule 504 at $.50 per share
(15) Common Shares issued under Rule 504 at $.65 per share
(16) Common Shares issued pursuant Regulation D at $.325 per share
(17) Common Shares issued upon exercise of "B" Warrants
(18) Common Shares issued upon exercise of "A" Warrants
(19) Shares of preferred stock for $1,500,000 less $90,000 in offering
expense
See accompanying notes to financial statements.
8
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the condensed balance sheet as of October
31, 1996 and the related statements of operations and deficit for each of the
six months in the period ended October 31, 1995 and 1996.
NOTE B--EARNINGS PER SHARE
Earnings per share have been computed on the basis of total number of
shares outstanding. The total number of shares outstanding at October 31, 1995
and 1996 was 12,565,227 for each period.
NOTE B--COMMITMENTS and CONTINGENT LIABILIES
a. Leased Office Space
The Company leases 2,200 square feet of office and warehouse space from an
unrelated party on a month to month basis at $400 per month.
b. Lawsuits
1. In February, 1994, Robert Friedenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have the Share Exchange Agreement rescinded on
the grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed cross claim, in July, 1994, against Dr.
Friedenberg, seeking enforcement of the Share Exchange Agreement. In November,
1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed
the Company's cross claim to proceed to trial. The Company never issued any
Common Shares to Dr. Friedenberg pursuant to the Share Exchange Agreement and
has rescinded the transaction.
2. In June, 1995, the Company filed a lawsuit against Jackson Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000.
NOTE C--Preferred Stock
The Company amended its certificate of incorporation authorizing the
issuance of 5,000,000 shares of preferred stock $.01 par value each. The board
of directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue preferred shares from time to
time in one or more classes or series, to fix the number of shares constituting
any class or series and the stated value thereof, if different from the par
value, and to fix the terms of any such series or class, including dividend
rights, dividend rates, con version or exchange rights, voting rights, rights
and terms of redemption (including sinking fund provisions), the redemption
price and the liquidation preference of such class or series.
9
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The Company sold 150 8% Cumulative Convertible Series A Preferred Shares
for an aggregate of $1,500,000 ($10,000 per share) less commissions of $90,000
and $5,000 in offering expenses for a net consideration of $1,405,000. Each
Preferred Share is convertible into Common Shares pursuant to the following
formula: $10,000 divided by the lesser of $6.07 or 75% of the average of the
daily closing bid prices for the five consecutive trading days ending on the
trading day prior to the day on which preferred shares are converted to Common
Shares. All accrued but unpaid dividends are payable in cash. The Company has
agreed to register the Common Shares underlying the preferred shares within 180
days of the date of purchase, September 23, 1996.
The Company has reserved a maximum of 600,000 Common Shares for the
conversion of Preferred Shares.
The Company has issued 24,712 Common Share purchase warrants. The Warrants
are exercisable at $6.07 per share for a period of two years from the date of an
effective registration statement relating to the underlying Common Shares.
On July 23, 1996, the Company filed a registration statement on Form 10-SB
pursuant to the Securities Exchange Act of 1934 ("Exchange Act"). That
registration statement became effective on September 21, 1996 and, as a result,
the Company is subject to the informational requirements of said act and files
reports, proxy statements, and other information with the Securities and
Exchange Commission.
The Company is involved in the preparation of offering documents relating
to a registration statement on Form SB-2 the purpose of which is to register
600,000 Common Shares underlying the conversion of the Preferred Shares and
24,712 underlying the exercise of the Warrants.
NOTE D -- Secured Loan
On March 9, 1990, the Company entered into an security agreement with a
finance company (the "Finance Company"), to borrow money secured by the
Company's receivables evidenced by invoices. At the time, the Company was
engaged in selling educational books to municipal school districts and public
libraries throughout the United States. The Finance Company agreed to lend an
amount equal to 60% of the net value of all the Company's accounts receivable.
Accounts receivable funding ceased as of July 31, 1990.
10
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The Company instituted a lawsuit against the Finance Company on November
26, 1990 for damages due to its failure lend to the 60% credit limit based on
its calculations and for forgiveness of the loan based on the Finance Company's
charging, based on its own billings, at an interest rate in excess of the rate
of 25% per annum as prescribed in the sections dealing with usury in New York
Penal State Law. Although company counsel had opined that the Company would
prevail in the action and that all indebtedness incurred in the principal amount
$126,500 plus interest and fees would be voided by reason of the Finance
Company's violation of the usury provisions of the Penal Law, by agreement
between the Company and the Finance Company, the lawsuit was withdrawn without
prejudice as the Company, at that time, lacked the resources for protracted
litigation. In April, 1996, the obligation, if any, to the Finance Company
became barred by New York State's six-year statute of limitations. The Board of
Directors of the Company has elected to write-off the obligation.
NOTE E -- Nonstatutory Option Plan
The Company has adopted the Fiscal 1996 Nonstatutory Stock Option Plan (the
"Plan"). 2,000,000 Common Shares were reserved under the Plan. The Plan is
administered by the Board of Directors.
Stock options under the Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more, equal to or less than the then
current market price of the Common Shares as deemed to be appropriate.
As of July 31, 1995, the Company has issued 1,500,000 options pursuant to
the 1996 Nonstatutory Option Plan. All options are exercisable for a period of
three years at $3.00 per share. The company has reserved 1,500,000 Common Shares
for the exercise of these options.
NOTE F -- Public Relations Agreement
In February, 1996, the Company entered into an agreement with OTC
Communications ("OTC") for financial public relations and communications
services to the Company and to serve when requested as the Company's liaison and
spokesman to the financial and investment community. In March, 1996, the Company
granted to OTC the right to receive 100,000 Common Shares at a value of $.65 per
share for a total consideration of $65,000 in lieu of initial payment, monthly
retainers or expense reimbursement, including communications and mailing for a
period of one year and 550,000 Common Shares for years 2 and 3 under Regulation
D to the Securities Act at a consideration of $.325 per share representing 1/2
the market price of the Common Shares at the date of the Contract, March 14,
1996, 50,000 shares allocated to expense reimbursement and 500,000 shares
allocated to public relations consulting. The Company agreed to value the
550,000 shares at 1/2 market price in consideration of OTC receiving
unregistered Common Shares and the risk of the holding period until they may be
sold publicly. Certificates representing the 100,000 Common Shares were issued
in July, 1996. As of October 31, 1996, certificates representing the 550,000
Common Shares had been authorized but not issued.
11
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The Company has also issued to OTC 500,000 "A" Options which are are
exercisable at $1.00 through March 14, 1999 and 500,000 "B" Options, which are
exercisable at $2.00 through March 14, 1999. Until a registration statement
relating to the Common Shares underlying the Options is effective, certificates
representing the shares into which the Options are exercised will bear a legend
restricting transfer in the absence of an effective registration with the
Commission or an exemption therefrom.
NOTE G -- Sale of Common Stock
On June 4, 1996, the Company sold $8,500 of convertible debentures and
converted them in to 11,333 Common Shares.
On June 4, 1996, the Company sold $25,000 of Common Shares at $1.00 through
the exercise of 25,000 "A" Warrants.
As of July 31, 1996, the Company had converted the balance of the
outstanding convertible debentures in the amount of $132,000 into 176,000 Common
Shares at $.75 per share.
As of July 31, 1996, the Company sold $10,000 of convertible debentures and
converted them in to 13,333
shares of common stock.
As of July 31, 1996, the Company sold an additional convertible debenture
in the amount of $10,000 which was converted into 13,333 Common Shares at $.75
per share.
As of July 31, 1996, the Company sold $100,000 of Common Shares at $1.00
through the exercise of 100,000
"A" Warrants.
As of July 31, 1996, the Company sold $32,000 of Common Shares at $1.00 per
share through the exercise of 32,000 "B" Warrants.
As of July 31, 1996, the Company issued 50,000 Common Shares pursuant to a
private placement under rule 504 of the Securities Act of 1933, as amended at
$.50 per share for an aggregate consideration of $25,000.
As of September 30, 1996, the Company sold 18,000 Common Shares at $1.00
per share through the exercise of 18,000 "B" Warrants.
12
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE H -- Employment Agreement
a. Employment Agreement with Jay Bendis
On November 3, 1995, the Company entered into a three year employment
agreement with Jay Bendis, Vice-President-Marketing and Sales. Under this
agreement, Mr. Bendis received an annual salary of $24,000 per year until April
30, 1996 and presently receives $48,000 per year thereafter. When the Company
generates an aggregate of $500,000 gross revenues from the sale of biomedical
products, Mr. Bendis' salary will be increased to $60,000 per year. In addition,
to his salary, Mr. Bendis will receive a bonus equal to 2% of the gross revenus
of the Company of $1,000,000 per fiscal year until such annual revenues reach
$3,000,000, 1.5% of gross revenues between $3,000,000 and $5,000,000 per year
and 1% thereafter.
In addition, in consideration of past services valued at $125,000 or $.25
per share, Mr. Bendis received the right to receive 500,000 Common Shares.
Certificates representing 400,000 Common Shares are to be held by the Company
and shall not vest until the happening of the following events:
100,000 shares upon the Company's achieving $1,000,00 in gross revenues
from sales of biomedical products;
100,000 shares upon the Company's achieving $2,000,00 in gross revenues
from sales of biomedical products;
100,000 shares upon the Company's achieving $3,000,00 in gross revenues
from sales of biomedical products;
100,000 shares upon the Company's achieving $4,000,00 in gross revenues
from sales of biomedical products.
Certificates representing shares which have not vested on or before April
30, 1998 (or the end of the next succeeding fiscal year in the event the Company
changes its fiscal year) will be returned to the Company's stock transfer agent
for cancellation. No bonuses will be paid or shares vest subsequent to any
election by Mr. Bendis to terminate agreement or his discharge for cause from
employment by the Company. Mr. Bendis also is entitled to receive health
insurance, participating in stock option or similar plans or other benefits
offered generally to management employees and reimbursement of out-of-pocket
expenses.
13
<PAGE>
AMERICAN BIO MEDICA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
b. Employment Agreement with Edmund Jaskiewicz
On November 3, 1995, the Company entered into a three year employment
agreement with Edmund Jaskiewicz, Executive Vice-President. Under this
agreement, Mr. Jaskiewicz received an annual salary of $24,000 per year until
April 30, 1996 and presently receives $48,000 per year thereafter. When the
Company generates an aggregate of $500,000 gross revenues from the sale of
biomedical products, Mr. Jaskiewicz' salary will be increased to $60,000 per
year. In addition, to his salary, Mr. Jaskiewicz will receive a bonus equal to
2% of the gross revenues of the Company of $1,000,000 per fiscal year until such
annual revenues reach $3,000,000, 1.5% of gross revenues between $3,000,000 and
$5,000,000 per year and 1% thereafter. No bonuses will be paid or shares vest
subsequent to any election by Edmund Jaskiewicz to terminate this agreement or
his discharge for cause from employment by the Company. Mr. Jaskiewicz also is
entitled to receive health insurance, participating in stock option or similar
plans or other benefits offered generally to management employees and
reimbursement of out-of-pocket expenses.
c. Employment Agreement with Stan Cipkowski
On November 3, 1995, the Company entered into a three year employment
agreement with Stan Cipkowski, President. Under this agreement, Mr. Cipkowski
received an annual salary of $36,000 per year until April 30, 1996 and presently
receives $60,000 per year. When the Company generates an aggregate of $500,000
gross revenues from the sale of biomedical products, Mr. Cipkowski's salary will
be increased to $72,000 per year. In addition, to his salary, Mr. Cipkowski will
receive a bonus equal to 2% of the gross revenues of the Company of $1,000,000
per fiscal year until such annual revenues reach $3,000,000, 1.5% of gross
revenues between $3,000,000 and $5,000,000 per year and 1% thereafter. No
bonuses will be paid or shares vest subsequent to any election by Mr. Cipkowski
to terminate agreement or his discharge for cause from employment by the
Company. Mr. Cipkowski also is entitled to receive health insurance,
participating in stock option or similar plans or other benefits offered
generally to management employees and reimbursement of out-of-pocket expenses.
14
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (April 10, 1986) to October 31, 1996
Development Stage Activities
- -----------------------------
Until 1991, the Company was involved in marketing educational books and
software to schools and municipal libraries and audiovisual educational packages
throughout the United States. In 1991, the Company reduced its concentration on
this market because of competition, increasing costs of doing business and slow
collections from municipalities and sought new technologies in emerging markets.
The Company has continued one small segment of its original business, that of
selling audiovisual packages to libraries. The Company has been a development
stage enterprise since its date of business reformulation in September, 1992
when the Company entered the biotechnology field through the acquisition of
technologies of three companies. Subsequently, the acquisition of two of these
companies was rescinded. With the technology gained through the acquisition of
Protein Resources, Inc., the development of proprietary drug testing technology,
and the employment of medical and marketing specialists in the field of drug
testing, the Company has developed products, field and market tested these
products, applied for patents and copyrights and has begun initial shipments of
product. These activities have been funded through the sale of convertible
debentures aggregating $1,407,000. As of October 31, 1996, all of the
convertible debentures had been converted to Common Shares at $.75 per share.
The Company has not as yet generated sufficient revenues during its limited
operating history to meet its ongoing operating expenses. The Company sold
additional convertible debentures for $18,500 and received $175,000 through the
exercise of 143,000 "A" warrants at $1.00 and 32,000 "B" warrants at $1.00 per
share. As of September 30, 1996, the Company also sold 150 shares of convertible
preferred shares at $10,000 per share for an aggregate consideration of
$1,500,000 and net proceeds of $1,405,000.
Results of Operations for the six months ended October 31, 1996 as compared
to the six months ended October 31, 1995.
- --------------------------------------------------------------------------------
Revenues from the book segment of the business were $82,416 for the year
six months ended October 31, 1995 as compared to $17,123 for the six months
ended October 31, 1996 representing a decrease of $65,293 or 79.2%. This
decrease in book sales is directly attributable to the Company's reorganization
of its telemarketing activities. Costs of goods sold for the six months ended
October 31, 1995 were $26,373 as compared to $5,565 for the six months ended
October 31, 1996 representing a cost of goods sold percentage of 32.0 % for the
six months ended October 31, 1995 as compared to 32.5% for the six months ended
October 31, 1996. Revenues from the initial sales of drug testing kits were
$31,464 for the six months ended October 31, 1996. Costs of goods sold for the
six months ended October 31, 1996 was $20,213 or 64.2%. This high level of costs
of materials is the result of initial shipments of drug testing kits
manufactured in small lots of materials and supplies. General and administrative
costs for the six months ended October 31, 1996 were $336,113, an increase of
504% over expenses of $66,672 for the six months ended October 31, 1995. These
increased costs are the result of increased labor costs for office personnel and
consulting expenses of $75,000. Research and development expenses of $66,750 for
the six months ended October 31, 1996 decreased by $31,651 or 32.2% less than
the amount expended of $98,401 for the six months ended October 31, 1995. This
decrease in expenses is the result of gradual completion of development of the
products drug testing delivery system, experimentation and improvement of active
ingredient test chemicals, laboratory and field trial testing.
15
<PAGE>
Liquidity And Capital Resources As Of The End Of Fiscal Period Ending
October 31, 1996.
- --------------------------------------------------------------------------------
The Company's cash balance was $188,479 with $1,411,866 in treasury bills
and certificates of deposit invested for six months and working capital was
$1,671,774 as at October 31, 1996. These balances are the result of the sale and
conversion of additional convertible debentures for $18,500 and has received
$175,000 through the exercise of 143,000 "A" warrants at $1.00 and 32,000 "B"
warrants at $1.00 per share. As of October 31, 1996, the Company also sold 150
shares of convertible preferred shares at $10,000 per share for an aggregate
consideration of $1,500,000. The Company has expended $631,936 to date for the
research and development of its biomedical products.
Management believes that the present cash balance will pay the ongoing cost
of entering the workplace drug testing business. Management believes that until
profitable operations are achieved, the Company must expend resources (albeit on
a decreasing basis) on research and development, design and marketing of its
workplace drug test kit.
16
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
1. In February, 1994, Robert Friedenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have the Share Exchange Agreement rescinded on
the grounds of breach of contract. In order to avoid the imposition of damages
against it, the Company filed cross claim, in July, 1994, against Dr.
Friedenberg, seeking enforcement of the Agreement of Exchange. In November,
1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed
the Company's cross claim to proceed to trial. The Company never issued any
Common Shares to Dr. Friedenberg pursuant to the Share Exchange Agreement and
has rescinded the transaction.
2. In June, 1995, the Company filed a lawsuit against Jackson Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000.
Item 2. Changes in Securities
The Company amended its certificate of incorporation authorizing the
issuance of 5,000,000 shares of preferred stock, $.01 par value each. The board
of directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue preferred shares from time to
time in one or more classes or series, to fix the number of shares constituting
any class or series and the stated value thereof, if different from the par
value, and to fix the terms of any such series or class, including dividend
rights, dividend rates, conversion or exchange rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price
and the liquidation preference of such class or series.
The Company sold 150 convertible preferred shares for $10,000 per share for
an aggregate consideration of $1,500,000 less $90,000 in commissions and $5,000
in offering expenses for a net consideration of $1,405,000. Each Preferred Share
is convertible into Common Shares pursuant to the following formula: $10,000
divided by the lesser of $6.07 or 75% of the average of the daily closing bid
prices for the five consecutive trading days ending on the trading day prior to
the day on which Preferred Shares are converted to Common Shares. All accrued
but unpaid dividends are payable in cash. The Company has agreed to register the
Common Shares underlying the preferred shares within 180 days of the date of
purchase, September 23, 1996.
The Company has reserved a maximum of 600,000 Common Shares for the
conversion of Preferred Shares.
The Company has issued 24,712 Common Share purchase warrants. The Warrants
are exercisable at $6.07 per share for a period of two years from the date of an
effective registration statement relating to the underlying Common Shares.
On July 23, 1996, the Company filed a registration statement on Form 10-SB
pursuant to the Securities Exchange Act of 1934 ("Exchange Act"). That
registration statement became effective on September 21, 1996 and, as a result,
the Company is subject to the informational requirements of said act and files
reports, proxy statements, and other information with the Securities and
Exchange Commission.
The Company is involved in the preparation of a registration statement on
Form SB-2 the purpose of which is to register 600,000 Common Shares underlying
the conversion of the Preferred Shares and 24,712 Common Shares underlying the
exercise of the Warrants.
17
<PAGE>
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
Holders of a majority of the issued and outstanding Common Shares approved
a resolution of the Board of Directors which authorized 5,000,000 Preferred
Shares, $.01 par value per share.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN BIO MEDICA CORPORATION
(Registrant)
s/Stan Cipkowski
----------------
Stan Cipkowski,
President and Principal
Executive Officer and
Principal Financial Officer
Dated: November 22, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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