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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the fiscal year ended April 30, 1999
Commission File Number: 0-28666
American Bio Medica Corporation
(Name of Small Business Issuer in its charter )
New York 14-1702188
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Fairview Avenue
Hudson, New York 12534
(Address of principal executive offices) (Zip Code)
800/227-1243
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Shares, $.01 par value per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most fiscal year. $7,038,000.
The aggregate market value of 9,728,786 of voting Common Shares held by
non-affiliates of the issuer was approximately $15,502,205 based on the last
reported sale price of the issuer's Common Shares, $.01 par value, as reported
on the Nasdaq SmallCap Market on July 15, 1999.
The Proxy Statement for the Annual Meeting of Shareholders for the 2000
Fiscal Year has been incorporated herein by reference to the extent indicated
herein in Part III of this Form 10-KSB.
As of July 15, 1999, the issuer had outstanding 14,875,190 Common
Shares, $.01 par value; 1,565 Series D Preferred Shares convertible into Common
Shares; and Stock Purchase Warrants to purchase 107,355 Common Shares.
Traditional Small Business Disclosure Format: [ ] [X] No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Summary
American Bio Medica Corporation (the "Company") is primarily engaged in
acquiring, developing and marketing biomedical technologies and products. The
Company owns a technology, for which a patent is pending, for screening drugs of
abuse, using the adopted trademark the "Rapid Drug Screen". The Company's common
shares ("Common Shares") trade on the Nasdaq SmallCap Market under the trading
symbol "ABMC".
The Company produces several versions of a drugs of abuse screening
test, called the "Rapid Drug Screen" at its manufacturing facility in Columbia
County, New York. The Rapid Drug Screen is a one-step test that allows a small
urine sample to be tested for the presence or absence of up to nine drugs of
abuse (cocaine, THC (marijuana), opiates, amphetamine, PCP, benzodiazepines,
methamphetamine, barbiturates, and tricyclic antidepressants) simultaneously.
The competitively priced test is self-contained thereby preventing
exposure of the test administrator to the urine sample. In the opinion of the
Company's management ("Management"), the Rapid Drug Screen, which requires no
mixing of reagents, pipetting, or manipulation of the test, is easier to use
than any other competitive product. In addition, hundreds of controlled tests
conducted by independent laboratories compared the Rapid Drug Screen with
results produced by EMIT II, a standard laboratory test, and found a 100%
correlation of both positive and negative test results. As a result, Management
believes that the Rapid Drug Screen is as accurate as that laboratory test.
Versions of the Rapid Drug Screen include two-two panel tests,
three-three panel tests, two-five panel tests, an eight panel test, and a nine
panel test. Additional versions of the Rapid Drug Screen can be produced by the
Company, on special order, for any quantity (from 2 - 9) or configuration of
drugs. The five, eight, and nine panel tests have received 510 (k) clearance
from the Federal Drug Administration (the "FDA") and can thus be sold in
clinical as well as non-clinical markets. The two and three panel tests have
been submitted to the FDA for 510 (k) clearance. The Company has developed 10
tests trademarked "Rapid One", each of which detects one drug of abuse (cocaine,
THC, opiates, amphetamine, PCP, benzodiazepines, methamphetamines, barbiturates,
tricicyclic antidepressants, and methadone). The Company has submitted all 10
tests to the FDA for 510 (k) clearance. The Company has received 510 (k)
clearance on the cocaine, THC, and opiate Rapid One tests and is awaiting the
status of the remaining seven tests.
The Company owns a patented low cost method for producing keratin
proteins. The Company has no intention of developing or marketing its keratin
technology at this time, but intends to concentrate on the production and
marketing of its drug screen tests and pursuing development and acquisition
strategies related to substance abuse testing. The Company may develop or
acquire additional biomedical technologies or products in the future unrelated
to substance abuse testing.
Since its inception to April 30, 1999, the Company has an accumulated
deficit of $9,424,000 (see Financial Statements - Balance Sheet). Management
believes that the Company's accumulated deficit is the result of the on-going
development, marketing, and distribution of its Rapid Drug Screen test. During
the year ended April 30, 1999, the Company sustained a net loss of $1,691,000
and had net cash outflows from operating activities of $2,008,000. The Company
is in the process of taking a number of steps to improve its financial
prospects including focusing its efforts on sales of existing products,
implementing certain cost reductions and production efficiencies and taking
other measures to enhance profit margins.
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Design
The Company has developed and markets its trademarked "Rapid Drug
Screen" a test for one, two, three, five, eight, and nine drugs of abuse, which
can be used in all situations where an immediate test result is required. The
product consists of a credit-card size test card divided into two, three, five,
eight, or nine lengthwise strips, or sections. The card contains an
identification and date area and a temperature strip. The person being tested
urinates into a test cup, puts on the lid and hands it to the person
administering the test. The test administrator inserts the card into a
pre-punched slit in the lid without the danger of spilling, touching, or
contaminating the urine specimen. Thus, the test administrator is not exposed to
the urine sample nor does he or she have to mix reagents. Within five to eight
minutes the results can be read on the inserted card through the side of the
cup. A single line in the test area of the Rapid Drug Screen card indicates the
sample is positive for the presence of tested drug(s) of abuse. A double line in
the test area of the Rapid Drug Screen card indicates that the sample is
negative for the presence of tested drug(s) of abuse.
The Company has designed two-two panel tests, three-three panel tests,
two-five panel tests, an eight panel test, and a nine panel test and can
produce, on special order or if a market demands, tests which can screen for any
quantity (from 2 - 9) or configuration of drugs of abuse. The two-two panel
tests, designed for the correction and education markets, screens only for
cocaine and THC/methamphetamine and THC. The three-three panel tests, designed
for various non-clinical markets, screens for THC, cocaine, and opiates/THC,
cocaine, and amphetamine/THC, cocaine, and methamphetamine. The two-five panel
tests, designed for the workplace (industry) market, screens for the "SAMHSA 5"
( SAMHSA stands for the Substance Abuse and Mental Health Services
Administration); cocaine, THC, opiates, PCP, and amphetamine (the additional
version of this test consists of methamphetamine replacing PCP). The Drug Free
Workplace Act (the "Act"), designated drugs of abuse to be tested for in most
federally regulated drug-testing programs. The eight panel test, designed for
the clinical market; primarily to hospitals and physicians, includes the "SAMHSA
5 (listed above), benzodiazepines, methamphetamine, and barbiturates. The nine
panel test, also designed for the clinical market, includes all drugs of abuse
from an eight panel in addition to tricyclic antidepressants (TCA). These
additional tests are combined in a single card so that one sample can be tested
simultaneously for nine drugs of abuse.
In July of 1998, the Company began marketing the "Rapid One", a line of
10 drug tests, each of which screens for the presence or absence of a substance
of abuse (cocaine, marijuana (THC), opiates, PCP, amphetamine, benzodiazepines,
methamphetamine, barbiturates, tricyclic antidepressants (TCA), and methadone).
Rapid One utilizes the same technology as the Rapid Drug Screen. It includes a
single dip platform, and identification and date area, and does not require the
use of pipettes or reagents. Rapid One is designed for correctional facilities
and other markets where the person subject to substance abuse testing is known
to abuse a specific drug. It can also be used to enhance a two, three, five,
eight, nine panel, or any special order test, by means of allowing screening of
an additional drug.
One of the problems which may occur in on-site drug testing is that of
fraud or evasion practiced by the person being tested. The most prevalent method
of avoiding adverse test results is the substitution, by the person being
tested, of a hidden "clean" urine sample, which he or she brings to the test. As
a consequence, each of the Company's drug screens contains a temperature
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sensor, which helps prevent the substitution of another urine sample. The
premise is that the substituted sample would be of a lower temperature than a
sample produced from the body on the spot. In addition, the Rapid Drug Screen
contains a control line, designed to assure the test administrator that the test
is working properly. Should the control line not appear, the administrator is
instructed to void the test and re-test the individual by obtaining another
urine sample. It is suggested, and sometimes mandated, that a positive result be
confirmed by method of GC/MS (Gas chromatography/Mass spectrometry).
"FDA" Approval
FDA 510(k) clearances have been granted for each of the Company's tests
included on its 9 panel Rapid Drug Screen. The Company has applied to the FDA
for clearance of its Rapid One tests which, although they use the same
methodology and chemistries as the Rapid Drug Screen, employ a different
delivery device. The Company has received clearance on the THC, cocaine, and
opiate Rapid One tests and is awaiting the status of the remaining seven.
Although FDA clearance is not required for non-clinical markets (i.e. industry,
corrections, etc.), it is required for clinical markets (i.e. hospitals,
physicians, etc.), which Management anticipates will become a major marketplace
for the Company's drug testing product(s).
Patents and Trademarks
In January of 1999, the Company was granted a design patent on the
multiple drug test card. The Company has registered "ABM" and its logo in the
United States, Canada, Chile, and Mexico and has registered "Rapid Drug Screen"
in Mexico and Canada. The Company has additional trademark applications pending
in the United States, Russia, Philippines, and in 15 European countries. The
Company's trademark counsel, has opined that there are no similar marks and, as
a consequence, the Company feels confident that such trademarks will be
registered. The Company has applied for various additional patents directly in
numerous countries, including the United States, Canada, Austria, Russia,
Switzerland, Hong Kong, Australia, Argentina, Brazil, China, Japan, Germany,
Mexico, Philippines, Poland, and the United Kingdom. Stan Cipkowski, Chairman of
the Board of Directors, President, and CEO, has assigned to the Company for no
consideration, his application for a utility and design patent in the United
States and Canada on the drug screen kit as an entity. The Company's patent
counsel has opined that a search has revealed no competing patented products.
However, there can be no assurance that patents will be granted or that, if
granted, they will withstand challenge. (See "Risk Factors - Patents and
Trademarks").
Research and Development
Research and Development ("R&D") efforts of the Company have been
focused on the development of new versions of the Rapid Drug Screen as market
needs arise. The Company has also embarked upon improved methods to reduce the
costs of the drug testing delivery system. The Company has begun a program of
in-house manufacturing of components of the Rapid Drug Screen.
Sales and Marketing
The Company advertises through trade journals and direct mail
campaigns, and its representatives attend trade shows. The Company sells
primarily to distributors, which then resell in the various marketplaces. The
Company employs a Director of National Sales, a Director of National Accounts
and Clinical Sales, six regional sales managers, a government and corrections
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sales manager, and an education sales manager. The Company operates a Sales and
Marketing Office in Boca Raton, Florida. In September of 1999, the company
intends to close this office and move its functions to its headquarters in New
York State; therefore consolidating the Company's operations.
The Company has divided its marketplace into the following categories:
Corporate/Industry
The Company has developed a nationwide network of distributors and
administrators of workplace drug testing programs to sell its Rapid Drug Screen
testing kit. The Company's Director of National Sales and its six regional sales
managers oversee this market. The Company believes that the market for
pre-employment and random/employee testing is immense and expanding. The number
of businesses using drug testing to screen job applicants and employees has
increased significantly in the last several years. According to the Drug Free
Workplace Act, Congress found that 74% of adults who use illegal drugs are
employed; absenteeism is 66% higher among drug users than those who do not use
drugs; health benefit utilization is 300% higher among drug users; 47% of
workplace accidents are drug-related; disciplinary actions are 90% higher among
drug users; and employee turnover is significantly higher among drug users. Most
employers recognize not only the financial benefits of drug testing, but also
realize a drug-free environment is also a safer one. Incentives encourage
employers to adopt Drug Free Workplace Programs; they include, in some states,
workman's compensation and unemployment insurance premium reductions; tax
deductions; and others. The Act requires employers of federal contracts of
$25,000 or more to enact a Drug Free Workplace Program.
Government, Corrections, and Law Enforcement
This market includes federal, state, and county level agencies,
including correctional facilities, pretrial agencies, probation and parole
departments at the federal and state levels, and juvenile correctional
facilities. In the Survey of Inmates in State Correctional Facilities conducted
for the Bureau of Justice Statistics, it was found that rates of use among
convicted inmates was substantially higher than the household population. This
survey collected information on the use of drugs in the month prior to the
offense for convicted inmates. Under the Uniform Crime Reporting System, the FBI
maintains estimates of arrests for drug abuse violations. Arrests for drug abuse
violations are at their highest levels ever for adults and juveniles. The Rapid
Drug Screen is ideal for this use. The Company employs a Corrections/Government
Sales Manager to penetrate this market. In addition, the Company exhibits at the
trade shows of the American Corrections Association and other related
organizations. The Company has shipped orders to several agencies included in
this market.
Rehabilitation Centers
This market includes people in treatment for substance abuse. This does
not include rehabilitation centers that are affiliated with hospitals. The
importance of this market relates to the high frequency of testing. For example,
in many residence programs, patients are tested each time they leave the
facility and each time they return. In outpatient programs, patients are
generally tested on a weekly basis. The Company exhibits at market related trade
shows.
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International Markets
The Company has entered into distribution agreements with companies in
several countries and is pursuing a course of multinational distribution of its
products through both clinical and non-clinical distribution companies. As of
July of 1999, the Company has 18 distributors in 25 various countries throughout
the world.
Clinics, Physicians, and Hospitals
The Company is actively pursuing the hospital and physician markets for
its entire product line. In December of 1998, the Company entered into a 4-year,
exclusive, worldwide distribution agreement with Abbott Laboratories (NYSE:ABT)
to market the Rapid Drug Screen product line to hospitals, physicians, and
occupational health clinics throughout the world. The Company had initially
entered into a distribution agreement with Murex International Technologies
Corp. ("Murex"). Abbott Laboratories acquired Murex in April of 1998 and the
Company negotiated with Abbott Laboratories to expand and extend the contract.
The Company believes that this market could yield a significant beneficial
impact on its business.
Consumer and Over-the-Counter ("OTC")
The Rapid Drug Screen product line is ideal for consumer use as it
produces immediate and accurate results, is unrivaled for its ease-of-use, and
its design is such that the person utilizing the product will not come in
contact with the specimen. In September of 1998, the FDA approved the class of
on-site diagnostic kits for drugs of abuse. The Company is preparing its
application to the FDA for over-the-counter use. The Company is also
establishing the market framework for such OTC sales. Its target for launching
its retail product is the end of 1999. However, there can be no assurance that
such approval will be obtained. (See "Risk Factors - Possible Changes in
Regulatory Framework")
Educational Market
The Company believes that this is a potentially large market. It
consists of testing of student athletes, and in some states, all students
involved in extra curricular activities. Private schools can begin testing all
of their students as an admission requirement. The Company employs an Education
Sales Manager. This manager was instrumental in enacting the first drug testing
policy in California based on a 1995 Supreme Court decision in the case of Acton
vs. Vernonia, in which the Justices voted 6 to 3 to overturn a lower court
decision and allow testing of student athletes. Since that decision, the Seventh
Circuit Court of Appeals made a decision enabling a Rush County School District
to test not only student athletes but students involved in extra curricular
activities as well. In this case, the Supreme Court refused to hear the appeal
therefore allowing the lower court ruling to stand. These ground-breaking
decisions have opened the door for all schools, both public and private, to
enact drug testing programs within their schools.
The Company sponsored a series of conferences around the country from
November of 1998 through July of 1999 directed at school administrators and
school board members to aid them in developing policies and procedures to manage
a drug testing policy in their school system. The principal of the Vernonia High
School, at the time of the Supreme Court decision was part of a team of
instructors at these conferences. The Company feels the Rapid Drug Screen could
be an integral part of helping schools test due to its ease-of-use and
immediate, accurate results.
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Additional Markets
The Company believes that the Department of Transportation ("DOT")
could be a future market for its Rapid Drug Screen. Presently, the DOT market is
not available to any on-site drug of abuse testing device. Law requires that
anyone with a commercial driving license be randomly tested for use of drugs of
abuse. Federal law requires that certified laboratories be used in these testing
situations. The Company feels that the potential for this market is enormous
when or if the law is changed. The Company actively pursues such change.
Competition
Competition to the Rapid Drug Screen comes from on-site tests developed
by companies including, but not limited to, Roche Diagnostics and Biosite
Diagnostics. In all cases that the Company is aware of, competitive products use
a collection or delivery method different than the Rapid Drug Screen. Management
believes the Rapid Drug Screen provides an easier option to the user. There is
no pipetting of the specimen, adding or mixing of reagents, and no other
manipulation of the device by the user.
Other available drug testing options, aside from on-site tests offering
immediate results, include traditional laboratory testing where a urine sample
is sent to a laboratory for analysis and hair testing where a hair sample is
sent to a laboratory for analysis. These forms of drug testing are more
expensive and take longer to produce results than the Rapid Drug Screen. (See
"Risk Factors - Competition in the Drug Testing Market; Technological
Obsolescence")
Manufacturing
The Company initially subcontracted the manufacture of components of
the Rapid Drug Screen to several outside manufacturers. The Company found that
the use of subcontractors to produce the components was unsatisfactory from a
pricing, delivery, and quality control standpoint and began a program of
in-house manufacturing to supplement product subcontracted. The Company expects
the in-house manufacturing program to be complete by the end of the third
quarter of FY2000. Originally, these components were assembled for the Company
by Columbia Advocacy and Resource Center ("COARC"), a FDA-approved contract
manufacturer in Columbia County, New York. During May of 1998, the Company moved
its manufacturing of its products from COARC to an interim facility in Hudson,
New York (which also housed its administrative offices). The Company contracts
out the printing and manufacture of specimen cup components.
On June 1, 1999, the Company announced its entering into a
lease/purchase of a 30,000 square foot facility in Kinderhook, New York. The
Company expects to move into this facility in September of 1999. Due to the
unavailability of qualified technical personnel, in August of 1999, the company
leased a laboratory facility in Bridgeport, New Jersey. This facility will house
research and development, bulk manufacturing, and bulk strip manufacturing.
(See Item 2. Description of Property)
The Company's Plan of Operations
The Company intends to continue to establish a network of distributors
which service customers in the non-clinical markets (i.e. workplace/industry,
government/corrections/law enforcement, education, etc.), to market its Rapid
Drug Screen product line in the clinical market
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(i.e. hospitals, physicians, etc.) through Abbott Laboratories, and to pursue
national accounts through its National Accounts Program established in July of
1999. It also intends to continue research and development on additional
biomedical products.
The Company has entered into national and international non-exclusive,
non-clinical market distribution agreements with a number of companies. These
agreements permit the distributors to sell the non-competitive products of other
manufacturers and permits the Company to sell its test kits to other
distributors within and outside the territory of each distributor. The
agreements are cancelable by either the Company or the distributor upon 30 days
written notice.
The Company has retained a Director of National Sales, a Director of
National Accounts and Clinical Sales, six regional sales managers (in Florida,
Pennsylvania, Wisconsin, Texas, California, and Puerto Rico), a
Government/Corrections sales manager, and an Education sales manager. These
representatives call on non-clinical accounts, such as corporations,
correctional facilities, etc. directly and support the Company's worldwide
distribution network. The Company intends to continue its direct mail campaign
and its participation in trade shows.
The Company's present manufacturing equipment is sufficient to produce
200,000 drug test kits per month, assuming one shift per day, five days per
week. In September of 1999, the Company intends to move into a new facility,
which will enable them to increase their capacity when/if additional personnel
and equipment is installed, assuming the same one shift per day, five days per
week. The Company expects modifications to the new facility to be approximately
$74,000; this includes both equipment and renovations. These modifications are
associated with certain aspects of the manufacturing of the Rapid Drug Screen.
(See "Business - Manufacturing" and Item 2. Description of Property)
In July of 1999, the Company announced its initiation of a
"cost-cutting" program to improve earnings. However, there can be no guarantee
that the Company will achieve continued profitability. (See "Risk Factors -
Limited Operations History")
Government Regulations
The development, testing, manufacture, and sale of the Company's Rapid
Drug Screen and possible additional biomedical products are subject to
regulation by the United States and foreign regulatory agencies. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the pre-clinical and clinical testing,
manufacture, labeling, distribution, and promotion of medical devices. If the
Company fails to comply with applicable requirements it may be subject to fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant pre-market
clearance or pre-market approval for devices, withdrawal of marketing clearances
or approvals and criminal prosecution.
Risk Factors
Limited Operating History
Although the Company was formed in 1986, as far as the development,
manufacture, and sale of drug testing kits are concerned, it has limited
operational history upon which investors may base an evaluation of its
performance of any assumption as to the likelihood that the Company will be
profitable. (See " Business -- Summary and Company's Plan of Operations"). The
Company's prospects must be considered in the light of the risks, expenses,
delays,
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problems, and difficulties frequently encountered in the establishment of a
business, the development and commercialization of products based on innovative
technology and the competitive environment in which the Company operates. Since
the Company's entry into the biomedical business, the Company has generated
increased revenues. There can be no assurance that the Company will be able to
generate continued increased revenues or achieve profitable operations. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.)
Technological Factors; Uncertainty of Product Development; Unproven
Technology
Although the Company's development efforts relating to the
technological aspects of the Rapid Drug Screen are completed, the Company is
continually seeking to refine and improve its design and performance. The
Company's efforts remain subject to all of the risks inherent in product
development, including unanticipated technical, regulatory, or other problems
which could result in material delays in product development or
commercialization or significantly increase costs. The Company may be required
to commit considerable additional efforts, time, and resources to develop
production versions of additional products. The Company's success will depend
upon such products meeting targeted product costs and performance, and may also
depend upon their timely introduction into the marketplace. There can be no
assurance that development of the Company's proposed products will be
successfully completed on as timely basis, if at all, that they will meet
projected price and performance objectives, satisfactorily perform all of the
functions for which they are being designed, or prove to be sufficiently
reliable in widespread commercial application. Moreover, there can be no
assurance that unanticipated problems will not arise with respect to
technologies incorporated into its test kits or that product defects will not
become apparent after commercial introduction of its additional test kits, In
the event that the Company is required to remedy defects in any of its products
after commercial introduction, the costs to the Company could be significant,
which could have a material adverse effect on the Company revenues or earnings.
Uncertainty of Continued Market Acceptance
The Company's Rapid Drug Screen product line and Rapid One have been
well received by customers, including industry, distributors, correctional
institutions, etc. Achieving continued market acceptance for its drug tests will
require substantial marketing efforts and expenditure of significant funds to
inform potential distributors and customers of the distinctive characteristics,
benefits, and advantages of its test kits. There can be no assurance that its
Rapid Drug Screen product line and Rapid One will continue to be accepted or
that the Company's efforts will result in successful product commercialization
or continued market acceptance. (See "Business - Sales and Marketing and
Company's Plan of Operations")
Competition in the Drug Testing Market; Technological Obsolescence
The Company faces competition from other manufacturers of drug test
kits. Some of its competitors are well known and have far greater financial
resources than that of the Company. To the best of Management's knowledge, and
in its opinion, no competitors have introduced products which equal the ease of
use combined with the accuracy of the Company's Rapid Drug Screen product line
and Rapid One. (See "Business - Competition"). The markets for drug test kits
and related products are highly competitive. There can be no assurance that
other companies will not attempt to develop or market competing products
directly competitive with the Company's Rapid Drug Screen product line or Rapid
One. Despite protections which are available to the Company under its design
patent granted in February of 1999, the Company
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expects other companies to attempt to develop technologies or products which
will compete with the Company's products. (See " Business - Competition and
Patents and Trademarks")
Possible Inability to Find and Attract Qualified Personnel
The Company currently has sufficient management expertise and depth to
develop its business. However, it will need additional skilled, technical and
production personnel in the near future. There is no guarantee that the Company
can retain its present staff or that capable personnel with relevant skills will
be available. (See Item 9. and "Business - Manufacturing").
Dependence on Management
The Company is dependent on the expertise and experience of Stan
Cipkowski, President and CEO, Jay Bendis, Vice President Sales and Marketing,
and Douglas Casterlin, Vice President Operations for its operations. The loss of
Messrs. Cipkowski, Bendis, and/or Casterlin, will seriously inhibit the
Company's operations. The Company does not maintain key man insurance for any of
its management employees. (See Item 9)
Possible Adverse Changes in Regulatory Framework
Approval from the FDA is not required for the sale in the non-clinical
market, but it is required for the clinical market. The Company has received
510(k) clearances from the FDA for its five, eight, and nine panels of the Rapid
Drug Screen and the THC, cocaine, and opiate Rapid One tests. However,
regulatory standards may change in the future and there is no assurance that if
and when the Company applies for additional approvals from the FDA they will be
granted. (See "Business - FDA Approval and Government Regulations")
Patents and Trademarks
The Company was granted a design patent on its multiple test card in
January 1999. The Company has applied for additional patents on its Rapid Drug
Screen and for certain trademarks in the United States, South and Central
America, European Common Market, and Japan. Certain trademarks have been
registered and others are pending (See "Business Patent and Trademarks").
Although its patent/trademark counsel has opined that there are no competing
designs or marks, there is no assurance that the additional patents will be
granted or that additional trademarks will be registered. (See "Business -
Patent and Trademarks" and "Risks -Competition in the Drug Testing Market")
Dilution as a Result of Conversion of Series "D" Preferred Shares and
Exercise of Warrants
Investors hold 2,500 Series "D" Preferred Shares of the Company, which
are convertible into Common Shares. 1,093 Series "D" Preferred Shares have been
converted into Common Shares. Each Series "D" Preferred Share is convertible
into a number of Common Shares equal to $1,000 divided by a conversion
price which is the lesser of (a) 95% of the "Market Price" (the average of the
closing bid prices of Common Shares over any three consecutive trading days,
selected by the holder of the Series "D" Preferred Shares in the 20 trading days
immediately preceding the date of conversion) or (b) $4.625, except that if the
10 day average closing bid price ending on the effective date of a registration
statement (the "Effective Price") is greater than $4.625, the maximum conversion
price will be such Effective Price, not to exceed in any case $4.995. Under the
applicable conversion price formulas of the Series "D" Preferred Shares, the
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number of Common Shares issuable upon conversion is inversely proportional to
the market price of the Common Shares at the time of conversion (i.e. the number
of shares increases as the Market Price of the Common Shares decreases), and
except with respect to certain redemption rights of the Company for the Series
"D" Preferred Shares and the limitation under Nasdaq SmallCap regulations which
limit the aggregate amount of Common Shares which the Company may issue at a
discount from market price upon conversion of the Series "D" Preferred Shares
and Warrants without shareholder approval (Such shareholder approval is being
requested by the Company), there is no cap on the number of common shares which
may be issued upon conversion of the Series "D" Preferred Shares. In addition,
the number of Common Shares issuable upon the conversion of the Series "D"
Preferred Shares and the exercise of Warrants is subject to adjustment upon the
occurrence of certain dilutive events. Holders also hold outstanding Warrants to
acquire a total of 107,355 Common Shares at a price of $4.81 per share. The
exercise of such Warrants and conversion of such Series "D" Preferred Shares and
the sale of such Common Shares could have a significant negative impact on the
market price of the Common Shares and could materially impair the Company's
ability to raise capital through the future sale of equity securities. A Form
S-3 Registration Statement registering the Common Shares underlying the Series
"D" Preferred Shares was filed with the Securities and Exchange Commission and
became effective on March 17, 1999
Resale of Restricted Securities.
6,372,500 Common Shares presently issued and outstanding as of the date
hereof are "restricted securities" as that term is defined under the Securities
Act of 1933, as amended, (the "Securities Act") and in the future may be sold in
compliance with Rule 144 of the Securities Act, or pursuant to a Registration
Statement filed under the Securities Act. Rule 144 provides, in essence, that a
person holding restricted securities for a period of one year or more may sell
those securities in unsolicited brokerage transactions or in transactions with a
market maker, in an amount equal to one percent of the Company's outstanding
Common Shares every three months. Sales of unrestricted shares by affiliates of
the Company are also subject to the same limitation upon the number of shares
that may be sold in any three month period. Such information is deemed available
if the issuer satisfies the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Securities Exchange Act") or of
Rule 15c2-11 thereunder. Rule 144(k) also permits the termination of certain
restrictions on sales of restricted securities by persons who are not affiliates
of the Company at the time of the sale and have not been affiliates in the
preceding three months. Such persons must satisfy a two-year holding period.
There is no limitation on such sales and there is no requirement regarding
adequate current public information. Investors should be aware that sales under
Rule 144 or 144(k), or pursuant to a registration statement filed under the Act,
may have a depressive act on the market price of the Company's securities in any
market which may develop for such shares.
Preferred Shares
The Company has the authority to issue up to 5,000,000 Preferred Shares
with such designations, rights, and preferences as may be determined by the
Board of Directors. The Company is empowered, without further shareholder
approval, to issue Preferred Shares with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Shares. 2,500 Series "D" Preferred Shares which
are convertible to Common Shares were issued and 1,565 are presently outstanding
(this includes additional preferred shares issued as dividends).
10
<PAGE> 12
Need for Additional Financing
The Company expects that its cash on hand will be sufficient to fund
the Company's proposed operations for at least 12 months. This estimate is based
on certain assumptions and there can be no assurance that unanticipated
un-budgeted costs will not be incurred. Future events, including the problems,
delays, expenses, and difficulties which may be encountered in establishing and
maintaining a substantial market for the Company's Rapid Drug Screen product
line and Rapid One could make cash on hand insufficient to fund the Company's
proposed operations. There can be no assurance that the Company will be able to
obtain any necessary additional financing on terms acceptable to it, if at all.
In addition, financing may result in further dilution to the Company's then
existing shareholders. The Company has no established borrowing arrangements or
available lines of credit. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations")
No Dividends
The payment of dividends rests within the discretion of the Company's
Board of Directors. No dividends have been paid on the Common Shares and the
Company does not anticipate the payment of cash dividends in the foreseeable
future. If the operations of the Company become profitable, it is anticipated
that, for the foreseeable future, any income received therefrom would be devoted
to the Company's future operations and that cash dividends would not be paid to
the Company's shareholders.
Ability to Retain and Attract Market Makers
The Common Shares trade on the Nasdaq SmallCap Market under the symbol
"ABMC". In the event that the market makers cease to function as such, public
trading in the Company's Common Shares will be adversely affected or may cease
entirely. Presently, market makers for the Company's Common Shares include
Knight Securities L.P., Fidelity Capital Markets, Mayer & Schweitzer Inc.,
Herzog, Heine & Geduld, Inc., M.H. Meyerson & Co., Hill, Thompson. Magid, & Co.,
J.W. Genesis Clearing Corp., Troster Singer Corp., Sharpe Capital Inc.,
Comprehensive Capital Corp., Brean Murray Foster Securities Inc., Sherwood
Securities Corp., Paragon Capital Corp., and Wein Securities Corp.
Anti-Takeover Provision in Certificate of Incorporation
The Company's certificate of incorporation authorizes the issuance of
5,000,000 Preferred Shares. The Board of Directors has the authority, without
further action by the Common Shareholders, 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 right, 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. Thus,
the Board of Directors, in order to avoid a hostile takeover, could issue
Preferred Shares with super-voting rights, conversion rights into Common Shares,
liquidation or a combination of rights and preferences which could inhibit
success of such attempt.
No Assurance of Continued Public Market for Common Shares
Although the Common Shares trade on the Nasdaq SmallCap Market, there
is no assurance that an active trading market will be sustained.
11
<PAGE> 13
ITEM 2. DESCRIPTION OF PROPERTY
On April 1, 1998, the Company leased 15,000 square feet of office,
warehouse, manufacturing, and administrative office space in Hudson, New York
from a non-affiliated party for a period of one-year. The Company has extended
the lease until 9/15/99. In September of 1999, the Company will re-locate to a
new 30,000 square foot facility in Kinderhook, New York. This new facility will
house administrative offices, manufacturing and assembly, quality
control/quality assurance, and sales and marketing (See "Business - Sales and
Marketing"). The Company has entered into a Lease/Purchase Agreement with a
non-affiliate. The purchase of the building is contingent upon a permanent
zoning change that the company is confident it will receive from the town.
However, there can be no guarantee that this permanent zoning change will occur.
In such case, the Company will lease the facility through December, 2001. At
that time, the lease would or may be re-negotiated.
In August of 1999, the Company began leasing a 3,900 square foot
laboratory facility in Bridgeport, New Jersey. This facility is leased for a
period of three years at which time the Company has the option to re-new the
lease. (See " Manufacturing")
ITEM 3. LEGAL PROCEEDINGS
"Friedenberg Litigation"
In February 1994, Robert Friedenberg, as former owner of the two
medical technology companies. MDI and Gendex, acquired by the Company, in the
name of these corporations, filed for a declaratory judgement in Maryland that a
Share Exchange Agreement had been rescinded. In order to make a claim for
damages, the Company filed a third-party claim against Dr. Friedenberg for
breach of the Share Exchange Agreement and fraud. In November 1995, after a
trial, the court denied Dr. Friedenberg's request for a declaration of recission
and allowed the Company's third-party claim to proceed to trial. In September
1996, Dr. Friedenberg died.
The Company's third party claim was decided by a jury on May 5, 1997.
The verdict determined that Dr. Friedenberg breached the Share Exchange
Agreement when he failed to deliver drug screening know-how technology to the
Company. The jury also found in favor of the Company on two of three fraud
claims against Dr. Friedenberg and awarded the Company approximately $321,000 in
damages. Dr. Friedenberg's estate, just prior to the jury trial, filed a
supplemental claim for the shares of the Company which he would have received
under the Share Exchange Agreement. The trial judge on July 17, 1998, ruled that
the estate of Dr. Friedenberg is entitled to 5,907,154 common shares of the
Company. The Company appealed that ruling and on April 1, 1999 a hearing was
held in the Court of Special Appeals in Maryland. The Company is awaiting the
appellate decision. Management, in consultation with counsel, is of the opinion
that the trial judge's award of the shares to Dr. Friedenberg's estate will be
reversed on appeal.
Pending the resolution of the Company's appeal, the trial judge has
ordered that the shares be issued in the name of Dr. Friedenberg's wife and
placed in escrow or that the Company post a bond. The Company has applied for a
stay of this order. If the trial judge's order is not stayed, the issuance of
such shares or the posting of the required bond could have a significant
negative effect on the market price of the shares. Pending the resolution of the
Company's appeal of the trial judge's award of the shares to Dr. Friedenberg's
estate, the Company's ability to raise
12
<PAGE> 14
capital through the future sale of equity securities may be materially impaired.
If the trial judge's award of the shares is not reversed on appeal, the issuance
of such shares would have a significant negative effect on the market price of
the shares.
In June 1995, the Company filed a lawsuit against Jackson Morris, the
lawyer who was in charge of drafting and advising it on the Share Exchange
Agreement. Mr. Morris, who had been recommended to the Company by Dr.
Friedenberg, is alleged by the Company to have breached his fiduciary duty to
the Company by later advising Dr. Friedenberg, individually, on how to rescind
the Share Exchange Agreement. Mr. Morris is also charged with negligence in
drafting the Share Exchange Agreement. The Company's lawsuit demands damages in
the amount of $1,000,000. Mr. Morris has counterclaimed as a party to the Share
Exchange Agreement and seeks common shares. No trial date has been set. The
Company is vigorously contesting the Morris claim.
"Patent, Trademark, and Unfair Competition Litigation"
On January 26, 1999, the Company was granted a U.S. Patent for the
design of the Multiple Test Card. On April 7, 1999, the Company filed suit in
the federal court in Delaware against Phamatech, Inc. of California, Peninsula
Drug Analysis Co., Inc. and James T. Ramsey of Virginia, as well as Dipro
Diagnostic Products, Inc. and Dipro Diagnostic Products of North America
claiming patent infringement, trademark dilution, and unfair competition.
On the following day, Phamatech Inc. filed suit in the federal court in
San Diego, California asking for a declaration that the Company's patent is
invalid. It also claimed breach of contract damages for an alleged non-payment
of invoices by the Company. Over Phamatech's objection and at the request of the
Company, the California suit has been stayed by the San Diego court pending a
decision by the Delaware court on the defendant's motions that they are not
subject to jurisdiction in Delaware and that the trial should be in California.
A decision by the Delaware court is expected by mid-August, 1999. If it retains
the Company's case, all pending claims would be decided in that proceeding.
In June 1999, an individual filed suit in New York claiming that two
private placement memoranda dated respectively September 15, 1992 and February
5, 1993, obligated the Company to issue him 1,555,601 common shares of the
Company. The claim is that he is entitled to the common shares in consideration
of brokering the acquisitions subject to the Share Exchange Agreement with Dr.
Friedenburg. In addition, the individual is claiming a finder's fee of five
percent of the funds raised by the September 1992 private placement. He alleges
that a sum of one million dollars was raised. Finally, he claims that he is
entitled to a consulting fee of $24,000. Management denies the claims and
intends to vigorously contest the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below sets forth the range of high and low sale prices for
the fiscal years 1998 and 1999 on the NASD Bulletin Board until December 24,
1997 and on the Nasdaq SmallCap
13
<PAGE> 15
Market thereafter. As of July 15, 1999 there were approximately 4,000 holders of
Common Shares.
<TABLE>
<CAPTION>
Fiscal Year Ending April 30, 1999 High Low
--------------------------------- ---- ---
<S> <C> <C>
Fourth Quarter $1.87 $1.75
Third Quarter $2.87 $2.75
Second Quarter $3.00 $2.62
First Quarter $3.53 $3.31
Fiscal Year Ending April 30, 1998
Fourth Quarter $4.43 $3.40
Third Quarter $6.50 $3.25
Second Quarter $3.97 $2.69
First Quarter ending $4.13 $3.00
</TABLE>
As of July 15, 1999 there were outstanding approximately 14,875,190
Common Shares and 1,565 convertible Series "D" Preferred Shares. The Company has
not declared any dividends on the Common Shares and does not expect to do so in
the foreseeable future.
14
<PAGE> 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
for the years ended April 30, 1999 and 1998
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that except for the description of historical
facts contained herein, the Registration Statement contains certain forward
looking statements that involve risks and uncertainties as detailed herein and
from time to time in the Company's filings with the Securities and Exchange
Commission and elsewhere. Such statements are based on Management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from those described in the
forward-looking statements. These factors include, among others: (a) the
Company's fluctuations in sales and operating results, risks associated with
international operations and regulatory, competitive and contractual risks and
product development; (b) the ability to achieve strategic initiatives, including
but not limited to the ability to achieve sales growth across the business
segments through a combination of enhanced sales force, new products, and
customer service; and acquisitions.
RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 1999 AS COMPARED TO
THE YEAR ENDED APRIL 30, 1998
During the current year, the Company continued its extensive program to
market and distribute its primary product, the Rapid Drug Test kit. As a result,
revenues from the sale of the test kits were $6,499,000 for the year ended April
30, 1999 as compared to $1,991,000 for the year ended April 30,1998,
representing an increase of $4,508,000 or 226.4%. The Company believes that will
sales will continue to grow but not necessarily at the same rate. Cost of goods
sold for the year ended April 30, 1999 was $3,236,000 or 49.8% of drug test
revenues as compared to $971,000 or 48.8% of drug test revenues for the year
ended April 30, 1998. In an effort to lower this cost, the Company has
undertaken an extensive cost reduction program aimed specifically at its
in-place production process and expects further savings in the coming year. It
is expected that with the commencement of its in-house manufacturing of drug
test strips, that further significant savings can be achieved.
Revenues from book sales were $539,000 for the year ended April 30,
1999 as compared to $163,000 for the year ended April 30, 1998 representing an
increase of $376,000 or 230.7%. It is anticipated that with continued strong
sales in the drug test market, book sales as a percent of overall revenue will
continue to decline. Cost of goods sold for the year ended April 30, 1999 was
$120,000 or 22.3% of book sale revenues as compared to $79,000 or 48.5% of book
sale revenues for the year ended April 30, 1998.
While overall revenues increased 226.7% in the current year, General
and administrative costs increased 80.2% to $4,936,000 for the year ended April
30, 1999, as compared to expenses of $2,739,000 for the year ended April
30,1998.
15
<PAGE> 17
The following table sets forth the percentage relationship of general and
administrative costs to sales for both years:
<TABLE>
<CAPTION>
April 30, % April 30, %
1999 Sales 1998 Sales
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Sales salaries & commissions $1,047,000 14.9 $ 572,000 26.6
Other selling expenses 846,000 12.0 572,000 26.6
Marketing & promotion 883,000 12.5 297,000 13.8
Legal & professional 570,000 8.1 112,000 5.2
Investor relations costs 138,000 2.0 241,000 11.2
Office salaries 507,000 7.2 340,000 15.8
Payroll taxes & insurance 187,000 2.7 74,000 3.4
Telephone 100,000 1.4 51,000 2.3
Insurance 43,000 0.6 35,000 1.6
Other administrative costs 615,000 8.7 445,000 20.7
---------- ----- ---------- -----
Total general & administrative costs $4,936,000 70.1 $2,739,000 127.2
========== ==== ========== =====
</TABLE>
These increased general and administrative costs were undertaken to
create the necessary infrastructure to meet the Company's worldwide drug test
marketing and production goals. As an outgrowth of increasing sales the Company
expects general and administrative costs to continue to increase but at a slower
rate. As a percent of sales, this cost declined 57.1% during the current year
and Management expects this decline to continue in future.
Marketing and promotion costs amounting to $883,000 were expended
during the year ended April 30, 1999 to develop the technical literature, video
and other training aids necessary to conduct a successful world-wide marketing
program. In an effort to further reduce this expense, the Company has relocated
its marketing operations from Boca Raton, Florida to its headquarters in New
York.
As a result of the implementation of a stronger credit review program,
bad debt expense amounted to $13,000 or 0.2% of sales for the year ended April
30,1999 when compared to $380,000 or 17.6% of sales for the year ended April 30,
1998.
Depreciation and amortization was $78,000 and $101,000 for the years
ended April 30,1999 and 1998 respectively.
Research and development expense amounted to $336,000 for the year
ended April 30, 1999, as compared to $150,000 expended during the year ended
April 30, 1998. This increase in research and development is the result of
ongoing development of both new products and improved methods to reduce the
costs of the drug testing delivery system.
Non-cash compensation charges
As an inducement and in lieu of cash outlays, the Company granted 9,000
options to employees, 56,000 options to distributors and 33,500 options to
consultants and non-employee
16
<PAGE> 18
officers at exercise prices less than fair value at date of grant resulting in
an aggregate non-cash charge of $91,000 for the year ended April 30, 1999.
During the prior year the company granted 260,000 options to employees, 89,000
options for consulting and professional services and issued common stock to
certain key employees resulting in an aggregate non-cash charge of $2,214,000
for the year ended April 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES AS OF THE END OF FISCAL YEAR ENDED
APRIL 30, 1999
Cash and cash equivalents amounting to $131,000 combined with
marketable securities valued at $719,000 for the year ended April 30, 1999
represent a decrease of $2,389,000 or 73.7% over $3,239,000 as of the year ended
April 30, 1998. Of this amount, $131,000 was invested in interest bearing
certificates of deposit. A major portion of these funds has been utilized to
finance operations and to provide a build-up in inventories to support a move
from the Company's present facilities in Hudson, N.Y. to a new location in
Kinderhook, N.Y. during August 1999.
Working capital decreased $2,093,000 or 46.7% to $2,387,000 for the
year ended April 30, 1999 over $4,480,000 as of the year ended April 30, 1998.
The Company has entered into a one-year lease agreement with option to
purchase a 26,000 square foot fully constructed building in Kinderhook, N.Y. for
$1.3 million subject to the removal of certain existing zoning restrictions.
This move will permit the consolidation of its marketing effort and provide
space necessary for continued growth.
As a result of continued growth in sales of drug test kits, accounts
receivable increased $309,000 or 43.4% to $1,021,000 for the year ended April
30, 1999 compared to $712,000 for the year ended April 30, 1998.
Inventories rose 85.1% to $1,834,000 for the year ended April 30, 1999
or $843,000 above $991,000 reported for the year ended April 30, 1998. The
current level is necessary to support the interruption in production anticipated
by the August move to Kinderhook.
The Company's primary short-term needs are to increase its
manufacturing and production capabilities, decrease current inventory levels and
continue to support its research and development programs. The Company currently
plans to expend approximately $.3 million for the expansion and development of
its manufacturing facilities in addition to its marketing and general
administrative programs.
The Company expects its capital requirements to increase over the next
several years as it expands its research and development efforts, sales and
administration infrastructure, manufacturing capabilities and facilities. The
Company's future liquidity and capital funding requirements will depend on
numerous factors, including the extent to which the Company's products under
development are successfully developed and gain market acceptance, the timing of
regulatory actions regarding the Company's potential products, the costs and
timing of expansion of sales, marketing and manufacturing activities, facilities
expansion needs, procurement and enforcement of patents important to the
Company's business, results of clinical investigations and competition.
The Company believes that its available cash and cash from operations
will be sufficient to satisfy its funding needs through April 30, 2000.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's working capital and capital expenditure requirements, the
17
<PAGE> 19
Company may be required to sell additional equity or debt securities or obtain
additional credit facilities. There can be no assurance that such financing, if
required, will be available on satisfactory terms, if at all.
Year 2000 Issues
The Company has completed its assessment of Year 2000 compliance with
respect to its products that are currently being sold to customers and has
concluded that all significant products are compliant. With respect to third
parties, the Company is in the process of identifying and contacting its
significant suppliers and will shortly begin to contact its major customers to
determine the extent to which the Company may be vulnerable to such third
parties' failure to address their own year 2000 issues. As a result, the
Company's assessment will be substantially dependent on information provided by
third parties. The Company expects to materially complete this assessment
process by the middle of fiscal 2000. Based upon the Company's current
estimates, additional out-of-pocket costs associated with its Year 2000
compliance are expected to be immaterial. Such costs do not include internal
management time, which is not expected to be material to the Company's results
of operations or financial condition.
The Company believes that its most significant risk with respect to
Year 2000 issues relates to the performance and readiness status of third
parties. As with all manufacturing companies, a reasonable worst case Year 2000
scenario would be the result of failures of third parties (including without
limitation, governmental entities, utilities and entities with which the Company
has no direct involvement) that negatively impact the Company's raw material
supply chain or ability to provide products to customers or the ability of
customers to purchase products, or events affecting regional, national or global
economies generally. The impact of these failures cannot be estimated at this
time; however, the Company is considering contingency plans to limit, to the
extent possible, the financial impact of these failures on the Company's results
of operations. Any such plans would necessarily be limited to matters over which
the Company can reasonably control.
ITEM 7. FINANCIAL STATEMENTS.
The Company's Financial Statements are set forth beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, SENIOR OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors, Executive Officers, and Senior Officers
The following sets forth the names of the Company's directors,
officers, and senior officers. Directors of the Company are elected annually by
the shareholders and the officers are appointed annually by the Board of
Directors. Gerald Moore was appointed by the Board of Directors to fill a
vacancy.
18
<PAGE> 20
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Stan Cipkowski 51 President, CEO, and Chairman 1986
of the Board of Directors
Edmund Jaskiewicz 76 Secretary 1992
Jay Bendis 52 Vice President-Sales & 1995
Marketing and a Director
John F. Murray 55 CFO and a Director 1997
Karen Russo 38 Director 1997
Gerald Moore 61 Director 1999
Douglas Casterlin 52 Vice President Operations 1997
Dr. Henry J. Wells 67 Vice President-Scientific 1995
Development
Martin Gould 48 Vice President-Technology 1998
</TABLE>
Stan Cipkowski founded the predecessor of the Company in 1982 and has
been an officer and director of the Company since its incorporation in April
1986. From 1982 to 1986, he was sole proprietor of American Micro Media, the
predecessor, which was acquired by the Company. In addition, from 1983 to 1987,
Mr. Cipkowski was a general partner of Florida Micro Media, a Fort
Lauderdale-based marketer of educational software and was a principal
shareholder and Chief Financial Officer of Southeast Communications Group, Inc.,
a publisher of direct response media. In 1982, he became a consultant to
Dialogue Systems, Inc., a New York-based developer of training and
communications materials, where he served as Vice-President of Sales and
Marketing. From 1977 to 1982, he was employed by Prentice-Hall Publishing
Company, reaching the position of National Sales Manager. Prior to 1977 he was
employed as an accountant for the New Seabury Corporation and as Mid-West Area
Manager for the Howard Johnson Company.
Edmund Jaskiewicz is a lawyer-engineer. He has practiced international
patent and corporate law as a sole practitioner since 1963 and has served as
Chairman of the Board of Directors since 1992. From 1953 to 1963 Mr. Jaskiewicz
was associated with Toulmin and Toulmin, Esqs., Washington, D.C. From 1960 to
1962, he resided in Frankfurt, Germany managing that firm's local office. From
1952 to 1953 he was with the Patent Section of the Bureau of Ordinance of the
Department of the Navy working on patent infringement and licensing matters. He
received his J. D. in 1952 from George Washington University Law School and his
B. S. in Engineering from the University of Connecticut in 1947.
Jay Bendis was an independent consultant to biomedical companies from
1990 until 1995, specializing in commercializing new concept products in both
domestic and international markets. From 1990 to 1992, he served as
Vice-President of Sales and Marketing for Scientific Imaging Instruments where
he was a principal and Vice-President of Sales and Marketing. From 1985 to 1990,
Mr. Bendis served as National Sales Manager of the XANAR Laser Corp., a division
of Johnson & Johnson, where he directed its national sales force and developed
its marketing strategy for integrating high power lasers into the hospital
market. From 1979 to 1984, he was the Eastern Area Sales and Marketing Manager
for the IVAC Corp., a division of Eli Lilly. Prior to 1979, Mr. Bendis held
sales Management positions with Xerox Corporation and A.M. International. Mr.
Bendis earned his B. A. in Marketing/Management from Kent State University and
is currently a member of the Edison BioTechnology Center Advisory Council for
the State of Ohio.
John F. Murray served as Chief Financial Officer of Federal Supply,
Inc., Pompano Beach, Florida from April, 1994 to 1998. From 1988 to 1994, Mr.
Murray served as Controller for Bio Therapeutics, Inc., Woodbridge, New Jersey.
He also was Controller of Shortline, a group
19
<PAGE> 21
of transportation companies, from 1982 to 1988 and, from 1974 to 1982, of Kleber
Tire & Rubber Corp. Mr. Murray was Director of Accounting for Western Union
Telegraph Company from 1972 to 1974 and Senior Accountant for S.D. Leidesdorf &
Co (now Ernst & Young) from 1969 to 1972. Mr. Murray received his B.B.A. in
Accounting from the Baruch School of the City University of New York in 1968 and
became a Certified Public Accountant in the State of New York in 1974.
Karen Russo works with leading consulting firms to deliver training
programs to Fortune 1000 corporations. Topics include interpersonal and
strategic selling, service excellence, teamwork, and the prevention of workplace
violence and sexual harassment. From 1989 to 1995, Ms. Russo was an account
executive with the Forum Corporation, Los Angeles, California, responsible for
business development and client service. She served as an Assistant Vice
President of Bankers Trust Company in 1987 to 1989. Ms. Russo earned her M.B.A.
from Columbia University in 1987 and her B.A. from the University of Maryland in
1981.
Gerald Moore currently serves as President and CEO of Med-Ox
Diagnostics of Canada. Mr. Moore was President of UNIPATH (North America) from
1990 to 1998 when he reached parent-company Unilever's mandatory retirement age.
Brooke Bond, Inc took a majority equity position in MED-OX in 1978 and renamed
it Oxoid. In 1980, Mr. Moore opened Oxoid US in Columbus, MD and was appointed
President and Chief Executive Officer of both Oxoid CANADA and Oxoid USA.
Unlived acquired all of Oxoid International's holdings and subsidiaries in 1984
and changed its name to UNIPATH in 1990.Mr. Moore is a member of the Board of
Directors of the Canadian Assoc. of Clinical Microbiology and Infectious
Diseases (CACMID); a Director of the Canadian Clinical Standards Organization,
serves on the National Committee for Clinical Laboratory Standards (NCCLS), a
member of the NCCLS Committee for Antimicrobial Susceptibility testing and
Veterinary Diagnostics, is an advisor to the NCCLS Committee on Culture Media,
is a liaison to the Board of Exhibitors of the Interscience Conference on
Antimicrobial Agents and Chemotherapy (ICAAC) of the American Society of
Microbiology. Mr. Moore received his degree in chemistry and mathematics from
Strathclyde University in Glascow, Scotland in 1961.
Douglas Casterlin was General Manager of Coarc, Inc., the Company's
product assembling, packaging and shipping contractor, from 1979 to 1997. In
that capacity, he developed a contract manufacturing business involving plastic
injection molding and clean room assembly and packaging of FDA - regulated
medical products. He also negotiated a joint venture with a major German
healthcare product manufacture to establish its United States operations and
established a professional-format videocassette remanufacturing business serving
the television broadcast industry. Mr. Casterlin was Workshop Director, Putnam
Industries, Inc., from 1976 to 1979 and Production Manager, from 1973 to 1976,
of Occupatics, Inc. From 1966 to 1970, Mr. Casterlin served as an Air Force
Intelligence Officer and was honorably discharged as Sergeant. He studied
Engineering at Lehigh University from 1965 to 1966 and received his B.A. degree
in Psychology in 1973 from the State University of New York at New Paltz.
Henry Wells, Ph.D. has served since 1990 as a contract chemist with the
title of Vice-President-Science and Technology for New Horizons Diagnostics,
Inc. where he adapts immuno-chemical technologies for detection of infectious
diseases. From 1989 to 1990, he was director of production for Espro, Inc., a
producer of in-vivo pesticides. From 1985 to 1989, Dr. Wells was
Vice-President-Science and Technology for Keystone Diagnostics, Inc. From 1984
to 1985, he was Director of Research and Development for Hill-Wells Research
Corporation, a developer of diagnostics products. From 1981 to 1984, he was
Vice-President-Research and Development of Hematec Corporation. From 1979 to
1981, Dr. Wells was Director of Biochemistry for Helena Laboratories. From 1973
to 1979, he was Manager of Chemical Chemistry at Smith Kline Diagnostics. Dr.
Wells earned his Ph.D. in Biochemistry from the
20
<PAGE> 22
University of Pittsburgh, his M. A. from University of Pennsylvania and his B.
S. in Chemistry from the University of Pittsburgh.
Martin Gould is a biomedical scientist with more than 24 years of
experience in the diagnostic and chemical fields. He has an extensive background
in research and development, manufacturing, quality control/assurance, as well
as business development, sales and marketing. His experience is in the areas of
clinical chemistry, serology, immunology, hematology, dyes and stains,
chromatography, reagent chemical and food diagnostics, specifically rapid
microbiological testing. From 1973 to 1987, Mr. Gould worked for E. Merck, Inc.
in various positions of increasing responsibilities within the product
management, research and development, and quality assurance/control departments.
In 1987, he founded Ampcor Diagnostics, Inc. which he grew until 1994 when it
was acquired by Neogen Corp. (NASDAQ:NEOG). Mr. Gould is an accomplished
researcher with numerous publications in a variety of fields, including rapid
immunoassay tests to detect food pathogens such as e-coli, salmonella, listeria,
shigella, and campylobacter. He has a master's in biomedical science and
engineering and a bachelor's in animal science/chemistry. Mr. Gould established
a patent in composition for stabilization of diagnostics reagents, three
separate patents for immunoassay diagnostics kits, as well as a patent
concerning a growth media that resuscitates injured bacteria, such as
salmonella, that was recently issued.
Compliance with Section 16(a) of the Exchange Act
See Proxy Statement for the Annual Meeting of Shareholders for Fiscal
Year 2000.
ITEM 10. EXECUTIVE COMPENSATION
See Proxy Statement for the Annual Meeting of Shareholders for Fiscal
Year 2000.
21
<PAGE> 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 15, 1999, the number and
percentage of shares of the common stock of the Company. Owned of record and
beneficially, by each executive officer and director of the Company and by any
other person owning more than 5% of the outstanding Common Shares and by all
executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of
Beneficial Owner Common Shares Percent of Total
- ---------------- -------------- ----------------
<S> <C> <C>
Stan Cipkowski 2,817,500 (1) 18.5%
122 Smith Road
Kinderhook, New York 12106
Edmund Jaskiewicz 2,159,155 (2) 14.4%
1730 M Street, NW
Washington, DC 20036
Jay Bendis 749,999 (3) 4.9%
John F. Murray 130,000 (4) *
Karen Russo 21,250 (5) *
Gerald Moore 10,000 (6) *
Douglas Casterlin 262,500 (7) 1.7%
Directors and executive officers as a group 6,140,404 (8) 38.7%
(7 persons)
</TABLE>
- -------------------------------------
* Less than one percent (1%).
(1) Includes 338,500 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(2) Includes 151,500 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(3) Includes 194,000 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(4) Includes 130,000 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(5) Includes 20,000 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(6) Includes 10,000 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(7) Includes 150,000 Common Shares subject to stock options exercisable within
60 days of July 15, 1999.
(8) Includes an aggregate of 994,000 Common Shares subject to stock options
exercisable within 60 days of July 15, 1999.
22
<PAGE> 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Proxy Statement for the Annual Meeting of Shareholders for Fiscal
Year 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on page E-1, incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the fourth quarter of
Fiscal 1999.
23
<PAGE> 25
AMERICAN BIO MEDICA CORPORATION
FINANCIAL STATEMENTS
APRIL 30, 1999
<PAGE> 26
AMERICAN BIO MEDICA CORPORATION
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of April 30, 1999 F-3
Statements of operations for the years ended April 30, 1999 and 1998 F-4
Statements of changes in stockholders' equity for the years ended April 30, 1999 and 1998 F-5
Statements of cash flows for the years ended April 30, 1999 and 1998 F-6
Notes to financial statements F-7
</TABLE>
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of American Bio Medica Corporation
Hudson, New York
We have audited the accompanying balance sheet of American Bio Medica
Corporation as of April 30, 1999 and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
two-year period ended April 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of American Bio Medica Corporation
as of April 30, 1999 and the results of its operations and cash flows for each
of the years in the two-year period ended April 30, 1999, in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
June 17, 1999
With respect to Note H[4]
July 1, 1999
F-2
<PAGE> 28
AMERICAN BIO MEDICA CORPORATION
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 131,000
Investments 719,000
Accounts receivable - net of allowance for doubtful accounts of $70,000 1,021,000
Inventory 1,834,000
Prepaid expenses and other current assets 97,000
------------
Total current assets 3,802,000
Property, plant and equipment, net 351,000
Due from officer 280,000
Other assets 2,000
------------
$ 4,435,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,149,000
Payable - stockholder 130,000
Note payable - stockholder 125,000
Current portion of capital lease obligations 11,000
------------
Total current liabilities 1,415,000
Long-term portion of capital lease obligations 47,000
------------
Total liabilities 1,462,000
------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized; 1,536
shares Series D, 8% cumulative, convertible issued and outstanding (face
value $1,536,000)
Common stock; par value $.01 per share; 30,000,000 shares authorized; 14,875,190 shares
issued and outstanding 149,000
Additional paid-in capital 12,326,000
Subscription receivable (9,000)
Unearned portion of compensatory options (13,000)
Unrealized loss on investments available for sale (56,000)
Accumulated deficit (9,424,000)
------------
2,973,000
------------
$ 4,435,000
============
</TABLE>
See notes to financial statements
F-3
<PAGE> 29
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Net sales $ 7,038,000 $ 2,154,000
Cost of goods sold 3,356,000 1,051,000
------------ ------------
Gross profit 3,682,000 1,103,000
------------ ------------
Operating expenses:
Selling, general and administrative 4,936,000 2,739,000
Noncash compensation charges 91,000 2,214,000
Depreciation and amortization 25,000 101,000
Research and development 336,000 150,000
Write-off of bad debts 13,000 380,000
------------ ------------
5,401,000 5,584,000
------------ ------------
Operating loss (1,719,000) (4,481,000)
------------ ------------
Other income (loss):
Loss on sale of marketable securities (68,000)
Interest income 103,000 91,000
Interest expense (7,000)
------------ ------------
28,000 91,000
------------ ------------
NET LOSS (1,691,000) (4,390,000)
Adjustments:
Preferred stock beneficial conversion feature (123,000) (359,000)
Preferred stock dividends including late penalty (391,000) (45,000)
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (2,205,000) $ (4,794,000)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.15) $ (.35)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 14,557,000 13,768,000
============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE> 30
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED ADDITIONAL
STOCK COMMON STOCK PAID-IN SUBSCRIPTION
SHARES SHARES AMOUNT CAPITAL RECEIVABLE
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE - APRIL 30, 1997 90 13,379,507 $ 134,000 $ 6,499,000
Proceeds from exercise of warrants and options 106,305 1,000 317,000 $ (9,000)
Preferred "A" shares converted to common (90) 404,034 4,000 (4,000)
Proceeds from private placement of Preferred
"B" shares (net of costs of $48,000) 60 552,000
Preferred "B" shares converted to common (60) 226,037 2,000 (2,000)
Cash dividend paid to holders of Preferred
"B" shares
Proceeds from private placement of Preferred
"C" shares (net of costs of $57,000) 45.5 398,000
Preferred "C" shares converted to common (45.5) 160,359 2,000 (2,000)
Stock dividend paid to holders of Preferred
"C" shares 6,747 19,000
Proceeds from private placement of Preferred
"D" shares and warrants (net of costs of
$188,000) 2,500 2,312,000
Purchase of options previously granted (225,000)
Issuance of compensatory stock 1,896,000
Value assigned to compensatory stock options 342,000
Net loss
----- ---------- ------- ---------- ------
BALANCE - APRIL 30, 1998 2,500 14,282,989 143,000 12,102,000 (9,000)
Proceeds from exercise of options 2,000 6,000
Preferred "D" shares converted to
common shares (1,093) 588,032 6,000 (6,000)
Dividend paid to holders of Preferred "D" shares:
Preferred shares 129 128,000
Cash
Common shares 2,169 5,000
Settlement of registration rights agreement
Value assigned to compensatory stock options 91,000
Amortization of compensatory stock options
Net loss
Other comprehensive loss:
Unrealized loss on securities available for sale
Comprehensive loss
----- ---------- ------------ ------------ ------------
BALANCE - APRIL 30, 1999 1,536 14,875,190 $ 149,000 $ 12,326,000 $ (9,000)
===== ========== ============ ============ ============
<CAPTION>
ACCUMULATED
UNEARNED OTHER
COMPREHENSIVE COMPENSATORY COMPREHENSIVE ACCUMULATED
LOSS OPTIONS LOSS DEFICIT TOTAL
------------- ------------ ------------- ------------ ------------
BALANCE - APRIL 30, 1997 $(2,907,000) $ 3,726,000
Proceeds from exercise of warrants and options 309,000
Preferred "A" shares converted to common 0
Proceeds from private placement of Preferred
"B" shares (net of costs of $48,000) 552,000
Preferred "B" shares converted to common 0
Cash dividend paid to holders of Preferred
"B" shares (26,000) (26,000)
Proceeds from private placement of Preferred
"C" shares (net of costs of $57,000) 398,000
Preferred "C" shares converted to common 0
Stock dividend paid to holders of Preferred
"C" shares (19,000) 0
Proceeds from private placement of Preferred
"D" shares and warrants (net of costs of
$188,000) 2,312,000
Purchase of options previously granted (225,000)
Issuance of compensatory stock 1,896,000
Value assigned to compensatory stock options 318,000
Net loss $(24,000) (4,390,000) (4,390,000)
-------- ---------- ----------
BALANCE - APRIL 30, 1998 (24,000) (7,342,000) 4,870,000
Proceeds from exercise of options 6,000
Preferred "D" shares converted to
common shares 0
Dividend paid to holders of Preferred "D" shares:
Preferred shares (158,000) (30,000)
Cash (3,000) (3,000)
Common shares (5,000) 0
Settlement of registration rights agreement (225,000) (225,000)
Value assigned to compensatory stock options 91,000
Amortization of compensatory stock options 11,000 11,000
Net loss $(1,691,000) (1,691,000) (1,691,000)
Other comprehensive loss:
Unrealized loss on securities available for sale (56,000) $(56,000) (56,000)
-----------
Comprehensive loss $(1,747,000)
=========== -------- -------- ------------ -----------
BALANCE - APRIL 30, 1999 $(13,000) $(56,000) $ (9,424,000) $ 2,973,000
======== ======== ============ ===========
</TABLE>
See notes to financial statements
F-5
<PAGE> 31
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------
YEAR ENDED APRIL 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,691,000) $(4,390,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation 78,000 101,000
Loss on disposal of property 7,000
Provision for bad debts 30,000 40,000
Issuance of compensatory stock options 102,000 318,000
Issuance of compensatory stock 1,896,000
Accrued interest (16,000)
Loss on sale of marketable securities 68,000
Changes in:
Loan receivable 102,000
Accounts receivable (339,000) (414,000)
Inventory (843,000) (322,000)
Prepaid expenses and other current assets (73,000) (20,000)
Other assets 6,000 (8,000)
Accounts payable and accrued expenses 663,000 106,000
----------- -----------
Net cash used in operating activities (2,008,000) (2,591,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (220,000) (71,000)
Purchase of investments (1,812,000)
Sales and maturity of investments 969,000 1,053,000
Loans to officer (29,000) (235,000)
----------- -----------
Net cash (used in) provided by investing activities (1,092,000) 747,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (11,000)
Proceeds from private placements 3,262,000
Proceeds from exercise of warrants and options 6,000 309,000
Cash dividends paid (3,000) (26,000)
Purchase of Company's options (225,000)
----------- -----------
Net cash (used in) provided by financing activities (8,000) 3,320,000
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,108,000) 1,476,000
Cash and cash equivalents - beginning of year 3,239,000 1,763,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 131,000 $ 3,239,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 8,000
Income taxes $ 6,000
NONCASH ACTIVITIES:
Stock dividends paid to holders of preferred stock $ 133,000 $ 19,000
Dividend accrued not yet paid $ 30,000
Acquisition of property under capital leases $ 69,000
Settlement of registration rights agreement $ 225,000
</TABLE>
See notes to financial statements
F-6
<PAGE> 32
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
American Bio Medica Corporation (the "Company") was formed under the laws of the
State of New York on April 10, 1986 and is in the business of manufacturing,
developing and marketing biomedical technologies and products. The Company
currently owns two technologies for screening drugs of abuse, a workplace
screening test and a preliminary test for use by laboratories. The Company is
also involved in marketing educational books and software to schools and
municipal libraries and audio-visual educational packages to corporations
throughout the United States, which constitutes less than 10% of net sales.
During the year ended April 30, 1999, the Company sustained a net loss of
$1,691,000 and had net cash outflows from operating activities of $2,008,000.
The Company is in the process of taking a number of steps to improve its
financial prospects including focusing its efforts on sales of existing
products, implementing certain cost reductions and production efficiencies and
taking other measures to enhance profit margins.
[1] CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
[2] INVENTORY:
Inventory is stated at the lower of cost or market; cost is determined by
the first-in-first-out method.
[3] INCOME TAXES:
The Company uses the liability method of accounting for income taxes. The
liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported
amounts in the financial statements. The resulting asset or liability is
adjusted to reflect changes in the tax law as they occur.
[4] DEPRECIATION AND AMORTIZATION:
Property and equipment are depreciated on the straight-line method over
their estimated useful lives. Leasehold improvements are amortized by the
straight-line method over the shorter of their estimated useful lives or
the term of the lease.
[5] REVENUE RECOGNITION:
The Company recognizes revenue when products are shipped or services are
rendered. Revenues from book sales with the right of return, are
recognized net of a provision for estimated returns.
[6] RESEARCH AND DEVELOPMENT:
Research and development costs are charged to operations when incurred.
[7] LOSS PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings Per Share," in the year ended April 30, 1998.
Accordingly, the presentation of per share information includes
calculations of basic and dilutive loss per share. The effect of
potential common shares such as warrants, options, and convertible
preferred stock has not been included, as the effect would be
antidilutive.
F-7
<PAGE> 33
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] LOSS PER COMMON SHARE: (CONTINUED)
When preferred stock is convertible to common stock at a conversion rate
that is the lower of a rate fixed at issuance or a fixed discount from
the common stock market price at the time of conversion, the discounted
amount is an assured incremental yield, the "beneficial conversion
feature", to the preferred shareholders and is accounted for as an
embedded dividend to preferred shareholders. As such, the loss per common
share was adjusted for this feature.
[8] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[9] IMPAIRMENT OF LONG-LIVED ASSETS:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" during the
year ended April 30, 1999. SFAS 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable assets, and
goodwill related to those assets. There was no effect of the adoption of
SFAS 121 on the financial statements.
[10] FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable -
net, accounts payable and accrued expenses and note payable approximate
their fair value based on the nature of those items.
Estimated fair value of financial instruments are determined using
available market information. In evaluating the fair value information,
considerable judgement is required to interpret the market data used to
develop the estimates. The use of different market assumptions and/or
different valuation techniques may have a material effect on the
estimated fair value amounts. Accordingly, the estimates of fair value
presented herein may not be indicative of the amounts that could be
realized in a current market exchange. Due to the related party nature of
due from officer the Company is unable to determine its fair value.
[11] STOCK-BASED COMPENSATION:
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation under a fair value based method. The Company has elected to
continue to account for its stock-based employee compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and
disclose the pro forma effects on net loss and loss per share basic and
diluted had the fair value of such compensation been expensed. Under the
provisions of APB No. 25, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's common
stock at the date of the grant over the amount an employee must pay to
acquire the stock.
F-8
<PAGE> 34
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] CONCENTRATION OF CREDIT RISK:
The Company sells its drug testing products primarily to United States
distributors. Credit is extended based on an evaluation of the customer's
financial condition, and generally collateral is not required. The
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers and other information.
[13] REPORTING COMPREHENSIVE LOSS:
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130"). The
provisions for SFAS No. 130 require the Company to report the change in
the Company's equity during the period from transactions and events other
than those resulting from investments by and distributions to the
shareholders.
NOTE B - INVESTMENTS
The Company's investments are classified as available-for-sale and are carried
at fair value with the unrealized gains and losses included in stockholders'
equity. Investments at April 30, 1999 consist of the following:
<TABLE>
<CAPTION>
FAIR UNREALIZED
COST VALUE LOSS
------------ ------------ ----------
<S> <C> <C> <C>
Certificates of deposits - maturity
less than one year $ 131,000 $ 131,000
Equity securities - common stock 171,000 152,000 $(19,000)
Mutual fund 463,000 436,000 (27,000)
------------ ------------ --------
$ 765,000 $ 719,000 $(46,000)
============ ============ ========
</TABLE>
During the year ended April 30, 1999, the Company incurred a realized loss of
$68,000 on its investments. During May 1999, the Company sold equity securities
- - common stock with a cost of $71,000 for net proceeds of $142,000. During the
year ended April 30, 1999, $100,000 of the investments were used to
collateralize certain borrowings, which were repaid, under a margin account.
NOTE C - INVENTORY
Inventory is comprised of the following:
<TABLE>
<S> <C>
Books held for resale $ 166,000
-------------
Drug screening tests:
Raw materials 764,000
Work in process 377,000
Finished goods 527,000
-------------
Total workplace drug screening tests 1,668,000
Total $ 1,834,000
=============
</TABLE>
F-9
<PAGE> 35
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE D - PLANT AND EQUIPMENT
Plant and equipment, at cost, are summarized as follows:
<TABLE>
<S> <C>
Office equipment, including $46,000 under capital leases $ 150,000
Manufacturing and warehouse equipment, including $23,000
under capital lease 319,000
------------
469,000
Less accumulated depreciation 118,000
------------
$ 351,000
============
</TABLE>
NOTE E - DUE FROM OFFICER
At April 30, 1999, the Company has a note receivable from an officer for
$280,000 (including interest of $16,000). The note bears interest at 6% per
annum and is payable on demand.
NOTE F - CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under a capital lease. As of April 30,
1999, minimum future lease payments on the capital leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30,
----------
<S> <C>
2000 $ 19,000
2001 19,000
2002 19,000
2003 19,000
2004 1,000
-----------
Total future minimum loan payments 77,000
Less amount representing interest (19,000)
-----------
Present value of minimum lease payments 58,000
Less current portion of capital lease payments (11,000)
-----------
Long-term portion of capital lease obligations $ 47,000
===========
</TABLE>
NOTE G - INCOME TAXES
At April 30, 1999, the Company has approximately $6,600,000 of net operating
loss carry-forwards expiring through 2019.
At April 30, 1999, the Company has a deferred tax asset of approximately
$2,600,000 representing the benefits of its net operating loss carry-forward and
certain expenses not currently deductible. The Company's deferred tax asset has
been fully reserved by a valuation allowance since realization of its benefit is
uncertain. The difference between the statutory tax rate of 34% and the
Company's effective tax rate of 0% is substantially due to the increase in the
valuation allowance of $716,000 and $986,000 for the years ended April 30, 1999
and 1998,
F-10
<PAGE> 36
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
respectively. The Company's ability to utilize its net operating loss
carry-forwards may be subject to an annual limitation in future periods pursuant
to Section 382 of the Internal Revenue Code of 1986, as amended.
F-11
<PAGE> 37
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE H - STOCKHOLDERS' EQUITY
[1] PREFERRED STOCK:
In October 1996, the Company amended its certificate of incorporation
authorizing the issuance of 5,000,000 Preferred Shares. 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.
During 1996, the Company completed a private placement in which it netted
proceeds of approximately $1,410,000 through the sale of 150 shares of 8%
Series A Convertible Preferred Shares with a stated value of $10,000 per
share. 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 the
Preferred Shares are converted to Common Shares. All accrued but unpaid
dividends are payable in cash. The Series A Preferred Shares were
converted into an aggregate of 633,073 Common Shares.
During September 1997, the Company completed a private placement in which
it netted proceeds of approximately $950,000 through the sale of 60
shares of 8% Series B Convertible Preferred Shares and 45.5 shares of
Series C Convertible Preferred Shares with a stated value of $10,000 per
share. Each Preferred Share was convertible into Common Shares pursuant
to the following formula: $10,000 divided by lesser of $3.50 or 75% of
the average of the daily closing bid prices for the twenty consecutive
trading days ending on the trading day prior to the day on which the
Preferred Shares are converted to Common Shares. Dividends were payable
in cash or shares of common stock at the election of the Company on the
date the Preferred Shares are converted to common shares. The Series B
Preferred Shares and the Series C Preferred Shares were converted into an
aggregate of 226,037 and 160,359 Common Shares respectively.
During April 1998, the Company completed a private placement in which it
netted proceed of approximately $2,312,000 through the sale of 2,500
shares of 8% Series D Convertible Preferred Shares with a stated value of
$1,000 per share. Each Preferred Share is convertible at the lesser of
(i) 95% of the average of the closing bid prices of the common shares
over any three trading days selected by the holder of the Preferred
Shares in the 20 trading days immediately preceding the date of
conversion or (ii) $4.625 based on a formula as provided. Dividends are
payable in cash or additional Preferred Shares at the Company's option.
Pursuant to a Registration Rights Agreement dated April 24, 1998 (the
"Registration Rights Agreement"), the Company agreed to register the
resale of the Company's common stock issuable upon conversion of the
Company's Series D Preferred Stock and upon exercise of certain stock
purchase warrants. Pursuant to the Registration Rights Agreement, if a
registration statement covering the resale of such shares of Common Stock
was not declared effective by July 23, 1998 or once declared effective
sales could not be made thereunder for any reason (a "Registration
Statement Deficiency"), the Company agreed to pay a late registration
penalty. The Registration Statement filed by the Company was not declared
effective until March 17, 1999, resulting in a penalty. In the fourth
quarter of fiscal 1999, the Series D preferred stockholders (the
"holders") communicated to the Company that they were willing to accept
$250,000 in cash in settlement of the penalty. On May 28, 1999, the
Company entered into a definitive Agreement as of April 30, 1999 (the
"1999 Agreement") to settle all claims against the Company, including the
late registration penalty and certain other claims under the Securities
Purchase Agreement dated April 24, 1998. Pursuant to the 1999 Agreement,
the Company gave as consideration $225,000 on June 1, 1999 ($100,000 in
cash and a one-year promissory note in the principal amount of $125,000
accruing interest at the rate of 14% annually).
F-12
<PAGE> 38
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
[1] PREFERRED STOCK: (CONTINUED)
The preferred dividend payable of $30,000 at April 30, 1999 was paid
through the issuance of 29 Preferred D Shares and $1,000 in cash.
[2] STOCK OPTION PLANS:
The Company adopted the Fiscal 1997 Non-statutory Stock Option Plan (the
"1997 Plan") and the Fiscal 1998 Non-statutory Plan (the "1998 Plan").
The 1997 Plan provides for the granting of options to purchase up to
2,000,000 shares of common stock and the 1998 Plan provides for the
granting of options to purchase 1,000,000 shares of common stock. Both
Plans are administered by the Option Committee of the Board of Directors,
which determines the terms of options exercised, including the exercise
price, the number of shares subject to the option and the terms and
conditions of exercise.
[3] OTHER STOCK OPTIONS:
During March 1996, the Company entered into an agreement with a public
relations and communications firm to serve as the Company's liaison and
spokesman to the financial and investment community. In connection
therewith, the Company also granted 500,000 options exercisable at $1.00
through March 15, 1999 and 500,000 options exercisable at $2.00 through
March 15, 1999. During March 1998, the Company purchased from the public
relations firm 75,000 options exercisable at $1.00 per common share and
75,000 options exercisable at $2.00 per common share for $225,000.
At April 30, 1999, the options had expired.
[4] STOCK OPTIONS:
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------
1999 1998
----------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 2,510,000 $2.55 2,174,000 $2.31
Granted 468,000 $2.81 567,000 $3.25
Exercised (2,000) $3.00 (81,000) $3.00
Cancelled/expired (1,000,000) $3.02 (150,000) $1.50
---------- ---------
Options outstanding at end of year 1,976,000 $3.02 2,510,000 $2.55
========== =========
Options exercisable at end of year 1,558,000 $2.98 1,439,000 $3.05
========== =========
</TABLE>
F-13
<PAGE> 39
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
[4] STOCK OPTIONS: (CONTINUED)
The following table presents information relating to stock options
outstanding at April 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE
RANGE OF EXERCISE PRICE SHARES PRICE LIFE IN YEARS SHARES PRICE
----------------------- ------ -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
$2.50 - $3.50 1,976,000 $3.02 1.08 1,558,000 $2.98
========= =========
</TABLE>
As of April 30, 1999, 13,000 options are available for future grant
under the 1997 Plan and 241,000 options are available for future grant
under the 1998 Plan.
Through May 27, 1999, the Company granted 137,750 options. On July 1, 1999 the
Company extended the term of approximately 852,000 options from 3 to 5 years.
[5] WARRANTS:
In connection with the Private Placement of the Series A Convertible
Preferred Shares the Company granted 24,712 common share warrants
entitling the holder to purchase one share of common stock at a price of
$3.00 per share. The warrants were exercised during the fiscal year ended
April 30, 1998.
In connection with the Private Placement of the 8% Series D Convertible
Preferred Shares, the Company granted 107,355 common share purchase
warrants entitling the holder to purchase one share of common stock at a
price of $4.81 per share until April 24, 2001. 100,000 of the purchase
warrants were issued to preferred stockholders and 7,355 of the purchase
warrants were issued to the selling agent as additional compensation. The
weighted average fair value of warrants granted during the year ended
April 30, 1998 was $1.67 on the date of grant using the Black-Scholes
pricing model using the following assumptions: dividend yield 0%;
volatility of 59%, risk free rate of 5.61% and expected life of three
years.
[6] STOCK-BASED COMPENSATION:
The Company applies APB No. 25 in accounting for its stock option plans
and, accordingly, recognizes employee compensation expense for the
difference between the fair value of the underlying common stock and the
exercise price of the option at the date of grant. The effect of applying
SFAS No. 123 on pro forma net loss as stated above is not necessarily
representative of the effects on reported net loss for future years due
to, among other things (1) the vesting period of the stock options and
(2) the fair value of additional stock options in future years. The
weighted average fair value of options granted during 1998 and 1999 was
approximately $1.78 and $1.21, respectively. The following pro forma
information gives effect to fair value of the options on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%, volatility of 59% and 79% for 1998 and
1999, respectively, risk free interest rates of ranging from 5.38% -
6.40% and 4.67% - 5.62% for 1998 and 1999, respectively and expected life
of 3 years.
F-14
<PAGE> 40
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK-BASED COMPENSATION: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Net loss:
As reported $ (1,691,000) $ (4,390,000)
Pro forma (1,967,000) $ (4,755,000)
Basic and diluted loss per share:
As reported $(0.15) $(0.35)
Pro forma $(0.17) $(0.37)
</TABLE>
During the year ended April 30, 1998, the Company granted 260,000 options
to employees at exercise prices less than the fair value ($342,000) of
the underlying common stock at the dates of grant. The Company recorded a
non-cash charge of $318,000 and the difference of $24,000 as unearned
compensation which is being amortized over the shorter of the vesting
period or period of employment.
During the year ended April 30, 1998, the Company granted 89,000 options
as compensation for consulting and professional services. The Company
determined the fair value of these options to be approximately $139,000
and a one-time non-cash charge was recorded.
During the year ended April 30, 1999, the Company granted 9,000 options
to employees at exercise prices less than fair value of the underlying
common stock at dates of grant. In addition, during the year ended April
30, 1999, the Company granted 33,500 options to consultants and
non-employee officers. In connection with these grants the Company
recorded a one-time non-cash charge of $51,000.
During year ended April 1999, the Company implemented a stock option
program pursuant to which distributors were granted stock options under
the 1997 Plan based on annual sales for the year ended April 30, 1999. On
June 10, 1999, the Company granted 56,000 options at an exercise price of
$3.00 per common share exercisable through June 10, 2002 pursuant to the
program. In connection therewith, the Company recorded a non-cash charge
of $40,000 for the year ended April 30, 1999.
NOTE I - LOAN RECEIVABLE
During December 1996, the Company entered into a promissory note receivable with
a public relations and communications firm. The principal amount of $100,000 and
accrued interest at 6% were satisfied through the performance of services. The
amount of $102,000 (including interest) was charged to expense during the year
ended April 30, 1998.
F-15
<PAGE> 41
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
[1] OPERATING LEASES:
The Company leases office and warehouse facilities under operating leases
expiring through August 2003. At April 30, 1999, the future minimum
rental payments under the operating lease are as follows:
<TABLE>
<S> <C>
2000 $ 115,000
2001 67,000
2002 27,000
2003 9,000
------------
$ 218,000
============
</TABLE>
Rent expense was $75,000 and $37,000 for the years ended April 30, 1999
and 1998, respectively.
On May 19, 1999, the Company entered into an agreement to acquire one of
the leased facilities for $1,300,000 subject to zoning approval,
environment assessment and structural inspection. The Company anticipates
the purchase to be financed through a mortgage loan.
[2] EMPLOYMENT AGREEMENTS:
On November 4, 1998, the Company entered into an employment agreement
with its President providing for an annual salary of $96,000 which
expires April 30, 2000.
On November 4, 1996, the Company entered into an employment agreement
with its Vice-President of Marketing and Sales for an annual salary of
$84,000 which expires April 2000. On November 3, 1995, under a previous
employment agreement ("1995 agreement"), the Vice-President received the
right to receive 500,000 common shares valued at $125,000 or $0.25 per
share. Upon execution of the 1995 agreement the Vice President of
Marketing received 100,000 shares. Certificates representing 400,000
common shares were being held by the Company subject to the following
vesting:
100,000 shares upon the Company's achieving $1,000,000 in gross
revenues from sales of biomedical products; 100,000 shares upon the
Company's achieving $2,000,000 in gross revenues from sales of
biomedical products 100,000 shares upon the Company's achieving
$3,000,000 in gross revenues from sales of biomedical products;
100,000 shares upon the Company's achieving $4,000,000 in gross
revenues from sales of biomedical products.
During the year ended April 30, 1998, the Vice President of Marketing
received 200,000 shares upon the Company achieving $2,000,000 in gross
revenues of biomedical products. Additionally, in April 1998, the Board
of Directors voted to remove the vesting restrictions on the remaining
200,000 shares. In connection therewith, the Company recorded a noncash
charge of $1,356,000. The amount of the charge was based on the closing
price of the common stock on the date the milestones were achieved and
the date the Board of Directors voted to remove the vesting restrictions.
In addition, the above agreements provide for bonuses based on an
aggregate of 2% of net sales.
F-16
<PAGE> 42
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
[2] EMPLOYMENT AGREEMENTS: (CONTINUED)
On May 26, 1997, the Company entered into a three year employment
agreement with its Vice-President/General Manager. The employment
agreement provides for a base annual salary of $84,000 per annum and a
bonus of 1% of net sales after gross revenue of $1,000,000 per fiscal
year. Additionally, the employee shall receive 150,000 options at $3.00
per share vesting immediately. The President of the Company gave the
Vice-President/General Manager 150,000 shares of the Company's common
stock vesting as follows: 25% upon effective date of employment and 25%
additional upon each of the three subsequent anniversaries of employment.
During the year ended April 30, 1998 the Board of Directors voted to
remove the vesting restrictions. In connection therewith, the Company
recorded a noncash charge of $540,000 during the year ended April 30,
1998. The amount of the charge was based on the closing price for the
common stock for the shares received on the effective date and the shares
received when the vesting restrictions were removed.
During the years ended April 30, 1999 and 1998, the Company recorded
approximately $199,000 and $80,000, respectively in bonuses based on
revenue in accordance with employment agreements.
[3] LITIGATION:
In February 1994, Robert Friedenberg, as former owner of the two medical
technology companies. MDI and Gendex, acquired by the Company, in the
name of these corporations, filed for a declaratory judgement in Maryland
that a Share Exchange Agreement had been rescinded. In order to make a
claim for damages, the Company filed a third-party claim against Dr.
Friedenberg for breach of the Share Exchange Agreement and fraud. In
November 1995, after a trial, the court denied Dr. Friedenberg's request
for a declaration of recission and allowed the Company's third-party
claim to proceed to trial. In September 1996, Dr. Friedenberg died.
The Company's third party claim was decided by a jury on May 5, 1997. The
verdict determined that Dr. Friedenberg breached the Share Exchange
Agreement when he failed to deliver drug screening know how technology to
the Company. The jury also found in favor of the Company on two of three
fraud claims against Dr. Friedenberg and awarded the Company
approximately $321,000 in damages. Dr. Friedenberg's estate, just prior
to the jury trial, filed a supplemental claim for the shares of the
Company which he would have received under the Share Exchange Agreement.
The trial judge on July 17, 1998, ruled that the estate of Dr.
Friedenberg is entitled to 5,907,154 common shares of the Company. The
Company appealed that ruling and on April 1, 1999 a hearing was held in
the Court of Special Appeals in Maryland. The Company is awaiting the
appellate decision. Management, in consultation with counsel, is of the
opinion that the trial judge's award of the shares to Dr. Friedenberg's
estate will be reversed on appeal.
Pending the resolution of the Company's appeal, the trial judge has
ordered that the shares be issued in the name of Dr. Friedenberg's wife
and placed in escrow or that the Company post a bond. The Company has
applied for a stay of this order. If the trial judge's order is not
stayed, the issuance of such shares or the posting of the required bond
could have a significant negative effect on the market price of the
shares. Pending the resolution of the Company's appeal of the trial
judge's award of the shares to Dr. Friedenberg's estate, the Company's
ability to raise capital through the future sale of equity securities may
be materially impaired. If the trial judge's award of the shares is not
reversed on appeal, the issuance of such shares would have a significant
negative effect on the market price of the shares.
In June 1995, the Company filed a lawsuit against Jackson Morris, the
lawyer who was in charge of drafting and advising it on the Share
Exchange Agreement. Mr. Morris, who had been recommended to the Company
by Dr. Friedenberg, is alleged by the Company to have breached his
fiduciary duty to the Company by later advising Dr. Friedenberg,
individually, on how to rescind the Share Exchange Agreement. Mr. Morris
is also charged with negligence in drafting the Share Exchange Agreement.
The Company's
F-17
<PAGE> 43
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
lawsuit demands damages in the amount of $1,000,000. Mr. Morris has
counterclaimed as a party to the Share Exchange Agreement and seeks
common shares. No trial date has been set. The Company is vigorously
contesting the Morris claim.
On January 26, 1999, the Company was granted a U.S. Patent for the design
of the Multiple Test Card. On April 7, 1999, the Company filed suit in
the federal court in Delaware against Phamatech, Inc. of California,
Peninsula Drug Analysis Co., Inc. and James T. Ramsey of Virginia, as
well as Dipro Diagnostic Products, Inc. and Dipro Diagnostic Products of
North America claiming patent infringement, trademark dilution, and
unfair competition.
On the following day, Phamatech Inc. filed suit in the federal court in
San Diego, California asking for a declaration that the Company's patent
is invalid. It also claimed breach of contract damages for an alleged
non-payment of invoices by the Company. Over Phamatech's objection and at
the request of the Company, the California suit has been stayed by the
San Diego court pending a decision by the Delaware court on the
defendant's motions that they are not subject to jurisdiction in Delaware
and that the trial should be in California. A decision by the Delaware
court is expected by mid-August, 1999. If it retains the Company's case,
all pending claims would be decided in that proceeding.
In June 1999, an individual filed suit in New York claiming that two
private placement memoranda dated respectively September 15, 1992 and
February 5, 1993, obligated the Company to issue him 1,555,601 common
shares of the Company. The claim is that he is entitled to the common
shares in consideration of brokering the acquisitions subject to the
Share Exchange Agreement with Dr. Friedenburg. In addition, the
individual is claiming a finder's fee of five percent of the funds raised
by the September 1992 private placement. He alleges that a sum of one
million dollars was raised. Finally, he claims that he is entitled to a
consulting fee of $24,000. Management denies the claims and intends to
vigorously contest the suit.
[4] MAJOR CUSTOMER:
During the year ended April 30, 1999, one customer accounted for
approximately 17% of net sales.
[5] 401(K) PLAN:
Effective January 1, 1999, the Company adopted a defined contribution
401(k) plan available to eligible employees. Employee contributions are
voluntary and are determined on an individual basis, limited to the
maximum amount allowable under federal tax regulations. The Company at
its discretion may make certain contributions to the plan. No such
contributions have been made through April 30, 1999.
F-18
<PAGE> 44
AMERICAN BIO MEDICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE K - GEOGRAPHIC INFORMATION
Information concerning sales by principal geographic is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
United States $ 6,477,000 $ 2,073,000
North America (not domestic) 22,000
Europe 70,000 11,000
Asia/Pacific Run 34,000 8,000
South America 435,000 62,000
-------------- --------------
$ 7,038,000 $ 2,154,000
============== ==============
</TABLE>
F-19
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN BIO MEDICA CORPORATION
By /s/ Stan Cipkowski
------------------------------------
Stan Cipkowski, Chairman and Chief
Executive Officer
Date: July 28, 1999
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on July 28, 1999:
/s/ Stan Cipkowski Chairman of the Board and Chief Executive
- ----------------------------- Officer
Stan Cipkowski
/s/ Edmund Jaskiewicz Director
- -----------------------------
Edmund Jaskiewicz
/s/ Jay Bendis Director
- -----------------------------
Jay Bendis
Director
- -----------------------------
Karen Russo
Director
- -----------------------------
Gerald Moore
/s/ John F. Murray Director and Chief Financial Officer
- ----------------------------- (Principal Financial Officer)
John F. Murray
S-1
<PAGE> 46
AMERICAN BIO MEDICA CORPORATION
INDEX TO EXHIBITS
Number Description of Exhibits
- ------ -----------------------
3.5 Bylaws (filed as exhibit 3.5 to the Company's Form 10-SB filed on
November 21, 1996 and incorporated herein by reference)
3.6 Fifth Amendment to Certificate of Incorporation (filed as exhibit
3.6 to the Company's Form SB-2 filed on November 26, 1996 and
incorporated herein by reference)
4.6 Fiscal 1997 Nonstatutory Stock Option Plan (filed as part of the
Company's Proxy Statement for its Fiscal 1997 Annual Meeting and
incorporated herein by reference)(a)
4.9 Specimen Certificate, Series "D" Preferred Stock**
4.10 Form of Securities Purchase Agreement between the Company and the
Purchaser**
4.11 Form of Registration Rights Agreement by and among the Company, the
Selling Agent and the Purchaser**
4.12 Form of Common Stock Purchase Warrant Certificate**
4.13 Form of Certificate of Designation relating to Series "D" Preferred
Shares**
4.14 Fiscal 1998 Nonstatutory Stock Option Plan (filed as part of the
Company's Proxy Statement for its Fiscal 1998 Annual Meeting and
incorporated herein by reference)(a)
10.2 Employment Contract between the Registrant and Stan Cipkowski*(a)
10.3 Employment Contract between the Registrant and Edmund Jaskiewicz*(a)
10.4 Employment Contract between the Registrant and Jay Bendis*(a)
10.5 Employment Contract between the Registrant and Douglas
Casterling***(a)
23.1 Consent of Independent Auditors
27 Financial Data Schedule
- ------------------------------
(a) Indicates an employee benefit plan, management contract or compensatory plan
or arrangement in which a named executive officer participates.
* Filed as the exhibit number listed to the Company's Form 10-SB filed on
November 21, 1996 and incorporated herein by reference.
** Filed as the exhibit number listed to the Company's Form 8-K filed on April
30, 1998 and incorporated herein by reference.
*** Filed as the exhibit number listed to the Company's Form SB-2 filed on May
20, 1998 and incorporated herein by reference.
E-1
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statement of
American Bio Medica Corporation on Form S-3 (File No. 333-16535) of our report,
dated June 17, 1999 (with respect to Note H[4] July 1, 1999) on our audits of
the financial statements of the Company as of April 30, 1999 and for the years
ended April 30, 1999 and 1998 which report is included in this Annual Report on
Form 10-KSB. We also consent to the reference of our firm under the caption
"Experts" in the prospectus.
Richard A. Eisner & Company, LLP
New York, New York
July 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the year ended April 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 131,000
<SECURITIES> 719,000
<RECEIVABLES> 1,091,000
<ALLOWANCES> 70,000
<INVENTORY> 1,834,000
<CURRENT-ASSETS> 3,802,000
<PP&E> 468,000
<DEPRECIATION> 117,000
<TOTAL-ASSETS> 4,435,000
<CURRENT-LIABILITIES> 1,415,000
<BONDS> 0
0
0
<COMMON> 149,000
<OTHER-SE> 2,824,000
<TOTAL-LIABILITY-AND-EQUITY> 4,435,000
<SALES> 7,038,000
<TOTAL-REVENUES> 7,038,000
<CGS> 3,356,000
<TOTAL-COSTS> 5,401,000
<OTHER-EXPENSES> (28,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,691,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,691,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,691,000)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
