-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WifiVtscNc8lwXp57vFB1aIyjNKqvR7VCkkDR1oWEIphNTs/LbwL02Y/eGxZctyf gLhoihgtpjokv8zZORMNfQ== 0000890566-99-000316.txt : 19990317 0000890566-99-000316.hdr.sgml : 19990317 ACCESSION NUMBER: 0000890566-99-000316 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BIO MEDICA CORP CENTRAL INDEX KEY: 0000896747 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 141702188 STATE OF INCORPORATION: NY FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-28666 FILM NUMBER: 99566382 BUSINESS ADDRESS: STREET 1: 300 FAIRVIEW AVENUE CITY: HUDSON STATE: NY ZIP: 12534 BUSINESS PHONE: 518822882 MAIL ADDRESS: STREET 1: 300 FAIRVIEW AVENUE CITY: HUDSON STATE: NY ZIP: 12534 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 2054 - -------------------------------------------------------------------------------- FORM 10-KSBA [/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended April 30, 1998 Commission File Number: 0-28666 AMERICAN BIO MEDICA CORPORATION - -------------------------------------------------------------------------------- (Name of Small Business Issuer in its charter ) New York 22-3378935 - -------------------------------------------------------------------------------- (State or other Jurisdiction (IRS Employer Identification of Incorporation or Organization) Number) 300 Fairview Avenue, Hudson, New York 12534 - -------------------------------------------------------------------------------- (Address of principal executive Offices) (Zip Code) 102 Simons Road, Ancramdale, New York 12503 - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Issuer's telephone number: (800) 227-1243 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-KSBA or any amendment to this Form 10-KSBA. [x] State issuer's revenues for its most fiscal year $2,154,000. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. As of June 14, 1998, there were 9,064,418 common shares held by non-affiliates ("Common Shares") outstanding having an aggregate market value of $22,661,045. Documents incorporated by reference: Proxy Statement for the Annual Meeting of Shareholders for the 1999 Fiscal Year. Item 7. Financial Statements a. Balance Sheet as of April 30, 1998 b. Statement of Operations for the two years ended April 30, 1997 and 1998 c. Statement of Cash Flows for the two years ended April 30, 1997 and 1998 d. Statement of Stockholders' Equity for the two years ended April 30, 1997 and 1998 e. Notes to Financial Statements 25 AMERICAN BIO MEDICA CORPORATION Contents Page - ---- Financial Statements Independent auditors' report F-2 Independent auditors' report F-3 Balance sheet as of April 30, 1998 F-4 Statements of operations for the years ended April 30, 1998 and 1997 F-5 Statements of changes in stockholders' equity for the years ended April 30, 1998 and 1997 F-6 Statements of cash flows for the years ended April 30, 1998 and 1997 F-7 Notes to financial statements F-8 F-1 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, 1998 and the related statements of operations, cash flows and changes in stockholders' equity for the year then ended. 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 audit. We conducted our audit 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 audit provides 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, 1998 and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Richard A. Eisner & Company, LLP Richard A. Eisner & Company, LLP New York, New York June 14, 1998 With respect to the second paragraph of Note K[3] July 23, 1998 F-2 Independent Auditor's Report THOMAS P. MONAHAN CERTIFIED PUBLIC ACCOUNTANT 208 LEXINGTON AVENUE PATERSON, NEW JERSEY 07502 To The Board of Directors and Shareholders of American Bio Medica Corporation I have audited the accompanying balance sheet of American Bio Medica Corporation as of April 30, 1997 and the related statements of operations, cash flows and shareholders' equity for the year ended April 30, 1997. These financial statements are the responsibility of the Company's Management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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 and significant estimates made by Management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my 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, 1997 and the results of its operations, shareholders equity and cash flows for the year ended April 30, 1997 in conformity with generally accepted accounting principles. /s/Thomas P. Monahan Thomas P. Monahan, CPA May 28, 1997 Paterson, New Jersey F-3 AMERICAN BIO MEDICA CORPORATION Balance Sheet April 30, 1998 ASSETS Current assets: Cash and cash equivalents ................................. $ 3,239,000 Accounts receivable - net of allowance for doubtful accounts of $40,000 ....... 712,000 Inventory ................................................. 991,000 Prepaid expenses and other current assets ................. 24,000 ------------ Total current assets ................................... 4,966,000 Property, plant and equipment, net ........................... 147,000 Due from officer ............................................. 235,000 Other assets ................................................. 8,000 ------------ $ 5,356,000 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ..................... $ 486,000 ------------ Stockholders' equity: Preferred stock; par value $.01 per share; 5,000,000 shares authorized; 2,500 shares Series D, 8% cumulative, convertible issued and outstanding (face value $2,500,000) Common stock; par value $.01 per share 30,000,000 shares authorized; 14,282,989 shares issued and outstanding .................................... 143,000 Additional paid-in capital ................................... 12,102,000 Subscription receivable ...................................... (9,000) Unearned portion of compensatory options ..................... (24,000) Accumulated deficit .......................................... (7,342,000) ------------ 4,870,000 ------------ $ 5,356,000 ============ See notes to financial statements. F-4 AMERICAN BIO MEDICA CORPORATION Statements of Operations YEAR ENDED APRIL 30, ---------------------------- 1998 1997 ------------ ------------ Net sales ...................................... $ 2,154,000 $ 611,000 Cost of goods sold ............................. 1,051,000 260,000 ------------ ------------ Gross profit ................................... 1,103,000 351,00 ------------ ------------ Operating expenses: Selling, general and administrative ......... 2,739,000 868,000 Noncash compensation charges ................ 2,214,000 Depreciation and amortization ............... 101,000 96,000 Research and development .................... 150,000 75,000 Write-off of bad debts ...................... 380,000 ------------ ------------ 5,584,000 1,039,000 ------------ ------------ Operating loss ................................. (4,481,000) (688,000) ------------ ------------ Other income: Retirement of debt .......................... 127,000 Interest income ............................. 91,000 56,000 ------------ ------------ 91,000 183,000 ------------ ------------ Net loss ....................................... $ (4,390,000) $ (505,000) Adjustments: Preferred stock beneficial conversion feature (359,000) Preferred stock dividends ................... (45,000) ------------ Net loss attributable to common stockholders ... $ (4,794,000) ============ Basic and diluted loss per common share ........ $ (.35) $ (.04) ============ ============ Weighted average number of shares outstanding - basic and diluted .......................... 13,768,000 12,728,000 ============ ============ See notes to financial statements. F-5 AMERICAN BIO MEDICA CORPORATION Statements of Changes in Stockholders' Equity
UNEARNED PREFERRED ADDITIONAL COMPEN- STOCK COMMON STOCK PAID-IN SUBSCRIPTION SATORY SHARES SHARES AMOUNT CAPITAL RECEIVABLE OPTIONS ------------ ------------ -------------- ------------ ------------- ----------- Balance - April 30, 1996 ............. -- 11,977,357 $ 120,000 $ 2,636,000 -- -- Proceeds from exercise of warrants and options ............................. -- 872,445 9,000 2,258,000 -- -- Shares issued for conversion of debt . -- 200,666 2,000 148,000 -- -- Shares issued in private placement ... -- 100,000 1,000 49,000 -- -- Proceeds from private placement of Preferred "A" shares (net of costs of $90,000) ........... 150 -- -- 1,410,000 -- -- Preferred "A" shares converted to common shares ....................... (60) 229,039 2,000 (2,000) -- -- Net loss ............................. -- -- -- -- -- -- ------------ ----------- ------------ ------------ 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 shares ....................... (90) 404,034 4,000 (4,000) -- -- Proceeds from private placement of Preferred "B" shares (net of costs of $48,000) ........... 60 -- -- -- -- -- Preferred "B" shares converted to common shares ....................... (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 shares ....................... (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 -- $ (24,000) Net loss ............................. -- -- -- -- -- -- ------------ ------------ ------------ ------------ ---------- ------------ Balance - April 30, 1998 ............. 2,500 14,282,989 $ 143,000 $ 12,102,000 $ (9,000) $ (24,000) ============ ============ ============ ============ ========== ============
ACCUMULATED DEFICIT TOTAL ------------ ------------ Balance - April 30, 1996 ............. $ (2,402,000) $ 354,000 Proceeds from exercise of warrants and options ............................. -- 2,267,000 Shares issued for conversion of debt . -- 150,000 Shares issued in private placement ... -- 50,000 Proceeds from private placement of Preferred "A" shares (net of costs of $90,000) ........... -- 1,410,000 Preferred "A" shares converted to common shares ....................... -- -- Net loss ............................. (505,000) (505,000) ------------ ------------ 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 shares ....................... -- -- Proceeds from private placement of Preferred "B" shares (net of costs of $48,000) ........... -- 552,000 Preferred "B" shares converted to common shares ....................... -- -- 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 shares ....................... -- -- Stock dividend paid to holders of Preferred "C" shares ................ -- 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 ............................. (4,390,000) (4,390,000) ------------ ------------ Balance - April 30, 1998 ............. $ (7,342,000) $ 4,870,000 ============ ============ See notes to financial statements. F-6 AMERICAN BIO MEDICA CORPORATION Statements of Cash Flows YEAR ENDED APRIL 30, ---------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net loss ........................................ $(4,390,000) $ (505,000) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and depreciation ................ 101,000 96,000 Retirement of debt ........................... -- (127,000) Provision for bad debts ...................... 40,000 Issuance of compensatory stock options ....... 318,000 Issuance of compensatory stock ............... 1,896,000 Changes in: Loan receivable ............................. 102,000 (102,000) Accounts receivable ......................... (414,000) (303,000) Inventory ................................... (322,000) (646,000) Prepaid expenses and other current assets ... (20,000) (4,000) Other assets ................................ (8,000) Accounts payable and accrued expenses ....... 106,000 347,000 ----------- ----------- Net cash used in operating activities ...... (2,591,000) (1,244,000 ----------- ----------- Cash flows from investing activities Purchase of property, plant and equipment ...... (71,000) (115,000) Purchase of investments ........................ -- (1,053,000) Maturity of investments ........................ 1,053,000 -- Patent costs ................................... (8,000) Loans to officer ............................... (235,000) -- ----------- ----------- Net cash provided by (used in) investing activities ............. 747,000 (1,176,000) ----------- ----------- Cash flows from financing activities: Convertible debenture .......................... -- (132,000) Proceeds from private placements ............... 3,262,000 -- Proceeds from exercise of warrants and options . 309,000 3,878,000 Cash dividends paid ............................ (26,000) -- Purchase of Company's options .................. (225,000) -- ----------- ----------- Net cash provided by financing activities .... 3,320,000 3,746,000 ----------- ----------- Net increase in cash and cash equivalents ........ 1,476,000 1,326,000 Cash and cash equivalents - beginning of period .. 1,763,000 437,000 ----------- ----------- Cash and cash equivalents - end of period ........ $ 3,239,000 $ 1,763,000 =========== =========== Noncash activities: Stock dividends paid to holders of preferred stock ................... $ 19,000 -- Conversion of convertible debt into common stock ............................ -- $ 150,000 See notes to financial statements. F-7 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements April 30, 1998 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 acquiring, 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's products are manufactured and assembled by outside contract manufacturers. 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. [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] Patents and license agreements: Costs incurred to acquire exclusive licenses of patentable technology are capitalized and amortized over the shorter of a five year period or the term of the license. The portion of these amounts determined to be attributable to patents is amortized over their remaining lives and the remainder is amortized over the estimated period of benefit but not more than 40 years. [6] 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. [7] Research an development: Research and development costs are charged to operations when incurred. F-8 Note A - The Company and its Significant Accounting Policies (continued) [8] 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 and has retroactively applied the effects thereof for all periods presented. Accordingly, the presentation of per share information includes calculations of basic and dilutive loss per share. The impact on the per share amounts previously reported (primary and fully diluted) was not significant. The effects of potential common shares such as warrants, options, and convertible preferred stock has not been included, as the effect would be antidilutive. 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 should be accounted for as an embedded dividend to preferred shareholders. As such, the loss per common share was adjusted for this feature. [9] 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. [10] 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, 1998. 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. [11] Financial instruments: The carrying amounts of cash and cash equivalents, accounts receivable net, accounts payable and accrued expenses 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 judgment 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. [12] 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 F-9 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. Note A - The Company and its Significant Accounting Policies (continued) [13] Concentration of credit risk: The Company sells its 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. [14] Recent accounting pronouncements: The Financial Accounting Standards Board has recently issued statements of Financial Accounting Standards No.130, "Reporting Comprehensive Income," and No.131, "Disclosures about Segments of an Enterprise and Related Information," and No.132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The above pronouncements will not have a significant effect on the information presented in the financial statements. Note B - Investments The estimated fair value of available-for-sale investments at April 30, 1997 was $1,053,000 and consisted of certificate of deposits with maturities greater than three months. The estimated fair value of each investment was approximately equal to the amortized cost at April 30, 1997 and, therefore, there were no unrealized gains or losses, at that date. The Company did not hold any investments at April 30, 1998. Note C - Inventory Inventory is comprised of the following: Books held for resale ............................... $118,000 -------- Workplace drug screening tests: Raw materials .................................... 447,000 Work in process .................................. 148,000 Finished goods ................................... 278,000 -------- Total workplace drug screening tests ................ 873,000 -------- $991,000 ======== Note D - Plant and Equipment Plant and equipment, at cost, are summarized as follows: Office equipment .................................... $ 60,000 Manufacturing and warehouse equipment ............... 144,000 -------- 204,000 Less accumulated depreciation ....................... 57,000 -------- $147,000 ======== F-10 Note E - Due From Officer At April 30, 1998 the Company has a note receivable from an officer for $235,000. The note bears interest at 6% per annum and is payable on demand. Note F - Income Taxes At April 30, 1998 the Company has approximately $4,894,000 of net operating loss carryforwards expiring through 2013. At April 30, 1998 the Company has a deferred tax asset of approximately $1,883,000 representing the benefits of its net operating loss carryforward 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 $986,000 and $172,000 for the years ended April 30, 1998 and 1997, respectively. The Company's ability to utilize its net operating loss carryforwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. Note G - 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 8% Convertible Series A Preferred Shares for $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 60.8% Series B Convertible Preferred Shares and 45.5 Shares of Series C Convertible Preferred Shares for $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. F-11 Note G - Stockholders' Equity (continued) [1] Preferred stock: (continued) 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 8% Series D Convertible Preferred Shares for $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. [2] Stock option plans: The Company adopted the Fiscal 1997 Nonstatutory Stock Option Plan (the "1997 Plan") and the Fiscal 1998 Nonstatutory 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 determine 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. Under the agreement the Company granted under Regulation D of the Securities Act of 1933, to the public relations firm the right to receive 100,000 common shares at a value of $0.65 per share for a total consideration of $65,000 in lieu of an initial payment, monthly retainers or expense reimbursement, including communications and mailing for a period of one year. In addition, the Company granted 550,000 common shares valued at $0.325 per share representing one-half the market price of the common shares at March 14, 1996, the date of the contract. The valuation reflected the receipt of unregistered common shares and the market risk of the holding period until they may be sold publicly. Of the 550,000 shares, 50,000 shares were allocated to expense reimbursement and 500,000 shares allocated to public relations consulting. 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. The remaining 850,000 options cannot be exercised until a registration statement relating to the common shares underlying the options is effective. F-12 Note G - Stockholders' Equity (continued) [4] Stock options: Stock option activity is summarized as follows: YEAR ENDED APRIL 30, --------------------------------------------------- 1998 1997 WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ---------- ---------- --------- ---------- Options outstanding at beginning of year ... 2,174,000 $ 2.31 1,000,000 $ 1.50 Granted .................. 567,000 $ 3.25 1,802,000 $ 3.00 Exercised ................ (81,000) $ 3.00 (628,000) $ 3.00 Canceled ................. (150,000) $ 1.50 ---------- --------- Options outstanding at end of year ......... 2,510,000 $ 2.55 2,174,000 $ 2.31 ========== ========== Options exercisable at end of year ......... 1,439,000 $ 3.05 1,123,000 $ 3.00 ========== ========== The following table presents information relating to stock options outstanding at April 30, 1998. OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE RANGE OF EXERCISE REMAINING EXERCISE EXERCISE PRICE SHARES PRICE LIFE IN YEAR SHARES PRICE -------------- ------ -------- ------------ ------- -------- $1.00 - $2.00 850,000 $1.50 .87 .0 $ 0 $3.00 - $4.00 1,660,000 $3.09 1.76 1,439,000 $3.05 --------- --------- 2,510,000 $2.55 1.46 1,439,000 $3.05 ========= ========= As of April 30, 1998 48,000 options are available for future grant under the 1997 Plan, 583,000 options are available for future grant under the 1998 Plan. [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 commission. 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 option-pricing model using the following assumptions: dividend yield 0%; volatility of 59%, risk free rate of 5.61% and expected life of three years. F-13 Note G - Stockholders' Equity (continued) [6] Stock-based compensation: The Company applies APB No. 25 in accounting for its stock option plans and, accordingly, recognizes 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 average fair value of options granted during the year was approximately $1.78. 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%, risk free interest rates of ranging from 5.38% - 6.40% and expected life of 3 years. Net loss: As reported $ (4,390,000) Pro forma (4,755,000) Basic and diluted loss per share: As reported ($0.35) Pro forma ($0.37) 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 one-time noncash 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 noncash charge was recorded. Note H - 12% Convertible Subordinated Debentures During the year ended April 30, 1997 the Company converted $150,000 of convertible debentures into 200,666 shares of common stock. 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-14 Note J - Secured Loan On March 9, 1990, the Company entered into a security agreement with a finance company to borrow money secured by the Company's receivables evidenced by invoices. At the time, the Company was engaged in selling educational books to municipal school districts and public libraries throughout the United States. The finance company agreed to lend an amount equal to 60% of the net value of all the Company's accounts receivable. Accounts receivable funding ceased as of July 31, 1990. The Company instituted a lawsuit against the finance company on November 26, 1990 for damages due to its failure to lend to the 60% credit limit based on its calculations and for forgiveness of the loan based on the finance company's charging, based on its own billings, at an interest rate in excess of the rate of 25% per annum as prescribed in the sections dealing with usury in New York Penal State Law. Although company counsel had opined that the Company would prevail in the action and that all indebtedness incurred in the principal amount $126,500 plus interest and fees would be voided by reason of the finance company's violation of the usury provisions of the Penal Law, by agreement between the Company and the finance company, the lawsuit was withdrawn without prejudice as the Company, at that time, lacked the resources for protracted litigation. In April 1996, the obligation, if any, to the finance company became barred by New York State's six-year statute of limitations. The Company wrote off the obligation during the second quarter of fiscal 1997. Note K - Commitments and Contingencies [1] Operating leases: The Company leases office and warehouse facilities under an operating lease expiring in March 2000. At April 30, 1998, the future minimum rental payments under the operating lease are as follows: 1999 $ 46,000 2000 55,000 ------------ $ 101,000 ============ Rent expense was $37,000 and $13,000 for the years ended April 30, 1998 and 1997, respectively. [2] Employment agreements: On November 3, 1995, the Company entered into a three year employment agreement with its President. Under the agreement, the President received an annual salary of $36,000 per year until April 30, 1996 and $60,000 thereafter. The base annual salary was increased to $72,000 when the Company generated aggregate gross revenues from the sale of biomedical products of $500,000. On November 3, 1995, the Company entered into a three year employment agreement with its Executive Vice-President. The agreement provided for an annual salary of $24,000 until April 30, 1996 and $48,000 thereafter. The base annual salary was increased to $60,000 when the Company generated aggregate gross revenues from the sale of biomedical products of $500,000. F-15 Note K - Commitments and Contingencies (continued) [2] Employment agreements: (continued) On November 3, 1995 the Company entered into a three year employment agreement with its Vice-President of Marketing. Under the agreement the Vice-President received an annual salary of $24,000 until April 30, 1996 and $48,000 thereafter. The base annual salary was increased to $60,000 when the Company generated aggregate gross revenues from the sale of biomedical products of $500,000. In consideration of past services valued at $125,000 or $0.25 per share the Vice-President received the right to receive 500,000 common shares. Upon execution of the 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 graduated rates at specified levels of gross revenues in the aggregate as follows: 6% of gross revenues of the Company of $1,000,000 per fiscal year until such revenues reach $3,000,000, 4.5% of gross revenues between $3,000,000 and $5,000,000 per year and 3% thereafter. 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 year ended April 30, 1998 the Company recorded approximately $80,000 in bonuses based on revenue in accordance with employment agreements. F-16 Note K - Commitments and Contingencies (continued) [3] Litigation In February 1994, Robert Freidenberg, as owner of the two medical technology companies, MDI and Gendex, acquired by the Company, in the name of these corporations, filed suit to have a Share Exchange Agreement rescinded on the grounds of breach of contract. In order to preserve a claim for damages, the Company filed a third-party claim against Dr. Freidenberg, for breach of the Share Exchange Agreement. In November 1995, after a trial, the court dismissed Dr. Friedenberg's lawsuit and allowed the Company's third-party claim to proceed to trial.In September, 1996, Dr. Friedenberg died. A pretrail hearing was held in December 1996 which set a trial date of April 28, 1997. That trial was decided by a jury on May 5, 1997. The verdict determined that Dr. Friedenberg breached various contracts, including the Share Exchange Agreement, when he failed to deliver technology to the Company. The jury also found in favor of the Company on two of the 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's stock which he would have received under the Share Exchange Agreement which the trial judge took under advisement. 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. Management of the Company 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. In June 1995, the Company filed a lawsuit against Mr. Morris, Dr. Friedenberg's counsel, for the breach of attorney-client relationship and his fiduciary duty and negligence in representing the Company in matters relating to Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The Company's lawsuit demands damages in the amount of $1,000,000. Mr. Morris has counterclaimed for common shares. No trial date has been set. The Company is vigorously contesting the Morris claim. Note L - Reclassification Certain amounts at April 30, 1997 have been reclassified to conform to the current year presentation. F-17 Note M - Condensed Restated quarterly financial Information (Unaudited) The Company is recording adjustments which effect prior interim accounting periods of the fiscal year ended April 30, 1998 as indicated below.
THREE MONTHS ENDED JULY 31,1997 ---------------------------------------- ADJUSTMENTS ----------------------------------------------------------- AS BOOK COMPEN- GROSS PROFIT AS REPORTED SALES (1) SATION (2) PERCENTAGE (3) OTHER ADJUSTED --------------------------------------------------------- --------------------------- Revenues ............ 817,000 (79,000) -- -- (4) (72,000) 666,000 -- -- -- -- (4) (32,000) -- -- -- -- -- (5) (53,000) -- Cost Of Sales ....... 356,000 (12,000) 117,000 (6) (7,000) 369,000 ---------- ---------- Gross Profit ........ 461,000 -- -- -- 297,000 ---------- ---------- Selling, General & Administrative Expenses ............ 414,000 -- 622,000 (5) 53,000 -- -- -- -- -- (6) 6,000 1,095,000 ---------- ---------- Income (Loss) from operations .......... 47,000 -- -- -- -- (798,000) ========== ========== Net Income (Loss) per share ............... 0.01 -- -- -- -- (0.06) ========== ========== THREE MONTHS ENDED OCTOBER 31,1997 ------------------------------------ ADJUSTMENTS ------------------------------------------------ AS BOOK COMPEN- GROSS PROFIT AS REPORTED SALES (1) SATION (2) PERCENTAGE (3) OTHER ADJUSTED ----------------------------------------------------- --------------------------- Revenues ............... 457,000 (97,000) -- -- (4) (1,000) 359,000 -- -- -- -- (5)(58,000) -- Cost Of Sales .......... 145,000 (15,000) -- 58,000 (6) (6,000) 124,000 --------- -------- Gross Profit ........... 312,000 -- -- -- -- 235,000 --------- -------- -- -- -- -- (5) 58,000 -- (7) 53,000 -- (8) 18,000 -- Selling, General & (9) 17,000 Administrative Expenses ............... 425,000 -- 46,000 -- (6) 3,000 620,000 --------- -------- Loss from operations ... (113,000) -- -- -- -- (385,000) ========= ======== Net Loss per share ... (0.01) -- -- -- -- (0.03) ========= ========
F-18
SIX MONTHS ENDED OCTOBER 31,1997 ------------------------------------ ADJUSTMENTS ------------------------------------------------ AS BOOK COMPEN- GROSS PROFIT AS REPORTED SALES (1) SATION (2) PERCENTAGE (3) OTHER ADJUSTED ----------------------------------------------------- ------------------------- Revenues ............... 1,274,000 (176,000) -- -- 73,000 1,025,000 Cost Of Sales .......... 501,000 (27,000) -- 175,000 (156,000) 493,000 --------- --------- Gross Profit ........... 773,000 -- -- -- -- 532,000 --------- --------- Selling, General & Administrative Expenses ............... 839,000 -- 668,000 -- 208,000 1,715,000 --------- --------- Loss from operations ... (66,000) -- -- -- -- (1,183,000) ========= ========= Net Loss per share ... (0.00) -- -- -- -- (0.09) ========= ========= THREE MONTHS ENDED JANUARY 31,1998 ------------------------------------ ADJUSTMENTS ------------------------------------------------ AS BOOK COMPEN- GROSS PROFIT AS REPORTED SALES (1) SATION (2) PERCENTAGE (3) OTHER ADJUSTED ----------------------------------------------------- ------------------------- Revenues ............... 500,000 (120,000) -- -- -- 380,000 Cost Of Sales .......... 174,000 (18,000) -- 66,000 (5) (51,000) 171,000 --------- --------- Gross Profit ........... 326,000 -- -- -- -- 209,000 --------- --------- -- -- -- -- (5) 51,000 -- -- -- -- -- (7) 69,000 -- -- -- -- -- (8) 25,000 -- -- -- -- -- (9) 17,000 -- -- -- -- -- (10)(48,000) -- Selling, General & -- -- -- -- (11) 20,000 -- Administrative 959,000 -- 54,000 -- (6) 3,000 1,150,000 Expenses ............... 48,000 -- -- -- (10) 48,000 96,000 --------- --------- Loss from operations ... (681,000) -- -- -- -- (1,037,000) ========= ========= Net Loss per share ... (0.05) -- -- -- -- (0.07) ========= =========
NINE MONTHS ENDED JANUARY 31,1998 ------------------------------------ ADJUSTMENTS ------------------------------------------------ AS BOOK COMPEN- GROSS PROFIT AS REPORTED SALES (1) SATION (2) PERCENTAGE (3) OTHER ADJUSTED ----------------------------------------------------- --------------------------- Revenues ............... 1,774,000 (296,000) -- -- (73,000) 1,405,000 Cost Of Sales .......... 675,000 (45,000) -- 241,000 (207,000) 664,000 --------- --------- Gross Profit ........... 1,099,000 -- -- -- -- 741,000 --------- --------- Selling, General & Administrative 1,798,000 -- 722,000 -- 345,000 2,865,000 Expenses ............... 48,000 -- -- -- 48,000 96,000 --------- --------- Loss from operations ... (747,000) -- -- -- -- (2,220,000) ========= ========= Net Loss per share ... (0.05) -- -- -- -- (0.16) ========= =========
The following explains the principal adjustments: (1) A revenue recognition adjustment to provide an allowance for book sales which are subject to customer acceptance and its related effect on cost of sales. (2) Adjustments to recognize non-cash employee and consulting compensation charges in the period earned. The expenses represent the issuance of equity instruments at fair value in accordance with employment agreements. (see note K [2] ) (3) The gross profit percentages have been recalculated to correspond with inventory adjustments, drug test samples and the timing of revenue recognition. (4) Adjustment to reverse consignment sale of drug test kits and related cost of sales. (5) Reclassification of drug test samples from cost of sales to Selling Expense. (6) Other minor adjustments (7) Write-off of investor relations supplies and expense (8) Earned employee bonuses (9) Allocation of bad debt accrual (10) Reclassification of research & development costs (11) Write-off of patent & license costs F-20 EX-27 2
5 FINANCIAL DATA SCHEDULE FOR 10KSBA - 04-30-98 FOR AMERICAN BIO MEDICA CORPORATION 12-MOS APR-30-1998 APR-30-1998 3,239,000 0 752,000 (40,000) 991,000 4,966,000 205,000 (58,000) 5,356,000 486,000 0 0 0 143,000 4,727,000 5,356,000 2,154,000 2,245,000 1,051,000 5,584,000 0 0 0 (4,390,000) 0 (4,390,000) 0 0 0 (4,390,000) (0.35) (0.35)
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