-----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, SnAXIlgvv2bMhk6TVYEtsqKiKUUoYOMg3QzaRXqPlTWkOIbm8VeOA+jNMbnjliOv s/HZz9r5xMt/1OGT/iZyrQ== 0000950116-02-001277.txt : 20020606 0000950116-02-001277.hdr.sgml : 20020606 20020603172214 ACCESSION NUMBER: 0000950116-02-001277 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BIO MEDICA CORP CENTRAL INDEX KEY: 0000896747 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 141702188 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28666 FILM NUMBER: 02669161 BUSINESS ADDRESS: STREET 1: 122 SMITH ROAD CITY: KINDERHOOK STATE: NY ZIP: 12106 BUSINESS PHONE: 8002271243 MAIL ADDRESS: STREET 1: 122 SMITH ROAD CITY: KINDERHOOK STATE: NY ZIP: 12106 10KSB/A 1 tenksb_a.txt FORM 10KSB/A FORM 10-KSB/A-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended _________________________________ [X] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from May 01, 2001 to December 31, 2001 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) 122 Smith Road 12106 Kinderhook, New York 12106 (Zip Code) (Address of principal executive offices) Issuer's telephone number (800) 227-1243 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Shares, $0.01 Par value Title of each class 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 there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B 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. [X] State issuer's revenues for its most recent fiscal year: $4,055,000 The aggregate market value of 15,339,943 voting Common Shares held by non-affiliates of the issuer was approximately $13,154,000 based on the average bid and asked prices of the issuer's Common Shares, $.01 par value, as reported on the Nasdaq SmallCap Market on April 9, 2002. As of April 9, 2002, the issuer had outstanding 20,609,548 Common Shares, $.01 par value. Documents Incorporated by reference: (1) The Proxy Statement for the Annual Meeting of Shareholders for the Transition Period ending December 31, 2001 in Part III of this Form 10-KSB (2) Other documents incorporated by reference on this report are listed in the Exhibit Reference Table Transition Small Business Disclosure Format: [ ] YES [X] NO American Bio Medica Corporation Index to Transition Report on Form 10-KSB For the eight months ended December 31, 2001
PAGE ---- PART I. Item 1. Description of Business 1 Item 2. Description of Property 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for Common Equity and Related Shareholder 17 Matters Item 6. Management's Discussion and Analysis or Plan of 17 Operations Item 7. Financial Statements 23 Item 8. Changes In and Disagreements With Accountants on 23 Accounting and Financial Disclosure PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; 23 Compliance with Section 16(a) of the Exchange Act Item 10. Executive Compensation 23 Item 11. Security Ownership of Certain Beneficial Owners and 23 Management Item 12. Certain Relationships and Related Transactions 23 Item 13. Exhibits and Reports on Form 8-K 24 Signatures S-1
This Form 10-KSB may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-KSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology is intended to identify forward-looking statements. It is important to note that our actual results could differ materially from those anticipated from the forward-looking statements depending on various important factors. These important factors include our history of losses and ability to continue as a going concern, the uncertainty of acceptance of current and new products in our markets, competition in our markets, our dependence on our distributors and the other factors discussed in our "Risk Factors" found on Page 9. PART I ITEM 1. DESCRIPTION OF BUSINESS Business Development Our Company was incorporated on April 2, 1986 under the laws of the State of New York under the name American Micro Media, Inc. On September 9, 1992, we filed an amendment to our Articles of Incorporation to change our name to American Bio Medica Corporation. Our principal business office is located at 122 Smith Road, Kinderhook, New York, 12106. We also have a laboratory facility in Bridgeport, New Jersey. In November 2001, we purchased our facility located in Kinderhook, New York from Avoba, Inc. for $950,000. Included in the purchase were the facility, its contents and 107 acres of land surrounding the facility. Our Business We develop, manufacture and market biomedical technologies and products intended for the immediate, onsite screening for drugs of abuse. Our products offer health care, law enforcement, government, industrial safety and educational professionals, self-contained, one-step screening devices capable of identifying illicit drug use within minutes. Our long-term objective is to provide an extensive product portfolio to the expanding $6 billion immunoassay market. Our Products Rapid Drug Screen(R): We manufacture the Rapid Drug Screen, or RDS(TM), a patented, rapid, onsite, test kit that detects the presence or absence of drugs of abuse in a urine specimen. We market the RDS as easy to-use, cost-effective and highly reliable. Controlled tests conducted by an independent laboratory, American Medical Laboratories, compared the Rapid Drug Screen with results produced by EMIT II, an enzyme immunoassay laboratory test, and found greater than 99% correlation of results. We produce several versions (panels) of the Rapid Drug Screen. Each panel screens for a specified number of drugs (up to 10 classes of drugs) simultaneously. We can also custom produce panels for the screening of any quantity or combination of the following classes of drugs: cocaine, THC (marijuana), opiates, amphetamine, PCP, benzodiazepines, methamphetamines, barbiturates, tricyclic antidepressants and methadone. To use our Rapid Drug Screen product, an individual slides a panel into a self-contained, disposable, urine-filled cup and within minutes accurate results are shown on the panel. A single line in the test area indicates a positive reading, and a double line indicates a negative reading for the presence of drugs. We believe that this ease of use is a competitive advantage over lab products, as well as products that need to add reagents, manipulate the test or utilize trained professionals to understand results. One of the problems that may occur in onsite 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 our urine drug screens contains a temperature sensor, which helps prevent the substitution of another urine sample. A substituted sample would normally be of a lower temperature than a sample produced from the body on the spot. In addition, both our urine and saliva-based drug screens contain 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 sample. A positive result is normally confirmed by laboratory testing. 1 Our Rapid Drug Screen is currently marketed in the following standard configurations: two different 2-panel tests, three different 3-panel tests, two different 4-panel tests, two different 5-panel tests, one 8-panel test and one 9-panel test. We can also produce, on special order, or if a market demands, tests that can screen for any quantity (from two - ten) or configuration of classes of drugs. These standard configurations are: o Two panel tests, designed for the criminal justice and education markets that screen for cocaine and THC or methamphetamines and THC. o Three panel tests, designed for various non-clinical markets, that screen for THC, cocaine and opiates; THC, cocaine and amphetamines; or THC, cocaine and methamphetamines. o Four panel tests, designed for various non-clinical markets, including corporate/workplace and the criminal justice markets, that screen for cocaine, THC, opiates and alternatively amphetamines and methamphetamines. o Five panel tests, designed for the corporate/workplace market, that screen for the "SAMHSA 5" (SAMHSA stands for the Substance Abuse and Mental Health Services Administration): cocaine, THC, opiates, PCP and amphetamine and an additional version of this test with methamphetamines replacing PCP. o An eight panel test, designed for the clinical market, primarily for hospitals and physicians, that screens for the "SAMHSA 5" (listed above), plus benzodiazepines, methamphetamines and barbiturates. o A nine panel test, also designed for the clinical market, that screens for drugs of abuse from the eight panel test, as well as tricyclic antidepressants (TCA). Rapid One(TM): We manufacture the Rapid One product line which consists of 12 single drug tests, each of which screens for the presence or absence of drugs of abuse in a urine specimen. The Rapid One product line utilizes the same technology as the Rapid Drug Screen. It includes a single dip platform, an identification and date area, and does not require the use of pipettes or reagents. The Rapid One is designed for correctional facilities and other markets where the person subject to substance abuse testing is known to use a specific drug. It can also be used to enhance a Rapid Drug Screen by means of allowing screening of an additional drug. The Rapid One product line originally consisted of the following 10 classes of drugs: cocaine, THC (marijuana), opiates, amphetamine, PCP, benzodiazepines, methamphetamines, barbiturates, tricyclic antidepressants and methadone. In August 2001, we announced the completion of development of our Rapid One test that detects Oxycodone. Oxycodone is a synthetic opiate that is found in several legitimate and effective anti-pain medications, including OxyContin(R). Initial orders of the Rapid One test for Oxycodone have been from law enforcement programs. Drug abusers often chew tablets, crush tablets into powder for snorting, or dissolve crushed powder in water for intravenous injection to create a powerful heroin-like high. In March 2002, we received 510(k) clearance for our Rapid One test that detects Oxycodone from the U.S Food and Drug Administration ("FDA"). (For more information on 510(k) clearance, see "Government Regulations" found on Page 8.) 510(k) clearance allows the product to be sold in the clinical markets. 2 In December 2001, we received 510(k) clearance from the FDA for our Rapid One test that detects the illegal designer drug MDMA (Ecstasy). Rapid Tec(TM): In August 2001, we launched a new version of the Rapid One called the Rapid Tec, in which one individual drug testing strip would include the chemistry to detect more than one class of drug. The Rapid Tec is designed for those customers who require a less expensive product but still need to test for more than one drug of abuse utilizing one urine sample. The Company began shipping three versions of the Rapid Tec in March 2002. Those three versions are: o Rapid Tec-2: screens for THC and cocaine o Rapid Tec-3: screens for THC, cocaine and methamphetamines o Rapid Tec-4: screens for THC, cocaine, methamphetamines and opiates An additional version, the Rapid Tec-5, that will screen for THC, cocaine, methamphetamines, opiates and amphetamines, is expected to be available for shipping in June 2002. Rapid Drug Screen Scan-R(TM): In August 2001, we launched a software system that provides a rapid, clear and convenient method to document onsite drug screening results. The patent pending system allows the operator to combine the scanned image of the Rapid Drug Screen test card with recording of the actual test score on one result form. The simple easy-to-use software automatically saves the document in a user definable format. The document, complete with the image of the Rapid Drug Screen test card, can be saved, printed or emailed for permanent documentation of the screening results. We believe that the Rapid Drug Screen Scan-R greatly improves testing efficiency, improves chain of custody issues for legal defensibility and optimizes protocol proficiency. It also creates a database of results for future access and retrieval. Rapid Drug Screen OralStat6(TM): In August 2001, we signed a licensing agreement with ANSYS Technologies, Inc., to market an onsite saliva-based test for drugs of abuse. The licensing agreement allows us to market this product to the criminal justice, workplace and drug treatment sectors. We have trademarked this saliva-based product the "Rapid Drug Screen OralStat6." The OralStat6 can simultaneously test for six classes of drugs: THC, opiates, cocaine, PCP, amphetamines and methamphetamines. Utilizing a simple saliva sample, it delivers easy-to-read positive or negative results within 10-15 minutes. The test requires no reader and no messy saliva collection or handling. Pending submission for FDA 510(k) clearance, the product is labeled and made available "for forensic use only", which means for use in legal determinations only; it is not intended or promoted for a health or medical use or purpose. Drug Detector(TM): In January 2000, we licensed the right to distribute and market a patented residue and/or trace drug detection system in select markets in North and South America for a period of five years from Mistral Security, Inc. We have adopted the trademark "Drug Detector" for this product. The Drug Detector tests surfaces for the presence or absence of residue from marijuana, cocaine, heroin or methamphetamines without the need for urine, hair or saliva samples. The Drug Detector consists of an aerosol spray for a specified drug, special collection papers and instructions. 3 These Drug Detector tests can be performed without the knowledge of the suspected drug abuser. As a result, this significantly reduces the likelihood of any confrontation with a suspected drug abuser. To perform the test, the tester simply needs to wipe the suspected surface area with the special collection paper and spray the collection paper with the aerosol can. Within seconds, a color change will occur if the presence of the drug is detected. No color change will occur if the drug is not detected. The Company believes that the ability to anonymously test for drugs greatly increases this product's chances for market acceptance. We are currently marketing a retail (over-the-counter) version that can perform ten tests. In April 2001, Eckerd drug stores began selling the Drug Detector in its retail outlets in the United States. There is no minimum required purchase of Drug Detector by Eckerd. The Drug Detector for crack/cocaine and the Drug Detector for marijuana are the two versions currently being offered for sale by Eckerd. The remaining two Drug Detector tests may be available for over-the-counter sale at a later date. Our Markets Corporate/Workplace We have developed a nationwide network of distributors and administrators of workplace drug testing programs to sell our Rapid Drug Screen and Rapid One product lines. Our direct sales team also sells in this market to key customers and coordinates all sales efforts in this market. We believe that the market for utilization of onsite drug screens for pre-employment and random/employee testing is expanding. o In September 2001, the Office of National Drug Control Policy (the "ONDCP") reported that between 1992 and 1998, the overall cost of drug abuse to society increased at a rate of 5.9% annually. By 1998, the societal cost of drug abuse was $143.4 billion. Furthermore, the ONDCP projected that by the year 2000, the societal cost of drug abuse would be $160.7 million. o According to the 2000 SAMHSA National Household Survey on Drug Abuse, 77% of adults who use illegal drugs are employed. o According to the U.S. Chamber of Commerce, drug users are 2.5 times more likely to have absences of 8 or more days and health benefit utilization is 300% higher among drug users. o According to the Employee Assistance Society of America, 47% of workplace accidents are drug-related. o According to the U.S. Department of Justice-Drug Enforcement Agency drug users are 5 times more likely to file a workman's compensation claim. o The Hazelden Foundation conducted a national survey and found more than 60% of adults know people who have gone to work under the influence of drugs or alcohol. According to the American Management Association ("AMA"), drug testing is performed by 67% of major U.S. firms. For the reasons, stated above, not only are there financial benefits of drug testing, but a drug-free environment is a safer one. Incentives encourage employers to adopt Drug Free Workplace Programs. Drug testing is an integral part of a Drug Free Workplace Program. In some states, there are workman's compensation and unemployment insurance premium reductions, tax deductions and other incentives for adopting these programs. The Drug Free Workplace Act requires employers receiving federal contracts of $100,000 or more to enact a Drug Free Workplace program (the Federal Acquisition Streamlining Act of 1994 (FASA) raised the threshold of contracts covered by the Drug Free Workplace Act from $25,000 to those exceeding $100,000). 4 Government, Corrections and Law Enforcement We utilize our network of distributors and our direct sales team to sell our products in this market. This market includes federal, state and county level agencies, including correctional facilities, pretrial agencies, probation, drug courts and parole departments at the federal and state levels and juvenile correctional facilities. According to the Bureau of Justice, as of December 31, 2000, there were more than 2 million inmates nationally: 1.38 million in state and federal prisons and 621,000 in local jails. As of October 2001, over 55.5% of inmates in federal prisons were sentenced as drug offenders according to the Federal Bureau of Prisons. According to the Bureau of Justice Statistics ("BOJ"), 33% of inmates in state and 22% of inmates in federal prisons admitted they had committed their crime while under the influence of drugs. According to the BOJ, in local jails, 36% of inmates admitted to committing their crime while under the influence. The BOJ also reported that as of December 31, 2000, approximately 3,839,500 adults were under federal, state or local jurisdiction on probation, and about 725,500 were on parole. Almost all persons on parole or probation have one or more conditions to their sentence required by the court or probation agency including periodic drug testing and substance abuse treatment. Our products are aimed at this and other similar markets. Rehabilitation Centers We utilize our network of distributors and our direct sales team to sell our products in this market. This market for our products includes people in treatment for substance abuse. There is a high frequency of testing in this market. 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. International Markets We sell our products primarily through distributors in this market. We have entered into distribution agreements with companies in several countries and are pursuing a course of multinational distribution of our products through both clinical and non-clinical distribution companies. As of February 2002, we had 18 distributors in 27 countries outside the United States. We also sell our products directly in 4 additional countries. Clinics, Physicians, and Hospitals This market includes emergency rooms, physician offices, hospitals and clinics and rehabilitation facilities associated with hospitals. In their latest report, March 2001, the Drug Abuse Warning Network estimated that in the year 2000, there were approximately 1.1 million episodes in emergency departments in the United States in which drugs were mentioned. Our Rapid Drug Screen nine panel test is used in this market as it provides fast and accurate results when time is critical. We are negotiating an exclusive distribution agreement with a multi-national diagnostics company focused on the clinical point of care market. Consumer/Over-the-Counter The Drug Detector is currently being sold in Eckerd drug store's retail outlets in the United States. There is no minimum required purchase of Drug Detector by Eckerd. We believe that the Drug Detector can be used by persons who are concerned about the welfare of someone they think is abusing drugs. The Drug Detector allows surfaces to be tested for drug residue outside the presence of the suspected person greatly reducing the chances of confrontation with the suspected drug abuser. 5 Educational Market According to the 2001 University of Michigan Monitoring the Future study, 11.7% of 8th graders, 22.7% of 10th graders and 25.7% of 12th graders had used an illicit drug within the prior 30 days of being interviewed for the study. Furthermore, over half (54%) of young people have tried an illicit drug by the time they finish high school. We believe our products could be an integral part of helping schools test due to their ease of use and immediate, accurate results. Additional Markets We believe that the Department of Transportation ("DOT") and the federally regulated markets could be a future market for our products. Presently, the DOT market is not available to any onsite drug of abuse testing device. Federal law requires that anyone with a commercial driving license be randomly tested for use of drugs of abuse and that certified laboratories be used in these testing situations. We believe that there is potential for growth in this market as the regulatory agencies are considering implementing new guidelines that will permit the use of onsite drug testing devices. Product Distribution We have a two-pronged distribution strategy that focuses both on growing business through our valued third party distribution partners and targeting key customers on a direct basis. Through the transition period ending December 31, 2001, we sold our products through third party distribution channels whose ultimate customers are the corporate/workplace, government, corrections and law enforcement agency markets, and directly through a staff of highly experienced and well-trained sales executives with drugs of abuse testing expertise. Our direct sales force consists of a National Sales Director, a Director of Key Accounts and four Directors of Business Development in addition to a staff of inside sales representatives. They call on non-clinical accounts directly and support our worldwide distribution network. We intend to promote our products through direct mail campaigns, selected advertising, participation at high profile trade shows, use of key onsite advocate consultants and other marketing activities. We have entered into national and international non-exclusive, non-clinical market distribution agreements with a number of distributors. These agreements permit our distributors to sell non-competitive products of other manufacturers and permit us to sell our test kits to other distributors within and outside the territory of each distributor. The agreements are cancelable by either us or the distributor upon 30 days written notice. We will continue to recruit and utilize third party distribution partners for select markets, including corporate/workplace, government/corrections/law enforcement, international and education, in addition to selling directly in these markets and to key customers. We intend to enter into a distribution agreement with a multi-national diagnostics company for sales to the clinical market. Competition Competition to our onsite urine-based products comes from onsite tests developed by companies including, but not limited to, Roche Diagnostics, Medtox Scientific, Inc. and Biosite Diagnostics. These and other competitors have longer operating histories than we do and significantly greater financial, technical and marketing resources than us. Currently the pricing of our products are cost competitive, however, these competitors can devote substantially more resources than we can to business development and may adopt more aggressive pricing policies. 6 We compete on the following factors: o effectiveness of pricing; o quality of product; o ease and user-friendliness of services; and o timeliness of product delivery. Competitors' onsite urine tests generally use a collection or delivery method different than our onsite urine tests. Our products do not require pipetting of the specimen, adding or mixing of reagents or other manipulation of the device by the user. Also, many of our competitors have products, which combine the testing mechanism with the collection device, which increases the potential of tampering with the testing mechanism by the person being tested. With our products, the testing mechanism is not given to the person being tested, but is held by the test administrator. Aside from onsite urine tests offering immediate results, some of our competitors offer 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, are also available. These forms of drug testing are more expensive and take longer to produce results than our products. Other competitors to our onsite urine tests are onsite tests with platforms utilizing saliva instead of urine. Saliva-based drug tests have limitations relative to detection time, generally detecting traces of drugs of abuse in a 3 to 18 hour window compared to one to three days for urine-based testing. However, this shorter window of detection can be useful in some market segments, such as post-accident testing in the workplace. In August 2001, we signed a licensing agreement with ANSYS Technologies, Inc., to market an onsite saliva-based test for drugs of abuse. Some of our competitors in the saliva-based testing market have been promoting their products longer and therefore, have more experience in marketing saliva-based products to the appropriate segment(s). Manufacturing In September 1999, we moved into a 30,000 square foot facility in Kinderhook, New York, which houses assembly and packaging of our products in addition to administration. We continue to contract-out the printing and manufacture of specimen cup components of the Rapid Drug Screen. We do not manufacture the Drug Detector or OralStat6 components. We lease a 9,138 square foot R&D and production laboratory facility in Bridgeport, New Jersey that houses research and development and bulk strip manufacturing. Our present manufacturing equipment is sufficient to produce 200,000 drug test kits per month, assuming one shift per day, five days per week. In the transition period ending December 31, 2001, we sold approximately 819,200 test kits. Our facilities in Kinderhook, New York and Bridgeport, New Jersey would allow us to increase our production capacity if additional personnel are hired and more equipment is installed. We could further increase capacity with additional shifts. We expect to add additional assembly/packaging personnel and/or equipment when production needs of our products increases. (See Item 2. Description of Property). 7 We currently have approximately fifty suppliers who provide us with the raw materials necessary to manufacture our drug testing strips and Rapid Drug Screen kit. (See Risk Factors beginning on Page 9.) Patents and Trademarks/Licenses To date, we have been granted eleven patents related to the Rapid Drug Screen and/or Rapid One product lines, including four U.S. design patents and a utility patent. We currently have an additional 7 United States patent applications, and 8 foreign patent applications pending. We have registered "ABM" and its logo in the United States, Canada, Chile, Mexico and Europe. We have registered the "Rapid Drug Screen" trademark in the United States, Mexico, Canada, Europe and Russia. We have additional trademark applications pending in the United States. There can be no assurance that the additional patents and/or trademarks will be granted or that, if granted, they will withstand challenge. (See "Risk Factors - Patents and Trademarks" on page 12). We have licensing agreements with Mistral Security for the Drug Detector and ANSYS Technologies, Inc., for the OralStat6. The licensing agreements with Mistral allows us to market and distribute the Drug Detector to select markets, including over-the-counter, in North and South America. The licensing agreement with ANSYS Technologies, Inc. allows us to market the OralStat6 to the criminal justice, workplace and drug treatment sectors. In connection with the settlement of a patent infringement suit we filed against numerous parties in April 2001, we have a licensing and royalty agreement with Phamatech, Inc., under which we were paid a licensing fee and will continue to be paid a percentage of revenues of versions of the Phamatech product that infringe on our Rapid Drug Screen. Research and Development We currently manufacture all of our individual drug testing strips. Our Research and Development, or R&D, efforts have been focused on enhancing and/or maintaining the performance and reliability of our drug testing strips. In addition, this fiscal year, our R&D team developed the Rapid One tests for Oxycodone and MDMA (Ecstasy). The R&D team also developed the first three versions of the Rapid Tec, and are currently developing the fourth version. The R&D team continues to consider the potential of a "CLUB-DRUG" panel that could be a useful tool against the latest drugs of choice, such as Rohypnol, Ecstasy, Ketamine, Ritalin, GHB and Methamphetamines. Our R&D expenditures were $289,000 for the transition period ending December 31, 2001 and $361,000 for the eight months ended December 31, 2000. Government Regulations The development, testing, manufacture and sale of our Rapid Drug Screen and Rapid One 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. 8 Our products fall under the category of 510(k) submissions to the FDA. A 510(k) is a premarketing submission made to FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to premarket approval (PMA). Applicants must compare their 510(k) device to one or more similar devices currently on the U.S. market and make and support their substantial equivalency claims. A legally marketed device is a device that was legally marketed prior to May 28, 1976 (preamendments device), or a device that has been reclassified from Class III to Class II or I, a device which has been found to be substantially equivalent to such a device through the 510(k) process, or one established through Evaluation of Automatic Class III Definition. The legally marketed device(s) to which equivalence is drawn is known as the "predicate" device(s). Applicants must submit descriptive data and, when necessary, performance data to establish that their device is substantially equivalent to a predicate device. Although FDA clearance is not required for non-clinical markets (such as industry and corrections), it is required for clinical markets (such as hospitals and physicians). We believe that clinical markets will become a major marketplace for our drug screening products. We have received 510(k) clearance for our nine panel test. With this approval, we can offer a variety of combinations to meet customer requirements, both with our multiple panel tests and our nine individual Rapid One tests. In November 2001, we received 510(k) clearance for our tests for methadone and Ecstasy. In March 2002, we received 510(k) clearance for our test for Oxycodone. The OralStat6 has not yet received 510(k) clearance from the FDA and is currently only available for "forensic use only". We expect to file our submission to the FDA for 510(k) clearance for the Rapid Tec in April 2002. The Company's Drug Detector does not require FDA approval for sale in any of the Company's markets. Employees As of the date hereof, we have approximately 65 employees. None of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are good. Risk Factors We have a limited operating history, which may make it difficult to accurately forecast our future revenues and other operating results. We began selling our products in 1996. As a result, we have only a limited operating history upon which you may evaluate our business and prospects. Our limited operating history may make it difficult or impossible for analysts or investors to accurately forecast regarding our future revenues and other operating results and the price of our common stock could decline substantially. We have incurred net losses since we were formed. Since inception in 1992, we have incurred net losses. As of December 31, 2001, we had an accumulated deficit of $15.2 million. We expect to continue to make substantial expenditures for sales and marketing, product development and other purposes. Our ability to achieve and maintain profitability in the future will primarily depend on our ability to increase sales of our products, reduce production and other costs and successfully introduce new and enhanced versions of our existing products into the marketplace. We cannot assure you that we will be able to increase our revenues at a rate that equals or exceeds expenditures. Our failure to do so will result in our incurring additional losses. We depend on distributors for a substantial portion of our sales and the loss of, or reduction in sales by, our current distributors could significantly harm our business. We derive a substantial portion of our revenues, and expect to continue to derive a substantial portion of our revenues in the near future, from sales by our distributors. Currently we have approximately 75 distributors. For the transition period ending December 31, 2001, approximately 34.5%, or $1.4 million of our sales were made to distributors. No distributor accounted for more than 10% of our total revenues in the transition period ending December 31, 2001. Unless and until we diversify and expand our sales force, our success will depend significantly upon the future sales by our distributors. The loss of or inability to replace any one or more of these distributors, significant changes in their product requirements, delays of significant orders or the occurrence of any sales fluctuations of our products could reduce our revenues. 9 We only offer a limited number of products and the failure of any one of them to achieve widespread market acceptance would significantly harm our results of operation. We offer a limited number of products, and we currently derive most of our revenues from sales of our primary product, the Rapid Drug Screen product line. To attain break-even results of operations, we must achieve approximately $2.3 million in quarterly revenues from our products. If our products do not achieve and maintain this level of revenue, our results of operations would be significantly harmed. In addition, we only began selling our Rapid Drug Screen product line in 1996, and cannot yet predict whether they will gain widespread market acceptance. Achieving market acceptance for our 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 our test kits. Our Drug Detector was introduced into the widespread over-the-counter market in late April 2001, the OralStat6 into the forensic markets in October 2001 and the Rapid Tec into the non-clinical markets in March 2002. We have no history upon which to base market or customer acceptance of these products. Introduction of the Drug Detector, OralStat6 and Rapid Tec have required, and may continue to require, substantial marketing efforts and expenditure of funds. Due to the variety and complexity of the environments in which our customers operate, our products may not operate as expected. This could result in cancelled orders, delays and increased expenses. In addition, the success of competing products and technologies, pricing pressures or manufacturing difficulties could further reduce our profitability and the price of our common stock. If we fail to keep up with technological factors and fail to develop our products, we may be at a competitive disadvantage. The onsite drug testing market is highly competitive. Several companies produce drug tests that compete directly with our Rapid Drug Screen and Rapid One product lines, including Roche Diagnostics, Biosite Diagnostics and Medtox Scientific, Inc. As new technologies become introduced into the onsite testing market, we may be required to commit considerable additional efforts, time and resources to enhance our current product line or develop new products. Our success will depend upon new products meeting targeted product costs and performance, in addition to timely introduction into the marketplace. We are subject to all of the risks inherent in product development, which could cause material delays in manufacturing. We rely on third parties for raw materials used in our Rapid Drug Screen product line. We currently have approximately fifty suppliers who provide us with the raw materials necessary to manufacture our drug testing strips and Rapid Drug Screen kit. The loss of one or more of these suppliers, the non-performance of one or more of their materials or the lack of availability of raw materials could suspend our manufacturing process related to the Rapid Drug Screen and/or Rapid One product lines. This interruption of the manufacturing process could impair our ability to fill customers' orders as they are placed, which would put us at a competitive disadvantage. 10 We depend on our Research & Development ("R&D") team for product development and/or product enhancement. Product development and/or enhancement are performed by our R&D team. There can be no assurance that our R&D team can successfully develop and/or complete the enhancement of our current products and/or the development of new products. Furthermore, the loss of one or more members of our R&D team could result in the interruption or termination of new product development and/or current product enhancement, affecting our ability to provide new or improved products to the marketplace, which would put us at a competitive disadvantage. Our products must be cost competitive and perform to the satisfaction of our customers. Cost competitiveness and satisfactory product performance are essential for success in the onsite drug testing market. There can be no assurance that new products we may develop will meet projected price or performance objectives. Moreover, there can be no assurance that unanticipated problems will not arise with respect to technologies incorporated into our test kits or that product defects, affecting product performance, will not become apparent after commercial introduction of our additional test kits. In the event that we are required to remedy defects in any of our products after commercial introduction, the costs to us could be significant, which could have a material adverse effect on our revenues or earnings. We face significant competition in the drug testing market and potential technological obsolescence. We face competition from other manufacturers of drug test kits such as Roche Diagnostics, Medtox Scientific, Inc. and Biosite Diagnostics. These competitors are more well known and have far greater financial resources than us. 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 products directly competitive with the Rapid Drug Screen product line or Rapid One. We expect other companies to develop technologies or products, which will compete with our products. Possible inability to find and attract qualified personnel. We will need additional skilled, sales and marketing, technical and production personnel to grow the business. If we fail to retain our present staff or attract additional qualified personnel our business could suffer. We depend on key personnel to manage our business effectively. We are dependent on the expertise and experience of our senior management such as Gerald Moore, President and Chief Executive Officer, Stan Cipkowski, Executive Vice President, Douglas Casterlin, Executive Vice President of Operations, Martin Gould, Vice President of Technology and Keith Palmer, Chief Financial Officer, for our future success. The loss of Messrs. Moore, Cipkowski, Casterlin, Gould and/or Palmer could negatively impact our business and results of operations. We do not maintain key man insurance for any of our management employees. Failure to effectively manage our growth and expansion could adversely affect our business and operating results. We anticipate expansion of our operations in the coming year. Any failure to manage our growth effectively will result in less efficient operations, which could adversely affect our operating and financial results. 11 To effectively manage our growth, we must, among other things: o accurately estimate the number of employees we will require and the areas in which they will be required; o upgrade and expand our office infrastructure so that it is appropriate for our level of activity; o manage expansion into additional geographic areas; and o improve and refine our operating and financial systems. We expect to devote considerable resources and management time to improving our operating and financial systems to manage our growth. Failure to accomplish any of these objectives would impede our ability to deliver products and services in a timely fashion, fulfill existing customer orders and attract and retain new customers, which impediment would have a material adverse effect on our financial condition and results of operations. Any adverse changes in our regulatory framework could negatively impact our business. Approval from the FDA is not currently required for the sale of our products in non-clinical markets, but is required in the clinical and over-the-counter markets. Recently, the FDA informed onsite manufacturers that it intended to enforce its draft guidance document related to the sale of onsite tests in the workplace market, initially released in 1999. This enforcement would require that each onsite device be priced to include, up-front, the cost of obtaining laboratory confirmation of the results of the test. The FDA also seeks to require the onsite tests to meet over the counter (OTC) clearance or have a special industrial use clearance (the FDA has not yet published any guidance with respect to the applicable standards for granting the special industrial clearance). Although our Rapid Drug Screen has met the FDA requirements for professional use, we have not obtained OTC clearance from the FDA. The workplace market is one of our primary markets and the added cost of confirmation and additional FDA clearance may raise the price of our products making it difficult to compete with laboratory based testing, thereby negatively impacting our revenues. Furthermore, there can be no assurance that if, and when, we are required to apply for either the OTC clearance or the special industrial clearance, either clearance will be granted. If either such clearance is not granted, we would be unable to sell our products in the workplace market and our revenues would be negatively impacted. Although we are currently unaware of any changes in regulatory standards related to the clinical and OTC markets, if regulatory standards were to change in the future, there can be no assurance that the FDA will grant us the approvals, if and when we apply for them, required to comply with the changes. We rely on intellectual property rights, and we may not be able to obtain patent or other protection for our technology, products or services. We rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary technology, products and services. We also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and name recognition are essential to establishing and maintaining our technology leadership position. We seek to protect our proprietary products under trade secret and copyright laws, which afford only limited protection. We currently have eleven patents relating to the Rapid Drug Screen and/or Rapid One product line. We have additional patent applications pending in the United States, and other foreign countries, related to the Rapid Drug Screen. We have trademark applications pending in the United States. Certain trademarks have been registered in the United States and in other foreign countries. 12 Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain information that we regard as proprietary. For example, our sales were adversely affected in fiscal 2000 and fiscal 2001 (year ending April 30, 2001) as a result of sales of products similar to ours. In April of 1999, we filed suit in a federal court against Phamatech, Inc. of California, a former supplier of ours, and numerous other parties to stop these sales. We incurred significant legal fees of $1.6 million attempting to enforce our patents. In April 2001, we settled with Phamatech and all other defendants in this lawsuit. The settlement agreement established a license and royalty arrangement under which we were paid a licensing fee and will continue to be paid a percentage of revenues of the product. Under the terms of the settlement, each party has agreed not to disclose to any third parties the terms and conditions of this agreement. We may be required to incur significant costs to protect our intellectual property rights. In addition, the laws of some foreign countries do not ensure that our means of protecting our proprietary rights in the United States or abroad will be adequate. Policing and enforcement against the unauthorized use of our intellectual property rights could entail significant expenses and could prove difficult or impossible. Additionally, there is no assurance that the additional patents will be granted or that additional trademarks will be registered. Potential issuance and exercise of new warrants and exercise of outstanding warrants could adversely affect our share price. In connection with our sale of 1,408,450 common shares for $2,000,000 ($1.42 per share) in a private placement to Seaside Partners, L.P. on April 28, 2000, we issued a 5-year warrant to Seaside to purchase 953,283 common shares of our stock at an exercise price of $1.1689 per share. To settle a penalty owed to Seaside because of a late effective registration statement, we adjusted the exercise price of the 953,283 warrant shares from $1.1689 to $0.95 in February 2001. In May 2001, we issued a 5-year warrant to purchase 200,000 common shares of our stock at an exercise price of $1.50 per share to Brean Murray & Co., Inc. as compensation for their services as a financial advisor. On August 22, 2001, we issued warrants, exercisable during a 54 month period beginning February 22, 2002, to purchase 1,274,500 common shares of our stock at an exercise price of $1.05 per share in connection with the private placement of 2,549,000 shares of common stock. We also issued, on August 22, 2001, warrants, exercisable during a 54 month period beginning February 22, 2002, to purchase a total of 203,920 common shares of our stock at an exercise price of $1.20 per share, of which warrants to purchase 152,940 common shares were issued to Brean Murray & Co., Inc. as compensation for their services as placement agent and warrants to purchase 12,745 common shares were issued to Axiom Capital Management, Inc., warrants to purchase 5,735 common shares were issued to Jeffrey Goldberg, warrants to purchase 16,250 common shares were issued to Barry Zelin, warrants to purchase 16,250 common shares were issued to David L. Jordon, for their services as sub-agents of Brean Murray & Co., Inc. On November 15, 2001, we issued a warrant to purchase 20,000 common shares at an exercise price of $1.00 to Hudson River Bank & Trust Company ("HRBT") in connection with the purchase of our facility in Kinderhook, New York. If the Seaside warrant, the Brean Murray Warrants, the Private Placement Warrants and the HRBT warrants are exercised, the common shares issued will be freely tradable, increasing the total number of common shares issued and outstanding. If these shares are offered for sale in the public market, the sales could adversely affect the prevailing market price by lowering the bid price of our common shares. The exercise of any of these warrants could also materially impair our ability to raise capital through the future sale of equity securities because issuance of the common shares underlying the warrants would cause further dilution of our securities. The warrants are subject to or contain certain anti-dilution protection that may result in the issuance of additional shares under some circumstances including, but not limited to, paying of a dividend, subdivision of our outstanding shares into a greater number of shares, combination of our outstanding shares into a smaller number of shares, an issuance of shares of common stock by reclassification or in the case of the Brean Murray and Seaside warrants, a sale of our common shares, or a security convertible into common shares, for consideration per share less than the exercise price of the warrants. 13 Potential issuance and exercise of new options and exercise of outstanding options could adversely affect our share price. The Board of Directors of the Company has adopted four (4) Nonstatutory Stock Option Plans providing for the granting of options to employees, directors, and consultants (see Note J-4). As of the date of this report, there were 4,374,000 options issued and outstanding under all four plans combined, of which 2,525,000 were exercisable as of December 31, 2001. As of December 31, 2001, there were 50,000 options available for issuance under the Fiscal 2000 Plan and 2,396,000 options available for issuance under the Fiscal 2001 Plan. There are no options available for issuance under either the Fiscal 1997 Plan or the Fiscal 1998 Plan, as options expire or are cancelled under these latter two plans, they are not re-issued. If these options are exercised, the common shares issued will be freely tradable, increasing the total number of common shares issued and outstanding. If these shares are offered for sale in the public market, the sales could adversely affect the prevailing market price by lowering the bid price of our common shares. The exercise of any of these options could also materially impair our ability to raise capital through the future sale of equity securities because issuance of the common shares underlying the options would cause further dilution of our securities. The options are subject to or contain certain anti-dilution protection that may result in the issuance of additional shares under some circumstances including, but not limited to, paying of a dividend in common shares, a declaration of a dividend payable in a form other than common shares in an amount that has a material effect on the price of common shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off or a similar occurrence. Substantial resale of restricted securities may depress the market price of our stock. There are 4,936,255 common shares presently issued and outstanding as of the date hereof that 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 that a person holding restricted securities for a period of one year or more may, in any three month period, sell those securities in unsolicited brokerage transactions or in transactions with a market maker, in an amount equal to the greater of one percent of the our outstanding common shares or the average weekly trading volume for the prior four weeks. 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. Investors should be aware that sales under Rule 144 or 144(k), or pursuant to a registration statement filed under the Act, may depress the market price of our Company's securities in any market that may develop for such shares. We may need additional funding for our existing and future operations. We believe the proceeds from our August 2001 private placement will be sufficient to fund operations until at least August 2002. This estimate is based on certain assumptions and there can be no assurance that unanticipated 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 our products could make cash on hand insufficient to fund operations. There can be no assurance that we will be able to obtain any necessary financing on terms acceptable to us, if at all. Any financing may result in further dilution to our existing shareholders. 14 Our ability to retain and attract market makers is important to the continued trading of our stock. 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 common shares will be adversely affected or may cease entirely. If we fail to meet the continued listing requirements of the Nasdaq SmallCap Market, our common shares could be delisted. Our common shares are listed on the Nasdaq SmallCap Market. The Nasdaq Stock Market's Marketplace Rules impose requirements for companies listed on the Nasdaq SmallCap Market to maintain their listing status, including minimum bid price of $1.00 and $2,500,000 in shareholders' equity. As of the date of this report, our common shares are trading at levels lower than the minimum bid requirement. Delisting could reduce the ability of investors to purchase or sell shares as quickly and as inexpensively as they have done historically and could subject transactions in our shares to the penny stock rules. Furthermore, failure to obtain listing on another market or exchange may make it more difficult for traders to sell our securities. Broker-dealers may be less willing or able to sell or make a market in our common shares because of the penny stock disclosure rules. Not maintaining a listing on a major stock market may result in a decrease in the trading price of our common shares due to a decrease in liquidity and less interest by institutions and individuals in investing in our common shares. Delisting from the Nasdaq Stock Market would also make it more difficult for us to raise capital in the future. ITEM 2. DESCRIPTION OF PROPERTY In September 1999 we began leasing a 30,000 square foot facility in Kinderhook, New York, which houses administrative offices, assembly and packaging, quality control/quality assurance and sales and marketing. We entered into a Lease/Purchase Agreement with the landlord, Avoba, Inc., to purchase the building by December 2001 for $1.3 million. In May 2001, we renegotiated the purchase price down to $950,000 allocating $728,000 to the building, and $222,000 to the 107 acres of land based upon an appraisal done in conjunction with the acquisition. The State of New York, Columbia County and the town of Stuyvesant tentatively agreed to provide incentives of more than $200,000 towards the purchase price. In November 2001, we purchased the facility and the surrounding 107 acres. We obtained a mortgage from Hudson River Bank & Trust Company ("HRBT") in the amount of $360,000, a loan in the amount of $240,000 from the New York State Business Development Corporation and a loan from the Columbia Economic Development Corporation in the amount of $120,000. We intend to sell approximately 85 of the 107 acres to a third party to offset the purchase price of the facility. In August 1999, we leased a 3,900 square foot R&D and production laboratory facility in Bridgeport, New Jersey. This facility is leased for a period of three years at which time we have the option to renew the lease. In March 2001, we expanded the New Jersey facility by leasing an additional 5,238 square feet, for a total of approximately 9,000 square feet. The combined cost of leasing for the New Jersey facility is $5,220 per month. ITEM 3. LEGAL PROCEEDINGS In June 1999, Richard Davidson filed a lawsuit against the Company in New York. Davidson claims that two placement memoranda dated September 15, 1992 and February 5, 1993, obligates the Company to issue him 1,155,601 ABMC common shares. He claims he is entitled to the common shares in consideration of brokering the acquisitions subject to the Share Exchange Agreement with Dr. Robert Friedenberg (Friedenberg also filed suit against the Company and the case was dismissed in September 1999). In addition, Davidson is claiming a finder's fee of 5% of the funds raised by the September 1992 private placement. He alleges that a sum of $1 million was raised. He also claims he is entitled to a consulting fee of $24,000. Management denies the claims and is vigorously contesting the suit. A trial date was set for November 2000; however, the Company filed a motion for summary judgment against Davidson and Davidson cross-moved for summary judgment. In July 2001, the Company's motion for summary judgment was denied. In August 2001 the Company filed a Notice of Appeal related to the court's denial of the Company's motion for summary judgment. The court is currently considering Davidson's cross-motion for summary judgment, which the Company opposed in September 2001. The Company filed its brief to appeal the denial of the Company's summary judgment on March 15, 2002. At the same time, a trial date has been set for May 6, 2002. Management believes based on consultation with counsel, that it has substantial and compelling defenses to Davidson's claims and there is a reasonable chance that the Company would prevail if the matter were to go to trial. 15 In June 1995 the Company filed a lawsuit against Jackson Morris, the lawyer engaged to draft and advise the Company on the Share Exchange Agreement with Dr. Robert Friedenberg. Morris, who had been recommended to the Company by Dr. Friedenberg and whose fees were paid by the Company, was alleged to have breached his fiduciary duty to the Company in several ways, including by later advising Friedenberg, individually, on how to rescind the Share Exchange Agreement as well as testifying for Friedenberg over the Company's objections and in violation of his obligations to the Company. Morris was also charged with negligence in drafting the Share Exchange Agreement. The Company's lawsuit demanded damages in the amount of $1,000,000. Morris counterclaimed as a party to the Share Exchange Agreement and sought common shares. The basis of all of Mr. Morris' claims stemmed from the Friedenberg claim. In August 2001, the Company settled the lawsuit against Mr. Morris by settlement agreement dated July 27, 2001. The Company has issued 115,000 shares of the Company's common stock to Mr. Morris as settlement of all outstanding claims. The Company has agreed to file a registration statement related to these shares no later than June 1, 2002. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Our common shares trade on the National Association of Securities Dealers Automated Quotation System Small Cap Market (Nasdaq Small Cap) under the symbol ABMC. The following table sets forth the high and low sales prices as reported by the Nasdaq Small Cap Market for the periods indicated.
Eight months ending December 31, 2001 High Low ------------------------------------- ---- --- Transition period ending December 31, 2001 $1.53 $0.75 Quarter ending October 31, 2001 $1.20 $0.65 Quarter ending July 31, 2001 $1.30 $0.75 Fiscal year ending April 30, 2001 High Low --------------------------------- ---- --- Quarter ending April 30, 2001 $1.25 $0.69 Quarter ending January 31, 2001 $1.50 $0.25 Quarter ending October 31, 2000 $1.50 $0.97 Quarter ending July 31, 2000 $2.00 $1.13
As of April 9, 2002 there were approximately 4,500 holders of common shares. As of April 9, 2002 there were outstanding 20,609,548 common shares. The Company has not declared any dividends on the common shares and does not expect to do so in the foreseeable future. On April 9, 2002, the last reported sales price for the common shares as reported on the Nasdaq Small Cap Market was $0.83 per share. Average daily trading volume on our common shares during the three-month period from January 9, 2002 to April 9, 2002 was approximately 49,507 shares. Recent sales of unregistered securities The following is a list of all unregistered securities sold by the Company within the period covered by this report, including, where applicable, the identity of the person who purchased the securities, title of the securities, and the date sold. On December 7, 2001, the Company issued 115,000 common shares to Jackson Morris, as settlement of all outstanding claims between Mr. Morris and the Company. (See Item 3. Litigation). ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 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, this Form 10-KSB 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 (c) acquisitions. 17 Critical Accounting Policies and Estimates ABMC's discussion and analysis of its financial condition and results of operations are based upon ABMC's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires ABMC to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, ABMC evaluates its estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, income taxes, financing operations, warranty obligations, and contingencies and litigation. ABMC bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. ABMC believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. ABMC records estimated reductions to revenue for customer returns and allowances. If market conditions were to decline, ABMC may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered. ABMC recognizes revenue upon shipment to customers. ABMC maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of ABMC's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. ABMC writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. ABMC records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While ABMC has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event ABMC were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should ABMC determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. 18 Results of Operations for the Eight Months Ended December 31, 2001 (the transition period) Compared to the Eight Months Ended December 31, 2000 (unaudited). The following table presents certain financial information for the 8 months ended December 31, 2001 and 2000 respectively:
Eight Months Ended December 31, December 31, 2000 2001 (unaudited) ------------ ----------- Revenues $ 4,055,000 $ 5,192,000 =========== =========== Gross profit $ 2,331,000 $ 3,464,000 =========== =========== Net loss $ (1,631,000) $(1,274,000) ============ =========== Earnings per common share $ (.08) $ (.07) ------------ ----------- Weighted average common shares outstanding 19,345,000 18,044,000 ------------ -----------
Net sales were $4,055,000 for the transition period compared to $5,192,000 for the eight months ended December 31, 2000. Sales to distributors were $1,409,000 for the transition period compared to $2,709,000 for the eight months ended December 31, 2000. The decrease is a result of some distributors selling competing products, including a similar product that was the subject of our patent litigation. The decline in distributor sales was partially offset by an increase in direct sales of $675,000 during the transition period and an increase in sales from our telemarketing efforts. Direct sales continued growth is consistent with management's business plan and will surpass sales from distributors during the first or second quarter of 2002. The Company's telemarketing efforts focus on smaller volume clients who are contacted directly by individuals who work out of the Company's headquarters. Efforts include but are not limited to cold calls to potential customers and direct mail campaigns. Gross profit for the transition period was $2,331,000, or 57.5% of net sales, as compared to $3,464,000, or 66.7% of net sales, for the eight months ended December 31, 2000. Gross profit decreased as a percentage of net sales as a result of increased large volume, lower margin sales to direct customers, as well as the inclusion of $111,000 of net adjustments to inventory in cost of sales during the transition period relating to shrinkage and inventory write downs, and $112,000 to establish a reserve for returns of consignment inventory. Costs of raw materials, labor and overhead associated with manufacturing have remained consistent during the transition period when compared to the eight months ended December 31, 2000. 19 The following table sets forth the percentage relationship of selling, general and administrative costs to net sales for the transition period and the eight months ended December 31, 2000:
Eight Months Ended December Transition Period Percent of Sales 31, 2000 Percent of Sales (Unaudited) Sales salaries and commissions $ 718,000 17.7% $ 618,000 11.9% Sales travel 165,000 4.1 247,000 4.7 Consulting & other selling expenses 205,000 5.1 612,000 11.8 Marketing and promotion 168,000 4.1 492,000 9.5 Investor relations costs 492,000 12.2 235,000 4.5 Legal fees 307,000 7.6 844,000 16.3 Accounting fees 348,000 8.6 148,000 2.9 Office salaries 695,000 17.1 507,000 9.8 Payroll taxes and insurance 180,000 4.4 116,000 2.2 Telephone 84,000 2.1 100,000 1.9 Insurance 37,000 0.9 29,000 0.6 Bad debts 58,000 1.4 1,000 0.0 Other administrative costs 420,000 10.4 421,000 8.1 ---------- ---------- Total selling, general & administrative costs $3,877,000 95.7% $4,370,000 84.2% ========== ==========
Selling, general and administrative costs were $3,877,000, or 95.7% of net sales, for the transition period compared to $4,370,000, or 84.2% of net sales, for the eight months ended December 31, 2000. This increase as a percentage of sales for the transition period was primarily due to the inclusion of $85,000 in severance costs in office salaries, $235,000 of non-cash compensation for financial advisory services, accounting fees of approximately $67,000 and legal fees of approximately $44,000 related to the filing of the S3 registration statement for the private placement completed in August 2001 and the resultant SEC comment letters, approximately $114,000 reserved for the settlement of current legal matters, and additional accounting fees of $50,000 relating to the year end audit and financial reporting for the transition period. Sales salaries increased during the transition period as compared to the eight months ended December 31, 2000 primarily due to the inclusion of the salaries of the Directors of Business Development driving the direct sales efforts. Also included in the salaries are the related commissions associated with the growth in direct sales. Sales travel declined as part of a management initiative to control spending. Consulting and other selling expenses declined primarily due to the inclusion of $454,000 in non-cash compensation in the eight months ended December 31, 2000 related to a one year consulting agreement with an individual knowledgeable in the medical diagnostic testing area. In connection therewith, the Company issued 300,000 common shares and granted options to purchase 200,000 common shares at $2.00 per share, vesting as of December 15, 2000. Marketing and promotion costs declined during the eights ended December 31, 2001 compared to the same period ending December 31, 2000 primarily due to the discontinuation of the Company's promotion of the Drug Detector. In the eight month period ended December 31, 2000, marketing and promotion costs included two individuals' salaries and benefits responsible for the sale and promotion of Drug Detector. Investor relations costs have increased in the transition period as compared to the eight months ended December 31, 2000. The increase is primarily due to the inclusion of an executive vice president of corporate relations previously included in office salaries, the filing of the registration statement related to the equity private placement completed in August of 2001, and non-cash expense related to the issuance of warrants to several firms for financial advisory services for a one year term ending in April 2002. 20 Legal expenses of $844,000 in the eight months ended December 31, 2000 related primarily to the patent litigation that was settled in the fourth quarter of fiscal 2001 [see notes C & D to the financial statements]. A settlement relating to the fees was reached with the Company's attorneys following settlement of the litigation and a gain on settlement of $259,000 was recognized in the transition period. Included in our legal fees for the transition period are approximately $44,000 relating to the filing of our S-3 registration statement for registration of the shares related the equity private placement completed in August 2001, and $221,000 of accruals for legal settlements. We expect our legal fees to be significantly lower in fiscal 2002 as a result of the settlement of patent infringement litigation. Accounting fees increased $200,000 for the transition period compared to the same period ending December 31, 2000. This increase is primarily related to the fees for filing of the S-3 registration statement for registration of the shares related the equity private placement completed in August 2001. Accounting fees of approximately $67,000 were incurred from our prior auditors relating to the filing of our S-3 registration statement for registration of the shares related the equity private placement completed in August 2001. Further, on October 2, 2001, the Board of Directors of the Company approved the discharge of Eisner LLP (formerly known as Richard A. Eisner & Company, LLP) and the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors. (See Form 8-K filed October 4, 2001, and incorporated herein by reference). This transition required coordination with both firms for the filing of our 10-QSB for the quarter ended October 31, 2001 as well as the 10-KSB for the transition period. Office salaries increased in the transition period as compared to the eight months ended December 31, 2000 due to the addition of our former CEO, Robert Aromando. Also during the transition period an employee's salary previously reported in investor relations was reported in office salaries due to a change in responsibilities. Payroll taxes and insurance increased in the transition period as compared to the eight months ended December 31, 2000 commensurate with the inclusion of the new CEO as well as associated increases in insurance for benefits, property and casualty, and workers compensation. Bad debt expense increased to $58,000 in the transition period from $1,000 in the eight month period ended December 31, 2000. One account comprised $48,000 of this write off, deemed uncollectable after all efforts to collect the debt were exhausted. Other administrative expenses remained flat for the eight months ending December 31, 2001 compared to the same period ending December 31, 2000. During the transition period, the Company incurred $10,000 of non-cash expense for warrants, management travel and entertainment increased $29,000 to support the transition of the CEO, purchasing department increases of $12,000 representing a full eight months in 2001 (only 4 months in 2000), increased freight costs to ship product of $19,000, building rental increases of $24,000 relating to higher rent in Kinderhook and added space in New Jersey, and D&O insurance increase of $8,000. These increases were partially offset by decreases of $92,000 in outside service fees, $8,000 in postage, $6,000 in utilities, $16,000 in miscellaneous expense and $10,000 in bank service fees. Depreciation and amortization expense was $90,000 for the transition period compared to $82,000 for the eight months ended December 31, 2000. Depreciation expense is expected to increase in 2002 due to the acquisition of the Kinderhook facility in December 2001, as well as the addition of capital equipment. The increase in depreciation is expected to be offset by a reduction in facility cost related to the Kinderhook headquarters of approximately $50,000 annually. Research and development expenses were $289,000 for the transition period compared to $361,000 in the eight months ended December 31, 2000. This is expected to increase in 2002 as the Company pursues projects in conjunction with OEM contracts and new product development. 21 Net other income was $35,000 for the transition period comprised of interest income and expense and a loss on disposal of assets no longer in service of $4,000. Net other income was $71,000 in the eight months ended December 31, 2000 comprised of interest income and expense. Net loss attributable to common shareholders was $1,631,000 for the transition period, resulting in basic and diluted net loss per common share of $.08 compared to a net loss of $1,274,000 in the eight months ended December 31, 2000 and a basic and diluted net loss per common share of $.07. Results of Operations for the Fiscal Year Ended April 30, 2001 (the "2001 Fiscal Year") Compared to the Fiscal Year Ended April 30, 2000 (the "2000 Fiscal Year") Net sales were $7,484,000 in fiscal 2001 compared to $7,653,000 in fiscal 2000. Sales to distributors decreased by $633,000 in fiscal 2001 because of a decrease in the number of distributors selling our product to 102 in fiscal 2001 from 128 in fiscal 2000. The decrease is a result of some distributors selling competing products, including a "knock-off" product that was the subject of our patent litigation. Decreases in sales to distributors were offset in part by an increase in sales from our telemarketing efforts. The Company's telemarketing efforts focus on smaller volume clients who are contacted directly by individuals who work out of the Company's headquarters. Efforts include but are not limited to "cold calls" to potential customers and direct mail campaigns. Gross profit for fiscal 2001 was $4,913,000, or 65.6% of net sales, as compared to $4,051,000, or 52.9% of net sales, for fiscal 2000. Gross profit increased as a percentage of net sales as a result of manufacturing products in our own facility in fiscal 2001. The following table sets forth the percentage relationship of selling, general and administrative costs to net sales for both years:
2001 Percent 2000 Percent Fiscal Year of Sales Fiscal Year of Sales ----------- -------- ----------- -------- Sales salaries and commissions $1,289,000 17.2% $1,033,000 13.5% Sales travel 332,000 4.4 439,000 5.7 Consulting and other selling expenses 501,000 6.7 936,000 12.2 Marketing and promotion 572,000 7.6 265,000 3.5 Investor relations costs 347,000 4.6 225,000 3.0 Legal fees 1,363,000 18.2 951,000 12.4 Accounting fees 200,000 2.7 80,000 1.1 Office salaries 931,000 12.5 667,000 8.7 Payroll taxes and insurance 201,000 2.7 174,000 2.3 Telephone 137,000 1.8 139,000 1.8 Insurance 39,000 0.5 49,000 0.6 Bad debts 42,000 0.6 79,000 1.0 Other administrative costs 612,000 8.2 186,000 2.4 ---------- ----- ---------- ----- Total selling, general and administrative costs $6,566,000 87.7% $5,223,000 68.2%
Selling, general and administrative costs increased to $6,566,000, or 87.7% of net sales, in fiscal 2001 compared to $5,223,000, or 68.2% of net sales, in fiscal 2000. This increase was primarily due to an increase of $569,000 in salaries for additional employees in administration and sales and marketing, sign-on bonuses for new salespeople and our new Chief Executive Officer and severance costs of terminated employees in sales and marketing and our former Chief Financial Officer; increased marketing expenses of $240,000 related to the Drug Detector product; additional accounting fees of $120,000 related to our fiscal 2000 audit and costs associated with an SEC filing related to a financing; and increases in other expenses of $426,000, including directors and officers insurance, bank fees and executive recruiters. We also incurred non-cash compensation charges of $289,000 in fiscal 2001 compared to $367,000 in fiscal 2000, included in consulting expenses, in connection with compensatory stock and stock options. We completed amortization of these charges in fiscal 2001. These increases in expenses were offset, in part, by decreases of $107,000 in sales and travel expenses and $435,000 in consulting and other selling expenses. 22 We also incurred legal expenses of $1,363,000 in fiscal 2001 compared to $951,000 in fiscal 2000. These legal fees related primarily to the patent litigation that was settled in the fourth quarter of fiscal 2001. We expect our legal fees to be significantly lower in fiscal 2002 as a result of the settlement of this litigation. Depreciation and amortization expense was $123,000 in fiscal 2001 compared to $106,000 in fiscal 2000. The increase in depreciation and amortization expense is due to an increase in capital equipment. Research and development expenses were $614,000 in fiscal 2001 compared to $799,000 in fiscal 2000. This decrease resulted from our completed development and production of the drug testing strip for tricyclic antidepressants included in our nine panel version of the Rapid Drug Screen. Net other income/(expense) was $510,000 in fiscal 2001 compared to net expense of $59,000. The increase was due to the settlement of our patent litigation and increased interest income in fiscal 2001. Net loss attributable to common shareholders decreased to $1,880,000 in fiscal 2001 from $2,275,000 in fiscal 2000. Liquidity and Capital Resources as of December 31, 2001 At December 31, 2001 we had cash and cash equivalents of $288,000 and working capital of $1,492,000. We have historically satisfied our working capital requirements principally through proceeds from private placements of equity securities. The Company does not anticipate paying any cash dividends. Net cash used in operating activities was $1,810,000 during the transition period compared to $1,260,000 for the eight months ended December 31, 2000. The net cash used in operating activities during the transition period was primarily related to the net loss of $1,631,000, an increase in inventory of $644,000 and a reduction in accounts payable of $389,000, offset by non cash expenses related to compensatory stock and stock options and warrants of $477,000 and decreases in accounts receivable of $144,000 and notes receivable of $179,000. Net cash used in operating activities for the eight months ended December 31, 2000 was primarily due to a net loss of $1,274,000, a decrease in accounts receivable of $118,000, a decrease in other receivables of $380,000 and a decrease in inventory of $184,000, partially offset by an increase in accounts payable of $340,000, an increase in amortization of compensatory stock options of $454,000 and depreciation expense of $82,000. Net cash used in investing activities for the transition period was $1,202,000 relating solely to the acquisition of property, plant and equipment. Cash flow from financing activities was $3,035,000 for the transition period relating to the $2,332,000 net proceeds from our equity private placement completed in August 2001 and $720,000 financing secured for the purchase of our Kinderhook facility in December 2001. For the eight months ended December 31, 2000, net cash used in financing activities was $125,000 relating to cash dividends paid. Our primary short-term needs are to maintain and perhaps increase manufacturing and production capabilities, maintain adequate inventory levels, continue to support research and development programs, and to finance sales and marketing promotion in conjunction with our direct sales and marketing group. Columbia County and the Town of Stuyvesant have tentatively agreed to provide incentives of more than $200,000 in conjunction with our acquisition of our Kinderhook headquarters in December 2001. Additionally, we are currently negotiating to sell 85 of the 107 acres acquired to an unaffiliated party. 23 We expect our capital requirements to increase over the next several years as we expand our research and development efforts, sales and administration infrastructure, manufacturing capabilities and facilities in our Bridgeport, New Jersey location in conjunction with the inventory increases necessary to meet anticipated demand from increased sales. Our future liquidity and capital funding requirements will depend on numerous factors, including the extent to which our products under development are successfully developed and gain market acceptance, the timing of regulatory actions regarding our potential products, the costs and timing of expansion of sales, marketing and manufacturing activities, facilities expansion needs, procurement and enforcement of patents important to our business, and results of clinical investigations and competition. If cash generated from operations is not sufficient to satisfy the Company's working capital and capital expenditure requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There is no assurance that we will be able to secure additional financing on acceptable terms if at all. Management's plan for future operations contemplates increases in sales resulting from continued emphasis on direct sales coupled with renewed relationships with large distributors. We believe that with this increase in sales, initiatives already in place to control spending, and cash to be received from other investing and financing activities, our cash will be adequate to fund operations for the next twelve months. 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. On October 2, 2001, the Board of Directors of the Company approved the discharge of Eisner, LLP (formerly known as Richard A. Eisner & Company, LLP) and the appointment of PricewaterhouseCoopers LLP as the Company's independent auditors. (See Form 8-K filed October 4, 2001, and incorporated herein by reference) PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information required by this item is contained in our definitive Proxy Statement with respect to our Annual Meeting of Shareholders for the Transition Period ending December 31, 2001, under the captions "Election of Directors--Nominees", and "Security Ownership of Management and Certain Beneficial Owners", and is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION The information required by this item is contained in our definitive Proxy Statement with respect to our Annual Meeting of Shareholder for the Transition Period ending December 31, 2001, under the caption "Executive Compensation", and is incorporated herein by reference. 24 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in our definitive Proxy Statement with respect to the Annual Meeting of Shareholders for the Transition Period ending December 31, 2001, under the caption "Security Ownership of Management and Certain Beneficial Owners", and is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in our definitive Proxy Statement with respect to the Annual Meeting of Shareholder for the Transition Period ending December 31, 2001, under the caption "Certain Relationships and Related Transactions", and is incorporated herein by reference. 25 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 On December 12, 2001, the Company filed a Current Report on Form 8-K related to the purchase of its facility in Kinderhook, New York. 26 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/ Gerald Moore ---------------------------------- Gerald Moore Chairman, President & CEO Date: May 31, 2002 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 May 31, 2002: /s/ Gerald Moore Chairman, President & Chief Executive - --------------------------- Officer Gerald Moore /s/ Stan Cipkowski Executive Vice President & Director - --------------------------- Stan Cipkowski /s/ Edmund Jaskiewicz Corporate Secretary & Director - --------------------------- Edmund Jaskiewicz /s/ Robert L. Aromando, Jr. Director - --------------------------- Robert L. Aromando, Jr. /s/ Denis O'Donnell, M.D. Director - --------------------------- Denis O'Donnell, M.D. /s/ Keith E. Palmer Chief Financial Officer - --------------------------- (Principal Financial Officer) Keith E. Palmer S-1 AMERICAN BIO MEDICA CORPORATION CONTENTS PAGE ---- FINANCIAL STATEMENTS Independent auditors' report F-2 Report of prior independent auditors F-3 Balance sheets F-4 Statements of operations F-5 Statements of changes in stockholders' equity F-6 Statements of cash flows F-8 Notes to financial statements F-10 F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of American Bio Medica Corporation In our opinion, the financial statements listed in the accompanying index, present fairly, in all material respects, the financial position of American Bio Medica Corporation at December 31, 2001, and the results of its operations and its cash flows for the eight months then ended in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of April 30, 2001 and for each of the two years then ended were audited by other independent accountants whose report dated June 20, 2001 expressed an unqualified opinion on those statements. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has experienced continuing operating losses and operating cash flow deficits and has been largely dependent on its ability to sell additional shares of its common stock. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to future operations are also described in Note A to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/PricewaterhouseCoopers LLP Albany, New York March 8, 2002 F-2 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of American Bio Medica Corporation We have audited the accompanying balance sheet of American Bio Medica Corporation as of April 30, 2001 and the related statement of operations, changes in stockholders' equity and cash flows for each of the years in the two-year period ended April 30, 2001. 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 did not audit the financial information as of and for the period ending December 31, 2000. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 estimated 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 enumerated above present fairly, in all material respects, the financial position of American Bio Medica Corporation as of April 30, 2001 and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2001, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has experienced recurring net losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Eisner LLP (formerly Richard A. Eisner & Company, LLP) New York, New York June 20, 2001 With respect to Note B July 23, 2001 F-3 AMERICAN BIO MEDICA CORPORATION Balance Sheets
December 31, April 30, 2001 2001 ASSETS Current assets Cash and cash equivalents $ 288,000 $ 265,000 Accounts receivable - net of allowance for doubtful accounts of $70,000 and $86,000 at December 31, 2001 and April 30, 2001, respectively 882,000 1,010,000 Other receivables 171,000 270,000 Inventory 2,087,000 1,444,000 Prepaid expenses 90,000 41,000 ------------------------------- Total current assets 3,518,000 3,030,000 Property, plant and equipment, net 1,455,000 348,000 Other receivables 80,000 Restricted cash 106,000 146,000 Other assets 7,000 36,000 ------------------------------- Total Assets $ 5,086,000 $ 3,640,000 =============================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,064,000 $ 1,453,000 Accrued expenses 562,000 412,000 Customer advance deposits 243,000 Wages payable 114,000 516,000 Current portion of capital lease obligations 19,000 25,000 Current portion of notes payable 24,000 ------------------------------- Total current liabilities 2,026,000 2,406,000 Long-term portion of capital lease obligations 10,000 21,000 Long-term portion of notes payable 696,000 ------------------------------- Total liabilities 2,732,000 2,427,000 Stockholders' equity: Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding Common stock; par value $.01 per share; 50,000,000 shares authorized; 207,000 180,000 20,609,548 shares issued and outstanding at December 31, 2001 and 17,995,548 at April 30, 2001 Treasury stock, at cost, 25,000 shares (23,000) Additional paid-in capital 17,765,000 15,052,000 Due from Officer/Director/Shareholder (437,000) (472,000) Subscription receivable (5,000) (5,000) Unearned portion of compensatory options (19,000) Unrealized loss on investments available for sale Accumulated deficit (15,154,000) (13,523,000) ------------------------------- Total stockholders' equity 2,353,000 1,213,000 ------------------------------- Total liabilities and stockholders' equity $ 5,086,000 $ 3,640,000 ===============================
See notes to financial statements F-4 AMERICAN BIO MEDICA CORPORATION Statements of Operations
For the Eight For the Year For the Year Months Ended Ended Ended December 31, April 30, April 30, 2001 2001 2000 Net sales $ 4,055,000 $ 7,484,000 $ 7,653,000 Cost of goods sold 1,724,000 2,571,000 3,602,000 ------------------------------------------------------- Gross profit 2,331,000 4,913,000 4,051,000 ------------------------------------------------------- Operating expenses (income): Selling, general and administrative 3,877,000 6,566,000 5,223,000 Depreciation and amortization 90,000 123,000 106,000 Research and development 289,000 614,000 799,000 Gain on settlement (259,000) --------- ------------------------------------------------------- Operating loss (1,666,000) (2,390,000) (2,077,000) ------------------------------------------------------- Other income (expense): Loss on sale of investments (124,000) (122,000) Loss on disposition of assets (4,000) (60,000) Licensing and royalty settlement 604,000 Interest income 51,000 106,000 84,000 Interest expense (12,000) (16,000) (21,000) ------------------------------------------------------- Net loss (1,631,000) (1,880,000) (2,136,000) Adjustments: Preferred stock beneficial conversion feature (57,000) Preferred stock dividends (82,000) ------------------------------------------------------- Net loss attributable to common shareholders $ (1,631,000) $ (1,880,000) $ (2,275,000) ============= ============== ============= Basic and diluted loss per common share $(.08) $(.10) $(.15) ===== ====== ====== Weighted average number of shares outstanding - basic and diluted 19,345,000 18,034,000 15,481,000 ========== ========== ==========
See notes to financial statements F-5 AMERICAN BIO MEDICA CORPORATION Statements of Changes in Stockholders' Equity
Preferred Common Stock Additional Due from Stock --------------------- Treasury Paid-in Subscription Officer/Director Shares Shares Amount Stock Capital Receivable Shareholder --------- ---------- -------- ----------- ----------- ------------ ---------------- Balance - April 30, 1999 1,536 14,875,190 $149,000 $12,326,000 $(9,000) Preferred "D" shares converted to common shares (1,647) 1,445,759 14,000 (14,000) Dividends paid to holders of Preferred "D" shares" Preferred shares 111 112,000 Cash Fair value of compensatory stock Options 83,000 Common shares issued in a private Placement 1,408,450 14,000 1,986,000 Exercise of common stock options 17,649 Common stock and common stock options issued to consultants, net of amortization 300,000 3,000 721,000 Cancellation of common stock (1,500) (4,000) 4,000 Amortization of compensatory stock options Net loss Other comprehensive loss: Unrealized loss on securities available for sale Comprehensive loss ------- ---------- -------- ----------- ----------- ---------- ---------------- Balance - April 30, 2000 0 18,045,548 180,000 0 15,210,000 (5,000) Warrant registration penalty 26,000 Cancellation of common stock (50,000) (38,000) Amortization of compensatory stock and options Non-employee granted options fully vested (165,000) Common stock options issued to consultants 19,000 Due from officer/director/ shareholder repayable with common stock (472,000) Net loss Other comprehensive loss: Net change in unrealized loss on securities available for sale Comprehensive loss ------- ---------- -------- ----------- ----------- ---------- ---------------- Balance - April 30, 2001 0 17,995,548 180,000 0 15,052,000 (5,000) (472,000)
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Accumulated Other Comprehensive Unearned Comprehensive Accumulated Loss Compensation Loss Deficit Total ------------- ------------ ------------- ------------ ---------- Balance - April 30, 1999 $ (13,000) $(56,000) $(9,424,000) $2,973,000 Preferred "D" shares converted to common shares Dividends paid to holders of Preferred "D" shares" Preferred shares (82,000) 30,000 Cash (1,000) (1,000) Fair value of compensatory stock Options 83,000 Common shares issued in a private Placement 2,000,000 Exercise of common stock options Common stock and common stock options issued to consultants, net of amortization (452,000) 272,000 Cancellation of common stock Amortization of compensatory stock options 11,000 11,000 Net loss $(2,136,000) (2,136,000) (2,136,000) Other comprehensive loss: Unrealized loss on securities available for sale (21,000) (21,000) (21,000) ----------- Comprehensive loss $(2,157,000) =========== ---------- ---------- ----------- ---------- Balance - April 30, 2000 (454,000) (77,000) (11,643,000) 3,211,000 Warrant registration penalty 26,000 Cancellation of common stock (38,000) Amortization of compensatory stock and options 289,000 289,000 Non-employee granted options fully vested 165,000 Common stock options issued to consultants (19,000) Due from officer/director/ shareholder repayable (472,000) with common stock Net loss (1,880,000) (1,880,000) (1,880,000) Other comprehensive loss: Net change in unrealized loss on securities available for sale 77,000 77,000 77,000 ----------- Comprehensive loss (1,803,000) =========== ----------- ---------- ----------- ---------- Balance - April 30, 2001 (19,000) 0 (13,523,000) 1,213,000
F-6 AMERICAN BIO MEDICA CORPORATION Statements of Changes in Stockholders' Equity (continued)
Preferred Common Stock Additional Due from Stock --------------------- Treasury Paid-in Subscription Officer/Director Shares Shares Amount Stock Capital Receivable Shareholder --------- ---------- -------- ----------- ----------- ------------ ---------------- Balance - April 30, 2001 0 17,995,548 180,000 0 15,052,000 (5,000) (472,000) Equity private placement 2,549,000 26,000 2,306,000 Amortization of compensatory stock and options Shares issued in settlement of litigation 115,000 1,000 105,000 Options issued as severance 85,000 Due from officer/director/ shareholder accrued interest (36,000) Warrants issued for financial advisory services 265,000 Shares received as payment on loan (50,000) (23,000) (48,000) 71,000 Net loss Comprehensive loss --------- ---------- -------- ------- ----------- ----------- ---------------- Balance-December 31, 2001 0 20,609,548 $207,000 (23,000) $17,765,000 $ (5,000) $ (437,000) ========= ========== ======== ======= =========== =========== ================
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Accumulated Other Comprehensive Unearned Comprehensive Accumulated Loss Compensation Loss Deficit Total ------------- ------------ ------------- ------------ ---------- Balance - April 30, 2001 (19,000) 0 (13,523,000) 1,213,000 Equity private placement 2,176,000 Amortization of compensatory stock and options 19,000 Shares issued in settlement of litigation 106,000 Options issued as severance 85,000 Due from officer/director/ shareholder accrued interest (36,000) Warrants issued for financial advisory services 265,000 Shares received as payment on loan Net loss $(1,631,000) $(1,631,000) (1,631,000) ----------- Comprehensive loss $(1,631,000) =========== --------- ---------- ------------ ---------- Balance-December 31, 2001 $ 0 $ 0 $(15,154,000) $2,353,000 ========= ========== ============ ==========
F-7 AMERICAN BIO MEDICA CORPORATION Statements of Cash Flows
Eight Months Ended For the year ended December 31, April 30, April 30, 2001 2001 2000 ---- ---- ---- Cash flows from operating activities: Net loss $ (1,631,000) $ (1,880,000) $ (2,136,000) Adjustments to reconcile net loss: Amortization and depreciation 90,000 123,000 106,000 Penalty charge for late registration 26,000 Allowance for note receivable, net 105,000 Provision for bad debts (16,000) (5,000) 11,000 Compensatory stock and stock options 477,000 289,000 367,000 Accrued interest on due from officer/director/shareholder (36,000) (55,000) (23,000) Loss on disposition of assets 5,000 184,000 14,000 Changes in: Accounts receivable (and notes receivable in 1999) 144,000 145,000 (197,000) Other receivables 179,000 (350,000) Inventory (644,000) (112,000) 356,000 Prepaid expenses (49,000) 5,000 51,000 Restricted cash 40,000 (34,000) Other assets 29,000 18,000 (35,000) Accounts payable (389,000) 140,000 394,000 Accrued expenses 150,000 70,000 141,000 Customer advance deposits 243,000 Wages payable (402,000) 516,000 ------------------------------------------------------ Net cash used in operating activities (1,810,000) (920,000) (846,000) ------------------------------------------------------ Cash flows from investing activities: Purchase of property, plant and equipment (1,202,000) (73,000) (145,000) Purchase of investments (73,000) Loan to BioSys, Inc. (100,000) (280,000) Proceeds from sales and maturity of investments 407,000 571,000 Collections on note receivable 23,000 Loans to officer/director/shareholder (120,000) (32,000) ------------------------------------------------------ Net cash (used in) provided by investing activities (1,202,000) 114,000 64,000 ------------------------------------------------------ Cash flows from financing activities: Proceeds from private placement 2,332,000 2,000,000 Cash dividends paid (1,000) Repayment of note payable to shareholder (125,000) (130,000) Proceeds from debt financing 720,000 Repayment of capital lease obligations (17,000) (11,000) (11,000) ------------------------------------------------------ Net cash provided by (used in) financing activities 3,035,000 (136,000) 1,858,000 ------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 23,000 (942,000) 1,076,000 Cash and cash equivalents - beginning of period 265,000 1,207,000 131,000 ------------------------------------------------------ Cash and cash equivalents - end of period $ 288,000 $ 265,000 $ 1,207,000 ======================================================
F-8 AMERICAN BIO MEDICA CORPORATION Statement of Cash Flows (continued):
Eight Months Ended For the year ended December 31, April 30, April 30, 2001 2001 2000 ---- ---- ---- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 12,000 $ 16,000 $ 8,000 Noncash activities: Common shares issued in connection with stock dividends to holders of preferred stock 111,000 Dividend accrued, not yet paid Acquisition of property under capital leases 10,000 Settlement of registration rights agreement Sale of book business and related assets for a note receivable 205,000 Cancellation of common stock 4,000 Preferred stock converted to common stock 1,647,000 Common stock received in repayment of loan from 71,000 38,000 officer/director/shareholder Conversion of equity investment in BioSys, Inc. 380,000 Non-employee options granted fully vested 165,000
See notes to financial statements F-9 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 Note A - The Company and its Significant Accounting Policies The Company: American Bio Medica Corporation (the "Company") was incorporated in 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 was involved in marketing educational books and software to schools and municipal libraries and audio-visual educational packages to corporations throughout the United States, which constituted less than 10% of net sales. In September 1999, the Company sold this business (see Note H). The Company's financial statements have been prepared assuming the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities in the normal course of business. During the transition period ended December 31, 2001 the Company sustained a net loss of $1,631,000 and had net cash outflows from operating activities of $1,654,000. To date the Company has been largely dependent on its ability to sell additional shares of its common stock to fund its operating losses During the prior fiscal year and continuing throughout this transition period, the Company commenced implementing programs to improve its financial prospects including entering into national and international distribution agreements with a number of distributors, completing and refining its in-house strip manufacturing program to reduce costs and other measures to enhance profit margins. In August 2001 the Company completed a private placement of its common stock to raise working capital and does not expect to experience certain costs at the levels sustained in the transition period and year ended April 30, 2001. Such capital raised was necessary to fund working capital requirements including an agreement to settle legal fees. The Company's history of losses raises substantial doubt about its ability to continue as a going concern and its continued existence is dependent upon several factors, including its ability to raise revenue levels and reduce costs to generate positive cash flows, and to sell additional shares of the company's common stock to fund operations, if necessary. Significant Accounting Policies: [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 accounts for income taxes in accordance with Statements of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted laws and tax rates that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits that are not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates are recognized in the period that such tax rate changes are enacted. [4] Depreciation and amortization: Property, plant and equipment assets are depreciated on the straight-line method over their estimated useful lives. Leasehold improvements and capitalized lease assets are amortized by the straight-line method over the shorter of their estimated useful lives or the term of the lease. F-10 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 [5] Revenue recognition: The Company recognizes revenue when title transfers upon shipment. No obligation on the part of ABMC exists for customer acceptance. The Company's price is fixed and determinable at the date of sale. The buyer has paid the Company or is obligated to pay the Company and the obligation is not contingent on the resale of the product. The buyer's obligation would not be changed in the event of theft or physical destruction or damage to the product. The buyers acquiring the product for resale (i.e. distributor/wholesaler) have economic substance apart from that provided by the Company and the Company does not have significant obligations for future performance to directly bring about the resale of the product. All distributors have economic substance apart from customers and the payment terms are not conditional. The transactions with distributors are on terms similar to the terms given to the Company's other customers. No agreements exist with the distributors that offer a right of return. Revenue from consignment sales is not recognized until all conditional terms have been met. [6] Research and development: Research and development costs are charged to operations when incurred. [7] Loss per common share: Basic loss per share is calculated by dividing net loss by the weighted average number of outstanding common shares during the period. No effect has been given to potential issuances of common stock including outstanding options and warrants in the diluted computation, as their effect would be antidilutive. Potential common shares outstanding as of December 31 and April 30, 2001: December 31, 2001 April 30, 2001 ----------------- -------------- Warrants 2,656,703 953,283 Options 4,374,000 3,620,000 Assuming an adequate number of shares held as collateral for the loan to officer/director/shareholder are retired at the closing price on December 31, 2001 in satisfaction of the officer/director/shareholder obligation to the Company, the pro forma number of shares outstanding at December 31, 2001 would be 20,107,289. [8] Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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: In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No such losses have been recorded. [10] Financial Instruments: The carrying amounts of cash and cash equivalents, accounts receivable - - net, other receivables, due from officer/director/stockholder, restricted cash, accounts payable and accrued expenses approximate their fair value based on the nature of those items. F-11 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 Estimated fair value of financial instruments is 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. [11] Accounting for stock-based compensation: The Company accounts for its stock-based compensation plans using the intrinsic value method under Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations. The Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which establishes a fair value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires disclosure of the pro forma effects on net loss and net loss per share as if stock-based employee compensation was measured under SFAS No. 123, as well as certain other information. The Company accounts for stock-based compensation to non-employees using the fair value method in accordance with SFAS No. 123. [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. The Company establishes an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers and other information. The Company maintains certain cash balances at a financial institution that is federally insured and at times the balances have exceeded federally insured limits. [13] Reporting comprehensive loss: The Company reports comprehensive loss in accordance with the provisions of SFAS No. 130, Reporting Comprehensive Income. The provisions of 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. [14] Reclassifications: Certain items have been reclassified from the prior year to conform with the current year presentation. NOTE B - RESTRICTED CASH Restricted cash consists of one certificate of deposit in the amount of $106,000 including accrued interest at a rate of 1.5% at December 31, 2001, which is collateral for a bank loan in the name of officer/director/shareholder, that is payable on demand in the amount of $100,000. As of April 30, 2001 the restricted cash consisted of two certificates of deposit aggregating $146,000, accruing interest at 5.35%. The first certificate, in the amount of $119,000 was collateral for a bank loan, that is payable on demand in the amount of $100,000. The other certificate, in the amount of $27,000 collateralized a corporate credit card in the amount of $7,000, in the name of a Company officer/director/shareholder. On July 23, 2001, the outstanding amounts due on the collateralized credit card were paid, the account closed and all restrictions on the $27,000 certificate of deposit released. The cash from this certificate was subsequently transferred to operating cash. F-12 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE C - LICENSING AND ROYALTY SETTLEMENT On April 3, 2001, the Company settled the patent infringement lawsuit (see Note N[3]) against Phamatech Inc. (Phamatech) and the other defendants. The agreement establishes a license and royalty arrangement under which Phamatech will continue to market its line of products for drugs-of-abuse testing, and the Company will be paid a percentage of revenues from this product. In return, the Company dismissed the lawsuit against Phamatech and the other defendants. No significant royalties from the continued sale of products are expected. Under the terms of the settlement, each party has agreed not to disclose to any third parties the terms and conditions of this agreement. NOTE D - RECLASSIFICATION An amount originally reported as an extraordinary gain of $259,000 related to a negotiated settlement of outstanding obligations to a former attorney has been reclassified to a gain on settlement for the year ended December 31, 2001. NOTE E - INVENTORY Inventory is comprised of the following:
December 31, 2001 April 30, 2001 ----------------- -------------- Raw Materials $ 913,000 $ 571,000 Work In Process 597,000 373,000 Finished Goods including $167,000 held on consignment on December 31, 2001 and $199,000 on April 30, 2001 net of reserve for returns of $112,000 and $0 at December 31, 2001 and April 30, 2001, respectively 577,000 500,000 ----------- ----------- $ 2,087,000 $ 1,444,000 =========== ===========
NOTE F - PROPERTY, PLANT AND EQUIPMENT In December 2001, the Company purchased its previously leased facility in Kinderhook, N.Y. for $950,000, including a building and 107 acres of land. The Company financed the purchase through mortgage loans with the Hudson River Bank and Trust Company for $360,000, the New York State Business Development Corporation for $240,000, and the Columbia Economic Development Corporation for $120,000. Property, plant and equipment, at cost, are as follows:
December 31, April 30, 2001 2001 ------------ --------- Land $ 222,000 Buildings and improvements 835,000 $ 62,000 Manufacturing and warehouse equipment, including $42,000 and $23,000 in leased equipment at December 31, 2001 and April 30, 2001, respectively 584,000 378,000 Office equipment, including $29,000 and $60,000 in leased equipment at December 31, 2001 and April 30, 2001, respectively 240,000 255,000 ------------ --------- 1,881,000 695,000 Less accumulated depreciation 426,000 347,000 ------------ --------- $ 1,455,000 $ 348,000 ============ =========
F-13 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 Depreciation and amortization expense was $90,000, $123,000 and $106,000 for the transition period ended December 31, 2001 and the fiscal years ended April 30, 2001 and 2000, respectively. NOTE G - DUE FROM OFFICER/DIRECTOR/SHAREHOLDER At December 31, 2001 and April 30, 2001, the Company has a loan due from an officer/director/shareholder for $437,000 and $472,000, respectively, partially evidenced by a note bearing interest at 11.5% per annum and payable on demand. During the first quarter of the year ended April 30, 2001 and during the year ended April 30, 2000, the Company advanced $120,000 and $32,000, respectively to the officer/director/shareholder. Interest income in connection with the note receivable for the transition period ended December 31, 2001 and the fiscal years ended April 30, 2001 and 2000 was $36,000, $55,000, and $23,000 respectively. The officer/director/shareholder has provided 1,000,000 common shares as collateral for the loan and is surrendering to the Company, 25,000 common shares each quarter valued at the closing price on the second day following the earnings release, to reduce the outstanding loan balance. During the transition period, 75,000 common shares valued at $71,000 were redeemed to pay down the loan. 25,000 of the shares surrendered have been retained by the Company and are included as treasury stock on the accompanying balance sheet; all other shares have been cancelled. Such loan is reflected in the Company's financial statements as a reduction of stockholder's equity. NOTE H - OTHER ASSETS On September 1, 1999, the Company sold its book sales business including all inventories and accounts receivable to an entity in exchange for a $250,000 five year secured promissory note. During the year ended April 30, 2000, the Company repossessed certain assets, upon the default of the note and collected $23,000. In April 2001, the $60,000 carrying value of the assets of the book business were determined to be impaired and were written off. NOTE I - DEBT Long term debt at December 31, 2001 consisted of the following:
December 31, 2001 ---------------------- Hudson River Bank and Trust Co.: Mortgage payable in equal monthly installments of $3,209 including interest at 8.75% through January 1, 2012 with a final lump sum payment of $255,000 at maturity, collateralized by the building and land $ 360,000 New York Business Development Corporation: Mortgage payable in equal monthly installments of $1,996 including interest at 7.92% through January 1, 2012 with a final lump sum payment of $164,000 at maturity, collateralized by the building and land, equipment, and furnitures and fixtures 240,000 Columbia Economic Development Corporation: Mortgage payable in equal monthly installments of $1,159 including interest at 3.00% collateralized by building and land due in January 1, 2012 120,000 --------- $ 720,000 Less current portion (24,000) --------- Non-current portion $ 696,000 =========
F-14 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 At December 31, 2001, the following are the maturities of long-term debt for each of the next five years: 2002 $ 24,000 2003 24,000 2004 25,000 2005 27,000 2006 29,000 Thereafter 567,000 --------- $ 720,000 ========= NOTE J - CAPITAL LEASE OBLIGATIONS The Company leases certain equipment under a capital lease. As of December 31, 2001 and April 30, 2001, minimum future lease payments on the capital leases are as follows:
December 31, 2001 April 30, 2001 ------------------- ------------------ 2002 $ 22,000 $ 27,000 2003 9,000 22,000 2004 1,000 5,000 ----------- ------------ Total future minimum lease payments 32,000 54,000 Less amounts representing interest (3,000) (8,000) ----------- ------------ Present value of minimum lease payments $ 29,000 $ 46,000 Less current portion of capital lease payments (19,000) (25,000) ----------- ------------ Long term portion of capital lease obligations $ 10,000 $ 21,000 =========== ============
F-15 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 Note K - Income Taxes A reconciliation of the U.S. Federal statutory income tax rate to the effective income tax rate is as follows:
Transition Period Ended Year Ended December 31, 2001 April 30, 2001 ----------------- -------------- Tax benefit at federal statutory rate (34%) (34%) State tax benefit, net of federal tax effect (5) (5) Valuation allowance 39 39 ----------------- -------------- Effective income tax rate 0% 0% ================= ==============
Significant components of the Company's deferred tax assets are as follows:
December 31, 2001 April 30, 2001 ----------------- -------------- Inventory $ 68,000 $ 16,000 Stock based compensation 291,000 - Allowance for doubtful accounts 27,000 34,000 Property, plant, and equipment (84,000) - Capital losses 41,000 - Net operating loss carry-forward 4,290,000 3,762,000 --------------- -------------- Total gross deferred tax assets 4,633,000 3,812,000 Less valuation allowance (4,633,000) (3,812,000) --------------- -------------- Net deferred tax assets $ - $ - =============== ==============
The valuation allowance for deferred tax assets as of December 31, 2001 and April 30, 2001 was $4,633,000 and $3,812,000 respectively. The net change in the total valuation allowance was an increase of $821,000 for the eight months ended December 31, 2001 and an increase of $312,000 for the year ended April 30, 2001. At December 31, 2001 the Company has Federal and New York state net operating loss carry forwards for income tax purposes of approximately $11,001,000 which begin to expire in 2009. The Company has federal and New York state capital losses of approximately $105,000, which begin to expire in 2005. In assessing the realizability of deferred tax assets, management considers whether or not it is more likely than not that some portion or all deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. The Company's ability to utilize the 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, if future changes in ownership occur. NOTE L - STOCKHOLDERS' EQUITY [1] Preferred stock: During April 1998, the Company completed a private placement in which it netted proceeds 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 was convertible at the lesser of (i) 95% of the F-16 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE L - STOCKHOLDERS' EQUITY CONTINUED [1] Preferred stock (continued): 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 were 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 shares 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 shares 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 shareholders (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), which was subsequently repaid. On January 27, 2000, the holders of the Series D Preferred Shares agreed to convert all of their preferred shares into common shares. Pursuant to this agreement certain preferred shares were converted at a price of $1.078646 resulting in an additional preferred dividend of approximately $57,000 for the difference between the original conversion rate and the adjusted conversion price. During the year ended April 30, 2000, the Company issued 1,445,759 common shares on conversion of the preferred shares and paid accrued dividends of approximately $111,000. [2] Common stock purchase agreement: On April 28, 2000, the Company entered into an agreement with Seaside Partners, L.P. (Investor) to issue and sell 1,408,450 common shares at a per share price of $1.42 (the closing price) for a total of $2 million. In conjunction with the agreement, the Company agreed to issue a five-year warrant to the investor to purchase up to 1,877,934 common shares pursuant to a formula based on the Company's stock price on the ten consecutive trading days prior to the six-month anniversary of the closing date. The agreement provided that if the six-month anniversary price per share was $2.13 or more per share, the Company would not be required to issue any warrants. If the anniversary price was less than $2.13 per share, the Company would be required to issue warrants exercisable at the anniversary price into a number of common shares based on a formula. The anniversary price was not $2.13 and the Company issued 953,283 warrants with an exercise price of $1.1689. These warrants were subsequently repriced to a $0.95 exercise price in lieu of the Company paying liquidated damages of $109,000 resulting from the registration statement with respect to the common shares and the warrants not being declared effective by the SEC by the negotiated deadline. Denis O'Donnell, M.D., one of the Company's directors, is a member of Seaside Advisors, LLC, which is the general partner of Seaside Partners, L.P. [3] August 2001 Private Placement: On August 22, 2001, the Company raised gross proceeds of $2,549,000, with net proceeds of $2,332,000 after placement, legal, transfer agent and accounting fees, in a private placement of its securities to a number of accredited investors. The private placement consisted of 2,549,000 units. Each unit consisted of one common share of American Bio Medica Corporation stock, par value $0.01 per share, at a purchase price of $1.00 per share, and one warrant to purchase 0.5 common share at an exercise price of $1.05 per share, exercisable during a 54-month period beginning on February 22, 2002. Therefore, in connection with the private placement the Company issued 2,549,000 common shares and 1,274,500 warrants to purchase one common share. F-17 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE L - STOCKHOLDERS' EQUITY CONTINUED [3] August 2001 Private Placement (continued): In consideration of services as placement agents in the August 2001 private placement, the Company issued 203,920 warrants to purchase one common share at an exercise price of $1.20 per share, exercisable during a 54 month period beginning on February 22, 2002 to Brean Murray and Co., Inc. and their sub-agents. [4] Stock Option Plans: The Company adopted the Fiscal 1997 Nonstatutory Stock Option Plan (the "1997 Plan"), the Fiscal 1998 Nonstatutory Plan (the "1998 Plan"), the Fiscal 2000 Nonstatutory Stock Option Plan (the "2000 Plan"), and, the 2001 Nonstatutory Stock Option Plan (the "2001 Plan"). The 1997 Plan provides for the granting of options to purchase up to 2,000,000 shares of common stock, the 1998 Plan and the 2000 Plan provides for the granting of options to purchase up to 1,000,000 common shares each and the 2001 Plan provides for granting of options to purchase up to 4,000,000 common shares. These 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. [5] Stock options: Stock option activity is summarized as follows:
Eight months ended December 31, Year ended April 30, ------------------------------- ------------------------------------------------------ 2001 2001 2000 ------------------------------- ------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Options outstanding at beginning of year 3,620,000 $2.15 2,990,000 $2.63 1,976,000 $3.02 Granted 966,000 1.05 1,173,000 1.19 1,858,000 2.45 Exercised 0 0.00 0.00 (67,000) 2.96 0 Cancelled/expired (212,000) 2.85 (543,000) 2.88 (777,000) 3.00 --------- --------- --------- Options outstanding at end of year 4,374,000 1.85 3,620,000 2.15 2,990,000 2.63 ========= ========= ========= Options exercisable at end of year 2,525,000 2.42 2,418,000 2.54 2,558,000 2.67 ========= ========= =========
The following table presents information relating to stock options outstanding at December 31, 2001:
Options Outstanding Options Exercisable --------------------------------------------- ------------------------ Weighted Weighted Weighted Average Average Average Range of Exercise Exercise Remaining Exercise Price Shares Price Life in Years Shares Price ----------------- --------- --------- ------------- ---------- -------- $0.85 - $1.99 1,920,500 $0.98 8.59 229,250 $1.38 ========= ========= $2.00 - $3.00 1,992,000 $2.41 4.87 1,859,500 $2.40 ========= ========= $3.01 - $3.50 461,250 $3.03 1.23 436,250 $3.04 ========= =========
F-18 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE L - STOCKHOLDERS' EQUITY CONTINUED [5] Stock options (continued): As of December 31, 2001, there are no stock options available for issuance under the 1997 or the 1998 Plan. Pursuant to the plans, as of April 30, 2000 no further options could be issued under the 1997 Plan and as of April 30, 2001, no further options could be issued under the 1998 Plan. [6] Warrants On May 2, 2001, the Company issued a 5 year warrant immediately exercisable and non-forfeitable, to purchase 200,000 common shares of American Bio Medica Corporation stock at an exercise price of $1.50 per share to Brean Murray & Co., Inc. as compensation for its future services as a financial advisor to the Company. The warrants were valued at $134,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0%, volatility of 95%, risk free interest rate 4.8% and expected life of 5 years and has been recorded as a charge to operations in the transition period ending December 31, 2001. The closing price of American Bio Medica common shares on May 2, 2001, as listed on The Nasdaq SmallCap Market, was $.95 per share. On August 22, 2001, the Company issued 54-month warrants, exercisable beginning on February 22, 2002 and non-forfeitable, to purchase 1,274,500 common shares of American Bio Medica Corporation stock at an exercise price of $1.05 per share to a number of accredited investors who purchased common shares in the Company's August 2001 private placement of the Company's securities. The value of these warrants was accounted for as a cost of the financing. On October 2, 2001, the Company issued warrants, exercisable beginning February 22, 2002 and non-forfeitable, to purchase 135,500 common shares of American Bio Medica Corporation stock at an exercise price ranging from $.86 to $1.20 per share to two distributors and several financial advisors in consideration for their services. The warrants are valued at $119,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0.0%, volatility 92.0%, risk free interest rate of 5.3% and expected life of 10 years and has been recorded as a charge of operations in the transition period ending December 31, 2001. The closing price of American Bio Medica Corporation common shares on October 2, 2001, as listed on the Nasdaq SmallCap Market, was $0.85 per share. On November 15, 2001, the Company issued a 4 year warrant, immediately exercisable and non-forfeitable, to purchase 20,000 common shares of American Bio Medica Corporation stock at an exercise price of $1.00 per share to Hudson River Bank & Trust Company in connection with the Company's purchase of its facility located in Kinderhook, New York. The warrants are valued at $10,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0.0%, volatility of 90.8%, risk free interest rate of 5.1% and expected life of 5 years. The closing price of American Bio Medica Corporation common shares on November 15, 2001, as listed on the Nasdaq SmallCap Market, was $0.85 per share. [7] 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 shares 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 below 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 the transition period and fiscal years 2001 and 2000 was approximately $0.84, $0.94 and $1.06, 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 ranging from 91% to 92% for the transition period, 92% for 2001 and 85% for 2000, risk free interest rates of ranging from 4.88% - 5.62% for the transition period, 5.29% - 6.22% for 2001 and 5.81% - 6.60% for 2000 expected life of 10 years for the transition period and three years for the years ended April 30, 2001 and 2000. F-19 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE L - STOCKHOLDERS' EQUITY CONTINUED [7] Stock-based compensation (continued):
Eight months ended Year Ended December 31, April 30, 2001 2001 2000 ----------------------------------------------------------- Net Loss: As reported $(1,631,000) $(1,880,000) $(2,136,000) Pro forma $(2,325,000) (2,144,000) (3,684,000 Basic and diluted loss per share As reported $(.08) $(.10) $(.15) Pro forma $(.12) $(.11) $(.24)
In December 1999, the Company entered into a one year consulting agreement with an individual knowledgeable in the medical diagnostic testing area. In connection therewith, the Company issued 300,000 common shares and granted options to purchase 200,000 common shares at $2 per share, vesting as of December 15, 2000. The common shares were valued at $466,000 and amortized over one year. These shares were fully vested and nonforfeitable when issued. The options were valued at $255,000 on December 15, 1999 using the Black-Scholes pricing model and were being expensed ratably over 12 months (the estimated period of benefit). In December 2000, on vesting, the Company revalued the options at $90,000 using the Black-Scholes pricing model and the following assumptions, dividend yield of 0%, volatility of 84%, risk free interest of 5.49% and expected life of 9 years and adjusted paid-in-capital by $165,000. This decrease was debited to paid in capital to recognize the cost of the transaction. The arrangement resulted in a charge to operations of $90,000 for the services. During the year ended April 30, 2000, the Company granted options to distributors and consultants to purchase 97,250 common shares. The options can be exercised through January 2005 at exercise prices ranging from $2.50 to $3.00 per share. In connection therewith, the Company recorded a charge of $83,000 for the year ended April 30, 2000. During the year ended April 30, 2001, the Company granted 1,148,000 options to employees and directors at exercise prices greater than or equal to fair market value of the underlying common shares at dates of grant. In addition, during the year ended April 30, 2001, the Company granted 25,000 options to consultants at fair market value. The options granted to consultants were valued at $19,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0%, volatility of 95%, risk free interest rate of 5.79% and expected life of 5 years and are being amortized over the consulting term of 1 year. During the transition period ended December 31, 2001, the Company granted 708,000 options to employees and directors at exercise prices greater than or equal to fair value of the underlying common shares at dates of grant. In addition, during the transition period ended December 31, 2001, the Company granted 158,000 options to consultants at fair market value and 100,000 options at fair market value to a former employee as part of a severance agreement. The options granted to consultants were valued at $47,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0.0%, volatility of 92.3%, risk free interest rate of 5.3% and expected life of 10 years. The options granted to the former employee as part of a severance agreement were valued using the Black Scholes pricing model and the following assumptions dividend yield of 0.0%, volatility of 93.6%, risk free interest rate of 5.7% and expected life of 5 years. F-20 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE M- INVESTMENTS Through April 30, 2000, the Company had advanced $280,000 to BioSys, Inc. (BioSys), (the former President of BioSys is a director of the Company) and advanced an additional $100,000 to BioSys during the year ended April 30, 2001. The terms of the loan provided for converting the loan into common stock of BioSys based on the percentage of funds provided by the Company compared to the total amount of capital obtained by BioSys within a two-year period commencing on July 14, 1999, limited to a maximum of 20% in exchange for an aggregate contribution of $400,000. In October 2000, the Company converted the loan balance of $380,000 into BioSys common stock and in January 2001, sold the common stock for net proceeds of $360,000. The Company sold marketable equity securities valued at approximately $119,000 in April 2001 for $15,000, realizing a loss on the sale of approximately $104,000. NOTE N - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS [1] Operating leases: The Company leases office and laboratory facilities under operating leases expiring through August 2002. At December 31, 2001, the future minimum rental payments under the operating lease are $42,000. Rent expense was $116,000, $141,000 and $139,000 for the transition period and fiscal years ended April 30, 2001 and 2000, respectively. [2] Employment agreements: The Company has employment agreements with three officers, of which one is a director and all are shareholders, providing for aggregate annual salaries of $460,000. These agreements expire on April 30, 2002 and provide for the issuance of bonuses and the granting of options. [3] Litigation: In April 1999, the Company initiated a lawsuit against Phamatech, Inc., (Phamatech) and other defendants claiming patent infringement, trademark dilution and unfair competition. In August 2000, the Company amended its lawsuit to add additional defendants. On April 3, 2001, the Company settled the patent infringement lawsuit (see Note C) against Phamatech Inc. (Phamatech) and other defendants. The agreement establishes a license and royalty arrangement under which Phamatech will continue to market its line of products for drugs-of-abuse testing, and the Company will be paid a percentage of revenues from this product. In return, the Company dismissed the lawsuit against Phamatech and the other defendants. Under the terms of the settlement, each party has agreed not to disclose to any third parties the terms and conditions of this agreement. In June 1999, Richard Davidson filed a lawsuit against the Company in New York. Davidson claims that two placement memoranda dated September 15, 1992 and February 5, 1993, obligates the Company to issue him 1,155,601 ABMC common shares. He claims he is entitled to the common shares in consideration of brokering the acquisitions subject to the Share Exchange Agreement with Dr. Robert Friedenberg (Friedenberg also filed suit against the Company and the case was dismissed in September 1999). In addition, Davidson is claiming a finder's fee of 5% of the funds raised by the September 1992 private placement. He alleges that a sum of $1 million was raised. He also claims he is entitled to a consulting fee of $24,000. Management denies the claims and is vigorously contesting the suit. A trial date was set for November 2000; however, the Company filed a motion for summary judgment against Davidson and Davidson cross-moved for summary judgment. In July 2001, the Company's motion for summary judgment was denied. In August 2001 the Company filed a Notice of Appeal related to the court's denial of the Company's motion for summary judgment. The court is currently considering Davidson's cross-motion for summary judgment, which the Company opposed in September 2001. The Company filed its brief to appeal the denial of the Company's summary judgment on March 15, 2002. At the same time, a trial date has been set for May 6, 2002. Management believes based on consultation with counsel, that it has substantial and compelling defenses to Davidson's claims and there is a reasonable chance that the Company would prevail if the matter were to go to trial. F-21 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE N - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (continued) In June 1995 the Company filed a lawsuit against Jackson Morris, the lawyer engaged to draft and advise the Company on the Share Exchange Agreement with Dr. Robert Friedenberg. Morris, who had been Note N - Commitments, Contingencies and Other Matters (CONTINUED) [3] Litigation (continued): recommended to the Company by Dr. Friedenberg and whose fees were paid by the Company, was alleged to have breached his fiduciary duty to the Company in several ways, including by later advising Friedenberg, individually, on how to rescind the Share Exchange Agreement as well as testifying for Friedenberg over the Company's objections and in violation of his obligations to the Company. Morris was also charged with negligence in drafting the Share Exchange Agreement. The Company's lawsuit demanded damages in the amount of $1,000,000. Morris counterclaimed as a party to the Share Exchange Agreement and sought common shares. The basis of all of Mr. Morris' claims stemmed from the Friedenberg claim. In August 2001, the Company settled the lawsuit against Mr. Morris by settlement agreement dated July 27, 2001. The Company has issued 115,000 shares of the Company's common stock to Mr. Morris as settlement of all outstanding claims. The Company has agreed to file a registration statement related to these shares no later than June 1, 2002. NOTE O - TRANSITION PERIOD COMPARATIVE DATA: The following table presents certain financial information for the 8 months ended December 31, 2001 and 2000 respectively.
Eight Months Ended December 31, December 31, 2001 2000 (unaudited) --------------------------------- Revenues $ 4,055,000 $ 5,192,000 =========== =========== Gross profit $ 2,331,000 $ 3,464,000 =========== =========== Net Income $(1,631,000) $(1,274,000) =========== =========== Loss per common share $ (.08) $ (.07) ----------- ----------- Weighted average common shares outstanding 19,345,000 18,044,000 ----------- -----------
F-22 AMERICAN BIO MEDICA CORPORATION Notes to Financial Statements December 31, 2001 NOTE P - GEOGRAPHIC INFORMATION Information concerning net sales by principal geographic location is as follows:
December 31, December 31, April 30, April 30, 2001 2000 2001 2000 (unaudited) --------------------------------------------------------------------------- United States $ 3,505,000 $ 4,561,000 $ 6,312,000 $ 7,073,000 North America (not 397,000 449,000 867,000 276,000 domestic) Europe 123,000 98,000 150,000 155,000 Asia/Pacific Rim 23,000 18,000 55,000 11,000 South America 8,000 66,000 100,000 138,000 -------------- ------------- ------------- ------------- $ 4,055,000 $ 5,192,000 $ 7,484,000 $ 7,653,000 ============== ============= ============= =============
F-23
Number Description of Exhibits - ------ ----------------------- 3.5 Bylaws(1) 3.50 Amended and Restated Bylaws 3.6 Fifth amendment to the Certificate of Incorporation (filed as Exhibit 3.6 to the Company's Form SB-2 filed on November 21, 1996 and incorporated herein by reference) 3.7 Sixth amendment to the Certificate of Incorporation 4.2 Investor Registration Rights Agreement, dated August 22, 2001, among American Bio Medica Corporation and the investors(4) 4.3 Placement Agent Registration Rights Agreement, dated August 22, 2001, among American Bio Medica Corporation and the placement agent and its sub-agents(4) 4.4 Form of Warrant Agreement and Warrant among American Bio Medica Corporation and the investors(4) 4.5 Form of Warrant Agreement and Warrant among American Bio Medica Corporation and the placement agent and its sub-agents(4) 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) 4.14 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) 4.15 Fiscal 2000 Nonstatutory Stock Option Plan (filed as part of the Company's Proxy Statement for its Fiscal 2000 Annual Meeting and incorporated herein by reference) (a) 4.16 Common Stock Purchase Agreement dated April 28, 2000 by and between the Company and Seaside Partners, L.P.(2) 4.17 Fiscal 2001 Nonstatutory Stock Option Plan (filed as part of the Company's Proxy Statement for its Fiscal 2002 Annual Meeting and incorporated herein by reference) (a) 10.6 Contract of Sale dated May 19, 1999/Kinderhook, New York facility(2) 10.7 Agreement of Lease dated May 13, 1999/Kinderhook, New York facility(2) 10.8 Lease dated August 1, 1999/New Jersey facility(2) 10.9 Amendment dated March 23, 2001 to Lease dated August 1, 1999/New Jersey facility(3) 10.10 Amended Contract of Sale dated May, 2001/Kinderhook, New York facility(3) 10.11 Financial Advisory Agreement dated May 2, 2001 by and between Brean Murray & Co., Inc. and the Company(3) 10.12 Employment contract between the Company and Robert L. Aromando, Jr. (a)(3) 10.13 Employment contract between the Company and Stan Cipkowski (a)(3) 10.14 Employment contract between the Company and Douglas Casterlin (a)(3) 10.15 Employment contract between the Company and Keith E. Palmer (a)(3) 10.16 Warrant Agreement dated November 15, 2001 by and between the Company and Hudson River Bank & Trust Company 23.1 Consent of Independent Auditors
(a) indicates an employee benefit plan, management contract or compensatory plan or arrangement in which a named executive officer participates. (1) Filed as the exhibit number listed to the Company's Form 10-SB filed on November 21, 1996 and incorporated herein by reference. (2) Filed as the exhibit number listed to the Company's Form 10-KSB filed on August 11, 2000 and incorporated herein by reference. (3) Filed as the exhibit number listed to the Company's Form 10-KSB filed on August 13, 2001 and incorporated herein by reference. (4) Filed as the exhibit number listed to the Company's Form S-3 filed on September 26, 2001 and incorporated herein by reference. EX-23 3 ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements of American Bio Medica Corporation (the "Company") on Form S-3 (File No. 333-70220, Form S-3 (File No. 333-16535), Form S-8 (File No. 333-83684), Form S-8 (File No. 333-91025) and Form S-8 (File No. 333-19203) of our report dated June 20, 2001 (with respect to Note B, July 23, 2001) on our audits of the financial statements of the Company as of April 30, 2001 and for each of the years in the two year period then ended which report is included in this Annual Report on Form 10-KSB/A-1. In addition, we consent to the reference to us under the heading "Experts" in the registration statements in the above Forms S-3. Our report contains an explanatory paragraph that states that the Company has experience recurring net losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Eisner LLP (formerly Richard A. Eisner & Company, LLP) New York, New York June 3, 2002 -----END PRIVACY-ENHANCED MESSAGE-----