UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2054
- --------------------------------------------------------------------------------
D.C. 20549
FORM 10-KSB
[/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 30, 1998
December 31, 2008
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period ————— to ——————-
Commission File Number: 333-16535
AMERICAN BIO MEDICA CORPORATION
- --------------------------------------------------------------------------------
(Name0-28666
American Bio Medica Corporation
(Exact name of Small Business Issuerregistrant as specified in its charter )
New York 22-3378935
- --------------------------------------------------------------------------------
(State or other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
300 Fairview Avenue, Hudson, New York 12534
- --------------------------------------------------------------------------------
(Address of principal executive Offices) (Zip Code)
102 Simons Road, Ancramdale, New York 12503
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Issuer'scharter)
New York (State or other jurisdiction of incorporation or organization) | 14-1702188 (IRS Employer Identification No.) |
122 Smith Road Kinderhook, New York (Address of principal executive offices) | 12106 (Zip Code) |
Registrant’s telephone number: (800) 227-1243
number (including area code) (518) 758-8158
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, $.01 par$0.01 Par value per share
Check
Title of each class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨ Yes x No
Indicate by check mark whether the issuer:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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]x Yes [ ]¨ No
Check
Indicate by check mark if disclosure of delinquent filers in responsepursuant to Item 405 of Regulation S-BS-K (§229.405 of this chapter) is not contained in this form,herein, and no disclosure will not be contained herein, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB10-K or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most fiscal year $2,154,000.
State10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| | | |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).
¨ Yes x No
The aggregate market value of the18,183,613 voting stockCommon Shares held by non-affiliates computed by reference toof the price at which the stockregistrant was sold, orapproximately $9,455,479 based on the average bid and asked prices of such stock,the registrant’s Common Shares, $.01 par value, as reported on the NASDAQ Capital Market on June 30, 2008.
As of a specified dateMarch 27, 2009, the registrant had outstanding 21,744,768 Common Shares, $.01 par value.
Documents Incorporated by Reference:
| (1) | The Proxy Statement for the Annual Meeting of Shareholders for the year ending December 31, 2008 in Part III of this Form 10-K |
| (2) | Other documents incorporated by reference on this report are listed in the Exhibit Reference Table |
American Bio Medica Corporation
Index to Annual Report on Form 10-K
For the fiscal year ended December 31, 2008
| | PAGE |
| PART I | | |
| | |
| Item 1. | Business | 1 |
| Item 1A. | Risk Factors | 8 |
| Item 1B. | Unresolved Staff Comments | 15 |
| Item 2. | Properties | 15 |
| Item 3. | Legal Proceedings | 16 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 16 |
| | |
| PART II |
| | |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 17 |
| Item 6. | Selected Financial Data | 18 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 27 |
| Item 8. | Financial Statements and Supplementary Data | 27 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 27 |
| Item 9A(T) | Controls and Procedures | 27 |
| Item 9B. | Other Information | 28 |
| | |
| PART III |
| | |
| Item 10. | Directors, Executive Officers, and Corporate Governance | 28 |
| Item 11. | Executive Compensation | 28 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 28 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 28 |
| Item 14. | Principal Accounting Fees and Services | 28 |
| | |
| PART IV | | |
| Item 15. | Exhibits and Financial Statement Schedules | 28 |
| | |
| Signatures | | S-1 |
This Form 10-K may contain certain forward-looking statements within the
past 60
days.
Asmeaning of
June 14, 1998, there were 9,064,418 common shares held by
non-affiliates ("Common Shares") outstanding having an aggregate market valuethe Private Securities Litigation Reform Act of
$22,661,045.
Documents incorporated by reference:
Proxy Statement for1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the
Annual Meetingforegoing, words such as “may”, “could”, “should”, “will”, “expect”, “believe” “anticipate”, “estimate” or “continue” or comparable terminology is intended to identify forward-looking statements. It is important to note that 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
Shareholders forlosses, the
1999 Fiscal
Year.
uncertainty of acceptance of current and new products in our markets, competition in our markets, and the other factors discussed in our “Risk Factors” found in Item 1A.
ITEM 1. DescriptionBUSINESS
Form and Year of Business
Summary
-------
Organization
American Bio Medica Corporation (the "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 (“ABMC” or “the Company”).
Our Business
We develop, manufacture and sell immunoassay diagnostic test kits, primarily for the immediate, point of collection testing (“POCT”) is primarily engaged in
acquiring, developing and marketing biomedical technologies and products. The
Company owns a technology for screening drugs of abuse trademarked the "Rapid
Drug Screen." The Company's common shares ("Common Shares") began trading on the
Nasdaq SmallCap Market on December 24, 1997.
The Company produces several versions of ain urine and oral fluids (saliva). Our drugs of abuse screening test,
calledproducts offer employers, law enforcement, government, health care, laboratory and education professionals, self-contained, cost effective, user friendly screening devices capable of accurately identifying illicit drug use within minutes.
In addition to the "Rapid Drug Screen Test" at itsmanufacture and sale of drugs of abuse screening products, we provide contract strip manufacturing facilityservices for other POCT diagnostic companies. While we do not currently derive a significant portion of our revenues from contract manufacturing, we expect to continue to explore additional applications for our technology and as a result, contract manufacturing could become a greater portion of our revenues in Columbia
County, New York. The Rapid Drug Screen Testthe future.
According to a BCC Research and Consulting market research report released in July 2008, the global drugs of abuse (DOA) testing market generated $1.9 billion in 2007. This is expected to increase to $2.0 billion in 2008 and $2.6 billion in 2014, for a one-step test kit that allows
a small urine samplecompound annual growth rate of 4.6%. In addition, according to an industry report distributed by Espicom Business Intelligence in December 2007, the global point of care testing (“POC”) market (which includes the POCT market) was estimated to be testedworth $11.3 billion in 2007 and is growing at 11% a year. POC accounts for approximately 34% of the $33.6 billion global in-vitro diagnostic (IVD) testing market.
Our Products
POCT Devices for the Detection of DOA in Urine
We manufacture a number of POCT devices that detect the presence or absence of drugs of abuse.abuse in urine. We offer a number of standard configurations and we can also produce custom configurations on special order if the market demands. Our urine based POCT devices can test for the following drugs: cocaine (available with a cutoff level of either 150 ng/ml or 300 ng/ml), THC (marijuana), opiates (available with a cutoff level of either 300 ng/ml or 2000 ng/ml), amphetamines, PCP, benzodiazepines, methamphetamines, barbiturates, tricyclic antidepressants, methadone, MDMA (Ecstasy), oxycodone, propoxyphene and buprenorphine.
All of our urine-based POCT devices are accurate, cost-effective, easy to use, and provide results within minutes. We currently offer the following POCT devices for urine based DOA testing:
Rapid Drug ScreenÒ: The competitively priced test is self-contained thereby preventing exposure of
the test administrator to the urine sample. In the opinion of the Company's
management ("Management"), the Rapid Drug Screen, Test, which requires no mixing
of reagents,or RDS®, is easier to use than any competitive product. In addition,
hundreds of controlled tests conducted by independent laboratories compared the
Rapid Drug Screen Test with results produced by EMIT II, a standard laboratory
test, and found a 100% correlation of both positive and negative test results.
As a result, Management believes that the Rapid Drug Screen Test is as accurate
as that laboratory test.
Versions of the Rapid Drug Screen Tests include a two panel (cocaine and
marijuana), five panel (cocaine, marijuana, opiates, amphetamine and PCP) and an
eight panel (THC, cocaine, opiates, PCP, amphetamines, benzodiazepines,
methamphetamines and barbiturates) test. All have been cleared by the Federal
Drug Administration (the "FDA") and can thus be sold in clinical as well as
workplace markets. The Company has also completed a test for tricyclic
antidepressants which it has submitted to the FDA for approval and which it
intends to market in the near future as part of a nine-panel test. The Company
has recently developed nine tests trademarked "Rapid One", each of which detects
one drug of abuse.
The Company has installed and uses equipment at its manufacturing facility
suitable for the mass production of its drug screening tests. The Company's
output was initially hampered by its inability to secure reliable supplies of
reagents. This problem was rectified in May, 1997 through improved reliability
of its suppliers and the addition of a third supplier.
The Company owns a patented, low cost method for producing keratin proteins.
It has also developed a technologyrapid, POCT kit that will detect alcohol levels in
individuals through a quick, one step, on-site, saliva test. The Company has no
intentiondetects the presence or absence of developing or marketing its keratin technology, or its saliva test
for alcohol consumption at this time, but intends2 to concentrate on the
production and marketing of its drug screen tests and pursuing development and
acquisition strategies related to substance abuse testing.
2
The Company may develop or acquire additional biomedical technologies or
products in the future unrelated to substance abuse.
From its inception in 1986 until 1991, the Company was involved in
marketing educational books and software to schools and municipal libraries and
audiovisual educational packages to educational institutions and to corporations
throughout the United States. In 1991, the Company, because of heightened
competition, increased costs of doing business and slow collections from
municipalities, reduced its involvement in this market to that of selling
audiovisual packages to libraries and commenced seeking new technologies in
emerging medical markets.
Since its inception to April 30, 1998, the Company has an accumulated
deficit of $7,342,000 (see Financial Statements - Balance Sheet). Management
believes that the Company's accumulated deficit is the result of discontinued
operations, the development of its workplace drug test kits and the development
of other biomedical products. However, the Company has not been profitable
during its history; and there is no assurance that the Company's biomedical
operations will become profitable.
Background
----------
According to the "1996 AMA (American Management Association) Survey
Workplace Drug Testing and Drug Abuse Policies Summary of Key Findings," a
report on drug testing in the workplace, 81% of major United States firms now
test employees and/or job applicants for drug use, an increase of 277% since
1987 and an increase of 3% since 1995. The AMA attributed the increases to
several factors. These factors include Department of Transportation and
Department of Defense regulations which, in conjunction with local and state
regulations, mandate testing in certain job categories; the Federal Drug-Free
Workplace Act of 1988; court decisions recognizing an employer's right to test
both employees and job applicants in the private sector for drugs of abuse;
action by insurance carriers to reduce accident liability and control health
care costs; and corporate requirements that vendors and contractors certify that
their workplaces are drug-free.
The AMA found that business category was the most important determinant in
drug testing. The percentages in each category which tests for10 drugs of abuse are manufacturers (89%), transportation (100%), wholesalers and retailers (79%),
general service providers (77%), business service providers (60%) and financial
service providers (56%).
The survey states that the usual and recommended procedure for urine
samples calls for a retesting of positive samples by the gas-chromatography
method. It also states that 76% of firms that test its employees utilize a
medical review officer ("MRO") who analyzes test findings, judges them against
the test subject's medical profile and renders a verdict to the employer which
does not see the test results but only the MRO's report. The use of an MRO
offers significant protection to employees who may test positive due to the use
of prescription drugs or non-controlled substances which register as controlled
substances.
3
The Substance Abuse and Mental Health Services Administration, Office of
Applied Studies of the United States Department of Health and Human Services,
Public Health Service, in its advance report number 18 released in August, 1996
entitled "Preliminary Estimates from the 1995 National Household Survey on Drug
Abuse," notes that 14.3% of unemployed adults, age 18 years and older, were
current illicit drug users in 1995 compared with 5.5% of full-time employed
adults and that the rate of drug use decreased from 1994's 6.7%. 71% of all
current illicit drug users 18 years old and older (7.4 million adults) were
employed, including 5.5 million full-time workers and 1.9 million part-time
workers. Because of the high incidence of workplace drug use, the testing of
employees for the most "popular" drugs has become widespread. Positive tests
often result in discharge of, or treatment for, the employee. In addition, the
threat of testing, particularly random testing, has the prophylactic effect of
reducing workplace drug use.
The Company believes that the drugs of abuse testing market is large and
growing and that the largest market opportunity for on-site drug screening
products is the private sector with an additional large public sector demand.
Management believes that drug testing performed in an on-site facility using
technologies designed for on-site use can be just as accurate as screening
performedsimultaneously in a full-service lab. Drug screening tests are now performed in
markets which include: preemployment testing, random testing of employees, drug
rehabilitation programs, hospital laboratories, emergency rooms, private
security agencies, public transportation, law enforcement agencies, probation
and parole programs and United States Department of Defense contractors.
Workplace Drug Test
-------------------
Design
------
The Company has developed and markets its trademarked "The single urine specimen. Rapid Drug
Screen," a test for two, five or eight drugs of abuse which can be used in
offices, factories, "halfway" houses, remote locations and in all situations
where an immediate test result is required. TheONE®: Our patented Rapid ONE product line consists of a "NIDA 5
Card," ("NIDA" stands for the National Institute on Drug Abuse) a business-card
size card divided into two, five or eight lengthwise strips, or sections. The
person being tested urinates into a test cup, puts on the lid and hands it to
the supervisor or other person administering the test. The test administrator
inserts the card into a pre-punched slit in the lid without the danger of
spilling, touching or contaminating the urine inside. Thus, the test
administrator is not exposed to the urine sample nor does he or she have to mix
reagents.
Within five to eight minutes, the results can be read on the inserted card
through the side of the cup. A single line in the test area of the Rapid Drug
Screen indicates the sample is positive for one of the specific drugs of abuse
designated by NIDA in the "Drug-Free Workplace Act of 1989" as those to be
tested for in most federally regulated drug testing programs. If the results are
positive, the cup is sealed with provided materials and sent to a laboratory for
confirmation. No adverse action is taken by the test administrator unless
confirmation of a positive test is received from an independent laboratory. A
double line in the test area of the Rapid Drug Screen indicates that the screen
is negative for the presence of tested drugs of abuse.
4
The Company has designed a five panel card, a two panel card and an eight
panel card and can produce, on special order or if the market demands, cards
which test for any combination of drugs of abuse. The two panel strip, designed
for juvenile corrections centers and educational institutions, tests only for
cocaine and marijuana. The eight panel strip, designed to rival two competitive
products sold primarily to hospital and physician markets includes barbiturates,
benzodiazepines and methamphetamines. These additional tests can be combined in
single unit with the NIDA 5 Card, which tests for PCP, marijuana, cocaine,
amphetamines and opiates, so that one sample can test simultaneously for eight
drugs of abuse. The Company's test for methamphetamine is also incorporated in a
two panel test for marijuana and methamphetamine and in a five panel test for
methamphetamine, amphetamine, cocaine, opiates and marijuana. The Company has
also completed a test for tricyclic antidepressants (which it has submitted to
the FDA) and intends to market it in the near future as part of a nine-panel
test.
Benzodiazepines, barbiturates, and tricyclic antidepressants are
prescription sedatives which are often abused and can be deadly. In fact, the
Florida Alcohol and Drug Abuse Association reports that barbiturates account for
approximately one-third of all reported drug-related deaths while tricyclic
antidepressants have been identified as a leading cause of fatality from drug
ingestion in Australia. Domestic concerns regarding trends of barbiturate abuse
focus on the drug's growing popularity among teenagers, as evidenced by the 1996
Monitoring the Future Study which documents a 38% rise in barbiturate use among
high school seniors since 1992.
In July, 1998, the Company began marketing "Rapid One," a line of nine drug tests, each of which screens for the presentpresence or absence of a substancesingle drug of abuse.abuse in a urine specimen. The Rapid One 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. Rapid OneONE is designed for correction facilities and
other markets wherethose situations in which the person subject to substance abuse testing is known to abuseuse a specific drug. Market acceptanceIt can also be used to enhance a RDS by allowing screening of an additional drug. Rapid TEC®: The patented Rapid TEC contains one or two drug testing strips that can test for 2 to 5 drugs of abuse simultaneously in a single urine specimen as each strip includes 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.
RDS InCup®: The RDS InCup is an all-inclusive point of collection test for 2 to 12 drugs of abuse that incorporates collection and testing of the sample in a single one-step device. Each RDS InCup device contains multiple channels and each channel contains a single drug testing strip that contains the chemistry to detect a single class of drugs of abuse. Once the donor provides a sample, the results are available within a few minutes without any manipulation of the sample or the device.
Rapid TOX®: The Rapid TOX is a cost effective drug screen in a horizontal cassette platform that simultaneously detects 2 to 10 drugs of abuse in a single urine specimen. Each Rapid TOX device contains one or two channels and each channel contains a single drug testing strip that contains the chemistry to detect more than one class of drug of abuse.
Rapid TOX Cup®: The Rapid TOX Cup is an all-inclusive point of collection test for 2 to 14 drugs of abuse that incorporates collection and testing of the sample in a single device. Each Rapid TOX Cup device contains multiple channels and each channel contains a single drug testing strip that contains the chemistry to detect more than one class of drug of abuse.
POCT Devices for the Detection of DOA in Oral Fluids (saliva):
We manufacture a number of POCT devices that detect the presence or absence of drugs of abuse in oral fluids (saliva). These devices are easy to perform and provide test results within minutes with enhanced sensitivity and detection comparable to laboratory based oral fluids tests.
OralStat®: Our OralStat is a patented and patent-pending, innovative POCT system for the detection of drugs of abuse in oral fluids. OralStat can simultaneously test for 6 drugs in each device. Currently, the assays available on the OralStat are amphetamines, methamphetamines, benzodiazepines, cocaine, methadone, opiates, PCP and THC.
OralStat EX: The OralStat EX is an oral fluid point of collection test that was designed to make both point of collection testing and confirmation testing simple. The oral fluid sample is expressed into a separate transportable bottle containing a buffer solution, and after the initial screen has been performed there is ample solution remaining to send to a laboratory for confirmation of positive test results.
Rapid STAT™: The Rapid STAT is an oral fluid point of collection test that combines the incubation benefits of the OralStat (see OralStat on this page) with the Rapid TOX (see Rapid TOX on this page) cassette product platform. The Rapid STAT maximizes drug recovery and provides a transport container for confirmation of positive results. The Rapid STAT provides even faster test results, making it ideal for those market applications, such as roadside testing, in which portability and time is crucial. In addition to these added benefits, the Rapid STAT provides even lower THC testing sensitivity, making it unrivaled in the market.
Other Products
Rapid Reader®: The Rapid Reader is an FDA 510(k) cleared, compact, portable device that captures a picture of the test results on an ABMC drug screen using a high-resolution camera. The results are then analyzed, interpreted, and sent to a data management system, which enables the user to interpret, store, transmit and print the drug test results. The Rapid Reader system can only be used to interpret and record the results of ABMC drug screens. Presently, we offer three different models of the Rapid One drugReader to our customers, the 210 and 250, which are connected to a PC via a USB port, and the 710, which is a stand-alone device that does not require the connection to a PC.
Adulteration, Alcohol and Nicotine: In addition to the products we manufacture, we also distribute a number of point of collection tests that detect the presence or absence of adulterants, alcohol and nicotine. These tests are manufactured by unaffiliated third parties. Two of these products are sold under ABMC-owned trademarks; the Rapid AlcoTEC™ alcohol test cannot be
assured.
Oneand the Rapid Check™ test for adulterant. Some of the problemsadulterant test products we distribute are also incorporated into our urine based POCT device for drugs of abuse. We do not derive a significant portion of our revenues from the sale of these products.
Contract Manufacturing
We provide bulk strip contract manufacturing services to a number of non-affiliated POCT diagnostic companies. In the fiscal year ended December 31, 2008, we manufactured test components for the detection of:
| § | RSV (Respiratory Syncytial Virus): the most common cause of lower respiratory tract infections in children worldwide |
| § | Fetal amniotic membrane rupture |
| § | Lactoferin: a protein with documented anti-viral, anti-microbial, and immune modulating/enhancing effects |
We also performed development work for certain manufacturing customers related to devices to detect various other infectious diseases. We do not currently derive a significant portion of our revenues from contract manufacturing.
Our Markets
Corporate/Workplace
Corporate/Workplace testing consists of pre-employment testing of job applicants, and random, cause and post accident testing of an employee. Many employers recognize the financial and safety benefits of implementing Drug Free Workplace Programs, of which
can occur in workplace drug testing is
fraudan integral part. Government incentives encourage employers to adopt Drug Free Workplace Programs. 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
evasion practicedmore to enact a Drug Free Workplace program (the Federal Acquisition Streamlining Act of 1994 raised the threshold of contracts covered 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 bringsDrug Free Workplace Act from $25,000 to
the test. As a
consequence, each of the Company's drug screens contains a temperature sensor
which helps prevent the substitution of another urine sample as the likelihood
is that the substituted sample would be of a lower temperature than a sample
produced from the body on the spot. In addition, the Rapid Drug Screen contains
a control line, designed to assure the administrator of the test 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
specimen sample.
5
FDA Approval
-------------
FDA "510K" clearances have been granted for each of the Company's tests
included on its eight-panel Rapid Screen. The Company has applied to the FDA for
its test for tricyclic antidepressants, but approval has not yet been granted.
The Company intends to apply to the FDA for its Rapid One tests which, although
they use the same methodology and chemistries as the Rapid Screen test, employ a
different delivery device. Although FDA approval is not required for most forms
of workplace drug testing, including The Rapid Drug Screen, it is required for
use in a clinical setting which Management anticipates may become a major
marketplace for the Company's drug testing products.
Marketing and Sales
--------------------
The Company advertises through trade journals and direct mail campaigns;
and its representatives attend trade shows. The Company sells primarily to
distributors which then resell in the various marketplaces. The Company has
garnered orders from distributors, municipal bodies and corporate users as well
as from penal facilities. The Company employs a national sales director, a
director of marketing, five regional managers, an international sales director,
a government and corrections sales director and a major account sales director.
The Company has opened a national sales office in Boca Raton, Florida.
The Company has divided its marketplace into the following categories.
Corporate Workplace Drug Testing Programs
-----------------------------------------
The Company has developed a nationwide network of distributors and
administrators of workplace drug testing programs to sell its Rapid Drug Screen
testing kit.
6
Government, Correctionsthose exceeding $100,000). | § | In their December 2004 report (the most recent report related to this subject matter) titled “The Economic Costs of Drug Abuse in the United States”, the Office of National Drug Control Policy reported that the economic cost of drug abuse in 2002 was estimated to be $180.9 billion, increasing 5.34% annually since 1992. This value represents both the use of resources to address health and crime consequences as well as the loss of potential productivity from disability, death and withdrawal from the legitimate workforce. |
| § | According to the 2007 SAMHSA (Substance Abuse Mental Health Services Administration) National Survey on Drug Use and Health released in September 2008, most drug users are employed. Of the 17.4 million current illicit drug users aged 18 or older in 2007, 13.1 million, or 75.3% were employed either full or part time. |
Government/Corrections/Law Enforcement
-------------------------------------------
This market includes federal, state and county level agencies, includingincluding: correctional facilities, pretrial agencies, probation, drug courts and parole departments at the federal and state levels and juvenile correctioncorrectional facilities. A significant number of individuals on parole or probation, or within federal, state and local correctional facilities and jails, have one or more conditions to their sentence required by the court or probation agency which includes periodic drug testing and substance abuse treatment.
According to the Bureau of Justice Statistics (“BOJ”):
| § | In 2007, over 7.3 million people in the United States were on probation, in jail or prison, or on parole; and |
| § | In 2006 (the most recent year for which this data is available), there were approximately 1.9 million arrests for drug abuse violations. Drug abuse violations are defined as State or local offenses relating to the unlawful possession, sale, use, growing, manufacturing, and making of narcotic drugs including opium or cocaine and their derivatives, marijuana, synthetic narcotics, and dangerous non-narcotic drugs such as barbiturates. |
Clinical/Physician/Hospital
This market includes emergency rooms, physician offices, hospitals and clinics and rehabilitation facilities associated with hospitals. In August 2008, the Drug Abuse Warning Network (a public health surveillance system that monitors drug-related visits to hospital emergency departments and drug-related deaths investigated by medical examiners and coroners) estimated that in 2006 over 1.7 million emergency department visits were associated with drug misuse or abuse. To address this issue, drug testing is performed in this market so healthcare professionals are able to ascertain the drug status of a patient before they administer pharmaceuticals or treatment.
In 2006, we entered into a Supply Agreement with Nanogen, Inc. (NASDAQ:NGEN) allowing Nanogen to market our products under their own brand name to customers in this market. We received notice in the third quarter of 2008 that, as a result of a merger with another entity, Nanogen was terminating the Supply Agreement effective December 24, 2008. This termination did not have a material impact on sales in the fiscal year ended December 31, 2008, nor is it expected to have a material impact on sales in the future.
International Markets
The Company has
shipped orders to several agencies includingInternational Market consists of various markets outside of the Broward County, Florida,
Sheriff's Department,United States. Although Corporate/Workplace testing is not as prevalent outside of the United States Probation Departmentas within, the Government/Corrections/Law Enforcement and other similar
facilitiesClinical/Physician/Hospital markets are somewhat in concert with their United States counterparts. One market that is significantly more prevalent outside of the United States is roadside drug testing. Countries including but not limited to, France, Australia, Malaysia, New Zealand, Portugal, Finland, Germany, Norway, Switzerland and agencies.Canada, already conduct roadside drug testing, are currently in a pilot phase of drug testing, or have put laws in place to allow drug testing. In the fiscal year ended December 31, 2008, we were awarded, through our European distributor, a government tender allowing the police force in France to use our Rapid STAT product (see Rapid STAT on page 2) to perform drug testing of French motorists. In addition, in 2008, we appointed a master distributor to market in the Company exhibits atregion of Latin America. This distributor’s sales are primarily in the winterGovernment/Corrections/Law Enforcement and summer trade shows of American Corrections Association.
Clinical/Physician/Hospital markets, along with some sales in the Corporate/Workplace testing market.
Rehabilitation Centers
----------------------
This market for our products includes people in treatment for substance abuse in general
hospitals, mental health centers and outpatient programs. The importance of this
market relates to theabuse. There is a high frequency of testing.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. The Company has received orders from
Educational Market
According to the December 2008 University of Michigan Monitoring the Future study, 14.1% of 8th graders, 26.9% of 10th graders and 36.6% of 12th graders have used an illicit drug within the 12 months prior to the study. Furthermore, the study reported that a chain of 60 rehabilitation centers
and is negotiating with others. The Company exhibited at the 1997 Employee
Assistance Program convention in Chicago.
International Markets
---------------------
The Company has entered into distribution agreements with companies in
several countries and is pursuing a course of multinational distribution of its
products through both clinical and non-clinical distribution companies. As of
July, 1998, the Company has granted distribution rights for its drug screening
products in countries through out the world, including Mexico, Ireland,
Australia, New Zealand, Hungary, and Sweden.
Clinical, Physicians and Hospitals
----------------------------------
The Company is actively pursuing hospital and physician markets for its
entire product line. The Company has entered into an exclusive distribution
contract with, and has started shipping to, a subsidiary of Murex International
Technologies Corp. (Nasdaq), (majority owned by Abbott Laboratories (NYSE) to
market the Rapid Drug Screen product line to hospitals and clinics in North
America. The Company hopes to expand this distribution to additional countries.
In addition, the Company distributes its products to physicians through specific
distribution companies that specifically deal with that market. The Company
supports physicians offices in their marketing programs through the Physicians
Drug Test Network, an advertising and support program that makes available
materials to participating physicians who provide drug screening for families,
individuals, schools and employers.
Consumer and Over-the-Counter
-----------------------------
The Rapid Drug Screen test is ideal for consumer use as it leads to
immediate and accurate results at a pricelittle less than half of young people have tried an illicit drug by the time they finish high school. In June 2002, the Supreme Court ruled that students in extracurricular activities including athletics, band, choir, and other activities could be tested for drugs at the start of available
consumer kits. Since receiving its FDA 510(k) approval for clinicalthe school year and randomly throughout the year.
Our Distribution Methods
We have a two-pronged distribution strategy that focuses both on growing our business through our direct sales team and with valued third party distributors. Our direct sales team consists of highly experienced and well-trained sales professionals with drugs of abuse testing experience, and our distributors are unaffiliated entities that resell our POCT devices either as a stand-alone product or as part of a service they provide to their customers.
Our direct sales force, inside sales representatives and network of distributors sell our products to the Company has been actively investigatingCorporate/Workplace, Government/Corrections/Law Enforcement, Clinical/Physician/Hospital, Rehabilitation, and Educational markets, and we sell primarily through a network of distributors in the FDA requirements for thisInternational market. It
has been approached by several store and pharmacy chains. The Company intends to
market through distributors or toAlthough we currently sell directly into the Clinical/Physician/Hospital market, going forward our goal is to larger retail chains upon
final FDA determinationobtain a distribution relationship with a multi-national diagnostics company focused on the Clinical/Physician/Hospital market.
We promote our products through direct mail campaigns, selected advertising, participation at high profile trade shows, use of on-sitekey point of collection advocate consultants and other marketing activities. We expect to continue to recruit and utilize experienced, valued third party distributors, in addition to selling directly in our markets and to our key customers.
Competition
We compete on the following factors:
| § | ease and user-friendliness of products; and |
| § | customer and technical support |
Pricing: The pricing structure within the point of collection drug testing as an over-the-counter
alternative.
7
Additional Markets
------------------
As reportedmarket is highly competitive and currently our products are cost competitive, although pricing pressures have increased significantly when comparing our product pricing with the pricing of point of collection drug tests manufactured outside of the United States. In order to meet the price pressure caused primarily by these foreign manufacturers, ABMC continues to evaluate all aspects of its manufacturing and assembly processes to identify areas of cost savings. Cost savings in the "New York Times" (October 20, 1996), President Clinton
has called for drug testing of all teenagers by state motor vehicle departments
priormanufacturing would allow us to granting driving licenses to them.sustain acceptable gross margins while still providing our customers with cost competitive products. In addition, certain low-income
housing fundedwe continue to explore new, lower cost product alternatives for our customers. Quality: There have been a number of studies that have reported on the accuracy and reliability of ABMC products. A study was conducted by the Department of HousingHealth and Urban Development require
testingHuman Services in 1999 (as of residentsthe date of this report, this is still the most current government issued study) that ranked RDS as the most accurate multi-drug device for all drugs when compared to GC/MS (Gas Chromatography/Mass Spectrometry), a conditionlaboratory test consisting of a combination of two microanalytical techniques: GC, a separation technique, and MS, an identification technique. Another study conducted in 2003 on the Rapid One test for continued occupancy. Finally, many high
school and college sports programs are requiring random testing for drugs of
abuse as a condition of student participation.
Samples
-------
The Company hasOxycodone conducted by the Greater Los Angeles VA Healthcare System found that one“only the…..Rapid One OXY test demonstrated 100% reliability.”
Ease and user-friendliness: Some of its best marketing methods is the
shippingour competitors’ point of samples to potential customers which had expressed interest through
responses to telemarketing, trade show demonstration, advertising or word of
mouth. Although initially expensive, the Company has found that the best way to
make sales is through demonstration and testing of its products' features.
Competition
-----------
Competition to the Rapid Drug Screen comes from on-sitecollection drug tests developed by
companies including Roche Diagnostic Systems, Medtox (formerly Editek, Inc.),
Biosite Diagnostics and Drug Testing Resources International. In all cases that
the Company is aware of, competitive products use a collection or delivery method different than our point of collection drug tests. Our urine based products do not require pipetting (dropping) of the Rapid Drug Screen. Management believes the Rapid Drug
Screen provides an easier option to the user. There is no pipettingspecimen, adding or mixing of reagents
stirring or other manipulation of the device by the user. Other availableIn fact, our Rapid TOX (see page 2) product offers the option of dipping the test into the urine specimen rather than pipetting the specimen. In The Rosita Roadside Study conducted in Europe in 1999, the RDS products were ranked “Very Good” for user friendliness, the highest rating given to any of the products in the study.
Customer and technical support : Customer and technical support are becoming more important in the point of collection drug testing options, aside from on-site testsmarket as individuals being tested become more knowledgeable about how to “beat” a drug test. Questions related to test administration, drug cross reactivity, drug metabolism, and other such matters are becoming areas in which clarification is sometimes needed by customers using these devices. ABMC provides its customers with immediate results, include traditional laboratory testing wherecontinuous customer and technical support on a urine sample
is sent24/7/365 basis. Most of our competitors do not offer such service to a laboratorytheir customers.
Raw Materials and Suppliers
The primary raw materials required for analysis and hair testing where a har sample is sent
to a laboratory for analysis. These forms of drug testing are more expensive and
take longer than the Rapid Drug Screen.
Manufacturing
-------------
After the successful completion of clinical trials in May, 1996, the
Company initially subcontracted the manufacture of components, including theour point of collection test strips and our point of collection drug test kits consist of antibodies, antigens and other reagents, plastic molded devices, membranes, and packaging materials. We maintain an inventory of raw materials which, to date, has been acquired primarily from third parties. Currently, most raw materials are available from several sources. We own the molds and tooling for our plastic components that are custom and proprietary, but we do not own the molds and tooling for our plastic components that are "stock" items. The Rapid Drug Screen to several outside manufacturers. The
Company foundownership of these molds affords us flexibility and control in managing the supply chain for these components.
Major Customers
We have a number of national account customers that
the usein total represent a significant portion of
subcontractors to produce the test strips was
unsatisfactory from a pricing, deliveryour sales in fiscal years ended December 31, 2008 and
quality control standpointDecember 31, 2007. One of these national account customers represented 11.2% of net sales in fiscal year ended December 31, 2008 and
began
a program9.3% of
in-house manufacturing to supplement product subcontracted.
Originally, these components were assembled for the Company by Columbia Advocacy
and Resource Center ("COARC"), an FDA-approved contract manufacturernet sales in
Mellenville, New York. During May, 1998 the Company moved manufacturing of its
products from COARC to its own facility in Hudson, New York. The Company
contracts out the printing and manufacture of specimen cup components. The
Company's equipment, as installed, is capable of producing up to 500,000 units
per month utilizing one shift per day, five days per week.
Onfiscal year ended December
1, 1997, the Company announced its intention to construct a
15,000 square foot manufacturing facility and headquarters in Columbia County,
New York. The Empire State Development Corporation, an agency of New York State,
has agreed in principle to provide financial assistance in the form of grants
and below market interest rate loans as well as financial assistance in employee
training. Columbia County has announced its intention to transfer 20 acres of
land to the Company. The Company intends to begin construction on this facility,
expanded to 28,000 square feet, in September, 1998. The Company believes that it
is likely that the facility will be built; but there is no guarantee that the
promised financial assistance will be consummated without which the Company will
not build the facility.
8
31, 2007. Patents and Trademarks
----------------------Trademarks/Licenses
To date, we hold 26 patents related to our point of collection drug testing devices, including 4 U.S. design patents and 8 utility patents. We currently have 8 United States patent applications pending, and 8 foreign patent applications pending. The Company hasearliest expiration date of any of our issued patents is January 2013.
To date, we have registered "ABM" and its logo20 trademarks in the United States, including but not limited to Rapid Drug Screen, RDS, Rapid ONE, OralStat, Rapid Reader, Rapid TOX, Rapid TOX Cup, InCup, our website domain and our corporate logos. We have also registered 18 trademarks in countries/regions such as Canada, ChileMexico, Europe, and Mexico and has registered "Rapid Drug Screen" in Mexico. The Company
hasthe United Kingdom. We currently have 4 additional trademark applications pending in the United States, Canada,
PhilippinesStates.
On February 28, 2006, we entered into a non-exclusive Sublicense Agreement with an unaffiliated third party related to certain patents allowing us to expand our contract manufacturing operations. Under this Sublicense Agreement, we paid a non-refundable fee of $175,000 over the course of 2 years and we were to pay royalties on products that fell within the scope of the patents. We did not manufacture any products that fell within the scope of the patents in 15 European countries.2008. The Company's trademark counsel,
Edmund Jaskiewicz, Esq., Executive Vice-President, has opinedlast expiration date of the patents covered by the Sublicense Agreement was December 17, 2008. Therefore, the Sublicense Agreement expired on December 17, 2008 and such expiration is not expected to have a material impact on our sales in the future. Upon the expiration of the patents covered under the Sublicense Agreement, the subject matter disclosed therein is placed in the public domain, and anyone can practice under the teachings of those patents.
On March 29, 2006, we entered into a royalty agreement with Integrated Biotechnology Corporation (“IBC”). IBC is the owner of an RSV (Respiratory Syncytial Virus) test that
there are no
similar marks and, as a consequence, the Company
feels confidentmanufactures for one of IBC’s distributors. The agreement was entered into to address amounts that
such marks
will be registered. The Company has applied for various patents directly in
numerous countries, includingIBC owed to ABMC at the
United States, Canada, Australia, Argentina,
Brazil, China, Japan, Germany, Mexico, Philippines, Polandend of fiscal year 2005, and
to streamline the
United
Kingdomorder and
has filed patent applications with three regional associations
covering 33 additional member countries. Stan Cipkowski, President, has assigned
tofulfillment process of IBC’s RSV product. All outstanding amounts due were satisfied by the
Company for no consideration, his application for a utility and design
patent in the United States and Canada on the drug screen kit as an entity. Mr.
Jaskiewicz, as patent counsel, has opined that a search has revealed no
competing patented products. However, there can no assurance that a patent will
be granted or that, if granted, it will withstand challenge. (See "Risk
Factors--Patents and Trademarks.")
Drugs of Abuse Preliminary Screen ("ABM Prescreen")
---------------------------------------------------
The secondend of the
Company's products is a preliminary drug screen which is
an easythird quarter of 2007. After satisfaction of amounts due, we continued to
use, accurate and cost effective test paper forwork directly with IBC’s distributor under the
drug testing
market. Negative test results eliminate the possibility that the urine sample
contains any of 20 drugs. The laboratory technician places a few drops of
pretreated urine on a test paper and reads the results visually within a few
minutes. Over 90% of tests submitted to laboratories yield negative results.
Thus, the primary use for this product in laboratories is as a means of
inexpensively and quickly eliminating, through negative results, over 90%terms of the
testing required. A patent application is in process. Pre-clinical trials for
the preliminary drug screen have been completed at two independent laboratories
contracted by the Company. Pre-clinical tests include laboratory evaluationAgreement, which stated that we were to pay IBC a 20% royalty of
product chemistrytotal sales received from IBC’s distributor. The agreement expired on November 2, 2008. However, we continue to work directly with IBC’s distributor and
observation of results of addict urine samples tested with
the product over a period of time. These tests were conducted under the
supervision of John Questal, principal of one of the contract laboratories, and
were reviewed by Dr. Henry Wells, the Company's Vice-President-Product
Development. Based on the success of pre-clinical evaluations, independent
clinical tests were conducted by American Medical Laboratories, Chantilly,
Virginia. The Company expects to introduce its ABM Prescreen to the market asmanufacture an
inexpensive alternative to the products being offered by the current market
leaders, Roche Diagnostic Systems and Biosite Diagnostics. The Company cannot
predict when the ABM Prescreen will be introduced into the market.
Alcohol/Saliva Test
-------------------
The Company has developed a technology that will detect alcohol levels in
individuals through a quick, one step, on-site, saliva test that can be
calibrated to specific sensitivity levels. Though at an advanced stage of
development, additional laboratory work and clinical evaluations will need to be
funded and completed prior to any patent applications or commercialization. Law
enforcement and workplace testing would be the initial markets targeted by this
Company.
9
KDMP (Keratin Derivative Modified Protein)
------------------------------------------
Keratin Derived Modified Protein ("KDMP") is a liquid keratin protein
complex containing water soluble peptides and is rich in cysteine. It can be
used as an active ingredient in varying concentrations in the formulations of
quality skin, nail, and hair care products. Pre-clinical trials have been
completed and the Company intends to license or sell the technology. Various
patents relating to this technology have been assigned to the Company by Edmund
Jaskiewicz, Executive Vice-President, as part of the consideration for his
receipt of Common Shares. The Company is currently manufacturing this product in
small quantities for several companies which have requested samples for
evaluation. The Company does not intend to devote substantial economic or
personnel resources to the development or marketing of thisRSV product for the
foreseeable future. As a result, no revenue is expected to be derived from this
product until a license is negotiated, of which there is no assurance.
The Company's Plan of Operations
--------------------------------
The Company intends to continue to establish a network of distributors
which service customers in non-clinical workplace, correctional institution and
drug rehabilitation areas, to market and sell its drug testing kits, to
manufacture and ship such kits and to continue research and development on its
additional biomedical products.
The Company has entered into national and international non-exclusive,
non-clinical market distribution agreements with a number of companies. These
agreements permit the distributors also to sell the products of other
manufacturers and permit the Company to sell its test kits to other distributors
within and outside the territory of each distributor. The agreements are
cancelable by either the Company or the distributor upon 30 days' written
notice.
The Company has retained a national and five regional managers (in Fort
Lauderdale, Nashville, Los Angeles, Baltimore and Milwaukee). These
representatives call on accounts, such as corporations and correctional
institutions, directly and support the Company's worldwide distribution network.
The Company intends to continue its extensive direct mail campaign and
participation in trade shows.
The Company's present manufacturing equipment and personnel designated by
COARC is sufficient to produce 50,000 drug test kits each week, assuming one
shift per day, five days a week. In the event the Company desires to increase
production, its estimated costs for additional equipment are $40,000.
The Rapid Drug Screen Test was featured on "Today's Health," aired on CNBC
in July, 1997.
10
them. Government Regulation
---------------------
Regulations
The development, testing, manufacture and sale of the Company's laboratory
test kitsour point of collection drug tests, and certainpossible additional proposed productstesting devices for other substances or conditions, are subject to regulation by the United States and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and theassociated regulations, promulgated thereunder, the FDA regulates the preclinicalpre-clinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. If the CompanyABMC fails to comply with applicable requirements, itwe 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 premarketpre-market clearance or premarketpre-market approval for devices, withdrawal of marketing clearances or approvals and criminal prosecution.
Year 2000
---------
The Company has completed
Our products fall under the category of 510(k) submissions to FDA. A 510(k) is a review of its operational and financial systems
and believes all areaspremarketing submission made to FDA to demonstrate that the device to be Year 2000 compliant. New softwaremarketed is as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to premarket approval. 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, or 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 Corporate/Workplace and Government/Corrections/Law Enforcement), it is required for clinical markets (such as hospitals and physicians).
Currently we have received 510(k) clearances related to our:
| § | 9 panel RDS test and our Rapid ONE dipsticks, with some drugs being approved for two different cut-off levels, (with these approvals, we can offer a variety of combinations to meet customer requirements, both in multiple panel tests and individual Rapid One tests. In addition, the testing strips contained in the RDS InCup are the same as those testing strips contained within the RDS. Therefore, the RDS InCup can be offered in a variety of combinations to meet customer requirements); and |
| § | Rapid TEC product line; and |
| § | Rapid TOX product line; and |
In October 2007, we filed a 510(k) clearance application for methamphetamines, amphetamines and MDMA (Ecstasy) at a detection level of 500 ng/ml (these drugs currently have active 510(k) clearances but at different detection levels). FDA did not approve this application and we have elected not to re-submit this application. However, these detection levels of methamphetamines, amphetamines and MDMA are available in our 510(k) cleared Rapid TOX Cup
We have not yet submitted our OralStat or Rapid STAT products to FDA for 510(k) clearance. Pending submission for FDA 510(k) clearance, the OralStat and Rapid STAT products are 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. As of the date of this report, no point of collection oral fluid test has received FDA 510(k) marketing clearance.
Furthermore, in order to sell our products in Canada, we must comply with ISO13485, the International Standards Organization's Directive for Quality Systems for Medical Devices (MDD or Medical Device Directive), and in order to sell our products in the European Union, the Company must obtain CE marking for our products (in the European Union, a "CE" mark is affixed to the product for easy identification of quality products). Collectively, these standards are similar to the U.S. Federal Regulations enforced by FDA, and are a reasonable assurance to the customer that our products are manufactured in a consistent manner to help ensure that quality, defect-free goods are produced. As of the date of this report, we have received approval and the right to bear the CE mark on our Rapid Drug Screen, Rapid ONE, Rapid TEC, Rapid TOX, RDS InCup, OralStat, Rapid STAT, and Rapid TOX Cup products. We received our ISO13485, 2003 compliance certification in August 2006 and in 2007 we received our ISO 9001, 2000 compliance certification. We have also acquired the license to sell our RDS, Rapid ONE and Rapid TOX products in Canada.
The Clinical Laboratory Improvement Amendments (CLIA) of 1988 established quality standards for laboratory testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test was performed. As a result, those using CLIA waived tests are not subject to the more stringent and expensive requirements of moderate or high complexity laboratories. In 2007, ABMC filed its initial application for a CLIA waiver for our Rapid Drug Screen, Rapid ONE and Rapid TOX point of collection drug test product lines. The waiver would apply to all 14 drugs that the Company’s tests currently detect, in addition to two different cut-off levels for the accounting systemsCompany’s opiate and willcocaine tests. CLIA waived tests are recognized by FDA to be fully implemented priorso simple to use and so accurate that there is little risk of error. CLIA waived tests are the most widely used tests in the clinical market (hospitals and physicians), and are in-demand for occupational health markets. As of the date of this report, we have not yet received the CLIA waiver for our Rapid Drug Screen and Rapid ONE product lines. However, in August 2008, we received our CLIA waiver from FDA related to our Rapid TOX product line. As of the date of this report, the Rapid TOX is the only ABMC POCT device that has been granted a CLIA waiver from FDA.
Due to the nature of the manufacturing of our point of collection tests and the raw material used, ABMC does not incur any material costs associated with compliance with environmental laws, nor do we experience any material effects of compliance with environmental laws.
Research and Development
Our research and development (“R&D”) efforts are continually focused on enhancing and/or maintaining the performance and reliability of our drug testing strips. During 2008, our R&D team continued to make enhancements to our point of collection drug testing lines. The R&D team also continued the development process on contract manufacturing projects. Our R&D expenditures were $563,000 for the fiscal year ended December 31, 1999.
Risk Factors
------------
Limited Operating History.
--------------------------
Although2008, compared to $669,000 for the Company was formedfiscal year ended December 31, 2007. None of the costs incurred in 1986, as far as theresearch and development manufacturein either fiscal year ended December 31, 2008 or December 31, 2007 were borne by a customer.
Manufacturing and saleEmployees
Our facility in Kinderhook, New York houses assembly and packaging of drug testing kits are concerned, it has extremely
limited operational history upon which investors may base an evaluation of its
performance or any assumption asour products in addition to the likelihood thatCompany’s administration. We continue to primarily outsource the Company will be
profitable. (See "Business.") The Company's prospects must be considered in
lightprinting of the risks, expenses, delays, problemsplastic components used in our products, and difficulties frequently
encounteredwe outsource the manufacture of the plastic components used in our products. We manufacture all of our own individual test strips and we manufacture test strips for unaffiliated third parties at our R&D and bulk manufacturing facility in Logan Township, New Jersey. We contract with a third party for the manufacture of the Rapid Reader product.
As of December 31, 2008, we had approximately 99 employees, of which 97 were full time and 2 were part-time. None of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are good.
ITEM 1A. RISK FACTORS
We have a history of incurring net losses.
Since the Company’s inception in 1992 through the fiscal transition period ending December 31, 2001, we incurred net losses. We began earning profits in the establishmentfiscal year ending December 31, 2002 and continued to be profitable through December 31, 2004. However, in the fiscal year ending December 31, 2005, we incurred a net loss. In the fiscal year ending December 31, 2006, we reported net income of a new business, the$196,000. We incurred net losses of $990,000 and $850,000 in fiscal years ended December 31, 2007 and 2008, respectively. As of December 31, 2008, we have an accumulated deficit of $15,238,000. We expect to continue to make substantial expenditures for sales and marketing, product development and commercializationother business purposes. Our ability to achieve 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 products based on innovative technology and the
competitive environment in which the Company operates. Since the Company's entry
into the biomedical business, the Company has generated limited revenues. There
can be no assurance that the Company will be able to generate significant
revenues or achieve profitable operations. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Financial
Statements.)
Technological Factors; Uncertainty of Product Development; Unproven
Technology.
- --------------------------------------------------------------------------------
Although the Company's development efforts relating to the technological
aspects of the workplace drug testing kit are completed, the Company is
continually seeking to refine and improve its design and performance and to
develop additional versions. In addition, the Company plans to perfect its
laboratory drug test kit, its saliva alcohol level test kit and its Keratin
production technology. The Company's efforts remain subject to all of the risks
inherent in new product development, including unanticipated technical,
regulatory or other problems which could result in material delays in product
development or commercialization or significantly increased costs. The Company
may be required to commit considerable additional efforts, time and resources to
develop productionenhanced versions of its additional products. The Company's success
will depend upon suchour existing products meeting targeted product costs and performance,
and may also depend upon their timely introduction into the marketplace. There can be no assurance that we will be able to increase our revenues at a rate that equals or exceeds expenditures. In the fiscal year ended December 31, 2008, our sales were negatively impacted by the global economic crisis, which affected our results of operations. Our failure to increase sales while maintaining or reducing administrative, research and development and production costs will result in the Company incurring additional losses.
Our products are sold in limited markets and the failure of any one of them to achieve and continue to achieve widespread market acceptance would significantly harm our results of operation.
We offer a number of point of collection tests for drugs of abuse that are sold in limited markets, and we currently derive most of our revenues from sales of our point of collection tests for drugs of abuse. Based upon actual results in 2008 and given current levels of operating expenses, we must achieve approximately $3.7 million in quarterly net sales to attain break-even results of operations. In addition, the markets in which we sell our products are cost competitive. If we are required to lower our prices to our customers, our revenue levels could be negatively impacted which would adversely affect our gross profit margins. If our products do not achieve and maintain this level of revenue, or maintain certain gross profit margins, our results of operations would be significantly harmed.
Achieving continued market acceptance for our drug tests requires substantial marketing efforts and the expenditure of significant funds to inform potential customers and distributors of the distinctive characteristics, benefits and advantages of our test kits. A number of our products have only recently been introduced in the marketplace (the Rapid STAT and the Rapid TOX Cup were both introduced in 2007). We have no history upon which to base market or customer acceptance of these products. Introduction of these new products has required, and may continue to require, substantial marketing efforts and expenditure of funds.
If we fail to keep up with technological factors or fail to develop our products we may be at a competitive disadvantage.
The point of collection drug testing market is highly competitive. Several companies produce drug tests that compete directly with our drugs of abuse product line, including Varian, Inc., Biosite Diagnostics and Medtox Scientific, Inc. in the urine point of collection testing market and OraSure Technologies, Inc. and Varian, Inc. in the oral fluid point of collection testing market. As new technologies become introduced into the point of collection testing market, we may be required to commit considerable additional effort, time and resources to enhance our current product portfolio 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 drugs of abuse products and in our contract manufacturing processes.
We currently have approximately 67 suppliers who provide us with the raw materials necessary to manufacture our point of collection drug testing strips and our point of collection tests for drugs of abuse. For most of our raw materials we have multiple suppliers, but there are a few chemical raw materials for which we only have one supplier. 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 our drugs of abuse products. This interruption of the manufacturing process could impair our ability to fill customers’ orders as they are placed, which would put the Company at a competitive disadvantage.
Furthermore, we rely on a number of third parties for supply of the raw materials necessary to manufacture the test components we supply to other diagnostic companies under contract manufacturing agreements. For most of these raw materials we have multiple suppliers, however, there are a few chemical raw materials for which we only have one supplier. The loss of one or more of these suppliers could suspend the strip manufacturing process and this interruption could impair our ability to perform contract manufacturing services.
We have a significant amount of raw material and “work in process” inventory on hand that may not be used in the next twelve months if the expected configuration of sales orders are not received at our projected levels.
We currently have approximately $3.1 million in raw material components for the manufacture of our products at December 31, 2008. The non-chemical raw material components may be retained and used in production indefinitely and the chemical raw materials components have lives in excess of 20 years. In addition to the raw material inventory, we have approximately $2.2 million in manufactured testing strips, or other “work in process” inventory at December 31, 2008. The components for much of this “work in process” inventory have lives of 12-24 months. If sales orders received are not for devices that would utilize the raw material components, or if product developments make the raw materials obsolete, we may be required to dispose of the unused raw materials. In addition, since the components for much of the “work in process” inventory have lives of 12-24 months, if sales orders within the next 12-24 months are not for devices that contain the components of the “work in process” inventory, we may need to discard the unused “work in process” inventory. Beginning in 2004, we established a reserve for obsolete or slow moving inventory. In 2008, we increased this reserve to $308,000. There can be no assurance that this reserve will be adequate for 2009 and/or that it will not have to be increased.
We depend on our R&D team for product development and/or product enhancement.
Our R&D team performs product development and/or enhancement. There can be no assurance that our R&D team can successfully complete the enhancement of our current products and/or complete the development of new products. Furthermore, the Company's proposedloss 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 willto the marketplace, which would put the Company at a competitive disadvantage.
Our products must be successfully completed on a timely basis, if at all,cost competitive and perform to the satisfaction of our customers.
Cost competitiveness and satisfactory product performance are essential for success in the point of collection drug testing market. There can be no assurance that theynew products we may develop will meet projected price or performance objectives, satisfactorily perform allobjectives. In fact, price competition is increasing in the point of collection testing markets as additional foreign (i.e. non-U.S. based companies) manufacturers enter the market. Many foreign manufacturers have lower manufacturing costs and therefore can offer their products at a lower price than a U.S. manufacturer. These lower costs include, but are not limited to, costs for labor, materials, regulatory compliance and insurance.
Due to the variety and complexity of the functions forenvironments in which they are being designed, or prove to be sufficiently
reliable in widespread commercial application. Moreover, there can be no
assurance thatour customers operate, our products may not operate as expected, unanticipated problems will notmay arise with respect to the technologies incorporated into itsour test kits or that product defects will notaffecting product performance may become apparent after commercial introduction of its additionalnew test kits.kits we put on the market. In the event that the Company iswe are required to remedy defects in any of itsour products after commercial introduction, the costs to the Company could be significant,
whichsignificant. Any of these issues could have a material adverse effect onresult 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 securities.
One of our customers accounted for approximately 11.2% of the total net sales of the Company for the fiscal year ended December 31, 2008. Although we have entered into a written purchase agreement with this customer, this customer does not have any minimum purchase obligations and could stop buying our products with 90 days notice. A reduction, delay or cancellation of orders from this customer or the loss of this customer could reduce the Company’s revenues and profits. The Company cannot provide assurance that this customer or earnings.
(See "Business.")
11
Uncertainty of Continued Market Acceptance.
-------------------------------------------
The Company's drug test kits have been well received by customers,
including corporations, distributors and correctional institutions. As is
typically the case with an emerging company, demand and market acceptance for
newly introduced products is subject to a high level of uncertainty. Achieving
continued market acceptance for its drug tests will require substantial
marketing efforts and expenditure of significant funds to inform potential
distributors and customers of the distinctive characteristics, benefits and
advantagesany of its kits. There can be no assurancecurrent customers will continue to place orders, that its drug test kitsorders by existing customers will become generally acceptedcontinue at current or historical levels or that the Company's effortsCompany will resultbe able to obtain orders from new customers. We face significant competition in successful product commercialization or initial or continued market acceptance
for its otherthe drug testing products. (See "Business--Marketingmarket and Sales.")
Competition in the Drug Testing Market; Technological Obsolescence.
-------------------------------------------------------------------
The Company facespotential technological obsolescence.
We face competition for every existing and proposed product from
drug manufacturers and other manufacturers of drug test kits. Somepoint of its
competitorscollection tests for drugs of abuse. Manufacturers such as Varian, Inc., Medtox Scientific, Inc., Biosite Diagnostics and OraSure Technologies, Inc. are wellbetter known and some have far greater financial resources than the
Company. To the bestABMC. In addition to these manufacturers, there are a number of Management's knowledge, and in its opinion, no
competitors have introduced products which equal the ease of use combined with
the accuracy of the Company's drug test kits. (See "Business--Competition.")smaller privately held companies, as well as foreign manufacturers, that serve as our competitors. The markets for drug test kits and related productspoint of collection tests for drugs of abuse are highly competitive. There
can be no assurance that other technologies orCurrently, the pricing of our products which are functionally
similaris cost competitive, but competing on a cost basis against foreign manufacturers becomes more difficult as costs to those of the Company are not currently under development. In
addition, there can be no assurance that other companies with the expertise or
resources that would encourage them to attempt to develop or market competingproduce our products will not develop new products directly competitive with the Company's
drug test kits. Despite the protections which would be available to the Company in the event its pending application for a design patent is granted, the Company
expectsUnited States continue to increase. Furthermore, some of our competitors can devote substantially more resources than we can to business development and they may adopt more aggressive pricing policies. We expect other companies to attempt to develop technologies or products whichthat will compete with the Company'sour products. (See "Business--Competition.")
Possible Inabilityinability to Findhire and Attract Qualified Personnel.
-----------------------------------------------------------
The Company currently has sufficient management expertise and depth to
develop its business. It has recently added marketing and manufacturing
management and has added to its scientific advisory board. However, itretain qualified personnel.
We will need additional skilled sales and dedicated marketing, personnel as well as technical and production personnel into grow the future. There is no guarantee that the Company canbusiness. If we fail to retain itsour present staff or that capablehire additional qualified personnel with relevant skills will be
available. (See "Management.")
Dependenceour business could suffer.
We depend on Management.
-------------------------
The Company iskey personnel to manage our business effectively.
We are dependent on the expertise and experience of
our senior management such as Stan Cipkowski,
Chief Executive Officer, Martin Gould, Chief Scientific Officer and Todd Bailey, Vice President,
Jay Bendis, Vice-President-Marketing, and Douglas Casterlin,
Vice-President and General Manager,Sales & Marketing for
its operations.our future success. The loss of Messrs. Cipkowski,
BendisGould and/or Bailey could negatively impact our business and
Casterlin, or anyresults of
them, will seriously inhibit the
Company's operations.
The Company does notWe currently maintain key man insurance for
Messrs. Cipkowski and Gould. Although we have employment agreements in place with Messrs. Cipkowski and Gould, there can be no assurance that any of
itsour senior management
employees. (See "Management.")
12
Possible Adverse Changeswill continue their employment. Failure to effectively manage growth and expansion could adversely affect our business and operating results.
We may expand our operations in Regulatory Framework.
-------------------------------------------------
Approvalthe future. Any failure to manage our growth effectively will result in less efficient operations, which could adversely affect our operating and financial results.
To effectively manage our growth, we must, among other things:
| § | accurately estimate the number of employees we will require and the areas in which they will be required; |
| § | upgrade and expand our office infrastructure so that it is appropriate for our level of activity; |
| § | manage expansion into additional geographic areas; and |
| § | 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. These impediments would have a material adverse effect on our financial condition, results of operations and cash flows.
Any adverse changes in our regulatory framework could negatively impact our business.
Marketing clearance from the FDA is not currently required for the sale of workplace drug test
kits,our products in non-clinical markets, but is required in the clinical and over-the-counter (“OTC”) markets. Our point of collection drug tests are 510(k) cleared and have met FDA requirements for clinical drug test kits.professional use (with the exception of the OralStat and Rapid STAT which are not 510(k) cleared and are therefore for forensic use only) and we have been granted a CLIA waiver from FDA related to our Rapid TOX product line. The Company has received
"510(k)" approval fromWorkplace and Government/Corrections/Law Enforcement markets are currently our primary markets and if any additional FDA clearance is required to sell in these markets, this additional cost may cause us to raise the price of our products and make it difficult to compete with other point of collection products or laboratory based testing, thereby negatively impacting our revenues. Furthermore, there can be no assurance that if we are required to apply for additional FDA for its two, fiveclearances that they will be granted. If such clearance(s) is/are not granted, we would be unable to sell our products in the Workplace and/or Government/Corrections/Law Enforcement markets, and eight panel drug test kits.
It is awaiting FDA approvalour revenues would be negatively impacted. Although we are currently unaware of one test of its nine panel drug test kit and is
preparing the application for its Rapid One drug test kit. However,any changes in regulatory standards mayrelated to any of our markets, if regulatory standards were to change in the future, and there iscan be no assurance that FDA will grant us the approvals, if and when we apply for them, required to comply with the Company applieschanges.
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, product enhancements and name recognition are essential to establishing and maintaining our technology leadership position. Our personnel are bound by non-disclosure agreements. However, in some instances, some courts have not enforced all aspects of such agreements.
We seek to protect our proprietary products under trade secret and copyright laws, which afford only limited protection. We currently have a total of 26 U.S. and foreign patents related to our POCT products. We have additional approvals from the FDA they will be granted.
(See "Business--FDA Approval," "Business--Government Regulation" and
"Business--Patents and Trademarks.")
Patents and Trademarks
----------------------
The Company has applied for design patents on its drug test kits and for
certain trademarkspatent applications pending in the United States, South and Central America, European
Common Market and Japan.other countries, related to our POCT products. We have trademark applications pending in the United States. Certain trademarks have been grantedregistered in the United States and others are
pending (see "Business--Patents and Trademarks"). Although its patent/trademark
counsel who is also Executive Vice President, has opined that there are no
competing designs or marks, there isin other countries. There can be no assurance that the additional patents and/or trademarks will be granted or that, additional trademarksif granted, they will withstand challenge.
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. We may be required to incur significant costs to protect our intellectual property rights in the future. 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 registered. (See "Business--"FDA
Approval"adequate. Policing and "Business--Patentenforcement against the unauthorized use of our intellectual property rights could entail significant expenses and Trademarks.")
Dilution as a Resultcould prove difficult or impossible.
Potential issuance and exercise of Conversionnew options and warrants and exercise of Series "D" Preferred Sharesoutstanding options and Exercisewarrants, along with the conversion of Warrants.
---------------------------------------------------------------------------
Investors hold 2,500 Series "D" Preferred Sharesoutstanding Convertible Debentures could adversely affect the value of our securities.
The Board of Directors of the Company whichhas adopted four Non-statutory Stock Option Plans providing for the granting of options to employees, directors, and consultants, however, two of those plans, the Fiscal 1997 Plan and the Fiscal 1998 Plan, have no options available for issuance and there are convertibleno options issued and outstanding under either plan. As of December 31, 2008 there were 990,500 options issued and outstanding under the Fiscal 2000 Plan and 2,771,580 options issued and outstanding under the Fiscal 2001 Plan, for a total of 3,762,080 options issued and outstanding as of December 31, 2008. All of these options are fully vested. As of December 31, 2008, there were 9,500 options available for issuance under the Fiscal 2000 Plan and 945,420 options available for issuance under the Fiscal 2001 Plan.
On August 15, 2008, the Company completed an offering of Series A Debentures (the “Offering”) and received gross proceeds of $750,000 in principal amount of Series A Debentures (see Current Report on Form 8-K and amendment on Form 8-K/A-1 filed with the Commission on August 8, 2008 and August 18, 2008 respectively). Holders of the Series A Debentures will have a right of conversion of the principal amount of the Series A Debentures into shares (the “Debenture Conversion Shares”) of the common stock of the Company (“Common Shares. Only 250Stock”), at a conversion rate of 666.67 shares per $500 in principal amount of the Series "D" Preferred Shares have been
converted in Common Shares. Each Series "D" Preferred Share is convertible into
a number of Common Shares equal to (i) $1,000 (ii) divided byA Debentures (representing a conversion price which isof approximately $0.75 per share). This conversion right can be exercised at any time, commencing the lesserearlier of (a) 95% of120 days after the "Market Price" (the average of the closing
bid prices of the Common Shares over any three trading days, selected by the
holderdate of the Series "D" Preferred Shares in the 20 trading days immediately
preceding the date of conversion) andA Debentures, or (b) $4.625, except that if the 10 day
average closing bid price ending on the effective date of a registration
statement (the "Effective Price") is greater than $4.625,Registration Statement to be filed by the maximumCompany with respect to the Conversion Shares. The Company has the right to redeem any Series A Debentures that have not been surrendered for conversion at a price will be such Effective Price, notequal to exceedthe Series A Debentures’ face value plus $0.05 per underlying common share, or $525 per $500 in any case, $4.995. Under the
applicable conversion formulasprincipal amount of the Series "D" Preferred Shares,A Debentures. The Company can exercise this redemption right at any time within 90 days after any date when the number of
Common Shares issuable upon conversion is inversely proportional to the marketclosing price of the Common SharesStock has equaled or exceeded $2.00 per share for a period of 20 consecutive trading days.
As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee, and was also issued a four year warrant to purchase 30,450 shares of the Company’s common stock at the timean exercise price of conversion (i.e., the number of shares
increases as the market$0.37 per share (the closing price of the Common Shares decreases);Company’s common shares on the Closing Date) and except with
respecta four year warrant to certain redemption rightspurchase 44,550 shares of the Company forCompany’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series "D" PreferredA Completion Date), (together the “Placement Agent Warrants”). All Warrants issued to Cantone are immediately exercisable upon issuance.
If these Options, Debenture Conversion Shares
or Placement Agent 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
limitation under Nasdaq Small Cap regulations which limitpublic market, the
aggregate amount of Common Shares whichsales could adversely affect the
Company may issue at a discount fromprevailing market price
upon conversion ofby lowering the
Series "D" Preferred Shares and Warrants
without shareholder approval, (such shareholder approval is being requested by
the Company), there is no cap on the number of shares of Common Shares which may
be issued. In addition, the number of Common Shares issuable upon the conversion
of the Series "D" Preferred Shares and the exercise of Warrants is subject to
adjustment upon the occurrence of certain dilutive events. Holders also hold
outstanding Warrants to acquire a total of 107,355 Common Shares at abid price of
$4.81 share.our securities. The exercise of
suchany of these Options, Debenture Conversion Shares or Placement Agent Warrants
and conversion of such Series "D"
Preferred Shares and the sale of such Common Shares could
have a significant
negative effect on the market price of the Common Shares and couldalso materially impair
the Company'sour ability to raise capital through the future sale of equity
securities because issuance of the common shares underlying the Options, Debenture Conversion Shares or Placement Agent Warrants would cause further dilution of our securities.
13
ResaleIn addition, in the event of Restricted Securities.
---------------------------------
5,220,571 Common Sharesany change in the outstanding shares of our common stock by reason of any recapitalization, stock split, reverse stock split, stock dividend, reorganization consolidation, combination or exchange of shares, merger or any other changes in our corporate or capital structure or our common shares, the number and class of shares covered by the Options and/or the Exercise Price of the Options may be adjusted as set forth in their plans. Substantial resale of restricted securities may depress the market price of our securities.
There are 3,993,155 common shares presently issued and outstanding as of the date hereof that are "restricted securities"“restricted securities” as that term is defined under the Securities Act of 1933, as amended, (the "Securities Act"“Securities Act”) and in the future may be sold in compliance with Rule 144 of the Securities Act, or pursuant to a Registration Statement filed under the Securities Act. Rule 144 provides in essence, that a person holding restricted securities for a period of one year or more may, 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 our outstanding common shares or the Company's outstanding
Common Shares every three months.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 monththree-month period. Such information is deemed available
if the issuer satisfies the reporting requirements of sections 13 or 15(d) of
the Securities and Exchange Act of 1934 (the "Securities Exchange Act") or of
Rule 15c2-11 thereunder. Rule 144(k) also permits the termination of certain
restrictions on sales of restricted securities by persons who were not
affiliates of the Company at the time of the sale and have not been affiliates
in the preceding three months. Such persons must satisfy a two year holding
period. There is no limitation on such sales and there is no requirement
regarding adequate current public information. Investors should be aware that sales under Rule 144 or 144(k), or pursuant to a registration statement filed under the Act, may have a depressive effect ondepress the market price of the Company'sour securities in any market whichthat may develop for such shares.
Preferred Shares.
-----------------
The Company has
We believe we will need additional funding for our existing and future operations.
Our financial statements for the
authorityfiscal year ended December 31, 2008 have been prepared assuming we will continue as a going concern. We do not believe, based on certain assumptions, including our expectation that the overall global economic crisis will continue to
issue up to 5,000,000 Preferred Shares
with such designations, rightshave a negative impact on our business in 2009, that our current cash balances, and
preferences as may be determined by the Board
of Directors. The Company is empowered, without further shareholder approval, to
issue Preferred Shares with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of Common Shares. 2,500 Series "D" Preferred Shares which are
convertible to Common Shareswere issued and 2,250 are presently outstanding.
Need for Additional Financing.
------------------------------
The Company expects that its cash
on handgenerated from future operations will be sufficient to fund
the
Company's proposed operations for
at least 12the next twelve months.
This estimate is based on
certain assumptions and there can be no assurance that unanticipated unbudgeted
costs will not be incurred. Future events, including the problems, delays, expenses and difficulties which may be encountered in establishing and maintaining a substantial market for
the Company's drug test kits and other
technologiesour products, could make cash on hand insufficient to fund
the Company's proposed
operations.
There can be no assurance that the Company will be able to obtain
any necessary additional financing on terms acceptable to it, if at all. In
addition, financing may result in further dilution to the Company's then
existing stockholders. The Company has no established borrowing arrangements or
available lines of credit. (See "Management's Discussion and Analysis of
Financial condition and Results of Operations.")
14
No Dividends.
-------------
The payment of dividends rests within the discretion of the Company's Board
of Directors. No dividends have been paid on the Common Shares and the Company
does not anticipate the payment of cash dividends in the foreseeable future. If
the operations of the Company become profitable, it is anticipated that, for the
foreseeable future, any income received therefrom would be devoted to the
Company's future operations and that cash dividends would not be paid to the
Company's shareholders.
Ability to Retain and Attract Market Makers.
--------------------------------------------
The Common Shares trade on the Nasdaq SmallCap Market. In the event that
the market makers cease to function as such, public trading in the Common Shares
will be adversely affected or may cease entirely. Presently, market makers for
the Company's Common Shares include GVR Co., Fahnestock & Co., Inc., Hill
Thompson Magid & Co., J.B. Oxford & Co. Kalb Voorhis & Co., Nash Weiss & Co.,
Inc., Paragon Capital Corp., Troster Singer Corp., Comprehensive Capital Corp.,
Herzog, Heine, Geduld, Inc., Mayer & Schweitzer, Inc., Knight Securities, Ltd.,
Naib Trading Corp., National Financial Securities Corp., Sharpe Capital, Inc.
and Wien Securities Corp., Sherwood Securities Corp., H. J. Meyers & Co., Inc.,
M. H. Meyerson & Co., Inc., National Financial Service Corp.
Anti-Takeover Provisions in Certificate of Incorporation.
---------------------------------------------------------
The Company's certificate of incorporation authorizes the issuance of
5,000,000 Preferred Shares. The Board of Directors has the authority, without
further action by the Common Shareholders, to issue Preferred Shares from time
to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. Thus,
the Board of Directors, in order to avoid a hostile takeover, could issue
Preferred Shares with supervoting rights, conversion rights into Common Shares,
liquidation preference or a combination of rights and preferences which could
inhibit success of such attempt.
No Assurance of Continued Public Market for Common Shares.
----------------------------------------------------------
Although the Common Shares trade on the Nasdaq SmallCap market, there is no
assurance that an active trading market will be sustained.
15
Item 2. Description of Property
On April 1, 1998, the Company leased 15,000 square feet office, warehouse,
manufacturing and administrative offices in Hudson, New York from a
non-affiliated party for a period of one year at a monthly rent of $3,750. The
Company has the option to extend the lease for an additional year.
Item 3. Legal Proceedings
In February 1994, Robert Freidenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have a Share Exchange Agreement rescinded on
the grounds of breach of contract. In order to preserve a claim for damages, the
Company filed a third-party claim against Dr. Freidenberg, for breach of the
Share Exchange Agreement. In November 1995, after a trial, the court dismissed
Dr. Friedenberg's lawsuit and allowed the Company's third-party claim to proceed
to trial.In September, 1996, Dr. Friedenberg died. A pretrail hearing was held
in December 1996 which set a trial date of April 28, 1997.
That trial was decided by a jury on May 5, 1997. The verdict determined
that Dr. Friedenberg breached various contracts, including the Share Exchange
Agreement, when he failed to deliver technology to the Company. The jury also
found in favor of the Company on two of the three fraud claims against Dr.
Friedenberg and awarded the Company approximately $321,000 in damages. Dr.
Friedenberg's estate, just prior to the jury trial, filed a supplemental claim
for the shares of the Company's stock which he would have received under the
Share Exchange Agreement which the trial judge took under advisement. The trial
judge, on July 17, 1998 ruled that the estate of Dr. Friedenberg is entitled to
5,907,154 common shares of the Company. The Company has taken an appeal.
Management, in consultation with counsel, is of the opinion that the trial
judge's award of the shares to Dr. Friedenberg's estate will be reversed on
appeal.
In June 1995, the Company filed a lawsuit against Mr. Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000. Mr. Morris has
counterclaimed for common shares. No trial date has been set. The Company is
vigorously contesting the Morris claim.
Item 4. Submission of Matters to a Vote of Security Holders
None.
16
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
The table on the following page sets forth the range of high and low sales
prices for the Common Shares on the NASD Bulletin Board for each quarter for the
fiscal years 1997 and 1998. As of July 31, 1998, there were approximately 3,822.
holders of Common Shares.
High Low
---- ---
Fiscal Year Ending April 30, 1998
---------------------------------
Fourth Quarter $4.43 $3.40
Third Quarter 6.50 3.25
Second Quarter 3.97 2.69
First Quarter 4.13 3.00
Fiscal Year Ending April 30, 1997
---------------------------------
Fourth Quarter 4.25 3.50
Third Quarter 4.75 2.75
Second Quarter 7.38 4.31
First Quarter 6.00 2.00
As of July 31, 1998, there were outstanding approximately 14,282,989 Common
Shares and 2,250 convertible Series "D" Preferred Shares. There is one holder of
the Preferred Shares which do not trade.
The Company has not declared any dividends on the Common Shares and does
not expect to do so in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
for the years ended April 30, 1997 and 1998
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that except for the description of historical facts
contained herein, the Registration Statement contains certain forward looking
statements that involve risks and uncertainties as detailed herein and from time
to time in the Company's filings with the Securities and Exchange Commission and
elsewhere. Such statements are based on Management's current expectations and
are subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. These factors include, among others: (a) the Company's fluctuations
in sales and operating results, risks associated with international operations
and regulatory, competitive and contractual risks and product development; (b)
the ability to achieve strategic initiatives, including but not limited to the
ability to achieve sales growth across the business segments through a
combination of enhanced sales force, new products, and customer service; and
acquisitions.
17
Results of Operations for the Year Ended April 30, 1998 as Compared to the
Year Ended April 30, 1997
- --------------------------------------------------------------------------------
During the current year, the Company undertook an extensive program to
market and distribute its primary product, the Rapid Drug Test kit. As a result,
revenues from the sale of the test kits were $1,991,000 for the year ended April
30, 1998 as compared to $318,000 for the year ended April 30, 1997, representing
an increase of $1,673,000 or 526.2%. Cost of goods sold for the year ended April
30, 1998 was $971,000 or 48.8% of drug test revenues as compared to $183,000 or
57.6% of drug test revenues for the year ended April 30, 1997. In an effort to
lower this cost, the Company has undertaken to develop a cost reduction program
aimed specifically at its in-place production process and expects further
savings in the coming year.
Revenues from book sales were $164,000 for the year ended April 30, 1998 as
compared to $275,000 for the year ended April 30, 1997 representing a decrease
of $111,000 or 40.4%. It is expected that with continued strong sales in the
drug test market, book sales as a percent of overall revenue will continue to
decline. Cost of goods sold for the year ended April 30, 1998 was $79,000 (48.2.
% of book sales) as compared to $77,000 (28.1% of book sales) for the year ended
April 30, 1997.
General and administrative costs for the year ended April 30, 1998 were
$2,739,000, an increase of 215.6% over expenses of $868,000 for the year ended
April 30,1997. The following table sets forth the percentage relationship of
general and administrative costs to sales for both years:
April 30, % April 30, %
1998 Sales 1997 Sales
--------- ----- -------- -----
Sales salaries & commissions $ 572,000 26.5 $ 41,000 6.7
Marketing & promotion 869,000 40.3 112,000 18.3
Legal & professional 112,000 5.2 117,000 19.2
Investor relations costs 241,000 11.2 105,000 17.2
Office salaries 340,000 15.8 275,000 45.0
Telephone 51,000 2.4 19,000 3.1
Insurance 35,000 1.6 28,000 4.6
Other administrative costs 519,000 24.1 171,000 28.0
--------- ---- --------- -----
Total general & administrative costs $ 2,739,000 127.1 $ 868,000 142.1
----------- ----- --------- -----
These increased general and administrative costs were undertaken to create
the necessary infrastructure to meet the Company's worldwide drug test marketing
and production goals. As an outgrowth of increasing sales the Company expects
general and administrative costs to continue to increase but at a slower rate.
As a percent of sales, this cost declined 15.0% during the current year and
Management expects this trend to continue in future.
Bad debt expense representing the write-off of amounts owing from two
companies amounted to $380,000 or 17.6% of sales for the year ended April
30,1998. The company has implemented a stronger credit review process to reduce
this cost in future.
Depreciation and amortization was $101,000 and $96,000 for the years ended
April 30,1998 and 1997 respectively.
18
Research and development expense of $150,000 for the year ended April 30,
1998 was $75,000 more than the $75,000 expended during the year ended April 30,
1997. This increase in research and development is the result of ongoing
development of both new products and improved methods to reduce the costs of the
drug testing delivery system.
Non-cash compensation charges
-----------------------------
As an inducement and in lieu of cash outlays, the Company granted 260,000
options to employees at exercise prices below market price on date of grant. The
Company also granted 89,000 options as compensation for consulting and
professional fees in lieu of cash. The Company decided to eliminate certain
vesting requirements contained in its employment contracts of the Vice President
of Marketing and the Vice President and General Manager. As a result and in
addition to certain milestones having been reached under these employment
contracts, the Company recorded an aggregate non-cash charge for both options
and stock of $2,214,000.
Liquidity and Capital Resources As of the End of Fiscal Year Ended April
30, 1998
- --------------------------------------------------------------------------------
The Company's cash and cash equivalents amounted to $3,239,000 for the year
ended April 30, 1998 representing an increase of $1,476,000 or 84.0% over
$1,763,000 as of the year ended April 30, 1997. Of this amount, $3,135,000 was
invested in interest bearing certificates of deposit. Working capital increased
$931,000 or 26.2% over $3,549,000 recorded as of the year ended April 30, 1997.
The increase in working capital resulted from the sale of convertible preferred
shares (Series B, C, & D) in the principal amounts of $600,000, $455,000 and
$2,500,000 respectively, plus proceeds from the exercise of 106,305 warrants and
options for $309,000 during the year. Cash generated from financing activities
was utilized to finance operations and for the purchase of machinery and
equipment for $71,000.
As a result of strong fourth quarter sales of drug test kits, accounts
receivable increased $374,000 or 110.7% to $712,000 for the year ended April 30,
1998 compared to $338,000 for the year ended April 30, 1997.
Inventories rose 48.1% to $991,000 for the year ended April 30, 1998 or
$322,000 above $669,000 reported for the year ended April 30, 1997.
The Company's primary short-term needs are to increase its manufacturing
capabilities, increase inventory levels and continue to support its research and
development programs. The Company currently plans to expend approximately $2.0
million for the expansion and development of its manufacturing facilities in
addition to its marketing and general administrative programs.
The Company expects its capital requirements to increase over the next
several years as it expands its research and development efforts, new product
development, sales and administration infrastructure, manufacturing capabilities
and facilities. The Company's future liquidity and capital funding requirements
will depend on numerous factors, including the extent to which the Company's
products under development are successfully developed and gain market
acceptance, the timing of regulatory actions regarding the Company's potential
products, the costs and timing of expansion of sales, marketing and
manufacturing activities, facilities expansion needs, procurement and
enforcement of patents important to the Company's business, results of clinical
investigations and competition.
19
The Company believes that its available cash and cash from operations will
be sufficient to satisfy its funding needs for at least the next 12 months.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company'sour working capital and capital expenditure requirements, the Companywe may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such financing if required,
will be available or that we will be able to complete financing on satisfactory terms, if at all. Item 7.Any such equity financing may result in further dilution to existing shareholders. Our ability to retain and attract market makers is important to the continued trading of our securities.
Our common shares trade on the NASDAQ Capital Market under the symbol “ABMC”. In the event that the market makers cease to function as such, public trading of our securities will be adversely affected or may cease entirely.
If we fail to meet the continued listing requirements of the NASDAQ Capital Market, our securities could be delisted.
Our securities are listed on the NASDAQ Capital Market. The NASDAQ Stock Market (“NASDAQ”) Marketplace Rules impose requirements for companies listed on the NASDAQ Capital Market to maintain their listing status, including but not limited to minimum common share bid price of $1.00, and $2,500,000 in shareholders' equity or $500,000 in net income in the last fiscal year. As of the date of this report and for the past twelve months our common shares are trading and have traded below the minimum bid requirement. In October 2008, NASDAQ advised us that, because of the extraordinary market conditions, NASDAQ was suspending enforcement of the bid price and market value requirements through January 16, 2009. In December 2008, NASDAQ further extended this suspension until April 20, 2009, and again on March 24, 2009, NASDAQ notified us that they were further extending this suspension until July 20, 2009. Although these suspensions have provided us more time to regain compliance with the minimum bid price requirement, there can be no assurance that these suspensions will in fact enable us to regain compliance. Our continued failure to regain compliance with NASDAQ listing requirements will more than likely result in delisting of our securities.
Delisting could reduce the ability of investors to purchase or sell our securities as quickly and as inexpensively as they have done historically and could subject transactions in our securities 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 securities 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 securities due to a decrease in liquidity and less interest by institutions and individuals in investing in our securities. Delisting from NASDAQ could also make it more difficult for us to raise capital in the future.
We may incur additional significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
We may incur significant legal, accounting and other expenses as a result of our required compliance with certain regulations. More specifically, the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as well as new rules subsequently implemented by the SEC, have imposed various new requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations are expected to increase our legal and financial compliance costs and may make some activities more time-consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, in our fiscal year ended December 31, 2007, management was required to perform system and process evaluation and testing of the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Commencing in our fiscal year ended December 31, 2009, our independent registered public accounting firm will report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
Our testing, or the subsequent testing by our independent registered public accounting firm may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. As a result, our compliance with Section 404 may require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to ensure compliance with these regulations.
Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we, or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
As of the date of this report, we are not in compliance with certain financial covenants required by our primary financial institution, First Niagara Financial Statements
a. Balance SheetGroup (“FNFG”), and such non-compliance could cause FNFG to accelerate our loans.
We currently have a line of credit, a real estate mortgage and a term note (“Credit Facilities”) with FNFG (See Note D and Note E). On February 4, 2009, we received a letter from FNFG notifying the Company that an event of default had occurred under our Letter Agreement and other documents (the “Loan Documents”), related to the Credit Facilities; more specifically, we failed to comply with the maximum monthly net loss covenant set forth in the Letter Agreement. Pursuant to the terms of the Loan Documents, all obligations of the Company to FNFG under the Loan Documents can be declared by FNFG to be immediately due and payable. The principal amount totals $1,636,635.97, plus interest and other charges through February 4, 2009 (collectively, the “Debt”).
The February 4, 2009 notice also stated that, as an accommodation to the Company, FNFG decided not to immediately accelerate the Debt, and that they expected the Company to enter into a Forbearance Agreement with FNFG memorializing measures and conditions required by FNFG. FNFG also notified the Company that they were reducing the commitment on our line of credit to $650,000 (previously the line of credit commitment was $750,000), and placing a hold on one of our accounts held at FNFG, which had a balance of $108,000 as of April 30, 1998
b. StatementFebruary 4, 2009.
On March 12, 2009, we entered into a Forbearance Agreement (the “Agreement”) with FNFG. The Agreement addresses the Company’s non-compliance with the maximum monthly net loss and the minimum debt service coverage ratio covenants (“Existing Defaults”) under the Loan Documents related to extensions of Operationscredit made by FNFG to the Company; more specifically the Company’s line of credit, term note and real estate mortgage (the “Debt”) with FNFG. Under the terms of the Agreement, FNFG will forbear from exercising its rights and remedies arising under the Loan Documents from the Existing Defaults. The Agreement is in effect until (i) June 1, 2009; or (ii) the date on which FNFG elects to terminate the Agreement upon the occurrence of an event of default under the Agreement or under the Loan Documents (other than an Existing Default); or (iii) the date on which any subsequent amendment to the Agreement becomes effective (the “Forbearance Period”).
Under the Agreement, during the Forbearance Period: FNFG will waive any further default relating to the maximum monthly net loss covenant and minimum debt service coverage ratio provided the Company shows a net loss no greater than $300,000 for the two years ended April 30, 1997quarter ending March 31, 2009, and 1998
c. Statementon or before May 1, 2009, the Company must produce to FNFG a legally binding and executed commitment letter from a bona-fide third party lender setting forth the terms of Cash Flowsa full refinancing of the Debt to close on or before June 1, 2009.
During the Forbearance Period, FNFG will continue to place a hold on one of our accounts, but will release up to $5,000 per month from the account to be used for the two yearspurpose of paying a financial advisory firm engaged by the Company to find and evaluate alternative funding sources; the financial advisory firm was referred to the Company by FNFG.
The maximum available under the line of credit during the Forbearance Period will be the lesser of $650,000, or the Net Borrowing Capacity. Net Borrowing Capacity is defined as Gross Borrowing Capacity less the Inventory Value Cap. Gross Borrowing Capacity is defined as (i) the sum of 80% of eligible accounts receivable, (ii) 20% of raw material inventory and (iii) 40% of finished goods inventory. Inventory Value Cap is defined as the lesser of $400,000, or the combined value of items (ii) and (iii) of Gross Borrowing Capacity. Since September 2008, the Company’s Net Borrowing Capacity has declined from $1,195,000 to $795,000 as of the date of this report.
During the Forbearance Period, interest shall accrue on the line of credit at the rate of prime plus 4%, an increase from prime plus 1%. Interest accruing on the real estate mortgage during the Forbearance Period shall remain unchanged at the fixed rate of 7.5% and interest on the term note shall remain unchanged at the fixed rate of 7.17%. In the event of default under the Agreement, interest under the line of credit shall increase to the greater of prime plus 6% or 10%. The line of credit shall terminate on June 1, 2009.
If we are unable to maintain compliance with any of the conditions during the Forbearance Period, or if we are unable to secure a full refinancing of the Debt on or before June 1, 2009, FNFG will have the right to accelerate the Debt, however, the Company could request an extension of the Forbearance Period. If FNFG did not agree to an extension of the Forbearance Period and were to exercise its right to accelerate the Debt, the Company does not have the funds available to pay the Debt and FNFG may enforce their rights and remedies available under the Loan Documents, including but not limited to foreclosure of its liens on the Company’s assets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We purchased our property in Kinderhook, New York in November 2001. The property consists of a 30,000 square foot facility with approximately 22 surrounding acres. Our Kinderhook facility houses administration, customer service, inside sales, assembly and packaging and shipping. In November 2006, we refinanced mortgages/loans and obtained a new loan through FNFG in the amount of $750,000. The balance on this mortgage at fiscal year ended April 30, 1997December 31, 2008 was $739,000.
We lease 14,400 square feet of space in Logan Township, New Jersey that houses our bulk strip manufacturing and 1998
d. Statement of Stockholders' Equityresearch and development. The total minimum monthly lease cost is $7,100.
ITEM 3. LEGAL PROCEEDINGS
Our NASDAQ listing
On November 12, 2007, we received a notice from NASDAQ informing us that for the two years ended Aprillast 30 1997
and 1998
e. Notesconsecutive business days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under NASDAQ Marketplace Rule 4310(c)(4). The letter stated that under NASDAQ Marketplace Rule 4310(c)(8)(D), we would be provided with 180 calendar days, or until May 12, 2008, to Financial Statements
Item 8. Changesregain compliance with NASDAQ Marketplace Rule 4310(c)(4). To regain compliance, anytime before May 12, 2008, the closing bid price of our common stock had to be $1.00 per share or more for a minimum of 10 consecutive business days.
On May 13, 2008, we received a notice from NASDAQ informing us that pursuant to NASDAQ’s previous communication of November 12, 2007, we had not regained compliance with NASDAQ Marketplace Rule 4310(c)(4) related to the minimum closing bid price of our common stock by May 12, 2008. The notice stated that because we met all initial inclusion criteria for the NASDAQ Capital Market set forth in and Disagreement With Accountants
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
ComplianceNASDAQ Marketplace Rule 4310(c) (except for the bid price) on May 12, 2008, in accordance with Section 16(a)NASDAQ Marketplace Rule 4310(c)(8)(D), we would be provided an additional 180 calendar day compliance period, or until November 10, 2008 to regain compliance. To regain compliance, anytime before November 10, 2008, the bid price of our common stock had to close at $1.00 per share or more for a minimum of 10 consecutive business days.
On October 30, 2008, we received a letter dated October 16, 2008 from NASDAQ stating that, given the extraordinary market conditions, NASDAQ has decided to suspend enforcement of the bid price and market value of publicly held shares requirements through January 16, 2009. On October 16, 2008, NASDAQ filed an immediately effective rule change with the U.S. Securities and Exchange Act
DirectorsCommission (“SEC”) to implement the suspension. On December 22, 2008, we received notice from NASDAQ stating that, given the continued extraordinary market conditions, NASDAQ was extending the suspension of the bid price and Officers
- ----------------------
market value of publicly held shares requirements through April 20, 2009. On March 24, 2009, we received a notice from NASDAQ that they were further extending the suspension of the bid price and market value of publicly held shares requirements. According to this new notice from NASADAQ, enforcement of these rules is scheduled to resume on July 20, 2009. Any company in the compliance process for a bid price or market value of publicly held shares concern will continue to be "frozen" at the same stage of the process until the end of the suspension. During the suspension period, companies can regain compliance and could still be delisted for other reasons. Prior to the resumption of these rules, NASDAQ will contact us to inform us of the number of calendar days remaining in our compliance period and the specific date by which we need to regain compliance. The NASDAQ notices have no effect on the listing of ABMC’s common stock on NASDAQ as of the date of this report, and our common shares continue to trade at levels below the compliance threshold as of the date of this report.
Other Matters
We have been named in legal proceedings in connection with matters that arose during the normal course of business, and that in our opinion are not material. While the ultimate result of any litigation cannot be predicted, it is management’s opinion based upon consultation with counsel, that it has adequately provided for losses that may be incurred related to these claims. If we are unsuccessful in defending any or all of these claims, resulting financial losses could occur and such losses could have an adverse effect on our financial position, results of operations and cash flows. We are unaware of any proceedings being contemplated by governmental authorities as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common shares trade on the National Association of Securities Dealers Automated Quotation System Capital Market (NASDAQ Capital Market) under the symbol ABMC.
The following table sets forth the nameshigh and low sale prices of our securities as reported by the NASDAQ Capital Market for the periods indicated.
Common Shares
| Fiscal year ending December 31, 2008 | | High | | | Low | |
| | | | | | | |
| Quarter ending December 31, 2008 | | $ | 0.54 | | | $ | 0.08 | |
| Quarter ending September 30, 2008 | | $ | 0.95 | | | $ | 0.32 | |
| Quarter ending June 30, 2008 | | $ | 0.98 | | | $ | 0.33 | |
| Quarter ending March 31, 2008 | | $ | 0.98 | | | $ | 0.46 | |
| Fiscal year ending December 31, 2007 | | High | | | Low | |
| | | | | | | |
| Quarter ending December 31, 2007 | | $ | 1.00 | | | $ | 0.36 | |
| Quarter ending September 30, 2007 | | $ | 1.43 | | | $ | 0.94 | |
| Quarter ending June 30, 2007 | | $ | 1.31 | | | $ | 0.90 | |
| Quarter ending March 31, 2007 | | $ | 1.33 | | | $ | 0.89 | |
Holders
As of March 27, 2009, there were approximately 4,000 holders of our securities. As of March 27, 2009, there were outstanding 21,744,768 common shares.
Dividends
We have not declared any dividends on our common shares and do not expect to do so in the foreseeable future. Future earnings, if any, will be retained for use in our business.
Securities authorized for issuance under equity compensation plans previously approved by security holders
We have two Non-statutory Stock Option Plans in place (the Fiscal 2000 Plan and the Fiscal 2001 Plan) that have been adopted by our Board of Directors and subsequently approved by our shareholders. The Plans provide for the granting of options to employees, directors, and consultants.
Securities authorized for issuance under equity compensation plans not previously approved by security holders
As part of their compensation as the placement agent in our August 2008 Series A Convertible Debenture Offering, Cantone Research, Inc. (“Cantone”) was issued a four year warrant to purchase 30,450 shares of the Company's directorsCompany’s common stock at an exercise price of $0.37 per share, and officers.
Directorsa four year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share. All warrants issued to Cantone were immediately exercisable upon issuance.
The following table summarizes this information as of December 31, 2008, with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity Compensation Plans approved by security holders | | | 3,762,080 | | | $ | 1.34 | | | | 954,920 | |
| Equity Compensation Plans not approved by security holders | | | 75,000 | | | $ | 0.39 | | | NA | |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Financial Statements contained herein and the notes thereto. Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words “believes”, “anticipates”, “estimates”, “expects”, “intends”, “projects”, and words of similar import, are forward looking as that term is defined by the Private Securities Litigation Reform Act of 1995, or 1995 Act, and releases issued by the SEC. These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the "Safe Harbor" provisions of the 1995 Act. We caution that any forward looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward looking statements as a result of various factors, including, but not limited to, any risks detailed herein, including the “Risk Factors” section contained in Item 1A of this Form 10-K, or detailed in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the SEC and amendments thereto. We are not undertaking any obligation to update publicly any forward-looking statements. Readers should not place undue reliance on these forward-looking statements.
Overview and Plan of Operations
During the year ended December 31, 2008 (“2008”), we sustained a net loss of $850,000 from net sales of $12,657,000, and had net cash used in operating activities of $303,000. During the year ended December 31, 2007 (“2007”), the Company sustained a net loss of $990,000 from net sales of $13,872,000, and had net cash used in operating activities of $605,000.
During the twelve months ended December 31, 2008, we continued our program to market and distribute our urine and oral fluid point of collection drug tests. In 2008, we also received 510(k) clearance for our Rapid TOX Cup product line, and we were granted a CLIA waiver related to our Rapid TOX product line. Both of these products were developed to provide our customers with more cost effective testing options while maintaining the level of quality to which our customers have become accustomed. We expect these marketing clearances to open up new markets for us. In addition, we anticipate that the CLIA waiver will have a positive impact on sales to our lab partner.
During 2008, we took steps to improve our financial position. Beginning in April 2008, we implemented a number of cost cutting initiatives including, but not limited to, reducing the number of employees in our selling and marketing, research and development and general and administrative departments. We also continue to take steps to reduce manufacturing costs related to our products to increase our gross margin. Unfortunately, in the fourth quarter of 2008, the global economic crisis began to have a more negative impact on our sales and we began to see a more substantial decline. Therefore, while results from operations have improved when comparing 2008 to 2007, the improvement is less than what was expected.
ABMC’s sales strategy continues to be a focus on direct sales, while identifying new contract manufacturing operations and pursuing new national accounts. Simultaneously with these efforts, we continue to focus on the development of new products to address market trends and needs. During 2008, we continued to market and distribute our urine and oral fluid based point of collection tests for drugs of abuse, our Rapid Reader® drug screen result and data management system, and performed contract manufacturing services for unaffiliated third parties.
The Company’s continued existence is dependent upon several factors, including our ability to raise revenue levels and reduce costs to generate positive cash flows, and to sell additional shares of our common stock to fund operations and/or obtain additional credit facilities, if and when necessary.
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 of America. Note A to our financial statements, describes the significant accounting policies and methods used in the preparation of our financial statements.
Use of Estimates: 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 product returns, bad debts, inventories, income taxes, warranty obligations, contingencies and litigation. Estimates are based 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.
Revenue & Returns: ABMC records estimated reductions to revenue for customer returns and allowances based on historical experience. If market conditions were to decline, actions may be taken to increase customer incentive offerings possibly resulting in an incremental reduction of gross margins. Revenue is recognized upon shipment to customers.
Accounts Receivable & Allowance for Doubtful Accounts: 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.
Inventory: ABMC will write down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the net realizable 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.
Valuation Allowance: ABMC records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.
Results of operations for the twelve months ended December 31, 2008, compared to the twelve months ended December 31, 2007
Net Sales: Net sales decreased 8.8% in 2008 compared to net sales in 2007. We experienced declines in our Government/Corrections/Law Enforcement market throughout 2008 as a result of general economic conditions and price pressure from foreign competitors. Our Corporate/Workplace market was also negatively impacted by the global economic crisis in 2008. Beginning in the third quarter of 2008, sales in our national account division, which primarily sells in the Corporate/Workplace market, declined as the downturn of the economy negatively impacted new and existing employment levels; historically we have seen year over year growth in this division. These decreases in Corporate/Workplace and Government/Corrections/Law Enforcement markets were offset by an increase in sales in the International market, primarily through increased sales in Latin America, and an increase in contract manufacturing sales. We expect to continue to see declines in Corporate/Workplace market as a result of declines in the employment levels of our customers, and increased price pressure in the Government/Corrections/Law Enforcement market, until such time that the economy begins to recover; we expect that we will continue to experience declines in net sales. We will continue to focus our sales efforts on national accounts, direct sales and contract manufacturing, while striving to reduce manufacturing costs, which could enable us to be more cost competitive.
Cost of goods sold: Cost of goods sold was relatively unchanged year over year; in 2008, cost of goods sold was 58.4% of net sales, and in 2007 cost of goods sold was 58.7% of net sales. When comparing cost of goods sold in 2008 to cost of goods sold in 2007, until the fourth quarter of 2008 we were able to improve cost of goods sold as a percentage of sales through manufacturing efficiencies as a result of automation, even with increased costs in raw materials required to manufacture our products. In the fourth quarter of 2008, the unanticipated sharp decline in sales due to the downturn of the economy negatively impacted our cost of goods sold; more specifically, our labor and overhead costs and raw material expenditures were not in line with the level of sales achieved in the fourth quarter. Subsequent to the fourth quarter, we reduced manufacturing labor and overhead costs and raw material expenditures in efforts to improve cost of goods sold going forward in 2009, anticipating that sales will continue to decline until the economy begins to recover.
Affecting cost of goods sold in 2007 were disposals of certain inventory components manufactured during the introduction of the new Rapid TOX product in the fourth quarter of fiscal year ended December 31, 2005, inventory disposals of expired products, and disposals of components as a result of product improvements. In the fourth quarter of 2008, we increased our reserve for slow moving and obsolete inventory from $250,000 to $308,000 and we believe this increased reserve is currently adequate.
Operating Expenses: Operating expenses for 2008 decreased 10.6% when compared to operating expenses in 2007. Operating expenses as a percentage of sales also improved to 46.5% of net sales in 2008, compared to 47.5% of net sales in 2007. Decreases in cost associated with our CLIA waiver application as well as the implementation of cost cutting initiatives implemented in research and development, selling and marketing, and general and administrative resulted in expense reductions in all three divisions. The reductions were partially offset by certain increases provided in the following detail:
Research and development (“R&D”)
R&D expenses for 2008 decreased 15.8% when compared to R&D expenses in 2007. Savings in salaries and benefits, consulting fees, FDA compliance costs, supplies, travel, phone, patent/license fees and depreciation were minimally offset by increases in facilities costs. This reduction in expenses is primarily a result of personnel reductions made in the first half of 2008 as part of our cost cutting initiatives. In addition, in June 2008, our Vice President of Product Development retired. The former vice president received a payment of $35,000, equal to half his annual salary of $70,000. We paid this in 3 equal monthly installments of approximately $11,666 each beginning July 31, 2008, with the last payment being made on September 30, 2008. We do not expect to fill this position in the future. Throughout 2008, our R&D department continued to focus their efforts on the enhancement of our current products and exploration of contract manufacturing opportunities.
Selling and marketing
Selling and marketing expenses for 2008 decreased 11.1% when compared to selling and marketing expenses in 2007. Reductions in sales salaries and commissions, travel expense, trade show related expenses, consulting fees and depreciation were partially offset by increases in postage, advertising expense, royalty expense, marketing salaries and miscellaneous expenses. As with R&D, the expense reductions in selling and marketing are as a result of our cost cutting initiatives that began in the first half of 2008. The increase in miscellaneous expense is attributed to a settlement of a claim related to a product return. Throughout 2008, we promoted our products through selected advertising, participation at high profile trade shows and other marketing activities. Our direct sales force continued to focus their selling efforts in our targets markets, which include but are not limited to, Corporate/Workplace, and Government/Corrections/Law Enforcement. In addition, beginning in the fourth quarter of 2008, our direct sales force began to focus more efforts on the Clinical/Physician/Hospital market, as a result of our receipt of a CLIA waiver related to our Rapid TOX product line.
General and administrative (“G&A”)
G&A expenses for 2008 decreased 8.9% when compared to G&A expenses in 2007. G&A was also positively impacted by our cost cutting initiatives. Decreases in investor relations expense, insurance costs, consulting fees, licenses and permits, outside service fees and repairs and maintenance were partially offset by increases in quality assurance salaries and supplies, general and administrative salaries and benefits, legal fees, miscellaneous expense, bad debts and bank service fees. The increase in miscellaneous expense stems from establishing a reserve against a long term receivable. In addition, the costs associated with our CLIA waiver application for our Rapid TOX product line were only $13,000 in 2008, compared to $236,000 in 2007. 2007 also included non-cash compensation of $26,000 related to the amortization of expense of options issued to two employees in 2006, our former Chief Financial Officer and our former Vice President of Product Development; this expense did not occur in 2008.
In 2008, we implemented a number of cost cutting initiatives and we believe that our current infrastructure is sufficient to support our business. However, additional investments in research and development, selling and marketing and general and administrative may be necessary to develop new products in the future and enhance our current products to meet the changing needs of the point of collection testing market, to grow our contract manufacturing operations, to promote our products in our markets and to institute changes that may be necessary to comply with various new public company reporting requirements including but not limited to requirements related to internal controls over financial reporting.
Other income and expense: Other expense incurred during 2008 consisted of losses on disposals of assets and penalties accrued on a sales tax liability. This was offset by other income earned attributable to a grant received in 2002, 2003 and 2005. The Company received the original grant from the Columbia Economic Development Corporation in three parts totaling $100,000. The final installment of $25,000 was received in the first quarter of 2005. The grant is convertible to a loan based upon a percentage of the grant declining from 90% of the grant amount in 2003 to 0% in 2012. The grant is convertible to a loan only if the employment levels in the Kinderhook facility drop below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 61 and 81 at December 31, 2008 and December 31, 2007, respectively. The amount of other income earned on this grant was $10,000 in 2008 and 2007.
In 2008 and 2007, we incurred interest expense related to our loans and lines of credit with FNFG. In 2008 and 2007, we earned interest on our cash accounts.
Results of operations for the twelve months ended December 31, 2007, compared to the twelve months ended December 31, 2006 (“2006”)
Net Sales: Net sales increased less than 1% in 2007 compared to net sales in 2006. The slight increase is attributed to increases in our Corporate/Workplace market (through increases in national account sales) and International markets, which were offset by decreases in the Government/Corrections/Law Enforcement market and contract manufacturing. The decrease in the Government/Corrections/Law Enforcement markets is a result of price pressures in the market due to competition with foreign manufacturers. The decrease in contract manufacturing sales is primarily a result of timing of the receipt of orders from one of our contract manufacturing customers.
Cost of goods sold: The increase in cost of goods sold in 2007 from 2006 was primarily as a result of increased costs in overhead and labor, stemming from the greater diversity and complexity of new products as well as increases in some material costs. Also affecting cost of goods sold in 2007 are disposals of certain inventory components manufactured during the introduction of our Rapid TOX product, inventory disposals of expired product and disposals of components as a result of product enhancements.
Operating expenses: Operating expenses remained relatively unchanged in 2007 when compared to operating expenses in 2006. Increases in research and development and general and administrative were offset by a decrease in selling and marketing expenses.
Research and Development
R&D expenses increased in 2007 when compared to 2006. The increase in R&D expense was due to increases in salaries and facilities costs, which were partially offset by savings in consulting fees, and compliance costs. In 2006, we received a non-refundable fee of $25,000 from a customer for a development plan that was included as a reduction in expense in R&D in 2006; this did not recur in 2007.
Selling and marketing
Selling and marketing decreased in 2007 when compared to 2006. This reduction is primarily a result of savings in salary and royalty expense, which was offset by increases in commission expense, advertising and trade show expense.
General and Administrative
G&A expense increased in 2007 when compared to 2006. Increased regulatory costs associated with our CLIA waiver application, along with increases in investor relations expense and salaries, were offset by decreases in outside service and communication costs. Non-cash compensation of $26,000 in 2007 and $37,000 in 2006 stems from the amortization of expense of options issued to two employees in 2006, our former Chief Financial Officer and our former Vice President of Product Development.
Other income and expense: Other income earned in 2007 and 2006 was attributable to a grant received in 2002, 2003 and 2005. The Company received the original grant from the Columbia Economic Development Corporation in three parts totaling $100,000. The final installment of $25,000 was received in the first quarter of 2005. The grant is convertible to a loan based upon a percentage of the grant declining from 90% of the grant amount in 2003 to 0% in 2012. The grant is convertible to a loan only if the employment levels in the Kinderhook facility drop below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 81 and 87 at December 31, 2007 and December 31, 2006, respectively. Other income was offset by losses on disposals of assets in 2007.
In 2007 and 2006, we incurred interest expense related to our loans and lines of credit with FNFG. In 2007 and 2006, we earned minimal interest on our cash accounts.
LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 2008
The Company’s cash requirements depend on numerous factors, including product development activities, penetration of the direct sales market, market acceptance of our new products, and effective management of inventory levels in response to sales forecasts. We expect to devote capital resources to continue product development and research and development activities. We will examine other growth opportunities including strategic alliances and expect such activities will be funded from existing cash and cash equivalents, issuance of additional equity or additional borrowings, subject to market and other conditions. The Company’s financial statements for the fiscal year ended December 31, 2008 have been prepared assuming we will continue as a going concern. As of the date of this report, we do not believe that our current cash balances, together with cash generated from future operations and amounts available under our credit facilities will be sufficient to fund operations for the next twelve months. If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to sell additional equity or obtain additional credit facilities. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.
The Company has a line of credit, a real estate mortgage and a term note (“Credit Facilities”) with FNFG.
Line of Credit
As disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on August 8, 2008, effective August 1, 2008, we entered into an amendment with FNFG related to the original Loan Documents (the “Amendment”). The Amendment combined two lines of credit already in place with FNFG into one line of credit (the “Line of Credit”) along with amending certain terms related to the combined Line of Credit. Pursuant to the Amendment, we are required to maintain certain financial covenants; our monthly net loss must not exceed $75,000 during any month and, while any loans or commitments are outstanding and due FNFG, we must maintain a minimum debt service coverage ratio of 1.10x, to be measured at December 31, 2008. The minimum debt service coverage ratio is defined as net income plus interest expense plus depreciation plus expense related to the amortization of derivative securities divided by required principal payments over the preceding twelve months plus interest expense. There is no requirement for annual repayment of all principal on this Line of Credit; it is payable on demand. The purpose of this Line of Credit is to provide working capital. The amount outstanding on the Line of Credit was $431,000 at December 31, 2008. At December 31, 2007, the Line of Credit was two separate lines of credit and the amount outstanding was $690,000 under one line and $33,000 under the other line, totaling $723,000.
Real Estate Mortgage
We have a real estate mortgage on our facility in Kinderhook, New York through FNFG. It has a term of 10 years with a 20 year amortization. The interest rate is fixed at 7.5% for the first 5 years and beginning with year 6 through the end of the loan term, the rate changes to 2% above the Federal Home Loan Bank of New York 5 year term, 15 year Amortization Advances Rate. Our monthly payment is $6,293 and payments commenced on January 1, 2007, with the final payment being due on December 1, 2016. The loan is collateralized by our facility in Kinderhook, New York and its personal property. The amount outstanding on this mortgage was $739,000 and $758,000 at December 31, 2008 and December 31, 2007, respectively.
Term Note
We also have a Term Note with FNFG in the amount of $539,000 (the “Note”). The term of the Note is 5 years with a fixed interest rate of 7.17%. Our monthly payment is $10,714 and payments commenced on February 1, 2007, with the final payment being due on January 23, 2012. We have the option of prepaying the Note in full or in part at any time during the term without penalty. The loan is secured by certain assets now owned or hereafter acquired. The proceeds received were used for the purchase of manufacturing automation equipment. The amount outstanding on this Note was $356,000 and $455,000 at December 31, 2008 and December 31, 2007, respectively.
Forbearance
On February 4, 2009, we were notified by FNFG, that we were in default under the Loan Documents with FNFG related to the Credit Facilities; specifically that we failed to comply with the maximum monthly net loss covenant. As a result of the default, FNFG had the right to immediately accelerate the principal amount due under our Credit Facilities, which was $1,636,635.97 as of the date of the notice, however, FNFG decided not to immediately accelerate as they expected the Company to enter into a Forbearance Agreement memorializing certain measures and conditions.
On March 12, 2009, we entered into a Forbearance Agreement (the “Agreement”) with FNFG. The Agreement addresses the Company’s non-compliance with the maximum monthly net loss and the minimum debt service coverage ratio covenants (“Existing Defaults”) under the Loan Documents related to extensions of credit made by FNFG to the Company; more specifically the Company’s line of credit, term note and real estate mortgage (the “Debt”) with FNFG. Under the terms of the Agreement, FNFG will forbear from exercising its rights and remedies arising under the Loan Documents from the Existing Defaults. The Agreement is in effect until (i) June 1, 2009; or (ii) the date on which FNFG elects to terminate the Agreement upon the occurrence of an event of default under the Agreement or the Loan Documents (other than an Existing Default); or (iii) the date on which any subsequent amendment to the Agreement becomes effective (the “Forbearance Period”).
Under the Agreement, during the Forbearance Period: FNFG will waive any further default relating to the maximum monthly net loss covenant and minimum debt service coverage ratio provided the Company shows a net loss no greater than $300,000 for the quarter ending March 31, 2009, and on or before May 1, 2009, the Company must produce to FNFG a legally binding and executed commitment letter from a bona-fide third party lender setting forth the terms of a full refinancing of the Debt to close on or before June 1, 2009.
During the Forbearance Period, FNFG will continue to place a hold on one of our accounts (with a balance of $108,000), but will release up to $5,000 per month from the account to be used for the purpose of paying a financial advisory firm engaged by the Company to find and evaluate alternative funding sources; the financial advisory firm was referred to the Company by FNFG.
The maximum available under the line of credit during the Forbearance Period will be the lesser of $650,000, or the Net Borrowing Capacity. Net Borrowing Capacity is defined as Gross Borrowing Capacity less the Inventory Value Cap. Gross Borrowing Capacity is defined as the sum of (i) 80% of eligible accounts receivable, (ii) 20% of raw material inventory and (iii) 40% of finished goods inventory. Inventory Value Cap is defined as the lesser of $400,000, or the combined value of items (ii) and (iii) of Gross Borrowing Capacity. Since September 2008, the Company’s Net Borrowing Capacity has declined from $1,195,000 to $795,000 as of the date of this report.
During the Forbearance Period, interest shall accrue on the line of credit at the rate of prime plus 4%, an increase from prime plus 1%. Interest accruing on the real estate mortgage during the Forbearance Period shall remain unchanged at the fixed rate of 7.5% and interest on the term note shall remain unchanged at the fixed rate of 7.17%. In the event of default under the Agreement, interest under the line of credit shall increase to the greater of prime plus 6% or 10%. The line of credit shall terminate on June 1, 2009.
Working Capital
The Company’s working capital decreased $887,000 at December 31, 2008, when compared to working capital at December 31, 2007. This decrease in working capital is primarily a result of the reclassification of long-term bank debt with FNFG to short-term, as a result of the Company’s default under the Loan Documents related to our Credit Facilities and the subsequent Forbearance Agreement.
We have historically satisfied net working capital requirements through cash from operations, bank debt, occasional proceeds from the exercise of stock options and warrants (approximately $623,000 since 2002) and through the private placement of equity securities ($3,299,000 in gross proceeds since August 2001, with net proceeds of $2,963,000 after placement, legal, transfer agent, accounting and filing fees).
Cash Flows
The net loss in 2008, together with increases in inventory and decreases in wages payable offset by decreases in accounts receivable and prepaid expenses and increases in other non-current assets, accrued expenses, accounts payable and other long-term liabilities, resulted in cash used in operations of $303,000 in 2008. The primary use of cash in 2008 was funding of operations. We have never paid any dividends on our common shares and we anticipate that all future earnings, if any, will be retained for use in our business.
Net cash used in investing activities in both 2008 and 2007 was for investment in property, plant and equipment. Included in 2007 was $706,000 representing the cost of automation equipment.
Net cash provided by financing activities in 2008 consisted of proceeds from our Series A Debenture financing and line of credit, which was offset by line of credit payments, debt issuance costs and payments on outstanding debt. Net cash provided by financing activities in 2007 consisted of proceeds from the exercise of stock options, proceeds from our line of credit and proceeds from a 5-year term note, which was offset by debt and line of credit payments.
At December 31, 2008 and December 31, 2007, we had cash and cash equivalents of $201,000 and $336,000 respectively.
Debenture Financing
The Company completed an offering of Series A Debentures in August 2008 and received gross proceeds of $750,000 in principal amount of Series A Debentures (see Current Report on Form 8-K and amendment on Form 8-K/A-1 filed with the Commission on August 8, 2008 and August 18, 2008 respectively). The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees. The securities issued in this transaction were sold pursuant to the exemption from registration afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the Commission under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act.
The Series A Debentures accrue interest at a rate of 10% per annum (payable by the Company semi-annually) and mature on August 1, 2012. The payment of principal and interest on the Series A Debentures is subordinate and junior in right of payment to all Senior Obligations, as defined under the Series A Debentures. Holders of the Series A Debentures will have a right of conversion of the principal amount of the Series A Debentures into shares (the “Conversion Shares”) of the common stock of the Company (“Common Stock”), at a conversion rate of 666.67 shares per $500 in principal amount of the Series A Debentures (representing a conversion price of approximately $0.75 per share). This conversion right can be exercised at any time, commencing the earlier of (a) 120 days after the date of the Series A Debentures, or (b) the effective date of a Registration Statement to be filed by the Company with respect to the Conversion Shares. The Company has the right to redeem any Series A Debentures that have not been surrendered for conversion at a price equal to the Series A Debentures’ face value plus $0.05 per underlying common share, or $525 per $500 in principal amount of the Series A Debentures, representing an aggregate conversion price of $787,500. This redemption right can be exercised by the Company at any time within 90 days after any date when the closing price of the Common Stock has equaled or exceeded $2.00 per share for a period of 20 consecutive trading days.
As placement agent Cantone Research, Inc. (“CRI”) received a Placement Agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, the Company issued Cantone a four year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the Closing Date) and a four year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Completion Date), (together the “Placement Agent Warrants”). All warrants issued to CRI are immediately exercisable upon issuance.
Pursuant to a Registration Rights Agreement, the Company will use reasonable efforts to register the Conversion Shares and the shares of Common Stock issuable upon exercise of the Placement Agent Warrants.
We will need to raise additional capital in fiscal 2009 to be able to continue operations. If events and circumstances occur such that we do not meet our current operating plans, we are unable to raise sufficient additional equity or debt financing, or our credit facilities are insufficient or not available, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). This Interpretation clarified the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. We adopted FIN 48 on January 1, 2007 and it did not have a significant effect on our financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 established a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, established a framework for measuring fair value, and expanded disclosure about such fair value measurements. SFAS No. 157 became effective for our financial assets and liabilities on January 1, 2008. The FASB has deferred the implementation of the provisions of SFAS No. 157 relating to certain nonfinancial assets and liabilities until January 1, 2009. SFAS No. 157 did not materially affect how we determine fair value.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of SFAS No. 115” (“SFAS No. 159”). This new standard permits entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS No. 159 became effective on January 1, 2008. We have not elected the fair value option for any of our existing financial instruments on the effective date and have not determined whether or not we will elect this option for any eligible financial instruments we acquire in the future.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”). Effective for the Company as of January 1, 2009, SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Effective January 1, 2009, SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. We are evaluating the impact of adopting SFAS No. 141(R) and SFAS No. 160, if any, on our financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands the disclosure requirements in SFAS No. 133, regarding an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective on January 1, 2009. We are evaluating the impact of adopting SFAS No. 161, if any, on our financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. We are evaluating the impact of adopting SFAS No. 162, if any, on our financial statements.
In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts” (“SFAS No. 163”), which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. We are evaluating the impact of adopting SFAS No. 163, if any, on our financial statements.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA |
Our Financial Statements are set forth beginning on page F-1.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A(T). | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Management has reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are elected annuallybeing made only in accordance with authorization of Management; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or the degree of compliance may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the shareholders and the
officers are appointed annually by the BoardCommittee of Directors. Jasper R. Clay, Jr.
and John F. Murray were appointed by the Board of Directors to fill vacancies.
Name Age Position Since
- ---- --- -------- -----
Stan Cipkowski 50 President and a Director 1986
Edmund Jaskiewicz 75 ChairmanSponsoring Organization of the BoardTreadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, Management has concluded that our internal control over financial reporting was effective as of Directors,
Executive Vice-President and Secretary 1992
Jay Bendis 51 Vice-President-Marketing and a Director 1995
Henry J. Wells 66 Vice-President-Product Development 1995
Jasper R. Clay, Jr. 65 A Director 1997
John F. Murray 53 ChiefDecember 31, 2008.
Changes in Internal Control Over Financial
Officer and a Director 1997
Karen Russo 37 A Director 1997
Douglas Casterlin 51 Vice-President and General Manager 1997
20
Stan Cipkowski foundedReporting There have been no changes in our internal control over financial reporting during the predecessorlast quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the CompanySecurities and Exchange Commission that permit us to provide only Management's report in 1982 and has been
an officer and directorthis annual report.
| ITEM 9B. | OTHER INFORMATION |
None.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this item is contained in our definitive Proxy Statement with respect to our Annual Meeting of the Company since its incorporation in April 1986.
>From 1982 to 1986, he was sole proprietor of American Micro Media, the
predecessor, which was acquired by the Company. In addition, from 1983 to 1987,
Mr. Cipkowski was a general partner of Florida Micro Media, a Fort
Lauderdale-based marketer of educational software and was a principal
shareholder and Chief Financial Officer of Southeast Communications Group, Inc.,
a publisher of direct response media. In 1982, he became a consultant to
Dialogue Systems, Inc., a New York-based developer of training and
communications materials, where he served as Vice-President of Sales and
Marketing. From 1977 to 1982, he was employed by Prentice-Hall Publishing
Company, reaching the position of National Sales Manager. Prior to 1977 he was
employed as an accountantShareholders for the New Seabury Corporationfiscal year ending December 31, 2008, under the captions “Discussion of Proposal Recommended by Board”, “Directors that are not Nominees”, “Additional Executive Officers and as Mid-West Area
ManagerSenior Management”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Code of Ethics”, “Audit Committee” and “Audit Committee Financial Expert” and is incorporated herein by reference.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is contained in our definitive Proxy Statement with respect to our Annual Meeting of Shareholders for the Howard Johnson Company.
Edmund Jaskiewicz is a lawyer-engineer. He has practiced international
patentfiscal year ending December 31, 2008, under the captions “Executive Compensation”, “Compensation Committee Interlocks and corporate law as a sole practitioner since 1963Insider Participation”, and has served as
Chairman of the Board of Directors since 1992. From 1953 to 1963 Mr. Jaskiewicz
was associated with Toulmin and Toulmin, Esqs.“Compensation Committee Report”, Washington, D.C. From 1960 to
1962, he resided in Frankfurt, Germany managing that firm's local office. From
1952 to 1953 he was with the Patent Section of the Bureau of Ordinance of the
Department of the Navy working on patent infringement and licensing matters. He
received his J. D. in 1952 from George Washington University Law School and his
B. S. in Engineering from the University of Connecticut in 1947.
Jay Bendis has been an independent consultant to biomedical companies since
1990, specializing in commercializing new concept products in both domestic and
international markets. From 1990 to 1992, he served as Vice-President of Sales
and Marketing for Scientific Imaging Instruments where he was a principal and
Vice-President of Sales and Marketing. From 1985 to 1990, Mr. Bendis served as
National Sales Manager of the XANAR Laser Corp., a division of Johnson &
Johnson, where he directed its national sales force and developed its marketing
strategy for integrating high power lasers into the hospital market. From 1979
to 1984, he was the Eastern Area Sales and Marketing Manager for the IVAC Corp.,
a division of Eli Lilly. Prior to 1979, Mr. Bendis held sales management
positions with Xerox Corporation and A.M. International. Mr. Bendis earned his
B.A. in Marketing/Management from Kent State University and is currently a
member of the Edison BioTechnology Center Advisory Councilincorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item is contained within Item 5. Market for the State of
Ohio.
Henry Wells, Ph.D. has served since 1990 as a contract chemist with the
title of Vice-President-ScienceCommon Equity and Technology for New Horizons Diagnostics,
Inc. where he adapts immuno-chemical technologies for detection of infectious
diseases. From 1989 to 1990, he was director of production for Espro, Inc., a
producer of in-vivo pesticides. From 1985 to 1989, Dr. Wells was
Vice-President-ScienceRelated Stockholders Matters earlier in this Annual Report on Form 10-K and Technology for Keystone Diagnostics, Inc. From 1984
to 1985, he was Director of Research and Development for Hill-Wells Research
Corporation, a developer of diagnostics products. From 1981 to 1984, he was
Vice-President-Research and Development of Hematec Corporation. From 1979 to
1981, Dr. Wells was Director of Biochemistry for Helena Laboratories. From 1973
to 1979, he was Manager of Chemical Chemistry at Smith Kline Diagnostics. Dr.
Wells earned his Ph.D. in Biochemistry from the University of Pittsburgh, his M.
A. from University of Pennsylvania and his B.S. in Chemistry from the
University of Pittsburgh.
21
John F. Murray has served as Chief Financial Officer of Federal Supply,
Inc., Pompano Beach, Florida since April, 1994. From 1988 to 1994, Mr. Murray
served as Controller for Bio Therapeutics, Inc., Woodbridge, New Jersey. He also
was Controller of Shortline, a group of transportation companies, from 1982 to
1988 and, from 1974 to 1982, of Kleber Tire & Rubber Corp. Mr. Murray was
Director of Accounting for Western Union Telegraph Company from 1972 to 1974 and
Senior Accountant for S.D. Leidesdorf & Co (now Ernst & Young) from 1969 to
1972. Mr. Murray received his B.B.A. in Accounting from the Baruch School of the
City University of New York in 1968 and became a Certified Public Accountant in
the State of New York in 1974.
Jasper R. Clay, Jr. served as a United States Parole Commissioner from 1984
to 1996 and from 1991 to 1996, as Vice-Chairman of the United States Parole
Commission and Chairman of the National Appeals Board. He served as final
authority for all decisions relating to parole, revocation, imposition or
modification of parole conditions, or denial of discharge from supervision. From
1976 to 1984, Mr. Clay was State of Maryland Parole Commissioner and from 1969
to 1976, he was an Associate Member of the State of Maryland Board of Parole.
Mr. Clay served as an Associate Member of the State of Maryland Board of Parole
from 1969 to 1976, District Supervisor of the Baltimore City District Office in
1968, Staff Specialist-Training and Development for the Maryland Division of
Parole and Probation from 1966 to 1968, Parole and Probation Agent I and II,
Baltimore District, Office of the Maryland Division of Parole and Probation from
1958 to 1966 and as a Psychiatric Aide at the Spring Grove State Hospital from
1957 to 1958.
Mr. Clay received an Honorable Discharge from the United States Army
Infantry as a First Lieutenant in 1956. He is active in a number of
professional organizations including the American Correctional Association
(where he is presently a member of the Awards Committee), the Association of
Paroling Authorities International (where he serves as an officer) and the
National Council of Crime and Delinquency. He is a member of the American
Correctional Association, the National Council of Crime and Delinquency and the
Association of Paroling Authorities International. Mr. Clay earned his B. A. in
Psychology from Morgan State University in 1954 and attended the graduate school
at Loyola College in areas such as Guidance, Counseling and Psychology.
Douglas Casterlin was General Manager of Coarc, Inc., the Company's product
assembling, packaging and shipping contractor, from 1979 to 1997. In that
capacity, he developed a contract manufacturing business involving plastic
injection molding and clean room assembly and packaging of FDA - regulated
medical products. He also negotiated a joint venture with a major German
health care product manufacture to establish its United States operations and
established a professional-format videocassette remanufacturing business serving
the television broadcast industry. Mr. Casterlin was Workshop Director, Putnam
Industries, Inc., from 1976 to 1979 and Production Manager, from 1973 to 1976,
of Occupatics, Inc. From 1966 to 1970, Mr. Casterlin served as an Air Force
Intelligence Officer and was honorably discharged as Sergeant. He studied
Engineering at Lehigh University from 1965 to 1966 and received his B.A. degree
in Psychology in 1973 from the State University of New York at New Paltz.
22
Scientific Advisory Board
-------------------------
The Company has established a scientific advisory board of which Henry J.
Wells, Ph.D., Vice-President, is chairperson. The members of the board are as
follows:
Anthony G. Costantino, Ph.D., received a degree in Pharmacy from Dukane
University and a Ph.D. in Toxicology from the University of Maryland. He is a
Board Certified Forensic Toxicologist and currently serves as Director of
Clinical Toxicology at American Medical Laboratories in Chantilly, Virginia.
Delmiro A. Vazquez, B.S., M.T.,(ASCP), earned his B. S. from the University
of Miami and a completed his Medical Technology Rotation in the American Society
of Pathologists Approved Program at the University of Miami/Jackson Memorial
Hospital. Mr. Vazquez holds postgraduate certificates in Nuclear Medicine
(Broward General Hospital) and Biomedical Engineering (University of Miami). He
is currently Co-RP of the Forensic Toxicology Department at Columbia Cedars
Medical Center.
Kenneth Steiner, M.D. received his M.D. from the University of Tennessee
and is Board Certified by the National Board of Medical Examiners. He is Board
Certified by the American Board of Emergency Medicine and by the American
Association of Medical Review Officers. Additionally, Dr. Steiner has been
designated as an FAA Medical Examiner.
The board meets from time to time to consider the Company's present
technology and proposed technology development.
Item 10. Executive Compensation
Seeour definitive Proxy Statement forwith respect to the Annual Meeting of Shareholders for the 1999
Fiscal Year.
23
Item 11. Securityfiscal year ending December 31, 2008, under the caption “Security Ownership of Management and Certain Beneficial OwnersOwners” and Management
is incorporated herein by reference. | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The
following table sets forth asinformation required by this item is contained in our definitive Proxy Statement with respect to the Annual Meeting of
JulyShareholder for the fiscal year ending December 31,
1998,2008, under the
number and
percentage of shares of the common stock of the Company, owned of record and
beneficially, by each officer and directors of the Company and by any other
person owning more than 5% of the outstanding Common Shares and by all officers
and directors as a group.
Name and Address Common Shares Percentage(1)
- ---------------- ------------- ------------
Edmund Jaskiewicz 2,005,572 13.9%
1730 M Street, NW
Washington, DC 20036
Stan Cipkowski 2,599,250 18.0%
300 Fairview Avenue
Hudson, New York 12534
Jay Bendis 545,999 3.8%
71 Springcrest Drive
Akron, Ohio 44333
Henry J. Wells, Ph.D. -0- -0-%
9421 Book Row
Columbia, Maryland 21046
Jasper R. Clay, Jr. -0- -0-%
4964 Moonfall Way
Columbia, Maryland 21044
John F. Murray 6,000 -0-%
300 Fairview Avenue
Hudson, New York 12534
Karen Russo 1,250 -0-%
8675 Falmouth Avenue
Playa del Rey, CA 90293
Douglas Casterlin
300 Fairview Avenue
Hudson, New York 12534 112,500 0.8%
------- -----
All Officers and
Officers and Directors
as a Group (8 persons) 5,220,571 36.5%
- ---------------------
24
Item. 12 Certaincaptions “Certain Relationships and Related Transactions
----------------------------------------------
In August, 1997,Transactions” and “Independent Directors”, and is incorporated herein by reference. | ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item is contained in our definitive Proxy Statement with respect to the Company issued 150,000 options pursuant to its Fiscal
1997 Nonstatutory Option Plan as follows: 10,000 to Jasper Clay, Jr., a
Director, 10,000 to John F. Murray, a Director, and 130,000 options to four
non-management employees. AsAnnual Meeting of Shareholder for the fiscal year ending December 31, 1997, Edward Jaskiewicz, Executive
Vice-President, gifted a total2008, under the caption “Independent Public Accountants”, and is incorporated herein by reference.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| (1) | Our financial statements |
| PAGE |
| Report of Independent Registered Public Accounting Firm – UHY LLP | F-2 |
| Balance Sheets | F-3 |
| Statements of Operations | F-4 |
| Statements of Changes in Stockholders’ Equity | F-5 |
| Statements of Cash Flows | F-6 |
| Notes to Financial Statements | F-7 |
| (2) | Financial Statement Schedule |
Such schedules are not provided because they are not applicable or the required information is provided in our Financial Statements and/or our Notes to the Financial Statements.
| (3) | See Item 15(b) of this Annual Report on Form 10-K. |
| Number | | Description of Exhibits |
| | |
| 3.5 | | Bylaws(1) |
| 3.50 | | Amended and Restated Bylaws(5) |
| 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(5) |
| 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) |
| 4.7 | | Services Agreement dated September 7, 2005 by and between the Company and Barretto Pacific Corporation(10) |
| 4.8 | | Stock Grant Agreement dated September 7, 2005 by and between the Company and Barretto Pacific Corporation(10) |
| 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) |
| 4.18 | | Extension Agreement by and between the Company and Steven Grodko |
| 4.19 | | Registration Letter Agreement by and between the Company and Steven Grodko |
| 10.3 | | Term Note with First Niagara Bank(11) |
| 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(5) |
| 10.17 | | Amendment No.3 dated August 20, 2002/New Jersey facility(6) |
| 10.18 | | Employment contract between the Company and Gerald A. Moore (a)(6) |
| 10.19 | | Financial Advisory Agreement dated December 2, 2003 by and between Brean Murray & Co., Inc and the Company(7) |
| 10.19.1 | | Settlement letter dated June 21, 2004 by and between Bran Murray & Co., Inc and the Company(8) |
| 10.20 | | Contract of Sale/land-Kinderhook, NY facility(7) |
| 10.21 | | Employment contract between the Company and Stan Cipkowski(a),(7) |
| 10.22 | | Employment contract between the Company and Stan Cipkowski(a),(9) |
| 10.23 | | Employment contract between the Company and Stan Cipkowski(12) |
| 10.24 | | Employment contract between the Company and Keith E. Palmer(12) |
| 10.25 | | Amendment No 4 dated October 9, 2006/Lease of New Jersey facility(13) |
| 10.26 | | Amendment No. 5 dated January 19, 2007/Lease of New Jersey facility(13) |
| 10.27 | | Employment contract between the Company and Stan Cipkowski(a)(14) |
| 10.28 | | Employment contract between the Company and Martin Gould(a)(14) |
| 10.29 | | Employment contract between the Company and Keith E. Palmer(a)(14) |
| 10.30 | | Employment contract between the Company and Stefan Parker(a)(15) |
| 10.31 | | Employment contract between the Company and Douglas Casterlin(a)(16) |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer |
| 32.1 | | Section 1350 Certification of the Chief Executive Officer |
| 32.2 | | Section 1350 Certification of the Chief Financial Officer |
| (a) | Indicates an employee benefits 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. |
| (5) | Filed as the exhibit number listed to the Company’s Form 10-KSB filed on April 15, 2002 and incorporated herein by reference. |
| (6) | Filed as the exhibit number listed to the Company’s Form 10-KSB filed on March 31, 2003 and incorporated herein by reference. |
| (7) | Filed as the exhibit number listed to the Company’s Form 10-KSB filed on May 10, 2004 and incorporated herein by reference. |
| (8) | Filed as the exhibit number listed to the Company’s Form 10-QSB filed August 10, 2004 and incorporated herein by reference. |
| (9) | Filed as the exhibit number listed to the Company’s Form 10-QSB filed on November 12, 2004 and incorporated herein by reference. |
| (10) | Filed as the exhibit number listed to the Company’s Form 10-QSB filed on November 8, 2005 and subsequently amended on Form 10-QSB/A filed on February 24, 2006 and incorporated herein by reference. |
| (11) | Filed as the exhibit number listed to the Company’s Form 8-K filed on January 24, 2007 and incorporated herein by reference. |
| (12) | Filed as the exhibit number listed to the Company’s Form 10-KSB filed on March 31, 2006 and incorporated herein by reference. |
| (13) | Filed as the exhibit number listed to the Company’s Form 10-KSB filed on March 29, 2007 and incorporated herein by reference. |
| (14) | Filed as the exhibit number listed to the Company’s Form 10-QSB filed on August 13, 2007 and incorporated herein by reference. |
| (15) | Filed as the exhibit number listed to the Company’s Form 8-K filed on August 24, 2007 and incorporated herein by reference. |
| (16) | Filed as the exhibit number listed to the Company’s Form 8-K filed on May 1, 2008 and incorporated herein by reference. |
(c) Not applicable.
SIGNATURES
In accordance with Section 13 or 15(d) of 964,300 Common Sharesthe Exchange Act, the registrant caused this report to membersbe signed on its behalf by the undersigned thereunto duly authorized.
| AMERICAN BIO MEDICA CORPORATION |
| | |
| By /s/ Stefan Parker | |
| | | |
| Stefan Parker |
| Chief Financial Officer |
| (Principal Accounting Officer) |
| Executive Vice President, Finance |
Date: March 30, 2009
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of his
family. Stan Cipkowski gifted an aggregate of 40,000 Common Shares to three
trusts/foundations. During fiscal 1998, Karen Russothe registrant and John Murray, Directors,
purchased 1,250 and 3,620 Common Shares in brokerage transactions. As of
December 31, 1997, Stan Cipkowski gifted to Douglas Casterlin, Vice-President,
150,000 Common Shares. Between September 1, 1997 and Aprilthe capacities indicated on March 30, 1998, the Company
issued 417,000 options, pursuant to its Fiscal Nonstatutory 1998 Plan,
exercisable for a period of three years to 18 persons of which 162,000 options
were exercisable at $3.00; 245,000 options at $3.50 and 10,000 options at $4.00.
25
2009:
| /s/ Stan Cipkowski | | Chief Executive Officer & Director |
| Stan Cipkowski | | (Principal Executive Officer) |
| | |
/s/ Edmund Jaskiewicz | | Chairman and President |
| Edmund Jaskiewicz | | |
| | |
| /s/Richard P. Koskey | | Director |
| Richard P. Koskey | | |
| | |
| /s/ Daniel W. Kollin | | Director |
| Daniel W. Kollin | | |
| | |
| /s/ Anthony G. Costantino | | Director |
| Anthony G. Costantino | | |
| | |
| /s/ Carl A. Florio | | Director |
| Carl A. Florio | | |
| | |
| /s/ Jean Neff | | Director |
| Jean Neff | | |
| | |
| /s/ Stefan Parker | | Chief Financial Officer |
| Stefan Parker | | (Principal Financial Officer) |
| | Executive Vice President, Finance |
AMERICAN BIO MEDICA CORPORATION
Contents
Page
----
INDEX TO FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
| PAGE |
| |
| Report of Independent Registered Public Accounting Firm | F-2 |
| |
| Balance Sheets | F-3 |
| |
| Statements of Operations | F-4 |
| |
| Statements of Changes in Stockholders’ Equity | F-5 |
| |
| Statements of Cash Flows | F-6 |
| |
| Notes to Financial Statements | F-7 |
Report of Independent
auditors' report F-2
Independent auditors' report F-3
Balance sheet as of April 30, 1998 F-4
Statements of operations for the years ended April 30, 1998 and 1997 F-5
Statements of changes in stockholders' equity
for the years ended April 30, 1998 and 1997 F-6
Statements of cash flows for the years ended April 30, 1998 and 1997 F-7
Notes to financial statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
Registered Public Accounting Firm
To the Stockholders and Board of Directors of
American Bio Medica Corporation
Hudson, New York
We have audited the accompanying balance sheetsheets of American Bio Medica Corporation as of April 30, 1998December 31, 2008 and 2007, and the related statements of operations, changes in stockholders’ equity and cash flows and changes in stockholders' equity for the yearyears then ended. These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
audits.
We conducted our auditaudits in accordance with generally acceptedthe auditing standards.standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Bio Medica Corporation as of April 30, 1998December 31, 2008 and 2007, and the results of its operations and its cash flows for the yearyears then ended in conformity with accounting principles generally accepted accounting
principles.
/s/Richard A. Eisner &in the United States of America.
The accompanying financial statements have been prepared assuming that the Company LLP
Richard A. Eisner & Company, LLP
New York, New York
June 14, 1998
With respectwill continue as a going concern. As discussed in Note A to the second paragraphfinancial statements, the Company has recurring losses from operations and liquidity constraints that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of Note K[3]
July 23, 1998
this uncertainty.
| /s/ UHY LLP | |
|
| Albany, New York |
| March 30, 2009 |
F-2
Independent Auditor's Report
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
To
AMERICAN BIO MEDICA CORPORATION
Balance Sheets
| | | December 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 201,000 | | | $ | 336,000 | |
| Accounts receivable - net of allowance for doubtful accounts of $105,000 at December 31, 2008 and 2007 | | | 1,161,000 | | | | 1,365,000 | |
| Inventory – net of reserve for slow moving and obsolete inventory of $308,000 at December 31, 2008 and $250,000 at December 31, 2007 | | | 5,552,000 | | | | 4,994,000 | |
| Prepaid and other current assets | | | 97,000 | | | | 181,000 | |
| Total current assets | | | 7,011,000 | | | | 6,876,000 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 1,961,000 | | | | 2,267,000 | |
| Debt issuance costs | | | 117,000 | | | | | |
| Other non-current assets | | | 47,000 | | | | 7,000 | |
| | | | | | | | | |
| Total assets | | $ | 9,136,000 | | | $ | 9,150,000 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 1,568,000 | | | $ | 1,403,000 | |
| Accrued expenses and other current liabilities | | | 544,000 | | | | 220,000 | |
| Wages payable | | | 230,000 | | | | 332,000 | |
| Patent sublicense current | | | | | | | 50,000 | |
| Line of credit | | | 431,000 | | | | 723,000 | |
| Current portion of long term debt | | | 1,098,000 | | | | 121,000 | |
| Current portion of unearned grant | | | 10,000 | | | | 10,000 | |
| Total current liabilities | | | 3,881,000 | | | | 2,859,000 | |
| | | | | | | | | |
| Other long-term liabilities | | | 207,000 | | | | 48,000 | |
| Long-term debt | | | 760,000 | | | | 1,107,000 | |
| Unearned grant | | | 30,000 | | | | 40,000 | |
| Total liabilities | | | 4,878,000 | | | | 4,054,000 | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at December 31, 2008 and 2007 | | | | | | | | |
| Common stock; par value $.01 per share; 50,000,000 shares authorized; 21,744,768 issued and outstanding at December 31, 2008 and 2007 | | | 217,000 | | | | 217,000 | |
| Additional paid-in capital | | | 19,279,000 | | | | 19,267,000 | |
| Accumulated deficit | | | (15,238,000 | ) | | | (14,388,000 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 4,258,000 | | | | 5,096,000 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 9,136,000 | | | $ | 9,150,000 | |
The Boardaccompanying notes are an integral part of Directors and Shareholdersthe financial statements
AMERICAN BIO MEDICA CORPORATION
| | | For the Year Ended December 31, 2008 | | | For the Year Ended December 31, 2007 | | | For the Year Ended December 31, 2006 | |
| | | | | | | | | | |
| Net sales | | $ | 12,657,000 | | | $ | 13,872,000 | | | $ | 13,838,000 | |
| | | | | | | | | | | | | |
| Cost of goods sold | | | 7,396,000 | | | | 8,141,000 | | | | 7,035,000 | |
| | | | | | | | | | | | | |
| Gross profit | | | 5,261,000 | | | | 5,731,000 | | | | 6,803,000 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| Research and development | | | 563,000 | | | | 669,000 | | | | 606,000 | |
| Selling and marketing | | | 2,749,000 | | | | 3,091,000 | | | | 3,325,000 | |
| General and administrative | | | 2,575,000 | | | | 2,827,000 | | | | 2,621,000 | |
| | | | | | | | | | | | | |
| Operating income/ (loss) | | | (626,000 | ) | | | (856,000 | ) | | | 251,000 | |
| | | | | | | | | | | | | |
| Other income/(expense): | | | | | | | | | | | | |
| Other income/(expense) | | | (13,000 | ) | | | 9,000 | | | | 10,000 | |
| Interest income | | | 3,000 | | | | 9,000 | | | | 7,000 | |
| Interest expense | | | (213,000 | ) | | | (149,000 | ) | | | (67,000 | ) |
| | | | | | | | | | | | | |
| Income/(loss) before tax | | | (849,000 | ) | | | (987,000 | ) | | | 201,000 | |
| | | | | | | | | | | | | |
| Income tax | | | (1,000 | ) | | | (3,000 | ) | | | (5,000 | ) |
| | | | | | | | | | | | | |
| Net income/(loss) after tax | | $ | (850,000 | ) | | $ | (990,000 | ) | | $ | 196,000 | |
| | | | | | | | | | | | | |
| Basic and diluted income/(loss) per common share | | $ | (0.04 | ) | | $ | ( 0.05 | ) | | $ | 0.01 | |
| | | | | | | | | | | | | |
| Weighted average number of shares outstanding - basic | | | 21,745,000 | | | | 21,737,000 | | | | 21,484,000 | |
| Dilutive effect of stock options and warrants | | | | | | | | | | | 89,000 | |
| Weighted average number of shares outstanding –diluted | | | 21,745,000 | | | | 21,737,000 | | | | 21,573,000 | |
The accompanying notes are an integral part of the financial statements
AMERICAN BIO MEDICA CORPORATION
Statements of Changes in Stockholders’ Equity
| | | | | | Additional Paid-in | | | Accumulated | | | | |
| | | | | | | | | | | | | | | | |
| Balance-December 31, 2005 | | | 21,359,768 | | | $ | 214,000 | | | $ | 18,853,000 | | | $ | (13,594,000 | ) | | $ | 5,473,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock option/Warrant exercise | | | 360,000 | | | | 3,000 | | | | 328,000 | | | | | | | | 331,000 | |
| Non-cash compensation | | | | | | | | | | | 37,000 | | | | | | | | 37,000 | |
| Net income | | | | | | | | | | | | | | | 196,000 | | | | 196,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance-December 31, 2006 | | | 21,719,768 | | | $ | 217,000 | | | $ | 19,218,000 | | | $ | (13,398,000 | ) | | $ | 6,037,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock option exercise | | | 25,000 | | | | | | | | 23,000 | | | | | | | | 23,000 | |
| Non-cash compensation | | | | | | | | | | | 26,000 | | | | | | | | 26,000 | |
| Net loss | | | | | | | | | | | | | | | (990,000 | ) | | | (990,000 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance-December 31, 2007 | | | 21,744,768 | | | $ | 217,000 | | | $ | 19,267,000 | | | $ | (14,388,000 | ) | | $ | 5,096,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 12,000 | | | | | | | | 12,000 | |
| Net loss | | | | | | | | | | | | | | | (850,000 | ) | | | (850,000 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Balance-December 31, 2008 | | | 21,744,768 | | | $ | 217,000 | | | $ | 19,279,000 | | | $ | (15,238,000 | ) | | $ | 4,258,000 | |
The accompanying notes are an integral part of the financial statements
AMERICAN BIO MEDICA CORPORATION
Statements of Cash Flows
| | | Year Ended | | | Year Ended | | | Year Ended | |
| | | December 31, | | | December 31, | | | December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| Cash flows from operating activities: | | | | | | | | | |
| Net income/(loss) | | $ | (850,000 | ) | | $ | (990,000 | ) | | $ | 196,000 | |
| Adjustments to reconcile net income/(net loss) to net cash provided by / (used in) operating activities: | | | | | | | | | | | | |
| Depreciation | | | 353,000 | | | | 437,000 | | | | 376,000 | |
| Loss on disposal of fixed assets | | | 4,000 | | | | 1,000 | | | | | |
| Amortization of debt issuance costs | | | 14,000 | | | | | | | | | |
| Provision for slow moving and obsolete inventory | | | 58,000 | | | | | | | | | |
| Compensatory stock options | | | | | | | 26,000 | | | | 37,000 | |
| Unearned grant | | | (10,000 | ) | | | (10,000 | ) | | | (10,000 | ) |
| Changes in: | | | | | | | | | | | | |
| Accounts receivable | | | 204,000 | | | | (53,000 | ) | | | 58,000 | |
| Inventory | | | (616,000 | ) | | | (135,000 | ) | | | (408,000 | ) |
| Prepaid expenses and other current assets | | | 84,000 | | | | (15,000 | ) | | | (58,000 | ) |
| Other non-current assets | | | (40,000 | ) | | | 50,000 | | | | (50,000 | ) |
| Accounts payable | | | 165,000 | | | | 312,000 | | | | (288,000 | ) |
| Accrued expenses and other current liabilities | | | 324,000 | | | | (241,000 | ) | | | 378,000 | |
| Patent sublicense | | | (50,000 | ) | | | (50,000 | ) | | | 100,000 | |
| Wages payable | | | (102,000 | ) | | | 63,000 | | | | 11,000 | |
| Other long-term liabilities | | | 159,000 | | | | | | | | | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | (303,000 | ) | | | (605,000 | ) | | | 342,000 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Purchase of property, plant and equipment | | | (51,000 | ) | | | (706,000 | ) | | | (803,000 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (51,000 | ) | | | (706,000 | ) | | | (803,000 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Proceeds from stock option exercise | | | | | | | 23,000 | | | | 85,000 | |
| Proceeds from warrant exercise | | | | | | | | | | | 247,000 | |
| Net proceeds (payments) from line of credit | | | (292,000 | ) | | | 547,000 | | | | 176,000 | |
| Proceeds from debt financing | | | 750,000 | | | | 539,000 | | | | 775,000 | |
| Debt issuance costs | | | (119,000 | ) | | | | | | | | |
| Payments on debt financing | | | (120,000 | ) | | | (103,000 | ) | | | (627,000 | ) |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 219,000 | | | | 1,006,000 | | | �� | 656,000 | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (135,000 | ) | | | (305,000 | ) | | | 195,000 | |
| Cash and cash equivalents – beginning of period | | | 336,000 | | | | 641,000 | | | | 446,000 | |
| Cash and cash equivalents – end of period | | $ | 201,000 | | | $ | 336,000 | | | $ | 641,000 | |
| Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
| Cash paid during the year for interest | | $ | 122,000 | | | $ | 149,000 | | | $ | 67,000 | |
| Purchase of property, plant and equipment, financing through capital lease | | | | | | $ | 17,000 | | | | | |
| Warrants issued in connection with long-term debt financing | | $ | 12,000 | | | | | | | | | |
The accompanying notes are an integral part of the financial statements
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company:
American Bio Medica Corporation I(“ABMC” or the “Company”) is in the business of developing, manufacturing, and marketing point of collection diagnostics test kits, as well as performing contract manufacturing services for third parties.
The Company’s financial statements have
auditedbeen prepared assuming the
accompanying balance sheetCompany will continue as a going concern, which assumes the realization of
American Bio Medica
Corporation as of April 30, 1997assets and the
related statementssatisfaction of
operations, cash
flows and shareholders' equity forliabilities in the normal course of business. For the year ended
April 30, 1997. These
financial statements areDecember 31, 2008, the
responsibility of the Company's Management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining onCompany had a
test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Bio Medica
Corporation as of April 30, 1997 and the results of its operations, shareholders
equity and cash flows for the year ended April 30, 1997 in conformity with
generally accepted accounting principles.
/s/Thomas P. Monahan
Thomas P. Monahan, CPA
May 28, 1997
Paterson, New Jersey
F-3
AMERICAN BIO MEDICA CORPORATION
Balance Sheet
April 30, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 3,239,000
Accounts receivable -
net of allowance for doubtful accounts of $40,000 712,000
Inventory 991,000
Prepaid expenses and other current assets 24,000
------------
Total current assets 4,966,000
Property, plant and equipment, net 147,000
Due from officer 235,000
Other assets 8,000
------------
$ 5,356,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 486,000
------------
Stockholders' equity:
Preferred stock; par value $.01 per share;
5,000,000 shares authorized; 2,500 shares
Series D, 8% cumulative, convertible
issued and outstanding (face value $2,500,000)
Common stock; par value $.01 per share
30,000,000 shares authorized; 14,282,989 shares
issued and outstanding 143,000
Additional paid-in capital 12,102,000
Subscription receivable (9,000)
Unearned portion of compensatory options (24,000)
Accumulated deficit (7,342,000)
------------
4,870,000
------------
$ 5,356,000
============
See notes to financial statements.
F-4
AMERICAN BIO MEDICA CORPORATION
Statements of Operations
Year Ended April 30,
----------------------
1998 1997
--------- ---------
Net sales $ 2,154,000 $ 611,000
Cost of goods sold 1,051,000 260,000
------------ -----------
Gross profit 1,103,000 351,00
------------ -----------
Operating expenses:
Selling, general and administrative 2,739,000 868,000
Noncash compensation charges 2,214,000
Depreciation and amortization 101,000 96,000
Research and development 150,000 75,000
Write-off of bad debts 380,000
------------ -----------
5,584,000 1,039,000
------------ -----------
Operating loss (4,481,000) (688,000)
------------ -----------
Other income:
Retirement of debt 127,000
Interest income 91,000 56,00
------------ -----------
91,000 183,000
------------ -----------
Net loss $ (4,390,000) $ (505,000)
Adjustments:
Preferred stock beneficial conversion feature (359,000)
Preferred stock dividends (45,000)
------------
Net loss attributable to common stockholders $ (4,794,000)
============
Basic and diluted loss per common share $(.35) $(.04)
===== =====
Weighted average number of shares outstanding
- basic and diluted 13,768,000 12,728,000
========== ==========
See notes to financial statements.
F-5
AMERICAN BIO MEDICA CORPORATION
Statements of Changes in Stockholders' Equity
Unearned
Preferred
Additional Compen-
Stock Common Stock
Paid-in Subscription satory Accumulated
Shares Shares Amount
Capital Receivable Options Deficit Total
------ ------ ------
- ------- ---------- ------- ------- -----
Balance - April 30, 1996 11,977,357 $ 120,000 $
2,636,000 $(2,402,000) $ 354,000
Proceeds from exercise of warrants and
options 872,445 9,000
2,258,000 2,267,000
Shares issued for conversion of debt 200,666 2,000
148,000 150,000
Shares issued in private placement 100,000 1,000
49,000 50,000
Proceeds from private placement of
Preferred "A" shares
(net of costs of $90,000) 150
1,410,000 1,410,000
Preferred "A" shares converted to
common shares (60) 229,039 2,000
(2,000)
Net loss
(505,000) (505,000)
----- ---------- ---------
- --------- ---------- ---------
Balance - April 30, 1997 90 13,379,507 134,000
6,499,000 (2,907,000) 3,726,000
Proceeds from exercise of warrants
and options 106,305 1,000
317,000 $(9,000) 309,000
Preferred "A" shares converted to
common shares (90) 404,034 4,000
(4,000)
Proceeds from private placement of
Preferred "B" shares
(net of costs of $48,000) 60
552,000 552,000
Preferred "B" shares converted to
common shares (60) 226,037 2,000
(2,000)
Cash dividend paid to holders of
Preferred "B" shares
(26,000) (26,000)
Proceeds from private placement
of Preferred "C" shares
(net of costs of $57,000) 45.5
398,000 398,000
Preferred "C" shares converted to
common shares (45.5) 160,359 2,000
(2,000)
Stock dividend paid to holders of
Preferred "C" shares 6,747
19,000 (19,000)
Proceeds from private placement of
Preferred "D" shares and warrants
(net of costs of $188,000) 2,500
2,312,000 2,312,000
Purchase of options previously granted
(225,000) (225,000)
Issuance of compensatory stock
1,896,000 1,896,000
Value assigned to compensatory
stock options
342,000 $(24,000) 318,000
Net loss
(4,390,000) (4,390,000)
------ ---------- ---------
- ----------- ------- -------- ---------- ----------
Balance - April 30, 1998 2,500 14,282,989 $ 143,000
$12,102,000 $(9,000) $(24,000) $(7,342,000) $4,870,000
====== ========== =========
=========== ======= ======== =========== ==========
See notes to financial statements.
F-6
AMERICAN BIO MEDICA CORPORATION
Statements of Cash Flows
Year Ended April 30,
--------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $ (4,390,000) $ (505,000)
Adjustments to reconcile net loss toof $850,000 and net cash used in operating activities:
Amortizationactivities of $303,000 as compared to a net loss of $990,000 and depreciation 101,000 96,000
Retirement of debt (127,000)
Provision for bad debts 40,000
Issuance of compensatory stock options 318,000
Issuance of compensatory stock 1,896,000
Changes in:
Loan receivable 102,000 (102,000)
Accounts receivable (414,000) (303,000)
Inventory (322,000) (646,000)
Prepaid expenses and other current assets (20,000) (4,000)
Other assets (8,000)
Accounts payable and accrued expenses 106,000 347,000
------------ ------------
Netnet cash used in operating activities (2,591,000) (1,244,000
------------ ------------
Cashof $605,000 in 2007. The Company’s cash balances decreased by $135,000 during the twelve months ended December 31, 2008 and decreased by $305,000 during the twelve months ended December 31, 2007. As of December 31, 2008, the Company had an accumulated deficit of $15,238,000. During 2007 and continuing throughout the fiscal year ended December 31, 2008, the Company implemented programs to improve its financial prospects including entering into national and international distribution agreements, investing in automation equipment to improve process efficiencies and reduce costs, implementing a number of cost cutting initiatives, including strategic reductions in personnel, and other measures to enhance profit margins. The Company continues to explore other measures, which would allow the Company to make further improvements in efficiency to lower the costs to manufacture its products. If cash generated from operations is insufficient to satisfy the Company’s working capital and capital expenditure requirements, the Company will be required to sell additional equity or obtain additional credit facilities. There can be no assurance that such financing will be available or that the Company will be able to complete financing on satisfactory terms, if at all.
Additionally, in February 2009, the Company was notified by its bank that it had defaulted under its primary credit facilities. As a result, all of the Company’s obligations to the bank (i.e. line of credit, real estate loan and term note) can be declared immediately due and payable by the bank. In March 2009, the Company executed an agreement with the bank under which the bank has agreed to forbear its rights and remedies until June 1, 2009, provided the Company comply with certain terms and conditions under the agreement (See Note K).
The Company’s history of operating cash flow deficits and its current cash position raise 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, from investing activities
Purchaseto sell additional shares of property, plant and equipment (71,000) (115,000)
Purchase of investments (1,053,000)
Maturity of investments 1,053,000
Patent costs (8,000)
Loans to officer (235,000)
------------ ------------
Net cash provided by
(used in) investing activities 747,000 (1,176,000)
------------ ------------
Cash flows from financing activities:
Convertible debenture (132,000)
Proceeds from private placements 3,262,000
Proceeds from exercise of warrants and options 309,000 3,878,000
Cash dividends paid (26,000)
Purchase of Company's options (225,000)
------------ ------------
Net cash provided by financing activities 3,320,000 3,746,000
------------ ------------
Net increase in cash and cash equivalents 1,476,000 1,326,000
Cash and cash equivalents - beginning of period 1,763,000 437,000
------------ ------------
Cash and cash equivalents - end of period $ 3,239,000 $ 1,763,000
============ ============
Noncash activities:
Stock dividends paid to
holders of preferred stock $ 19,000
Conversion of convertible debt
intothe Company’s common stock $ 150,000
See notes to fund operations and obtain additional credit facilities, or refinance its current credit facilities. The financial statements.
F-7
AMERICAN BIO MEDICA CORPORATION
Notesstatements do not include any adjustments relating to Financial Statements
April 30, 1998
Note A - The Companythe recoverability and its classification of recorded asset amounts or the amount of or classification of liabilities that might be necessary as a result of this uncertainty. Significant Accounting Policies
American Bio Medica Corporation (the "Company") was formed under the laws
of the State of New York on April 10, 1986 and is in the business of acquiring,
developing and marketing biomedical technologies and products. The Company
currently owns two technologies for screening drugs of abuse, a workplace
screening test and a preliminary test for use by laboratories. The Company's
products are manufactured and assembled by outside contract manufacturers. The
Company is also involved in marketing educational books and software to schools
and municipal libraries and audio-visual educational packages to corporations
throughout the United States.
[1]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]
[2] Accounts Receivable: Accounts receivable consists of mainly trade receivables due from customers for the sale of our products. Payment terms vary on a customer-by-customer basis, and generally range from cash on delivery to net 90 days. Receivables are considered past due when they have exceeded their payment terms. Accounts receivable have been reduced by an estimated allowance for doubtful accounts. The Company estimates its allowance for doubtful accounts based on facts, circumstances and judgments regarding each receivable. Customer payment history and patterns, historical losses, economic and political conditions, trends and individual circumstances are among the items considered when evaluating the collectability of the receivables. Accounts are reviewed regularly for collectability and those deemed uncollectible are written off.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
[3] Inventory: Inventory is stated at the lower of cost or market;market. Labor and overhead are determined on an average cost isbasis and raw materials are determined by
theon a first-in-first-out method. [3]At December 31, 2008, the Company established an allowance of $308,000 for slow moving and obsolete inventory.
[4] Income taxes: The Company uses the liability method of accountingaccounts for income taxes. The
liability method measures deferred income taxes by applying enacted statutory
rates in effect at the balance sheet date to theaccordance with Statements of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are determined based on differences between thefinancial reporting and tax bases of assets and liabilities, and their reported amountsare 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 is recognized in the financial
statements. The resulting asset or liability is adjusted to reflectperiod that such tax rate changes in
the tax law as they occur.
[4] Depreciation and amortization:are enacted.
[5] Depreciation: Property, plant and equipment are depreciated on the straight-line method over their estimated useful lives.lives; 3-5 years for equipment and 30 years for buildings. 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.
[5] Patents and license agreements:
Costs incurred to acquire exclusive licenses of patentable technology are
capitalized and amortized over the shorter of a five year period or the term of
the license. The portion of these amounts determined to be attributable to
patents is amortized over their remaining lives and the remainder is amortized
over the estimated period of benefit but not more than 40 years.
[6]
[6] Revenue recognition: The Company recognizes revenue when productstitle transfers upon shipment. Sales are shippedrecorded net of discounts and returns. All buyers have economic substance apart from the Company and the Company does not have any obligation for customer acceptance. The Company's price is fixed and determinable at the date of sale. The buyer has paid the Company or servicesis obligated to pay the Company and, in the case of a distributor, the obligation is not contingent on the resale of the product, nor does the Company have any obligation to bring about the resale of the products. The buyer's obligation would not be changed in the event of theft or physical destruction or damage to the product. All distributors have economic substance apart from customers and the payment terms are rendered. Revenues from book salesnot conditional. The transactions with distributors are on terms similar to those given to the Company's other customers. No agreements exist with the distributors that offer a right of return,return.
[7] Shipping and handling: Shipping and handling fees charged to customers are recognizedincluded in net sales, and shipping and handling costs incurred by the Company, to the extent of a provision for estimated returns.
[7]those costs charged to customers, are included in cost of sales.
[8] Research anand development: Research and development (“R&D”) costs are charged to operations when incurred. F-8
Note A - The CompanyThese costs include salaries, benefits, travel, supplies, depreciation of R&D equipment and its Significant Accounting Policies (continued)
[8] Lossother miscellaneous expenses. Amounts received from third parties to perform R&D projects are recorded as a reduction to R&D expense. [9] Income (loss) per common share: The Company adopted Statement of Financial Accounting Standards ("SFAS")
No.128, Earnings Per Share," in the year ended April 30, 1998 and has
retroactively applied the effects thereof for all periods presented.
Accordingly, the presentation of per share information includes calculations of
basic and dilutive loss per share. The impact on the per share amounts
previously reported (primary and fully diluted) was not significant. The effects
of potential common shares such as warrants, options, and convertible preferred
stock has not been included, as the effect would be antidilutive.
When preferred stock is convertible to common stock at a conversion rate
that is the lower of a rate fixed at issuanceBasic income or a fixed discount from the
common stock market price at the time of conversion, the discounted amount is an
assured incremental yield, the "beneficial conversion feature", to the preferred
shareholders and should be accounted for as an embedded dividend to preferred
shareholders. As such, the loss per common share is calculated by dividing net income or net loss by the weighted average number of outstanding common shares during the period. For the year ended December 31, 2006, diluted net income per share includes the dilutive effect of 1,142,000 stock options and 0 warrants.
Potential common shares outstanding as of December 31, 2008, 2007 and 2006:
| | | December 31, 2008 | | | December 31, 2007 | | | December 31, 2006 | |
| | | | | | | | | | |
| Warrants | | | 75,000 | | | | 150,000 | | | | 150,000 | |
| Options | | | 3,762,080 | | | | 3,968,080 | | | | 3,993,080 | |
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
For the twelve months ended December 31, 2008 and December 31, 2007, the number of securities not included in the diluted loss per share was adjusted3,837,080 and 4,118,080, respectively, as their effect was anti-dilutive. For the twelve months ended December 31, 2006, the number of securities not included in the diluted income per share was 3,001,080. The securities would have been anti-dilutive because the exercise price of the securities was greater than the average market price of the Company’s common shares for this feature.
[9]the fiscal year ending December 31, 2006.
[10] Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States of America requires management to make estimates and assumptions that effectaffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
[10]
[11] Impairment of long-lived assets: The Company adopted SFAS No.121, "Accounting forrecords impairment losses on long-lived assets used in operations when events and circumstances indicate that the Impairment of
Long-Lived Assetsassets might be impaired and for Long-Lived Assetsthe undiscounted cash flows estimated to be Disposed Of" duringgenerated by those assets are less than the year
ended April 30, 1998. SFAS 121 establishes accounting standards for the
impairmentcarrying amounts of long-lived assets, certain identifiable assets, and goodwill
related to those assets. There was no effect of the adoption of SFAS 121 on the
financial statements.
[11]
[12] Financial instruments:Instruments: The carrying amounts of cash and cash equivalents, accounts receivable, -
net, accounts payable, and accrued expenses, and other liabilities approximate their fair value based on the short term nature of those items.
Estimated fair value of financial instruments areis determined using available market information. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts.
Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange.
Due
SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value and expands disclosures about such fair value measurements. Issued in February 2008, FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”, removed leasing transactions accounted for under SFAS No. 13 and related guidance from the scope of SFAS No. 157. FSP No. 157-2, “Partial Deferral of the Effective Date of SFAS No. 157”, deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the Company’s Financial Statements on a recurring basis, to fiscal years beginning after November 15, 2008.
The Company adopted SFAS No. 157 as of January 1, 2008 for financial assets and financial liabilities, and there was no impact on the Company’s financial position and results of operations for the year ended December 31, 2008. The Company is currently assessing the impact of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities on the Company’s financial position and results of operations.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
SFAS No. 157 establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. SFAS No. 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices are observable for the asset or liability.
Level 3: Unobservable inputs for the asset or liability.
The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the related party nature of due from officerfair value measurement. The following methods and assumptions were used by the Company is unable to
determinein estimating its fair value.
[12] Stock-based compensation:
value disclosures for financial instruments:
Cash Equivalents—The Financial Accounting Standards Board has issued SFAS No.123,
"Accountingcarrying amount reported in the balance sheet for Stock-Based Compensation", which encourages, but does not
require, companiescash equivalents approximates its fair value due to record compensation cost for stock-based employee
compensationthe short-term maturity of these instruments.
Long-Term Debt—The carrying amounts of the Company’s borrowings under aits line of credit agreements and other long-term debt approximates fair value, based method.upon current interest rates.
[13] Accounting for share-based payments: In accordance with SFAS No. 123 (revised 2004), Share Based Payment, the Company began to recognize compensation expense for stock options on January 1, 2006. The Company has elected to
continue to account for its stock-based employee compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.25
("APB No.25"), "Accounting for Stock Issued to Employees" and disclose the pro
forma effects on net loss and loss per share basic and diluted had theweighted average fair value of such compensation been expensed. Underoptions granted during the provisions of APB No.25,
compensation cost fortwelve months ended December 31, 2006 was $0.85. There were no options granted during the twelve months ended December 31, 2007 or during the twelve months ended December 31, 2008.
Two employees were granted stock options
is measured ason June 13, 2006, the
excess, if any,Company’s former Chief Financial Officer and the Company’s former Vice President of
the
quoted marketProduct Development. The exercise price of the
Company'soptions was the same as the closing price of the Company’s common
stock atshares on the date of the
grant. The calculated fair value of the options was $.85 per option. The fair value of these stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of zero percent; risk-free interest rates, which vary for each grant,
ranging from 4.26% to 5.15%; expected life of ten years for all grants; and stock price volatility ranging from 72% to 75%. The value of these grants totaled $63,000, which was amortized over the
amount an employee must pay to acquirevesting period of one year from the
stock.
F-9
Note A - The Companydate of grant. Total expense included in 2007 was $26,000 and its Significant Accounting Policies (continued)
[13]$37,000 of expense was reported in 2006. [14] Concentration of credit risk: The Company sells its drug testing products primarily to United States customers and distributors. Credit is extended based on an evaluation of the customer'scustomer’s financial condition,condition.
At December 31, 2008, three customers accounted for 24.2%, 14.5%, and generally collateral11.6% of our accounts receivable-net. Substantial portions of these balances were collected from these customers in the first quarter of 2009.
At December 31, 2007, two customers accounted for 15% and 10.4% of our accounts receivable-net.
At December 31, 2006, one customer accounted for 16% of accounts receivable-net. Their outstanding balance was current at December 31, 2006 and resulted from several large shipments in December 2006. This customer did not represent more than 10% of accounts receivable-net as of December 31, 2007.
Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is not required. confident that it will recover these amounts.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
The Company establisheshas established an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers and other information.
[14] Recent
One of our customers accounted for approximately 11.2% of total net sales of the Company for the fiscal year ended December 31, 2008 and 9.3% of the total net sales of the Company for the fiscal year ended December 31, 2007.
The Company maintains certain cash balances at financial institutions that are federally insured and at times the balances have exceeded federally insured limits.
[15] Reporting comprehensive income:
The Company reports comprehensive income in accordance with the provisions of SFAS No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). 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. For the years ended December, 31, 2008, 2007 and 2006, comprehensive income was the same as net income.
[16] Reclassifications: Certain items have been reclassified from the prior years to conform to the current year presentation.
[17] New accounting pronouncements: The Financial Accounting Standards Board has recentlyIn June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). This Interpretation clarified the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements of
Financial Accounting Standards No.130, "Reporting Comprehensivein accordance with FASB Statement No. 109, “Accounting for Income" Taxes”. We adopted FIN 48 on January 1, 2007 and No.131, "Disclosures about Segments of an Enterprise and Related Information,"
and No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The above pronouncements willit did not have a significant effect on our financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 established a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, established a framework for measuring fair value, and expanded disclosure about such fair value measurements. SFAS No. 157 became effective for our financial assets and liabilities on January 1, 2008. The FASB has deferred the implementation of the provisions of SFAS No. 157 relating to certain nonfinancial assets and liabilities until January 1, 2009. SFAS No. 157 did not materially affect how we determine fair value.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of SFAS No. 115” (“SFAS No. 159”). This new standard permits entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS No. 159 became effective on January 1, 2008. We have not elected the fair value option for any of our existing financial instruments on the effective date and have not determined whether or not we will elect this option for any eligible financial instruments we acquire in the future.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”). Effective for the Company as of January 1, 2009, SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Effective January 1, 2009, SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. We are evaluating the impact of adopting SFAS No. 141(R) and SFAS No. 160, if any, on our financial statements.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 expands the disclosure requirements in SFAS No. 133, regarding an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective on January 1, 2009. We are evaluating the impact of adopting SFAS No. 161, if any, on our financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. We are evaluating the impact of adopting SFAS No. 162, if any, on our financial statements.
Note
In May 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts” (“SFAS No. 163”), which clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies to financial guarantee insurance contracts issued by insurance enterprises. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, including interim periods in that year. We are evaluating the impact of adopting SFAS No. 163, if any, on our financial statements.
NOTE B - Investments
The estimated fair value of available-for-sale investments at April 30,
1997 was $1,053,000 and consisted of certificate of deposits with maturities
greater than three months. The estimated fair value of each investment was
approximately equal to the amortized cost at April 30, 1997 and, therefore,
there were no unrealized gains or losses, at that date. The Company did not hold
any investments at April 30, 1998.
Note C - Inventory
INVENTORY
Inventory is comprised of the following:
Books held for resale $ 118,000
------------
Workplace drug screening tests:
Raw materials 447,000
Work in process 148,000
Finished goods 278,000
------------
Total workplace drug screening tests 873,000
------------
$ 991,000
============
Note D - Plant and Equipment
Plant
| | | December 31, 2008 | | | December 31, 2007 | | | December 31, 2006 | |
| | | | | | | | | | |
| Raw Materials | | $ | 3,134,000 | | | $ | 2,264,000 | | | $ | 1,841,000 | |
| Work In Process | | | 2,210,000 | | | | 2,547,000 | | | | 2,485,000 | |
| Finished Goods | | | 516,000 | | | | 433,000 | | | | 783,000 | |
| Reserve for slow moving and obsolete inventory | | | (308,000 | ) | | | (250,000 | ) | | | (250,000 | ) |
| | | $ | 5,552,000 | | | $ | 4,994,000 | | | $ | 4,859,000 | |
NOTE C – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, are summarized as follows:
Office
| | | December 31, 2008 | | | December 31, 2007 | | | December 31, 2006 | |
| | | | | | | | | | |
| Land | | $ | 102,000 | | | $ | 102,000 | | | $ | 102,000 | |
| Buildings and improvements | | | 1,399,000 | | | | 1,396,000 | | | | 1,288,000 | |
| Manufacturing and warehouse equipment | | | 2,358,000 | | | | 2,364,000 | | | | 1,815,000 | |
| Office equipment (incl. furniture and fixtures) | | | 400,000 | | | | 376,000 | | | | 378,000 | |
| | | | 4,259,000 | | | | 4,238,000 | | | | 3,583,000 | |
| Less accumulated depreciation | | | 2,298,000 | | | | 1,971,000 | | | | 1,601,000 | |
| | | $ | 1,961,000 | | | $ | 2,267,000 | | | $ | 1,982,000 | |
Depreciation expense was $353,000, $437,000 and $376,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
NOTE D – LONG TERM DEBT
Long-term debt consisted of the following:
| | | December 31, 2008 | | | December 31, 2007 | | | December 31, 2006 | |
| First Niagara Bank: | | | | | | | | | | | | |
| Mortgage payable in equal monthly installments of $6,293 including interest at 7.5% through December 1, 2016 with a final lump sum payment of $534,000 at maturity, collateralized by the building, land and personal property. | | $ | 739,000 | | | $ | 758,000 | | | $ | 775,000 | |
| Term note payable in equal monthly installments of $10,714 including interest at 7.17% through January 1, 2012 with a final lump sum payment of $11,440 at maturity, collateralized by the Company’s existing and future assets. | | | 356,000 | | | | 455,000 | | | | | |
| RICOH: | | | | | | | | | | | | |
| Capital lease payable in equal monthly installment of $390 including interest at 14.11% through May 1, 2012 | | | 13,000 | | | | 15,000 | | | | | |
| Debenture financing: | | | | | | | | | | | | |
| $750,000 in principal amount of Series A Debentures; interest at 10% per annum, payable semi-annually in August and February of each year with first payment due February 1, 2009; maturity date of August 1, 2012 | | | 750,000 | | | | | | | | | |
| | | | 1,858,000 | | | | 1,228,000 | | | | 775,000 | |
Less current portion(1) | | | (1,098,000 | ) | | | (121,000 | ) | | | (17,000 | ) |
| Non-current portion | | $ | 760,000 | | | $ | 1,107,000 | | | $ | 758,000 | |
| (1) | The term loan and real estate loan were reclassified from long-term to short-term as a result of the execution of a Forbearance Agreement with First Niagara Bank on March 12, 2009 (See Note K). |
At December 31, 2008, the following are the maturities of long-term debt for each of the next five years:
| 2009 | | $ | 1,098,000 | |
| 2010 | | | 4,000 | |
| 2011 | | | 4,000 | |
| 2012 | | | 752,000 | |
| | | $ | 1,858,000 | |
In November 2006, the Company closed on a $750,000 real estate refinancing with FNFG related to its facility in Kinderhook, New York. The mortgage has a term of 10 years with a 20 year amortization. The interest rate is fixed at 7.5% for the first 5 years and beginning with year 6 through the end of the loan term, the rate changes to 2% above the Federal Home Loan Bank of New York 5 year term, 15 year Amortization Advances Rate. The loan is collateralized by the facility in Kinderhook, New York and its personal property. The Company received proceeds of $154,000 after closing costs and accrued interest. The cash received was for improvements to the Kinderhook, New York property, including paving of the driveway and parking lot and replacing the roof.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
In January 2007, the Company entered into a Term Note (the “Note”) with FNFG in the amount of $539,000. The term of the note is 5 years with a fixed interest rate of 7.17%. The Company has the option of prepaying the Note in full or in part at any time during the term without penalty. There were no closing costs associated with this Note. The loan is secured by Company assets now owned or to be acquired. The proceeds received were used for the purchase of manufacturing automation equipment.
In May 2007, the Company purchased a copier through an equipment $ 60,000
Manufacturinglease with RICOH in the amount of $17,000. The term of the lease is five (5) years with an interest rate of 14.11%.
In August 2008, the Company completed an offering of Series A Debentures and
warehouse equipment 144,000
------------
204,000
Less accumulated depreciation 57,000
------------
$ 147,000
============
F-10
Notereceived gross proceeds of $750,000 in principal amount of Series A Debentures (see Current Report on Form 8-K and amendment on Form 8-K/A-1 filed with the Commission on August 8, 2008 and August 18, 2008 respectively). The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees. The securities issued in this transaction were sold pursuant to the exemption from registration afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the Commission under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act. The Series A Debentures accrue interest at a rate of 10% per annum (payable by the Company semi-annually) and mature on August 1, 2012. The payment of principal and interest on the Series A Debentures is subordinate and junior in right of payment to all Senior Obligations, as defined under the Series A Debentures. Holders of the Series A Debentures will have a right of conversion of the principal amount of the Series A Debentures into shares (the “Conversion Shares”) of the common stock of the Company (“Common Stock”), at a conversion rate of 666.67 shares per $500 in principal amount of the Series A Debentures (representing a conversion price of approximately $0.75 per share). This conversion right can be exercised at any time, commencing the earlier of (a) 120 days after the date of the Series A Debentures, or (b) the effective date of a Registration Statement to be filed by the Company with respect to the Conversion Shares. The Company has the right to redeem any Series A Debentures that have not been surrendered for conversion at a price equal to the Series A Debentures’ face value plus $0.05 per underlying common share, or $525 per $500 in principal amount of the Series A Debentures, representing an aggregate conversion price of $787,500. This redemption right can be exercised by the Company at any time within 90 days after any date when the closing price of the Common Stock has equaled or exceeded $2.00 per share for a period of 20 consecutive trading days.
As placement agent, Cantone Research, Inc. (“CRI”) received a Placement Agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, the Company issued CRI a 4 year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the Closing Date) and a 4 year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Completion Date), (together the “Placement Agent Warrants”). All warrants issued to CRI are immediately exercisable upon issuance. Pursuant to a Registration Rights Agreement, the Company will use reasonable efforts to register the Conversion Shares and the shares of Common Stock issuable upon exercise of the Placement Agent Warrants.
The Company has incurred $131,000 in costs related to the offering. Included in these costs was $12,000 of non-cash compensation expense related to the issuance of the Placement Agent Warrants to CRI. These costs will be amortized over the term of the Series A Debentures. For the fiscal year ended December 31, 2008, the Company amortized $14,000 of expense related to these debt issuance costs. The Company has also accrued $31,000 in interest expense at December 31, 2008.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
NOTE E - Due From Officer
At April 30, 1998 the– LINE OF CREDIT
The Company has a note receivable fromLine of Credit with FNFG. As disclosed in the Company’s Current Report on Form 8-K filed with the Commission on August 8, 2008, effective August 1, 2008, we entered into an officeramendment with FNFG related to the original Loan Documents (the “Amendment”). The Amendment combined two lines of credit already in place with FNFG into one line of credit (the “Line of Credit”) along with amending certain terms related to the combined Line of Credit. Pursuant to the Amendment, the maximum amount available under the Line of Credit was $750,000, and the maturity date of the Line of Credit was April 1, 2009. The interest rate on the Line of Credit was prime plus 1%. Pursuant to the Amendment, we are required to maintain certain financial covenants; our monthly net loss must not exceed $75,000 during any month and, while any loans or commitments are outstanding and due FNFG, we must maintain a minimum debt service coverage ratio of 1.10x, to be measured at December 31, 2008. The minimum debt service coverage ratio is defined as net income plus interest expense plus depreciation plus expense related to the amortization of derivative securities divided by required principal payments over the preceding twelve months plus interest expense. There is no requirement for $235,000. The note bears interest at 6% per annum andannual repayment of all principal on this Line of Credit; it is payable on demand. NoteThe purpose of this Line of Credit is to provide working capital. The amount outstanding on the Line of Credit was $431,000 at December 31, 2008. At December 31, 2007, the Line of Credit was two separate lines of credit and the amount outstanding was $690,000 under one line and $33,000 under the other line, totaling $723,000.
NOTE F - Income Taxes
At April 30, 1998INCOME TAXES
A reconciliation of the Company has approximately $4,894,000U.S. Federal statutory income tax rate to the effective income tax rate is as follows:
| | | Year Ended December 31, 2008 | | | Year Ended December 31, 2007 | | | Year Ended December 31, 2006 | |
| | | | | | | | | | |
| Tax (benefit)/expense at federal statutory rate | | | 34 | % | | | 34 | % | | | 34 | % |
| State tax (benefit)/expense, net of federal tax effect | | | 5 | | | | 5 | | | | 5 | |
| Valuation allowance | | | (39 | ) | | | (39 | ) | | | (39 | ) |
| Effective income tax rate | | | 0 | % | | | 0 | % | | | 0 | % |
Significant components of net operating
loss carryforwards expiring through 2013.
At April 30, 1998 the Company has aCompany’s deferred tax asset of approximately
$1,883,000 representing the benefits of its net operating loss carryforward and
certain expenses not currently deductible. The Company'sassets are as follows:
| | | Year Ended December 31, 2008 | | | Year Ended December 31, 2007 | | | Year Ended December 31, 2006 | |
| | | | | | | | | | |
| Inventory | | $ | 35,000 | | | $ | 31,000 | | | $ | 30,000 | |
| Inventory reserve | | | 120,000 | | | | 98,000 | | | | 98,000 | |
| Stock based compensation | | | 1,350,000 | | | | 1,384,000 | | | | 1,382,000 | |
| Allowance for doubtful accounts | | | 41,000 | | | | 41,000 | | | | 41,000 | |
| Property, plant, and equipment | | | (108,000 | ) | | | (87,000 | ) | | | (95,000 | ) |
| Accrued compensation | | | 31,000 | | | | 33,000 | | | | (9,000 | ) |
| Sales tax reserve | | | 16,000 | | | | 0 | | | | 0 | |
| Deferred Revenue | | | 2,000 | | | | 0 | | | | 0 | |
| Net operating loss carry-forward | | | 3,998,000 | | | | 3,602,000 | | | | 3,308,000 | |
| Total gross deferred tax assets | | | 5,485,000 | | | | 5,102,000 | | | | 4,755,000 | |
| Less valuation allowance | | | (5,485,000 | ) | | | (5,102,000 | ) | | | (4,755,000 | ) |
| Net deferred tax assets | | $ | 0 | | | $ | 0 | | | $ | 0 | |
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
Certain 2006 gross deferred tax asset hasassets and related valuation allowances previously reported have been fully reserved by arestated in 2007. This restatement had no net effect on the Company's 2006 financial position, results of operations or cash flows.
The valuation allowance since realizationfor deferred tax assets as of its benefit is
uncertain.December 31, 2008 and December 31, 2007 and December 31, 2006 was $5,485,000; $5,102,000 and $4,755,000, respectively. The difference between the statutory tax rate of 34% and the
Company's effective tax rate of 0% is substantially due to the increasenet change in the valuation allowance was an increase of $986,000 and $172,000$383,000 for the yearsyear ended April 30, 1998December 31, 2008. The net change in the valuation allowance was an increase of $347,000 for the year ended December 31, 2007.
At December 31, 2008 the Company has Federal and 1997, respectively.New York state net operating loss carry forwards for income tax purposes of approximately $10,250,000, which will begin to expire in 2009. 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 Company'sultimate 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 its netthe operating loss carryforwardscarry forwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.
Noteamended, if future changes in ownership occur.
NOTE G - Stockholders' Equity
[1] Preferred stock:
In October 1996– OTHER INCOME/(EXPENSE)
Other income for the
Company amended its certificateyears ended 2008, 2007 and 2006 is mainly comprised of
incorporation
authorizingamounts earned from a grant of $100,000 received from the
issuance of 5,000,000 Preferred Shares.Columbia Economic Development Corporation during 2002, 2003, and 2005. The
board of directorsgrant is convertible to a loan based upon a percentage of the
Company has the authority, without further action by the holdersgrant declining from 90% of the
outstanding common shares,grant amount in 2003 to
issue preferred shares from time to time0% in
one or
more classes or series, to fix2012. The unearned portion of the
number of shares constituting any class or
series and the stated value thereof, if different from the par value, and to fix
the terms of any such series or class, including dividend rights, dividend
rates, conversion or exchange rights, voting rights, rights and terms of
redemption (including sinking fund provisions,) the redemption price and the
liquidation preference of such class or series.
During 1996 the Company completed a private placement in which it netted
proceeds of approximately $1,410,000 through the sale of 150 8% Convertible
Series A Preferred Shares for $10,000 per share. Each Preferred Sharegrant at December 31, 2008 is $40,000. The grant is convertible
into Common Shares pursuant to
a loan only if the
following formula: $10,000
divided byemployment levels in the
lesser of $6.07 or 75%Kinderhook facility drop below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 61, 81, and 87 at December 31, 2008, December 31, 2007 and December 31, 2006, respectively. The amount of the
averageunearned grant recognized in each of the
daily closing bid
pricesfiscal years ending December 31, 2008, 2007 and 2006 was $10,000. Other income for the
five consecutive trading daysfiscal years ended December 31, 2008 and 2007 are offset by losses on disposals of fixed assets of $4,000 and $1,000; respectively. In addition, $19,000 of accrued penalties related to a sales tax liability was incurred during the fiscal year ending
on the trading day prior to
the day on which the Preferred Shares are converted to Common Shares. All
accrued but unpaid dividends are payable in cash. The Series A Preferred Shares
were converted into an aggregate of 633,073 Common Shares.
During September 1997 the Company completed a private placement in which it
netted proceeds of approximately $950,000 through the sale of 60 8% Series B
Convertible Preferred Shares and 45.5 Shares of Series C Convertible Preferred
Shares for $10,000 per share. Each Preferred Share was convertible into Common
Shares pursuant to the following formula: $10,000 divided by lesser of $3.50 or
75% of the average of the daily closing bid prices for the twenty consecutive
trading days ending on the trading day prior to the day on which the Preferred
Shares are converted to Common Shares. Dividends were payable in cash or shares
of common stock at the election of the Company on the date the Preferred Shares
are converted to common shares. The Series B Preferred Shares and the Series C
Preferred Shares were converted into an aggregate of 226,037 and 160,359 Common
Shares respectively.
F-11
Note G - Stockholders' Equity (continued)
[1] Preferred stock: (continued)
During April 1998 the Company completed a private placement in which it
netted proceed of approximately $2,312,000 through the sale of 2,500 8% Series D
Convertible Preferred Shares for $1,000 per share. Each Preferred Share is
convertible at the lesser of (i) 95% of the average of the closing bid prices of
the common shares over any three trading days selected by the holder of the
Preferred Shares in the 20 trading days immediately preceding the date of
conversion or (ii) $4.625 based on a formula as provided. Dividends are payable
in cash or additional Preferred Shares at the Company's option.
[2]December 31, 2008. NOTE H – STOCKHOLDERS’ EQUITY
[1] Stock option plans: The Company adopted the Fiscal 1997 NonstatutoryNon-statutory Stock Option Plan (the "1997 Plan"“1997 Plan”) and, the Fiscal 1998 NonstatutoryNon-statutory Plan (the "1998 Plan"“1998 Plan”), the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”), and the 2001 Non-statutory 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, and the 1998 Plan providesand the 2000 Plan provide 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 stock. Bothshares. These Plans are administered by the Compensation/Option Committee of the Board of Directors, which determinedetermines the terms of options exercised,granted, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. [3] Other stockOptions granted under the 1997 and 1998 Plans have lives of 5 years and vest over periods from 0 to 4 years. Options granted under the 2000 and 2001 Plans have lives of 10 years and vest over periods from 0 to 4 years.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
[2] Stock options: During March 1996the years ended December 31, 2008 and December 31, 2007, the Company entered into an agreement with a public
relations and communications firmdid not issue any options to serve as the Company's liaison and
spokesman to the financial and investment community. Under the agreement the
Company granted under Regulation Dpurchase shares of the Securities Act of 1933, to the public
relations firm the right to receive 100,000 common shares at a value of $0.65
per share for a total consideration of $65,000 in lieu of an initial payment,
monthly retainers or expense reimbursement, including communications and mailing
for a period of one year. In addition, the Company granted 550,000 common shares
valued at $0.325 per share representing one-half the market price of the common
shares at March 14, 1996, the date of the contract. The valuation reflected the
receipt of unregistered common shares and the market risk of the holding period
until they may be sold publicly. Of the 550,000 shares, 50,000 shares were
allocated to expense reimbursement and 500,000 shares allocated to public
relations consulting. The Company also granted 500,000 options exercisable at
$1.00 through March 15, 1999 and 500,000 options exercisable at $2.00 through
March 15, 1999. During March 1998 the Company purchased from the public
relations firm 75,000 options exercisable at $1.00 per common share and 75,000
options exercisable at $2.00 per common share for $225,000. The remaining
850,000 options cannot be exercised until a registration statement relating to
the common shares underlying the options is effective.
F-12
Note G - Stockholders' Equity (continued)
[4] Stock options:
stock. Stock option activity for the years ended December 31, 2008, December 31, 2007 and December 31, 2006 is summarized as follows:
Year Ended April 30,
---------------------------------------------------
1998 1997
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ --------- -------- -----
Options outstanding
at beginning of year 2,174,000 $ 2.31 1,000,000 $ 1.50
Granted 567,000 $ 3.25 1,802,000 $ 3.00
Exercised (81,000) $ 3.00 (628,000) $ 3.00
Canceled (150,000) $ 1.50
---------- ---------
Options outstanding
at end of year 2,510,000 $ 2.55 2,174,000 $ 2.31
========== =========
Options exercisable
at end of year 1,439,000 $ 3.05 1,123,000 $ 3.00
========== =========
| | | Year Ended December 31, 2008 | | | Year Ended December 31, 2007 | | | Year Ended December 31, 2006 | |
| | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | |
| Options outstanding at beginning of year | | | 3,968,000 | | | $ | 1.32 | | | | 3,993,000 | | | $ | 1.32 | | | | 4,268,000 | | | $ | 1.31 | |
| Granted | | | 0 | | | NA | | | | 0 | | | NA | | | | 75,000 | | | $ | 1.05 | |
| Exercised | | | 0 | | | NA | | | | (25,000 | ) | | $ | 0.94 | | | | (100,000 | ) | | $ | 0.85 | |
| Cancelled/expired | | | (206,000 | ) | | $ | 1.01 | | | | 0 | | | NA | | | | (250,000 | ) | | $ | 1.31 | |
| Options outstanding at end of year | | | 3,762,000 | | | $ | 1.34 | | | | 3,968,000 | | | $ | 1.32 | | | | 3,993,000 | | | $ | 1.32 | |
| Options exercisable at end of year | | | 3,762,000 | | | $ | 1.34 | | | | 3,968,000 | | | $ | 1.32 | | | | 3,918,000 | | | $ | 1.32 | |
The following table presents information relating to stock options outstanding at April 30, 1998.
Options outstanding Options Exercisable
------------------------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Rangeas of Exercise Remaining Exercise
Exercise Price Shares Price Life in Year Shares Price
-------------- ------ -------- ------------ ------- -----
$1.00 - $2.00 850,000 $1.50 .87 .0 $ 0
$3.00 - $4.00 1,660,000 $3.09 1.76 1,439,000 $3.05
--------- ---------
2,510,000 $2.55 1.46 1,439,000 $3.05
========= =========
December 31, 2008:
| | | | | | | |
| | | | | | Weighted | | | Weighted | | | | | | Weighted | |
| | | | | | Average | | | Average | | | | | | Average | |
| Range of Exercise | | | | | Exercise | | | Remaining | | | | | | Exercise | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| $0.85 - $0.99 | | | 1,039,000 | | | $ | 0.88 | | | | 3.28 | | | | 1,039,000 | | | $ | 0.88 | |
| $1.00 - $1.49 | | | 1,645,000 | | | $ | 1.08 | | | | 4.70 | | | | 1,645,000 | | | $ | 1.08 | |
| $1.50 - $1.99 | | | 188,000 | | | $ | 1.57 | | | | 3.46 | | | | 188,000 | | | $ | 1.57 | |
| $2.00 - $3.38 | | | 890,000 | | | $ | 2.31 | | | | 1.00 | | | | 890,000 | | | $ | 2.31 | |
| TOTAL | | | 3,762,000 | | | $ | 1.34 | | | | 3.37 | | | | 3,762,000 | | | $ | 1.34 | |
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
As of December 31, 2008, there are no stock options available for issuance under the 1997 or the 1998 Plan. Pursuant to the plans, as of April 30, 1998 48,0002000, no further options are available for future grantcould be issued under the 1997 Plan 583,000and as of April 30, 2001, no further options are available for future grantcould be issued under the 1998 Plan. [5] Therefore under the 1997 and 1998 plans, as options expire or are cancelled, they are returned to the plans without the possibility of being issued again. As of December 31, 2008, under the 1997 Plan, 1,230,625 options have been returned to the plan as a result of expirations or cancellations and will not be re-issued, and under the 1998 Plan, 922,000 options have been returned to the plan as a result of expirations or cancellations and will not be re-issued. Neither the 1997 nor the 1998 plan have any options issued and outstanding and therefore there is no potential for additional dilution under either the 1997 or the 1998 plans. As of December 31, 2008, there were 9,500 options available for issuance under the Fiscal 2000 Plan and 945,420 options available for issuance under the Fiscal 2001 Plan. The options outstanding noted in the table above are issued under either the 2000 Plan or the 2001 Plan.
[3]Warrants: As of December 31, 2008, there were 75,000 warrants outstanding.
In connection with
the Private Placementour sale of
the Series A Convertible
Preferred Shares1,408,450 common shares for $2,000,000 ($1.42 per share) in a private placement to Seaside Partners, L.P. (“Seaside”) on April 28, 2000, the Company
granted 24,712 common share warrants entitling the
holderissued a 5-year warrant to Seaside to purchase
one share953,283 common shares of
commonour stock at
aan exercise price of
$3.00$1.17 per share.
The
warrants were exercised during the fiscal year ended April 30, 1998.
In connection with the Private PlacementTo settle a penalty owed to Seaside because of
the 8% Series D Convertible
Preferred Sharesa late effective registration statement, the Company
granted 107,355 common share purchase warrants
entitling the holder to purchase one share of common stock at a price of $4.81
per share until April 24, 2001. 100,000 of the purchase warrants were issued to
preferred stockholders and 7,355 of the purchase warrants were issued to the
selling agent as additional commission. The weighted average fair value of
warrants granted during the year ended April 30, 1998 was $1.67 on the date of
grant using the Black-Scholes option-pricing model using the following
assumptions: dividend yield 0%; volatility of 59%, risk free rate of 5.61% and
expected life of three years.
F-13
Note G - Stockholders' Equity (continued)
[6] Stock-based compensation:
The Company applies APB No. 25 in accounting for its stock option plans
and, accordingly, recognizes compensation expense for the difference between the
fair value of the underlying common stock andadjusted the exercise price of the option
at953,283 warrant shares from $1.17 to $0.95 in February 2001. In November 2003, the Seaside warrant was transferred and the common shares underlying the exercise of the warrants and respective rights and obligations under the Common Stock Purchase Agreement were assigned to Steven Grodko (“Grodko”). Throughout the fiscal year ending December 31, 2004, Grodko exercised a total of 553,283 warrant shares, leaving a balance of 400,000 warrants. In October 2005 the Company entered into an Extension Agreement and registration letter agreement with Grodko in which the Company extended the term of the warrant thereby changing the expiration date of grant.the warrant to October 28, 2006. Grodko did not exercise any additional warrant shares in 2005. On October 27, 2006, Grodko exercised 260,000 warrant shares, leaving a balance of 140,000 warrant shares. On October 28, 2006, the remaining balance of 140,000 warrant shares expired naturally. As of December 31, 2006, there were no longer any warrant shares outstanding under this issuance.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 effect of applying SFAS No. 123 on pro forma net loss
as stated above is not necessarily representative of the effects on reported net
loss for future years due to, among other things (1) the vesting period of the
stock options and (2) the fair value of additional stock options in future
years. The average fair value of options granted during the year was
approximately $1.78. The following pro forma information gives effect to fair
value of the options on the date of grantwarrant shares were valued at $134,000 using the Black-Scholes option-pricingBlack Scholes pricing model withand the following assumptions:assumptions, dividend yield of 0%, volatility of 59%95%, risk free interest rates of ranging from 5.38% - 6.40%rate 4.8% and expected life of 3
years.
Net loss:5 years and were recorded as a charge to operations in the transition period ending December 31, 2001. The closing price of American Bio Medica Corporation’s common shares on May 2, 2001, as listed on The National Association of Securities Dealers Automated Quotations (“NASDAQ”) Capital Market, was $0.95 per share. This warrant was never exercised either in whole or in part and expired naturally on May 2, 2006.
On August 22, 2001, the Company issued warrants (“Private Placement 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 (the 1,274,500 warrants issued in connection with the August 2001 private placement traded on the NASDAQ Capital Market and may be hereafter referred to as the “trading warrants”). The Company 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. (“Brean Murray”) 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, and warrants to purchase 16,250 common shares were issued to David L. Jordon, each for their services as sub-agents of Brean Murray. In the fiscal year end December 31, 2004, 2,500 trading warrants were exercised and in fiscal year end December 31, 2005 2,500 trading warrants were exercised, leaving a balance of 1,269,500 trading warrants. As reported $ (4,390,000)
Pro forma (4,755,000)
Basicof December 31, 2006, there were no longer any warrant shares outstanding under these issuance as both the trading warrants and diluted loss per share:
As reported ($0.35)
Pro forma ($0.37)
Duringthe warrants issued to the placement agents naturally expired on August 22, 2006.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
On December 2, 2003, the Company issued a 5 year warrant immediately exercisable and non-forfeitable, to purchase 300,000 common shares at an exercise price of $1.15 to Brean Murray as compensation for its future services as a financial advisor to the Company. In June 2004, the Company amended the December 2, 2003 Financial Advisory Agreement with Brean Murray and Brean Murray surrendered 150,000 of the 300,000 warrants to purchase common stock. The warrants were valued at $281,000 using the Black Scholes pricing model and the following assumptions, dividend yield of 0.0%, volatility of 80.6%, risk free interest rate 5.2% and expected life of 5 years and $23,000 was recognized as a charge to operations in the year ended AprilDecember 31, 2003. The total value of these warrants was initially to be charged ratably over twelve months from December 2003 through November 2004, the term of the contract. An additional $70,000 was expensed in the first quarter of 2004. However, in conjunction with the surrender of 150,000 warrants in June 2004, ABMC and Brean Murray agreed that no further services would be provided and all remaining expense associated with the valuation of the warrants, $129,000, was recognized during the quarter ended June 30, 19982004. The closing price of the Company’s common shares on December 2, 2003, as listed on The NASDAQ Capital Market, was $1.33 per share. As of December 31, 2008, there were no longer any warrant shares outstanding under this issuance as the warrants expired naturally on December 2, 2008.
In connection with their services as placement agent in the Company’s Series A Debenture offering, on July 17, 2008, the Company granted 260,000 optionsissued Cantone Research, Inc. (“CRI”) a 4 year warrant to employees at exercise prices less than the fair value ($342,000)purchase 30,450 shares of the underlyingCompany’s common stock at an exercise price of $0.37 per share, and on August 4, 2008 issued CRI a 4 year warrant to purchase 44,550 shares of the datesCompany’s common stock at an exercise price of grant.$0.40 per share. All warrants issued to CRI are immediately exercisable upon issuance. The Company recorded a one-time
noncash chargeclosing price of $318,000the Company’s common shares was $0.37 and $0.40 on July 17, 2008 and August 4, 2008, respectively. The July 17, 2008 warrants were valued using the Black Scholes pricing model and the differencefollowing assumptions, dividend yield of $24,000 as unearned
compensation which is beingzero, volatility of 46.0%, risk free interest rate of 4.7%, and expected life of 4 years. The August 4, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.1%, risk free interest rate of 4.6% and expected life of 4 years. The total value of the CRI warrants will be amortized over the shorterterm of the vesting period or
period of employment.
DuringSeries A Debentures, with $1,000 in expense being recognized in the fiscal year ended April 30, 1998 the Company granted 89,000 options as
compensation for consulting and professional services. The Company determined
the fair value of these options to be approximately $139,000 and a one-time
noncash charge was recorded.
Note H - 12% Convertible Subordinated Debentures
During the year ended April 30, 1997 the Company converted $150,000 of
convertible debentures into 200,666 shares of common stock.
NoteDecember 31, 2008.
NOTE I
- Loan Receivable
During December 1996 the Company entered into a promissory note receivable
with a public relations and communications firm. The principal amount of
$100,000 and accrued interest at 6% were satisfied through the performance of
services. The amount of $102,000 (including interest) was charged to expense
during the year ended April 30, 1998.
F-14
Note J - Secured Loan
On March 9, 1990, the Company entered into a security agreement with a
finance company to borrow money secured by the Company's receivables evidenced
by invoices. At the time, the Company was engaged in selling educational books
to municipal school districts and public libraries throughout the United States.
The finance company agreed to lend an amount equal to 60% of the net value of
all the Company's accounts receivable. Accounts receivable funding ceased as of
July 31, 1990.
The Company instituted a lawsuit against the finance company on
November 26, 1990 for damages due to its failure to lend to the 60% credit limit
based on its calculations and for forgiveness of the loan based on the finance
company's charging, based on its own billings, at an interest rate in excess of
the rate of 25% per annum as prescribed in the sections dealing with usury in
New York Penal State Law. Although company counsel had opined that the Company
would prevail in the action and that all indebtedness incurred in the principal
amount $126,500 plus interest and fees would be voided by reason of the finance
company's violation of the usury provisions of the Penal Law, by agreement
between the Company and the finance company, the lawsuit was withdrawn without
prejudice as the Company, at that time, lacked the resources for protracted
litigation. In April 1996, the obligation, if any, to the finance company became
barred by New York State's six-year statute of limitations. The Company wrote
off the obligation during the second quarter of fiscal 1997.
Note K - Commitments and Contingencies
[1]– COMMITMENTS, CONTINGENCIES AND OTHER MATTERS [1] Operating leases: The Company leases office and warehouseR&D/production facilities in New Jersey under an operating lease
expiring in March 2000.leases through December 2011. In addition, the Company leases office support equipment under leases through February 2009. At April 30, 1998,December 31, 2008, the future minimum rental payments under thethese operating leaseleases are as follows:
1999 $ 46,000
2000 55,000
------------
$ 101,000
============
| 2009 | | $ | 86,000 | |
| 2010 | | | 86,000 | |
| 2011 | | | 86,000 | |
| | | $ | 258,000 | |
Rent expense for facilities in New Jersey was $37,000$113,000 in 2008, $98,000 in 2007 and $13,000 for the years ended April 30, 1998 and
1997, respectively.
[2]$52,000 in 2006.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
[2] Employment agreements: On November 3, 1995,In the second quarter of 2007, the Company entered into employment agreements with the Chief Executive Officer Stan Cipkowski, Chief Science Officer Martin R. Gould and then Chief Financial Officer Keith E. Palmer providing for aggregate annual salaries of $504,000. The agreement with the Chief Executive Officer Cipkowski provides for a $206,000 annual salary, is for a term of one year and automatically renews unless either party gives advance notice of 60 days. The agreement with the Chief Science Officer Gould provides for a $149,000 annual salary, is for a term of one year and automatically renews unless either party gives advance notice of 60 days. The agreement with former Chief Financial Officer Palmer provided for a $149,000 annual salary, was for a term of one year and automatically renewed unless either party gave advance notice of 60 days. The employment agreement with former Chief Financial Officer Palmer was terminated effective July 6, 2007 as a result of Palmer’s resignation.
In the third quarter of 2007, the Company entered into an employment agreement with its current Chief Financial Officer Stefan Parker. The agreement provides for a $120,000 annual salary, is for a term of one year, and automatically renews unless either party gives advance notice of 60 days.
In the second quarter of 2008, the Company entered into an employment agreement with its Executive Vice President of Operations Douglas Casterlin. The agreement provides for a $149,000 annual salary, is for a term of one year, expires April 28, 2009, and automatically renews unless either party gives advance notice of 60 days.
[3] Legal: The Company has been named in legal proceedings in connection with matters that arose during the normal course of its business, and that in the Company’s opinion are not material. While the ultimate result of any litigation cannot be determined, it is management’s opinion based upon consultation with counsel, that it has adequately provided for losses that may be incurred related to these claims. If the Company is unsuccessful in defending any or all of these claims, resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company.
[4] Patent Sublicense: In February 2006, the Company entered into a three year employment
agreementnon-exclusive Sublicense Agreement (the “Agreement”) with its President.an unaffiliated third party related to certain patents allowing us to expand our contract manufacturing operations. Under the agreement, the President received an
annual salary of $36,000 per year until April 30, 1996 and $60,000 thereafter.
The base annual salary was increased to $72,000 whenthis Sublicense Agreement, the Company generated
aggregate gross revenues frommust pay a non-refundable fee of $175,000 over the salecourse of biomedical2 years, of which $75,000 was paid in the first quarter of 2006, $50,000 was paid in the first quarter of 2007, and $50,000 was paid in the first quarter of 2008. The Company was required to pay royalties for products it manufactures that fall within the scope of $500,000.
On November 3, 1995,these patents. The Company was not obligated to pay any royalties in 2008, 2007 or 2006. Beginning with the year ended December 31, 2007, the Company was obligated to pay a $20,000 annual minimum royalty (“MAR”) that can be applied against royalties on sales of products that fall within the scope of the sublicensed patents. The first MAR payment was made in January 2008, and there were not any sales of products made in the year ended December 31, 2008 that would be applied against the MAR. The Agreement expired on December 17, 2008 and no further amounts are due by ABMC under the Agreement.
[5] Royalty Agreement: In March 2006, the Company entered into a three year employmentroyalty agreement with its Executive Vice-President.Integrated Biotechnology Corporation (“IBC”). IBC is the owner of the RSV (Respiratory Syncytial Virus) test that the Company manufactures for one of IBC’s distributors. The agreement providedwas entered into to address amounts that IBC owed to the Company at the end of fiscal year 2005, and to streamline the order and fulfillment process of IBC’s RSV product. All outstanding amounts due to the Company were satisfied by the end of the third quarter of 2007. After satisfaction of amounts due, the Company continued to work directly with IBC’s distributor under the terms of the Agreement, which stated that we were to pay IBC a 20% royalty of total sales received from IBC’s distributor. The agreement expired on November 2, 2008. However, we continue to work directly with IBC’s distributor and manufacture an RSV product for them.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
NOTE J – RELATED PARTY DISCLOSURES
During the fiscal years ended December 31, 2008, December 31, 2007 and December 31, 2006, the Company paid an aggregate of $58,000, $97,000 and $128,000 respectively, to Edmund Jaskiewicz, the Company’s President and Chairman of the Board of Directors, in consideration of his services as patent and trademark counsel to the Company, services as a member of its Board of Directors, and for reimbursement of expenses related to same. At December 31, 2008 there were invoices totaling $105,000 payable to Mr. Jaskiewicz.
During the fiscal years ended December 31, 2008, December 31, 2007 and December 31, 2006, the Company paid an aggregate of $85,000, $70,000 and $59,000 respectively, to Alec Cipkowski. Alec Cipkowski is the son of the Company’s Chief Executive Officer, Stan Cipkowski. Alec Cipkowski performs information technology services for the Company updating and maintaining the Company website as well as supporting the Rapid Reader devices that are currently being used by customers. At December 31, 2008, there were no amounts due and payable to Alec Cipkowski. Alec Cipkowski was an independent contractor and not an employee of the Company until January 2009 when he was hired at an annual salary of $24,000 until April 30, 1996 and $48,000 thereafter. The base
annual salary was increased$60,000. He will be eligible to $60,000 whenreceive normal employee benefits on May 1, 2009 in accordance with the Company’s standard policies.
NOTE K – SUBSEQUENT EVENT
On February 4, 2009, we received a letter from FNFG notifying the Company
generated aggregate
gross revenues fromthat an event of default had occurred under the
saleour Letter Agreement and other documents (the “Loan Documents”), related to our line of
biomedical productscredit, real estate mortgage and term note (the “Credit Facilities”); more specifically, we failed to comply with the maximum monthly net loss covenant set forth in the Letter Agreement. Pursuant to the terms of
$500,000.
F-15
Note K - Commitmentsthe Loan Documents, all obligations of the Company to FNFG under the Loan Documents can be declared by FNFG to be immediately due and Contingencies (continued)
[2] Employment agreements: (continued)
On November 3, 1995payable. The principal amount totals $1,636,635.97, plus interest and other charges through February 4, 2009 (collectively, the “Debt”). The February 4, 2009 notice also stated that, as an accommodation to the Company, FNFG decided not to immediately accelerate the Debt, and that they expected the Company to enter into a Forbearance Agreement with FNFG memorializing measures and conditions required by FNFG. FNFG also notified the Company that they were reducing the commitment on our line of credit to $650,000 (previously the line of credit commitment was $750,000), and placing a hold on one of our accounts held at FNFG.
On March 12, 2009, we entered into a three year employment
agreementForbearance Agreement (the “Agreement”) with its Vice-PresidentFNFG. The Agreement addresses the Company’s non-compliance with the maximum monthly net loss and the minimum debt service coverage ratio covenants (“Existing Defaults”) under the Loan Documents related to extensions of Marketing.credit made by FNFG to the Company; more specifically the Company’s line of credit, term note and real estate mortgage (the “Debt”) with FNFG. Under the agreementterms of the Vice-President receivedAgreement, FNFG will forbear from exercising its rights and remedies arising under the Loan Documents from the Existing Defaults. The Agreement is in effect until (i) June 1, 2009; or (ii) the date on which FNFG elects to terminate the Agreement upon the occurrence of an annual salaryevent of $24,000 until April 30, 1996default under the Agreement or under the Loan Documents (other than an Existing Default); or (iii) the date on which any subsequent amendment to the Agreement becomes effective (the “Forbearance Period”).
Under the Agreement, during the Forbearance Period: FNFG will waive any further default relating to the maximum monthly net loss covenant and $48,000 thereafter. The base annual salary was increased to $60,000 whenminimum debt service coverage ratio provided the Company generated aggregate gross revenuesshows a net loss no greater than $300,000 for the quarter ending March 31, 2009, and on or before May 1, 2009, the Company must produce to FNFG a legally binding and executed commitment letter from a bona-fide third party lender setting forth the terms of a full refinancing of the Debt to close on or before June 1, 2009.
During the Forbearance Period, FNFG will continue to place a hold on one of our accounts (with a balance of $108,000), but will release up to $5,000 per month from the saleaccount to be used for the purpose of biomedical products
of $500,000. In consideration of past services valued at $125,000 or $0.25 per
share the Vice-President received the right to receive 500,000 common shares.
Upon execution of the agreement the Vice President of Marketing received 100,000
shares. Certificates representing 400,000 common shares were being heldpaying a financial advisory firm engaged by the Company subjectto find and evaluate alternative funding sources; the financial advisory firm was referred to the following vesting:
100,000 shares uponCompany by FNFG.
AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2008
The maximum available under the Company's achieving $1,000,000 in gross revenuesline of credit during the Forbearance Period will be the lesser of $650,000, or the Net Borrowing Capacity. Net Borrowing Capacity is defined as Gross Borrowing Capacity less the Inventory Value Cap. Gross Borrowing Capacity is defined as the sum of (i) 80% of eligible accounts receivable, (ii) 20% of raw material inventory and (iii) 40% of finished goods inventory. Inventory Value Cap is defined as the lesser of $400,000, or the combined value of items (ii) and (iii) of Gross Borrowing Capacity. Since September 2008, the Company’s Net Borrowing Capacity has declined from sales$1,195,000 to $795,000 as of biomedical products; 100,000 shares upon the Company's achieving
$2,000,000 in gross revenues from salesdate of biomedical products 100,000 shares
upon the Company's achieving $3,000,000 in gross revenues from sales of
biomedical products; 100,000 shares upon the Company's achieving $4,000,000 in
gross revenues from sales of biomedical products.
this report.
During the year ended April 30, 1998 the Vice President of Marketing
received 200,000 shares upon the Company achieving $2,000,000 in gross revenues
of biomedical products. Additionally in April 1998, the Board of Directors voted
to remove the vesting restrictionsForbearance Period, interest shall accrue on the remaining 200,000 shares. In
connection therewith,line of credit at the Company recorded a noncash chargerate of $1,356,000. The
amount of the charge was basedprime plus 4%, an increase from prime plus 1%. Interest accruing on the closing pricereal estate mortgage during the Forbearance Period shall remain unchanged at the fixed rate of the common stock7.5% and interest on the dateterm note shall remain unchanged at the milestones were achieved andfixed rate of 7.17%. In the dateevent of default under the BoardAgreement, interest under the line of Directors votedcredit shall increase to remove the vesting restrictions.
In addition, the above agreements provide for bonuses basedgreater of prime plus 6% or 10%. The line of credit shall terminate on graduated
rates at specified levels of gross revenues in the aggregate as follows: 6% of
gross revenues of the Company of $1,000,000 per fiscal year until such revenues
reach $3,000,000, 4.5% of gross revenues between $3,000,000 and $5,000,000 per
year and 3% thereafter.
On May 26, 1997 the Company entered into a three year employment agreement
with its Vice-President/General Manager. The employment agreement provides for a
base annual salary of $84,000 per annum and a bonus of 1% ofJune 1, 2009.
NOTE L- GEOGRAPHIC INFORMATION
Information concerning net sales
after
gross revenue of $1,000,000 per fiscal year. Additionally the employee shall
receive 150,000 options at $3.00 per share vesting immediately. The President of
the Company gave the Vice-President/General Manager 150,000 shares of the
Company's common stock vestingby principal geographic location is as follows:
25% upon effective date of employment
and 25% additional upon each of the three subsequent anniversaries of
employment. During the year ended April 30, 1998 the Board of Directors voted to
remove the vesting restrictions. In connection therewith, the Company recorded a
noncash charge of $540,000 during the year ended April 30, 1998. The amount of
the charge was based on the closing price for the common stock for the shares
received on the effective date and the shares received when the vesting
restrictions were removed.
During the year ended April 30, 1998 the Company recorded approximately
$80,000 in bonuses based on revenue in accordance with employment agreements.
F-16
Note K - Commitments and Contingencies (continued)
[3] Litigation
In February 1994, Robert Freidenberg, as owner of the two medical
technology companies, MDI and Gendex, acquired by the Company, in the name of
these corporations, filed suit to have a Share Exchange Agreement rescinded on
the grounds of breach of contract. In order to preserve a claim for damages, the
Company filed a third-party claim against Dr. Freidenberg, for breach of the
Share Exchange Agreement. In November 1995, after a trial, the court dismissed
Dr. Friedenberg's lawsuit and allowed the Company's third-party claim to proceed
to trial.In September, 1996, Dr. Friedenberg died. A pretrail hearing was held
in December 1996 which set a trial date of April 28, 1997.
That trial was decided by a jury on May 5, 1997. The verdict determined
that Dr. Friedenberg breached various contracts, including the Share Exchange
Agreement, when he failed to deliver technology to the Company. The jury also
found in favor of the Company on two of the three fraud claims against Dr.
Friedenberg and awarded the Company approximately $321,000 in damages. Dr.
Friedenberg's estate, just prior to the jury trial, filed a supplemental claim
for the shares of the Company's stock which he would have received under the
Share Exchange Agreement which the trial judge took under advisement. The trial
judge, on July 17, 1998 ruled that the estate of Dr. Friedenberg is entitled to
5,907,154 common shares of the Company. Management of the Company in
consultation with counsel is of the opinion that the trial judge's award of the
shares to Dr. Friedenberg's estate will be reversed on appeal.
In June 1995, the Company filed a lawsuit against Mr. Morris, Dr.
Friedenberg's counsel, for the breach of attorney-client relationship and his
fiduciary duty and negligence in representing the Company in matters relating to
Dr. Friedenberg and in the preparation of the Share Exchange Agreement. The
Company's lawsuit demands damages in the amount of $1,000,000. Mr. Morris has
counterclaimed for common shares. No trial date has been set. The Company is
vigorously contesting the Morris claim.
Note L - Reclassification
Certain amounts at April 30, 1997 have been reclassified to conform to the
current year presentation.
Note M - Fourth Quarter Transactions and Adjustments (Unaudited):
During the fourth quarter of fiscal 1998, the Company made various
adjustments aggregating approximately $1,883,000 representing charges to the
results of operations previously reported. The effects of such adjustments on
each of the first three quarters of the year have not been determined.
F-17
| | | Year Ended December 31, 2008 | | | Year ended December 31, 2007 | | | Year ended December 31, 2006 | |
| United States | | $ | 11,134,000 | | | $ | 12,337,000 | | | $ | 12,452,000 | |
| North America (not domestic) | | | 1,136,000 | | | | 757,000 | | | | 727,000 | |
| Europe | | | 187,000 | | | | 543,000 | | | | 552,000 | |
| Asia/Pacific Rim | | | 66,000 | | | | 101,000 | | | | 48,000 | |
| South America | | | 125,000 | | | | 122,000 | | | | 59,000 | |
| Africa | | | 9,000 | | | | 12,000 | | | | 0 | |
| | | $ | 12,657,000 | | | $ | 13,872,000 | | | $ | 13,838,000 | |