424B3 1 c59153e424b3.txt PROSPECTUS SUPPLEMENT 1 Filed Pursuant to Rule 424(b)(3) Registration No. 333-50230 Prospectus Supplement No. 1 Dated December 15, 2000 (to Prospectus November 30, 2000) AMERICAN BIO MEDICA CORPORATION This Prospectus Supplement is part of the Prospectus dated November 30, 2000 related to an offering of up to 2,361,733 shares of our common stock by the persons identified as the "selling shareholder" in the Prospectus. Quarterly Report. A copy of our Quarterly Report on Form 10-QSB for the fiscal quarter ended October 31, 2000 is attached hereto. The date of this Prospectus Supplement is December 15, 2000. 2 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB [x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended October 31, 2000. [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to Commission File Number: 0-28666 AMERICAN BIO MEDICA CORPORATION ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New York 14-1702188 ------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 122 Smith Road, Kinderhook, New York 12106 ------------------------------------------ (Address of principal executive offices) 800-227-1243 --------------------------- (Issuer's telephone number) 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. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 18,045,548 Common Shares as of December 15, 2000 Transitional Small Business Disclosure Format: Yes [ ] No [X] 3 PART I FINANCIAL INFORMATION AMERICAN BIO MEDICA CORPORATION BALANCE SHEETS
OCTOBER 31, 2000 APRIL 30, (UNAUDITED) 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 259,000 $ 1,207,000 Investments 59,000 74,000 Accounts receivable, net 1,474,000 1,150,000 Due from director/stockholder 109,000 Inventory 1,389,000 1,332,000 Prepaid expenses 77,000 46,000 ------------ ------------ Total current assets 3,258,000 3,809,000 Property, plant and equipment, net 367,000 388,000 Due from director/stockholder 373,000 335,000 Restricted cash 116,000 112,000 Other assets 103,000 114,000 Investment in and loan receivable - BioSys, Inc. 380,000 280,000 ------------ ------------ $ 4,706,000 $ 5,038,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,972,000 $ 1,655,000 Note payable - stockholder 125,000 Current portion of capital lease obligations 16,000 13,000 ------------ ------------ Total current liabilities 1,988,000 1,793,000 Long term portion of capital lease obligations 25,000 34,000 ------------ ------------ Total liabilities 2,013,000 1,827,000 ------------ ------------ Contingencies 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; 30,000,000 shares authorized; 18,045,548 shares issued and outstanding at October 31, 2000 and April 30, 2000 180,000 180,000 Additional paid-in capital 15,210,000 15,210,000 Subscription receivable (5,000) (5,000) Unearned portion of compensation (90,000) (454,000) Unrealized loss on investments available for sale (92,000) (77,000) Accumulated deficit (12,510,000) (11,643,000) ------------ ------------ 2,693,000 3,211,000 ------------ ------------ $ 4,706,000 $ 5,038,000 ============ ============
See accompanying notes to financial statements 4 AMERICAN BIO MEDICA CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, --------------------------------- 2000 1999 ------------ ------------ Net sales $ 4,176,000 $ 4,249,000 Cost of goods sold 1,436,000 2,115,000 ------------ ------------ Gross profit 2,740,000 2,134,000 ------------ ------------ Operating expenses: Selling, general and administrative (including non-cash compensation of $364,000 - 2000) 3,288,000 1,994,000 Depreciation 61,000 18,000 Research and development 318,000 258,000 ------------ ------------ 3,667,000 2,270,000 ------------ ------------ Operating loss (927,000) (136,000) ------------ ------------ Other income (expense): Gain on sale of marketable securities 15,000 Gain on sale assets 32,000 Interest income 64,000 44,000 Interest expense (4,000) (12,000) ------------ ------------ 60,000 79,000 ------------ ------------ Net loss $ (867,000) $ (57,000) Adjustments: Preferred stock beneficial conversion feature (123,000) Preferred stock dividends (54,000) ------------ ------------ Net loss attributable to common shareholders $ (867,000) $ (234,000) ============ ============ Basic and diluted net loss per common share $ (0.05) $ (0.02) Weighted average shares outstanding - basic and diluted 18,045,548 14,923,341 ============ ============ AMERICAN BIO MEDICA CORPORATION STATEMENT OF COMPREHENSIVE LOSS Net loss $ (867,000) $ (57,000) Other comprehensive loss: Unrealized loss on investments (15,000) (13,000) ------------ ------------ Comprehensive loss $ (882,000) $ (70,000) ============ ============
See accompanying notes to financial statements 5 AMERICAN BIO MEDICA CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED OCTOBER 31, --------------------------------- 2000 1999 ------------ ------------ Net sales $ 2,021,000 $ 2,122,000 Cost of goods sold 694,000 1,033,000 ------------ ------------ Gross profit 1,327,000 1,089,000 ------------ ------------ Operating expenses: Selling, general and administrative (including non-cash compensation of $182,000 - 2000) 1,533,000 1,087,000 Depreciation 32,000 9,000 Research and development 199,000 23,000 ------------ ------------ 1,946,000 1,119,000 ------------ ------------ Operating loss (619,000) (30,000) ------------ ------------ Other income (expense): Loss on sale of marketable securities (43,000) Gain on sale assets 32,000 Interest income 27,000 17,000 Interest expense (2,000) (6,000) ------------ ------------ 25,000 0 ------------ ------------ Net loss $ (594,000) $ (30,000) Adjustments: Preferred stock dividends (22,000) ------------ ------------ Net loss attributable to common shareholders $ (594,000) $ (52,000) ============ ============ Basic and diluted net loss per common share $ (0.03) $ (0.00) Weighted average shares outstanding - basic and diluted 18,045,548 14,923,341 ============ ============ AMERICAN BIO MEDICA CORPORATION STATEMENT OF COMPREHENSIVE LOSS Net loss $ (594,000) $ (30,000) Other comprehensive loss: Unrealized gain (loss) on investments (28,000) 31,000 ------------ ------------ Comprehensive loss $ (622,000) $ 1,000 ============ ============
See accompanying notes to financial statements 6 AMERICAN BIO MEDICA CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, ------------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (867,000) $ (57,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 61,000 49,000 Provision for bad debts (11,000) 35,000 Amortization of compensatory stock and stock options 364,000 Accrued interest (27,000) (10,000) Research and development costs paid through accounts receivable reduction 134,000 Changes in: Accounts receivable (and notes receivable in 1999) (447,000) (690,000) Inventory (57,000) 211,000 Prepaid expenses (31,000) (162,000) Restricted cash (4,000) Other assets 11,000 (5,000) Accounts payable and accrued expenses 317,000 402,000 ----------- ----------- Net cash used in operating activities (557,000) (227,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (40,000) (107,000) Loan to Biosys, Inc. (100,000) Loan to director/stockholder (120,000) Purchase of investments (73,000) Sales and maturity of investments 442,000 Gain on sale of investments 4,000 ----------- ----------- Net cash provided by (used in) investing activities (260,000) 266,000 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Settlement of registration rights agreement (100,000) Repayment of notes payable to stockholder (125,000) Capital lease payments (6,000) (7,000) ----------- ----------- Net cash used in financing activities (131,000) (107,000) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (948,000) (68,000) Cash and cash equivalents - beginning of period 1,207,000 131,000 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 259,000 $ 63,000 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 3,000 $ 4,000 NON-CASH ACTIVITIES: Common stock dividends paid to holders of preferred stock $ 60,000 Dividend accrued not yet paid $ 22,000 Conversion of Biosys, Inc. loan to equity investment in Biosys, Inc. $ 380,000
See accompanying notes to financial statements 7 Notes to Financial statements October 31, 2000 Note A - Basis of Reporting The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of American Bio Medica Corporation (the "Company" or "ABMC") at October 31, 2000, and the results of its operations, and cash flows for the six-month and three-month periods then ended. The results of operations for the six-month and three month periods ended October 31, 2000 are not necessarily indicative of the operating results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and related disclosures for the year ended April 30, 2000 included in the Company's Form 10-KSB. During the year ended April 30, 2000, the Company sustained a net loss of $2,136,000 and had net cash outflows from operating activities of $846,000. During the six months ended October 31, 2000, the Company sustained a net loss of $867,000 principally due to an increase in selling, general and administrative expenses and had net cash outflows from operating activities of $557,000. The Company has taken a number of steps to improve its financial prospects including entering into national and international distribution agreements with a number of distributors, completed an in-house strip manufacturing program to reduce costs, initiated an aggressive program to market the Drug Detector(TM) to the retail market through several large retail pharmacies, and other measures to enhance profit margins. In addition, the Company is negotiating with an institutional investor to purchase up to $6 million of Company common shares over a 24 month period. The purchase price per share will be based on future performance of the common shares. The proceeds from this financing, if completed, will be used for operations and growth over the next 24 months. There is no assurance that the Company will be able to complete this financing. Note B - 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. When preferred stock is convertible to common stock at a conversion rate that is the lower of a rate fixed at issuance or a fixed discount from the common stock market price at the time of conversion, the discounted amount is an assured incremental yield. This "beneficial conversion feature", to the preferred stockholders is accounted for as an embedded dividend to preferred shareholders. As such, the loss per common share was adjusted for this feature. Note C - Litigation "Patent, Trademark, and Unfair Competition Litigation" On January 26, 1999, the Company was granted a U.S. Patent for the design of the Multiple Test Card, known as the Rapid Drug Screen. On April 7, 1999, the Company filed suit in the federal court in Delaware against Phamatech, Inc., (hereinafter "Phamatech") of California. Phamatech was a 8 former supplier of the Company and in that capacity acquired proprietary information on the Company's Rapid Drug Screen that it used to "knock off" the Company's product. This case was transferred from Delaware to California. In July 2000, the California Court granted ABMC's motion to add Tuan Pham, President of Phamatech, as an individual defendant in the suit. The Court also ordered that Wolfe & Associates (aka Wolfe Data) and James Wolfe, Elite Health Services, LLC and John Polanco (former ABMC distributors now selling the alleged infringing product) be joined as defendants. Peninsula Drug Analysis Co., Inc. and James Ramsey (former ABMC distributor selling a private label knock off manufactured by Phamatech), and Dipro Diagnostics of North America (another party selling the private label knock off manufactured by Phamatech) are already parties. The Company is alleging patent infringement, violation of trademark and trade dress rights, and unfair competition against all parties. On April 8, 1999, one day after the Company filed its Delaware suit, Phamatech, Inc. filed suit in the federal court in San Diego, California asking for a declaration that the Company's patent is invalid. It also claimed breach of contract damages for an alleged non-payment of invoices by the Company. The Company's transferred Delaware case and Phamatech's California case have been placed on the same trial docket in San Diego. By Order dated July 24, 2000, the Court directed the competing California based suits be consolidated in one case. Phamatech sought summary judgment on its declaratory judgment on the Company's patent claims. The trial court denied the motion. For reasons stated in an opinion, the trial court denied the Company's trademark claim. Phamatech since has moved for partial summary judgment on ABMC's unregistered trade dress claim. The motion is pending decision. An ABMC application for protection and registration of another portion of its trade dress has been adversely decided by the examiner at the United States Patent and Trademark Office, and the Company plans an appeal. Counter-Defendants, Phamatech and Tuan Pham, on or about October 10, 2000, brought four claims for relief against ABMC: (1) abuse of intellectual property; (2) unfair competition; (3) interference with business relationships; and (4) declaratory judgment. ABMC is vigorously contesting and has moved to dismiss these retaliatory claims. That motion will be heard in the first quarter of 2001. The Court has issued a scheduling order providing that discovery is to conclude on April 30, 2001 with a pre-trial conference in October 2001. There has been limited discovery undertaken in connection with the foregoing claims, and counsel for ABMC was not involved in the patent or trademark registration application. For those reasons, counsel for ABMC is unable to express an opinion about the outcome of the parties' respective claims and defenses. In October 1999, the Company sued Larry Hartselle, Drug Detection Devices, and Gulf Supply for patent infringement, trademark dilution, and unfair competition. It was alleged that they were also selling the Phamatech knock off. Drug Detection Devices was alleged to be selling yet another private label manufactured by Phamatech. Larry Hartselle d/b/a Instant Drug Detection is a former distributor who was selling the Phamatech knock-off. Gulf Supply is alleged to be selling the private label knock off sold by Drug Detection Devices. The claims against Hartselle and 3DL have been settled by the parties. The terms are confidential. As a non-confidential part of the agreement, Hartselle, without admitting any liability, has agreed to a consent order prohibiting him from selling the knock-off product in all configurations and from infringing any other ABMC property. The Company has agreed to stay the claims against the remaining party, Gulf Supply Co., Inc., pending resolution of the above-referenced California case which is anticipated to govern the outcome of the claims against Gulf Supply Co., Inc. "Friedenberg-related Litigation" 9 In February 1994, Robert Friedenberg, as former owner of the two medical technology companies, MDI and Gendex, acquired by the Company, in the name of these corporations, filed for a declaratory judgment in Maryland that a Share Exchange Agreement had been rescinded. In order to make a claim for damages, the Company filed a third-party claim against Dr. Friedenberg for breach of the Share Exchange Agreement and fraud. In November 1995, after a trial, the court denied Dr. Friedenberg's request for a declaration of rescission and allowed the Company's third-party claim to proceed to trial. In September 1996, Dr. Friedenberg died. The Company's third party claim was decided by a jury on May 5, 1997. The verdict determined that Dr. Friedenberg breached the Share Exchange Agreement when he failed to deliver drug screening know how technology to the Company. The jury also found in favor of the Company on two of three fraud claims against Dr. Friedenberg and awarded the Company approximately $321,000 in damages. Dr. Friedenberg's estate, just prior to the jury trial, filed a supplemental claim for the shares of the Company which he would have received under the Share Exchange Agreement. The trial judge on July 17, 1998, ruled that the estate of Dr. Friedenberg was entitled to 5,907,154 common shares of the Company. The Company appealed that ruling and on September 15, 1999, the Court of Special Appeals in Maryland ruled in favor of the Company and reversed a Maryland circuit court's ruling that the estate of Dr. Robert Friedenberg was entitled to 5,907,154 common shares of the Company. The case was remanded to the circuit court with directions to enter a judgment for the Company. The Friedenberg estate petitioned the Court of Appeals, Maryland's highest court, to consider the case. The Company opposed any further proceeding. On December 21, 1999, the Court of Appeals denied the Friedenberg estate's petition to review the decision of the Court of Special Appeals. In June 1995, the Company filed a lawsuit against Jackson Morris, the lawyer who was in charge of drafting and advising it on the Share Exchange Agreement. Mr. Morris, who had been recommended to the Company by Dr. Robert Friedenberg and whose fees were paid by the Company, is alleged to have breached his fiduciary duty to the Company in several ways, including by later advising Dr. Friedenberg, individually, on how to rescind the Share Exchange Agreement as well as testifying for Dr. Friedenberg over the Company's objections and in violation of this obligations to the Company. Mr. Morris is also charged with negligence in drafting the Share Exchange Agreement. The Company's lawsuit demands damages in the amount of $1,000,000. Mr. Morris has counterclaimed as a party to the Share Exchange Agreement and seeks common shares. Whatever claim Mr. Morris has comes from the Friedenberg claim. No trial date has been set. The Company is vigorously contesting the Morris claim. In June 1999, an individual, Richard Davidson, filed suit in New York claiming that two placement memoranda dated respectively September 15, 1992 and February 5, 1993, obligated the Company to issue him 1,155,601 common shares of the Company. The claim is that he is entitled to the common shares in consideration of brokering the acquisitions subject to the Share Exchange Agreement with Dr. Robert Friedenberg. In addition, the individual is claiming a finder's fee of five percent of the funds raised by the September 1992 private placement. He alleges that a sum of one million dollars was raised. Finally, he claims that he is entitled to a consulting fee of $24,000. Management denies the claims and is vigorously contesting the suit. It is scheduled for a jury trial in the fourth calendar quarter of 2000. ABMC has filed a motion for summary judgment against Davidson. Davidson has cross-moved for summary judgment. The jury trial scheduled for November 2000 has been postponed. The Company is awaiting decisions on the motions and, if necessary, rescheduling of the trial date. Note D - Reclassifications Certain items have been restated to conform with the current presentation. 10 Note E - Other matters Included in Accounts Receivable is adjusted for non-cash amount of $134,000 for Research and Development costs incurred during the six months ended October 31, 2000. The costs were the result of work performed by a current customer to evaluate the Tricyclic Antidepressant (TCA) component of the Rapid Drug Screen (RDS). These costs are being credited against the customer's account in lieu of payment. In October 2000, the outstanding loan balance of $380,000 to BioSys, Inc. was converted to an equity participation of the same amount in BioSys, Inc., representing 19% ownership. This conversion was exercised as part of an agreement included at the inception of the loan. The Company provided a loan in the amount of $380,000 to BioSys, Inc. ("BioSys"). BioSys is a development stage company focusing on developing, manufacturing, marketing and selling proprietary new products for the industrial microbiology testing market. Gerald Moore, a director of the Company, is a stockholder and officer of BioSys. This loan was convertible into shares of common stock of BioSys, Inc. based on the percentage of the funds provided by the Company through this loan during the two year period ending July 14, 2001 compared to the total amount of funds provided to BioSys by all other investors during this period. Note F - Registration Penalty The Common Stock Purchase Agreement that the Company entered into with Seaside Partners in connection with the private placement of 1,408,450 common shares for $2,000,000 on April 28, 2000 provided that the Company was obligated to register these shares by filing a registration statement with the SEC and to have the registration statement declared effective by October 28, 2000. The Common Stock Purchase Agreement further provided that the Company would be obligated to pay to Seaside Partners liquidated damages in an amount equal to five percent per month (or any part thereof), compounded monthly on $2,000,000 for the period beginning on October 29, 2000 and ending on the date the registration statement is declared effective by the SEC. The registration statement was declared effective, November 30, 2000, resulting in the Company being obligated to pay liquidated damages of approximately $110,000 to Seaside Partners ($9.000 at October 31, 2000). The Company is currently negotiating with Seaside Partners with respect to alternate non-cash methods of payment of the liquidated damages or to reduce the amount of liquidated damages if paid in cash. Item 2. Management's Discussion and Analysis or Plan of Operation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999 The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this document. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that except for the description of historical facts contained herein, the Registration Statement contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company's filings with the Securities and Exchange Commission and elsewhere. Such statements are based on Management's current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company's fluctuations in sales and operating results, risks associated with international operations and regulatory, competitive and contractual risks and product development; (b) the ability to achieve 11 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. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AS COMPARED TO THE SIX MONTHS ENDED OCTOBER 31, 1999 ----------------------------------------------------------------------------- Net sales were $4,176,000 for the six months ended October 31, 2000 as compared to $4,249,000 for the six months ended October 31, 1999, representing a decrease of $73,000 or 1.7%. This decrease was primarily attributed to a decrease in sales of the Rapid Drug Screen (TM), stemming, in large part, from the continued pressure from the sale of a "knock-off" product by a former supplier. During the 2001 Second Quarter, the Company continued its extensive program to market and distribute its primary product, the Rapid Drug Screen(TM). Further, significant progress was made, during the three months ended October 31, 2000, placing the Drug Detector(TM) in retail pharmacies. Several large retailers were contacted and at least one of these is expected to complete an order during the 2001 Third Quarter (ending January 31, 2001). The Company believes that sales from drug test kits together with Drug Detector (TM) will begin to grow steadily. Cost of goods sold for the six months ended October 31, 2000 was $1,436,000 or 34.4% of net sales as compared to $2,115,000 or 49.8% of net sales for the six months ended October 31, 1999. This decrease resulted primarily from the Company's extensive cost reduction program aimed specifically at its in-place production process and the Company's in-house manufacturing of drug test strips. The Company confirmed that the cost reduction programs, previously initialed, have been completed and margins have met managements expectations. The decrease in net sales of drug test kits in the six months ended October 31, 2000 was significantly less than the 37.9% increase in the six months ended October 31, 1999 compared to the six months ended October 31, 1998. Management believes that the Company's net sales continued to be significantly impacted by the production and sale of a "knock-off" product by a former supplier. The Company cannot reasonably estimate the full impact of this on the fiscal year ended April 30, 2000. Certain of the Company's former distributors also began selling the knock-off product in the 2000 Fiscal Year. The Company has filed a lawsuit against the former supplier and certain of the former distributors alleging patent infringement, trademark dilution and unfair competition. See "Note C - Litigation" to the Company's unaudited financial statements. Management believes that as the Company successfully settles these lawsuits or the courts' rule in favor of the Company following the trial of these lawsuits, the Company's net sales will significantly increase. While revenues decreased 1.7% in the six months ended October 31, 2000, selling, general and administrative costs increased $930,000 or 46.6% to $2,924,000 compared to $1,994,000 for the six months ended October 31, 1999. The following table sets forth the percentage relationship of selling, general and administrative costs to net sales for the six months ended October 31, 2000 and October 31, 1999: 12
SIX MONTHS SIX MONTHS ENDED ENDED October 31, Percent October 31, Percent 2000 Sales 1999 Sales --------------- ------------ --------------- ------------ Sales salaries and commissions $ 449,000 10.8% $ 521,000 12.3% Sales travel 176,000 4.2% 217,000 5.1% Consulting and other selling expenses 207,000 5.0% 315,000 7.4% Marketing and promotion 363,000 8.7% 153,000 3.6% Investor relations costs 221,000 5.3% 120,000 2.8% Legal fees 652,000 15.6% 190,000 4.5% Accounting fees 138,000 3.3% 20,000 0.5% Office salaries 384,000 9.2% 147,000 3.5% Payroll taxes and insurance 93,000 2.2% 79,000 1.9% Telephone 75,000 1.8% 64,000 1.5% Insurance 23,000 0.5% 25,000 0.6% Bad Debts 37,000 0.9% Other administrative costs 143,000 3.4% 106,000 2.4% -------------- -------------- Total selling, general and administrative costs $ 2,924,000 70.0% $ 1,994,000 47.0% ============== ==============
Management believes that the amount of selling, general and administrative costs will increase as the Company continues to create the necessary infrastructure to meet the Company's worldwide drug test marketing and production goals. These costs will also increase as the Company increases its marketing efforts relating to over-the-counter sales of the Drug Detector (TM) and increases its direct selling efforts in connection with all of the Company's products. Legal fees for the six months ended October 31, 2000 were $652,000 or 15.6% of net sales, an increase of $462,000, compared to legal fees of $190,000 or 4.5% of net sales for the six months ended October 31, 1999. This increase in legal fees is primarily due to the substantial legal fees incurred in connection with the lawsuits filed against a former supplier and certain former distributors in connection with the production and sale of a knock-off product. Management believes that the Company's successful prosecution of these lawsuits will result in a significant increase in the Company's sales revenue. As a result of expenses associated with an internal restructuring of its marketing department, marketing and promotion costs increased $210,000 to $363,000 or 8.7% of net sales for the six months ended October 31, 2000 compared to $153,000 or 3.6% of net sales for the six months ended October 31, 1999. Office salaries for the six months ended October 31, 2000 were $384,000 or 9.2% of net sales, an increase of $237,000, compared to office salaries of $147,000 or 3.5% of net sales for the six months ended October 31, 1999. This increase was primarily due to an increase in staff in purchasing and quality assurance. Accounting fees for the six months ended October 31, 2000 were $138,000 or 3.3% of net sales, an increase of $118,000, compared to accounting fees of $20,000 or 0.5% of net sales for the six months ended October 31, 1999. This was primarily due to an under accrual in October 1999. The increases in legal fees, marketing and promotion costs, office salaries and accounting fees during the six months ended October 31, 2000 13 were partially offset by decreases in sales salaries and commissions and consulting and other selling expenses. Sales salaries and commissions for the six months ended October 31, 2000 were $449,000 or 10.8% of net sales, a decrease of $72,000, compared to sales salaries and commissions of $521,000 or 12.3% of net sales for the six months ended October 31, 1999. Consulting and other selling expenses decreased $108,000 to $207,000 for the six months ended October 31, 2000 compared to $315,000 for the six months ended October 31, 1999. This decrease was primarily due to a reduction in staff and less reliance on consultants. Depreciation expense increased $43,000 to $61,000 or 1.5% of net sales for the six months ended October 31, 2000 compared to depreciation of $18,000 or .4% of net sales for the six months ended October 31, 1999. The Company amortized a non-cash compensation charge of $364,000 or 8.7% of net sales associated with the issuance of common shares and grants of options to purchase common shares in the six months ended October 31, 2000 as compensation for consulting and professional services performed in fiscal 2000. No non-cash compensation charge was incurred in the six months ended October 31, 1999. Research and development expenses for the six months ended October 31, 2000 were $318,000 compared to $258,000 for the six months ended October 31, 1999. This increase was primarily due to additional scientific headcount and use of consultants to supplement the Company's successful implementation of certain quality standards in the manufacturing of the Rapid Drug Screen(TM) product during Fiscal 2000. Net loss from operations increased to $867,000 for the six months ended October 31, 2000 compared to $57,000 for the six months ended October 31, 1999. RESULTS OF OPERATIONS FOR THE FISCAL QUARTER ENDED OCTOBER 31, 2000 (the "2001 Second Quarter") AS COMPARED TO THE FISCAL QUARTER ENDED OCTOBER 31, 1999 (the "2000 Second Quarter") -------------------------------------------------------------------------------- Net sales were $2,021,000 for the 2001 Second Quarter as compared to $2,122,000 for the 2000 Second Quarter, representing an decrease of $101,000 or 4.8%. Continued pressure from "knock-off" products coupled with pricing pressure from other competitors is hampering sales growth. During the 2001 Second Quarter, the Company continued its extensive program to market and distribute its primary product, the Rapid Drug Screen(TM). The Company believes that sales from drug test kits will begin to grow steadily. Cost of goods sold for the 2001 Second Quarter was $694,000 or 34.3% of net sales as compared to $1,033,000 or 48.7% of net sales for the 2000 Second Quarter. This decrease is consistent with the 2001 First Quarter and resulted primarily from the Company's extensive cost reduction program aimed specifically at its in-place production process and the Company's in-house manufacturing of drug test strips. Management believes that the Company's net sales decrease of 4.8% for the 2001 Second Quarter was primarily due to the production and sale of a "knock-off" product by a former supplier. Certain of the Company's former distributors continued selling the "knock-off" product in the 2001 First Quarter. The Company filed a lawsuit against the former supplier and certain of the former distributors alleging patent infringement, trademark dilution and unfair competition. See "Note C - Litigation" to the Company's unaudited financial statements. Management believes that as the Company successfully settles these lawsuits or the courts' rule in favor of the Company following the trial of these lawsuits, the Company's net sales will significantly increase. While revenues declined in the 2001 Second Quarter, selling, general and 14 administrative costs increased $446,000 or 41.0% to $1,533,000 for the 2001 Second Quarter compared to $1,087,000 for the 2000 Second Quarter. The following table sets forth the percentage relationship of selling, general and administrative costs to net sales for the 2001 Second Quarter and 2000 Second Quarter:
Second Second Quarter Percent Quarter Percent 2001 Sales 2000 Sales ----------- --------- ----------- --------- Sales salaries and commissions $ 263,000 13.0% $ 271,000 12.8% Sales travel 77,000 3.8% 118,000 5.5% Consulting and other selling expenses 85,000 4.2% 235,000 11.1% Marketing and promotion 222,000 11.0% 99,000 4.7% Investor relations costs 126,000 6.2% 80,000 3.8% Legal fees 329,000 16.3% 86,000 4.1% Accounting fees 57,000 2.8% Office salaries 208,000 10.3% 21,000 1.0% Payroll taxes and insurance 45,000 2.3% 41,000 1.9% Telephone 37,000 1.8% 36,000 1.7% Insurance 10,000 0.5% 14,000 0.7% Bad Debts (9,000) (0.4%) 20,000 0.9% Other administrative costs 83,000 4.1% 66,000 3.0% ----------- ----------- Total selling, general and administrative costs $ 1,533,000 75.9% $ 1,087,000 51.2% =========== ===========
Management believes that the amount of selling, general and administrative costs will increase as the Company continues to create the necessary infrastructure to meet the Company's worldwide drug test marketing and production goals. However, steps are being taken to slow the rate of increase to be more consistent with the growth rate of the Company. These costs will also increase as the Company increases its marketing efforts relating to over-the-counter sales of the Drug Detector (TM) and increases its direct selling efforts in connection with all of the Company's products. Legal fees for the 2001 Second Quarter were $329,000 or 16.3% of net sales, an increase of $243,000, compared to legal fees of $86,000 or 4.1% of net sales for the 2000 Second Quarter. This increase in legal fees is primarily due to the substantial legal fees incurred in connection with the lawsuits filed against a former supplier and certain former distributors in connection with the production and sale of a "knock-off" product. Management believes that the Company's successful prosecution of these lawsuits will result in a significant increase in the Company's sales revenue. As a result of expenses associated with an internal restructuring of its marketing department, marketing and promotion costs increased $123,000 to $222,000 or 11.0% of net sales for the 2001 Second Quarter compared to $99,000 or 4.7% of net sales for the 2000 Second Quarter. Office salaries for the 2001 Second Quarter were $208,000 or 10.3% of net sales, an increase of $187,000, compared to office salaries of $21,000 or 1.0% of net sales for the 2000 Second Quarter. This increase was primarily due to an increase in staff in purchasing and quality assurance. Also contributing to this were salary adjustments for management. Accounting fees for the 2001 Second Quarter were $57,000 or 2.8% of net 15 sales compared to no accounting fees for the 2000 Second Quarter. This was primarily due to an under accrual during the 2000 Second Quarter. The increases in legal fees, marketing and promotion costs, office salaries and accounting fees during the 2001 Second Quarter were partially offset by decreases in sales salaries and commissions. Sales travel for the 2001 Second Quarter decreased $41,000 to $77,000 or 3.8% of net sales, compared to $118,000 or 5.5% for the 2000 Second Quarter. Consulting and other selling expenses also declined in the 2001 Second Quarter by $150,000 to $85,000 or 4.2% of net sales, compared to $235,000 or 11.1% of net sales for the 2000 Second Quarter. The Company amortized a non-cash compensation charge of $182,000 or 9.0% of net sales associated with the issuance of common shares and grants of options to purchase common shares in fiscal 2000 as compensation for consulting and professional services. No non-cash compensation charge was incurred in the 2000 Second Quarter. Depreciation expense increased $23,000 to $32,000 or 1.6% of net sales for the 2001 Second Quarter compared to depreciation of $9,000 or 0.4% of net sales for the 2000 Second Quarter. Research and development expenses for the 2001 Second Quarter were $199,000 compared to $23,000 for the 2000 Second Quarter. This increase was primarily due to additional headcount in the Company's New Jersey laboratory facility. This headcount increase was the result of the successful implementation of certain quality standards in the manufacturing of the Rapid Drug Screen(TM) product during Fiscal 2000. Further, the cost of an evaluation of the Company's TCA component by an existing customer has been included in research and development and the customer has agreed to accept a credit to amounts owed the Company in lieu of payment. Net loss from operations increased to $619,000 for the 2001 Second Quarter compared to $30,000 for the 2000 Second Quarter. LIQUIDITY AND CAPITAL RESOURCES AS OF OCTOBER 31, 2000 The Company has working capital of $1,270,000 at October 31, 2000 as compared to working capital of $2,016,000 at April 30, 2000. The Company has historically satisfied its net working capital requirements through cash generated by proceeds from private placements of equity securities with institutional investors. The Company has never paid any dividends on its Common Shares. The Company anticipates that all future earnings, if any, will be retained for use in the Company's business and it does not anticipate paying any cash dividends. Net cash used in operating activities was $557,000 for the six months ended October 31, 2000 compared to net cash used in operating activities of $227,000 for the six months ended October 31, 1999. The net cash used in operating activities in the six months ended October 31, 2000 was primarily due to the net loss of $867,000 and an increase in accounts receivable of $447,000 offset by amortization of compensatory stock and stock options of $364,000 and an increase in accounts payable and accrued expenses of $317,000. The net cash used in operating activities in the six months ended October 31, 1999 was primarily due to the net loss of $57,000 and an increase in accounts receivable of $690,000 offset by a decrease in inventory of $211,000 and an increase in accounts payable and accrued expenses of $402,000. Net cash used in investing activities was $260,000 for the six months ended October 31, 2000 compared to net cash provided by investing activities of $266,000 for the six months ended October 31, 1999. The net cash used in investing activities for the six months ended October 31, 2000 was primarily due to an additional $100,000 loan to BioSys, Inc. and an additional $120,000 16 loan to a director/stockholder, and purchase of property plant & equipment of $40,000. The net cash provided by investing activities in the six months ended October 31, 1999 was primarily due to sales and maturities of investments of $442,000 offset by purchases of investments of $73,000 and property plant and equipment of $107,000. Net cash used in financing activities was $131,000 for the six months ended October 31, 2000, consisting primarily of the satisfaction of a note payable to a stockholder of $125,000, compared to net cash used in financing activities of $107,000 for the six months ended October 31, 1999. The net cash used in financing activities in the six months ended October 31, 1999 was primarily due to the settlement of registration rights agreement. At October 31, 2000 and 1999, the Company had cash and cash equivalents of $259,000 and $63,000, respectively. The Company's primary short-term needs are to increase its manufacturing and production capabilities, establish adequate inventory levels to support expected sales, continue to support its research and development programs, finance its patent infringement litigation and to increase its direct sales force. The Company currently plans to expend approximately $100,000 for the expansion and development of its manufacturing facilities in addition to its marketing and general administrative programs. The Company expects its capital requirements to increase over the next several years as it expands it research and development efforts, sales and administration infrastructure, manufacturing capabilities and facilities and, if the required contingencies are resolved, purchases the Kinderhook, New York facility. The Company's future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company's products under development are successfully developed and gain market acceptance, the timing of regulatory actions regarding the Company's potential products, the costs and timing of expansion of sales, marketing and manufacturing activities, facilities expansion needs, procurement and enforcement of patents important to the Company's business, results of clinical investigations and competition. The Company believes that its available cash and cash from operations will be sufficient to satisfy its funding needs through April 30, 2001. Thereafter, if cash generated from operations is insufficient 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. At present, the Company is negotiating with an institutional investor to purchase up to $6 million of Company common shares over a 24 month period. The purchase price per share will be based on future performance of the common shares. The proceeds from this financing, if completed, will be used for operations and growth over the next 24 months. The company is required to register any common shares sold to the institutional investor as part of this financing under the Securities Act of 1933 for sale by the institutional investor. Any resale of these common shares by the institutional investor could cause the trading price of the common shares to decline. There is no assurance that that such financing will be available or that the Company will be able to complete this financing on satisfactory terms, if at all. If this financing is not completed, the Company will seek other sources of equity financing. 17 PART II OTHER INFORMATION Item 1. Legal Proceedings: See Note C - Litigation in the Notes to Financial Statements included in this Form 10-QSB for a description of pending legal proceedings in which the Company is a party. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security-Holders The following matters were voted upon at the Company's Annual Meeting of Shareholders held at Herbert's at Birch Hill in Castleton, N.Y. on September 20, 2000. PROPOSAL 1 - ELECTION OF DIRECTORS TOTAL SHARES VOTED: 9,777,384 OUTSTANDING SHARES: 18,045,548 PERCENT OF SHARES VOTED: 54.2% Director For Pct. Withheld Pct. -------- --- --- -------- ---- Stan Cipkowski 8,944,982 91.5 832,382 8.5 Robert Aromando 9,416,261 96.3 361,103 3.7 Edmund Jaskiewicz 9,384,661 96.0 392,703 4.0 Gerald Moore 9,381,361 95.9 396,003 4.1 Jay Bendis 9,150,064 93.6 627,300 6.4 Denis O'Donnell 9,416,361 96.3 361,003 3.7 PROPOSAL 2 - SHAREHOLDER PROPOSAL WITH RESPECT TO LOANS BY THE COMPANY TO OFFICERS, DIRECTORS AND EMPLOYEES For: 743,813 Percent: 7.6 Against: 9,016,881 Percent: 92.2 Abstain: 16,670 Percent: 0.2 PROPOSAL 3 - SHAREHOLDER PROPOSAL WITH RESPECT TO CORPORATE INVESTMENTS BY THE COMPANY For: 704,746 Percent: 7.2 Against: 9,055,439 Percent: 92.6 Abstain: 17,179 Percent: 0.2 18 PROPOSAL 4 - SHAREHOLDER PROPOSAL WITH RESPECT TO THE COMPANY'S ABILITY TO ISSUE PREFERRED STOCK For: 675,810 Percent: 6.9 Against: 9,075,279 Percent: 92.8 Abstain: 26,275 Percent: 0.3 PROPOSAL 5 - SHAREHOLDER PROPOSAL WITH RESPECT TO THE COMPANY'S STOCK OPTION PLANS For: 721,277 Percent: 7.4 Against: 9,028,377 Percent: 92.3 Abstain: 27,710 Percent: 0.3 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. 19 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN BIO MEDICA CORPORATION (Registrant) By: /s/Stan Cipkowski ------------------ Stan Cipkowski, Chairman of the Board of Directors President and Chief Executive Officer Dated: December 15, 2000