Filed Pursuant to Rule 424(b)(3)
Registration No. 333-50230
Prospectus Supplement No. 20
Dated March 4, 2005 (to Prospectus November 30, 2000)
AMERICAN BIO MEDICA CORPORATION
This Prospectus Supplement is part of the Prospectus dated November 30,
2000 related to an offering of up to 2,361,733 shares of our common stock by the
persons identified as the "selling shareholder" in the Prospectus.
Recent Developments.
Attached hereto is:
- Our Quarterly Report on Form 10-QSB for the quarter ending June 30,
2004 filed with the Commission on August 10, 2004.
The date of this Prospectus Supplement is March 4, 2005.
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended June 30, 2004.
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the transition period from to
Commission File Number: 0-28666
AMERICAN BIO MEDICA CORPORATION
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(Exact name of small business issuer as specified in its charter)
NEW YORK 14-1702188
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 SMITH ROAD, KINDERHOOK, NEW YORK 12106
-------------------------------------------
(Address of principal executive offices)
800-227-1243
---------------------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
21,282,268 Common Shares as of August 10, 2004
Transitional Small Business Disclosure Format: Yes [_] No [X]
1
PART I
FINANCIAL INFORMATION
AMERICAN BIO MEDICA CORPORATION
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2004 2003
(UNAUDITED)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,308,000 $ 942,000
Accounts receivable, net of allowance of
$105,000 at June 30, 2004 and December
31, 2003 respectively 1,372,000 1,253,000
Other receivables 11,000 8,000
Inventory 3,015,000 3,049,000
Prepaid expenses and other current assets 191,000 78,000
------------ ------------
Total current assets 5,897,000 5,330,000
Property, plant and equipment, net 1,608,000 1,441,000
Other assets 5,000 7,000
------------ ------------
Total assets $ 7,510,000 $ 6,778,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 634,000 $ 737,000
Accrued liabilities 155,000 153,000
Wages payable 199,000 375,000
Line of credit 83,000
Current portion of mortgages and notes
payable 68,000 25,000
Current portion of unearned grant 8,000 8,000
------------ ------------
Total current liabilities 1,147,000 1,298,000
Long term portion of mortgages and notes
payable 666,000 651,000
Long term portion of unearned grant 67,000 67,000
------------ ------------
Total liabilities 1,880,000 2,016,000
------------ ------------
Stockholders' equity:
Preferred stock; par value $.01 per share;
5,000,000 shares authorized; none issued
and outstanding
Common stock; par value $.01 per share;
50,000,000 shares authorized; 21,282,268
and 20,664,151 shares issued and
outstanding at June 30, 2004 and December
31, 2003 respectively 213,000 207,000
Additional paid-in capital 18,763,000 17,959,000
Accumulated deficit (13,346,000) (13,404,000)
------------ ------------
Total stockholders' equity 5,630,000 4,762,000
------------ ------------
Total liabilities and stockholders' equity $ 7,510,000 $ 6,778,000
============ ============
See accompanying notes to financial statements
2
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------------
2004 2003
------------ ------------
Net sales $ 6,264,000 $ 5,828,000
Cost of goods sold 2,897,000 2,588,000
------------ ------------
Gross profit 3,367,000 3,240,000
------------ ------------
Operating expenses:
Research and development 273,000 339,000
Selling and marketing 1,353,000 1,314,000
General and administrative 1,408,000 1,321,000
Employee severance costs 240,000
------------ ------------
3,274,000 2,974,000
------------ ------------
Operating income 93,000 266,000
------------ ------------
Other income (expense):
Other income / (expense) (2,000) 198,000
Interest income 4,000 2,000
Interest expense (27,000) (49,000)
------------ ------------
(25,000) 151,000
------------ ------------
Income before provisions for income taxes 68,000 417,000
Provision for income taxes 10,000 0
------------ ------------
Net income $ 58,000 $ 417,000
============ ============
Basic and diluted income per common share $ 0.00 $ 0.02
============ ============
Weighted average shares outstanding - basic 21,089,981 20,609,548
Dilutive effect of stock options and warrants 1,002,222 461,227
------------ ------------
Weighted average shares outstanding - diluted 22,092,203 21,070,775
============ ============
See accompanying notes to financial statements
3
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
2004 2003
------------ ------------
Net sales $ 3,192,000 $ 3,172,000
Cost of goods sold 1,548,000 1,418,000
------------ ------------
Gross profit 1,644,000 1,754,000
------------ ------------
Operating expenses:
Research and development 144,000 133,000
Selling and marketing 725,000 694,000
General and administrative 720,000 660,000
------------ ------------
1,589,000 1,487,000
------------ ------------
Operating income 55,000 267,000
------------ ------------
Other income (expense):
Other income (2,000) 186,000
Interest income 2,000 2,000
Interest expense (14,000) (31,000)
------------ ------------
(14,000) 157,000
------------ ------------
Income before provisions for income taxes 41,000 424,000
Provision for income taxes (8,000) 0
------------ ------------
Net income $ 33,000 $ 424,000
============ ============
Basic and diluted income per common share $ 0.00 $ 0.02
============ ============
============ ============
Weighted average shares outstanding - basic 21,279,338 20,609,548
Dilutive effect of stock options and warrants 377,381 250,652
------------ ------------
Weighted average shares outstanding - diluted 21,656,719 20,860,200
============ ============
See accompanying notes to financial statements
4
AMERICAN BIO MEDICA CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE,
--------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,000 $ 417,000
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 115,000 90,000
Non cash compensation expense 228,000
Gain on sale of land (30,000)
Changes in:
Accounts receivable (120,000) (645,000)
Inventory 33,000 374,000
Prepaid expenses and other current assets (113,000) (42,000)
Accounts payable (103,000) (186,000)
Accrued liabilities 3,000 (11,000)
Wages payable (176,000)
----------- -----------
Net cash used in operating activities (75,000) (33,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (196,000) (123,000)
Sale of land 150,000
----------- -----------
Net cash provided by/(used in) investing activities (196,000) 27,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 528,000
Proceeds from exercise of options 53,000
Proceeds from grant 25,000
Debt payments, net of borrowings (27,000) (74,000)
Capital lease payments (7,000)
Proceeds from line of credit 132,000 40,000
Line of credit payments (49,000) (8,000)
----------- -----------
Net cash provided by/(used in) financing activities 637,000 (24,000)
----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 366,000 (30,000)
Cash and cash equivalents - beginning of period 942,000 231,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,308,000 $ 201,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 27,000 $ 49,000
Issuance of note payable for purchase of equipment 85,000
See accompanying notes to financial statements
5
Notes to financial statements (unaudited)
June 30, 2004
Note A - Basis of Reporting
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, such
statements include all adjustments (consisting only of normal recurring items),
which are considered necessary for a fair presentation of the financial position
of American Bio Medica Corporation (the "Company" or "ABMC") at June 30, 2004,
and the results of its operations, and cash flows for the six-month and
three-month periods ended June 30, 2004 and 2003. The results of operations for
the six-month and three-month periods ended June 30, 2004 are not necessarily
indicative of the operating results for the full year. These financial
statements should be read in conjunction with the Company's audited financial
statements and related disclosures for the year ended December 31, 2003 included
in the Company's Form 10-KSB.
During the year ended December 31, 2003, the Company earned net income of
$1,031,000 from net sales of $12,484,000, and had net cash provided by operating
activities of $684,000. During the six months ended June 30, 2004 and 2003, the
Company had net sales of $6,264,000 and $5,828,000 respectively and earned net
income of $58,000 and $417,000 respectively. Included in 2003 net income is
$185,000 from the release of an accrual related to a 1998 royalty agreement
terminated by mutual agreement in the second quarter of 2003. Included in the
same period in 2003 is a gain on the sale of a portion of the land at the
Company's Kinderhook, NY facility totaling $30,000. Net sales in the three
months ended June 30, 2004 were $3,192,000, which resulted in net income of
$33,000. The Company had net cash outflows from operating activities of $75,000
for the six months ended June 30, 2004 primarily as the result of increases in
accounts receivables and prepaid expenses and reductions in accounts and wages
payable. The Company continued to take steps to improve its financial prospects
including focusing on research and development and sales and marketing. The
Company continued development of new products including the test components for
an HIV test, completion and delivery of its Rapid Reader(TM) and the
introduction of a new OralStat(R) oral fluids test designed and manufactured by
the Company. Additionally, the Company added six new regional sales or sales
support professionals in the first half of 2004. Finally, several changes in
personnel including the separation of five employees were made in the first
quarter of 2004 along with other measures to enhance profit margins.
The Company's continued existence is dependent upon several factors,
including its ability to raise revenue levels and reduce costs to generate
positive cash flows, and to sell additional shares of the Company's common stock
to fund operations, if necessary.
NEW ACCOUNTING STANDARDS
None.
Note B - Net Income Per Common Share
Basic net income or loss per share is calculated by dividing the net
income or loss by the weighted average number of outstanding common shares
during the period. Diluted net income or loss per share includes the weighted
average dilutive effect of stock options and warrants.
6
Potential common shares outstanding as of June 30, 2004 and 2003:
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
WARRANTS 2,245,920 2,651,703
OPTIONS 4,258,500 5,940,000
For the three months and six months ended June 30, 2004 the number of
securities not included in the dilutive EPS, because the effect would have been
anti-dilutive, were 2,496,420 and 1,753,250 respectively. For the three months
and six months ended June 30, 2003 the number of securities not included in the
dilutive EPS, because the effect would have been anti-dilutive, were 5,433,920
and 3,298,420 respectively.
The following pro forma information gives effect to fair value of the
Company options on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%, volatility of 80% to
81% for 2004 and 85% for 2003, risk free interest rates ranging from 4.62% to
5.35% for 2004 and 4.35% to 4.97% for 2003, and an expected life of 10 years for
both 2004 and 2003. The pro-forma net income represents six months amortization
of expense associated with the option grants in the first quarter of 2004 and
three months amortization of expense associated with the option grants in the
second quarter of 2004.
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2004 2003
---------------------------------
Net Income/(loss):
As reported $ 58,000 $ 417,000
Pro forma $ (272,000) $ 235,000
Basic income/(loss) per share
As reported $ .00 $ .02
Pro forma $ (.01) $ .01
Diluted income/(loss) per share
As reported $ .00 $ .02
Pro forma $ (.01) $ .01
During the first six months of 2004 stockholders' equity changed as a
result of the exercise of warrants and options and charges for non-cash
compensation. Common stock changed by $6,000 and additional paid in capital
changed by $575,000 resulting from the exercise of warrants and stock options
during the first six months. Further, additional paid in capital increased by
$229,000 as a result of $30,000 in non-cash expense for employee severance costs
and $199,000 in non-cash expense related to warrants granted for financial
advisory services.
Note C - Litigation
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.
Note D - Sale of Land
On March 31, 2003 the Company sold approximately 85 acres of land at its
Kinderhook headquarters for $150,000 recognizing a gain of $30,000.
7
Note E - Reclassifications
Certain items have been reclassified to conform to the current
presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2004 AND 2003
The following discussion of the Company's financial condition and the
results of operations should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this document.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that in addition to the description of historical
facts contained herein, this report contains certain forward-looking statements
that involve risks and uncertainties as detailed herein and from time to time in
the Company's other 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; (b) risks associated with international
operations; (c) regulatory, competitive and contractual risks; (d) product
development risks; and (e) 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.
Critical accounting policies
There have been no significant changes to the Company's critical
accounting policies, which are included in the Company's 10KSB filing for the
year ended December 31, 2003, during the six months ended June 30, 2004.
The Company entered into several arrangements with third parties that
funded Research and Development activities in 2003. No new arrangements were
entered into during the first half of 2004. The 2003 arrangements included
milestones that had to be achieved to receive payment. The Company recorded
revenue based upon the lesser of costs incurred to date, or the milestone value
(for the milestone value to be used, the milestone must be achieved). In 2003
the Company recognized sales and cost of sales totaling $60,000 from two
separate arrangements for the performance of Research and Development
activities.
Results of operations for the six months ended June 30, 2004 as compared to the
six months ended June 30, 2003
Net sales were $6,264,000 for the six months ended June 30, 2004 as
compared to $5,828,000 for the six months ended June 30, 2003, representing an
increase of $436,000 or 7.5%. Direct sales, telemarketing sales and
international sales continued as the primary sources of sales contributing
approximately $5,314,000 or 84.8% of the net sales for the first six months of
2004 compared to $4,872,000 or 83.6% of the net sales for the same period in
2003. During the six months ended June 30, 2004, the Company continued its
extensive program to market and distribute its primary product lines, the Rapid
Drug Screen(R), its Rapid TEC(R) series and Rapid One(R), in addition to its
oral fluid based test, the OralStat. The Company also introduced and began
marketing its Rapid Reader. The Rapid Reader is a compact, portable device that,
when connected to any computer, captures a picture of the test results on an
ABMC drug screen using a high-resolution camera. The Rapid Reader's proprietary
software analyzes this image and interprets the results. The information is then
sent to a data management system, which enables the user to interpret, store,
transmit and print the drug test results. The Company continued its programs for
the development of diagnostic tests or test components using immunoassay lateral
flow technology to diversify its product line into the areas of mycotoxin
detection, HIV and respiratory diseases.
8
Cost of goods sold for the six months ended June 30, 2004 was $2,897,000
or 46.2% of net sales as compared to $2,588,000 or 44.4% of net sales for the
six months ended June 30, 2003. The increase in cost of goods sold is
commensurate with the increase in sales. Gross margin percentages decreased in
the first six months of 2004 primarily due to the complexity of assembly
procedures related to new products. Management expects margins to improve as
enhancements to the assembly procedures are implemented. Net sales and cost of
sales for the first six months of 2003 included $60,000 billed to entities for
which the Company performed R&D services, which did not recur in 2004.
Operating expenses increased 10.1% to $3,274,000 in first six months of
2004 as compared to $2,974,000 in the same period in 2003. This increase of
$300,000 is attributable to increases in sales and marketing expenses and
general and administrative expenses offset by reductions in research and
development.
Included in operating expenses in the first half of 2004 are charges of
$465,000 of which $240,000 is related to employee severance costs incurred in
response to the changing needs of the business in January 2004, and $225,000 of
professional fees, that are not expected to recur, related to the Company's
investigation into allegations identified in an anonymous letter received by its
independent accountants. As part of this response, an independent counsel
performed an internal investigation. The employee severance costs included cash
payments totaling $210,000 and non-cash charges of $30,000 related to the
retention of options. Professional fees are included in general and
administrative expenses and pertain to incremental legal and accounting fees.
Research and development
Research and development ("R&D") expenses for the six months ended June
30, 2004 were $273,000 or 4.4% of net sales compared to $339,000 or 5.8% of net
sales for the same period in 2003. The decrease in expense is primarily due to
the redeployment of personnel to manufacturing from R&D in 2004 in response to
increased sales. Management's strategy is to: focus on new product development
to meet the changing needs of the point of collection drug of abuse testing
market and to penetrate new segments of the market; develop test components for
an HIV test currently under development for an unrelated party; seek and respond
to Original Equipment Manufacturing ("OEM") development requests to leverage the
Company's current technology; and develop new uses of immunoassay lateral flow
technology including respiratory disease and mycotoxin detection, remains
unchanged.
Selling and marketing expense
Selling and marketing expense was $1,353,000 or 21.6% of net sales in the
first six months of 2004, an increase of $39,000, from $1,314,000 or 22.5% of
net sales in the same six months in 2003. This increase is primarily due to the
addition of six field sales professionals during 2004, offset by the departure
of two others. Increases in salaries and benefits, travel, entertainment, trade
shows and equipment resulting from the additional field sales force has been
offset by savings in commissions resulting from revisions to the commissions
programs.
General and administrative expense
General and administrative (G&A) expense was $87,000 higher in the first
six months of 2004 than the same period in 2003. Total G&A expense for the six
months ended June 30, 2004 was $1,408,000 or 22.5% of net sales compared to
$1,321,000 or 22.7% of net sales in the first six months of 2003. Savings in
personnel costs were offset by increases in patent and license expense, $225,000
in professional fees incurred in connection with the Company's response to an
anonymous letter received by the Company's independent accountants, additional
quality assurance costs resulting from additional personnel hired during 2003,
and non-cash service fees totaling $199,000, stemming from a contract entered
into in the fourth quarter of 2003 with Brean Murray & Co., Inc. This contract
9
provided for the performance of financial advisory services by Brean Murray &
Co., Inc in exchange for warrants to purchase 300,000 shares of common stock and
a monthly cash payment. A copy of this agreement was filed as an Exhibit to the
Company's 10-KSB for the year ending December 31, 2003. In June, at the request
of the Company, Brean Murray & Co., Inc. agreed to surrender 150,000 of the
aforementioned warrants and require no monthly cash payment in conjunction with
the agreement. The Company released Brean Murray & Co., Inc. from any further
financial advisory services obligations (a copy of this agreement is filed as an
Exhibit to this 10-QSB).
Results of operations for the three months ended June 30, 2004 as compared to
the three months ended June 30, 2003
Net sales were $3,192,000 for the three months ended June 30, 2004 as
compared to $3,172,000 for the three months ended June 30, 2003, representing an
increase of $20,000 or 0.6%. Direct sales, telemarketing sales and international
sales combined to contribute approximately $2,763,000 or 86.6% of the net sales
for the quarter compared to $2,693,000 or 84.9% in the second quarter of 2003.
During the three months ended June 30, 2004, the Company continued its extensive
program to market and distribute its primary product lines, the Rapid Drug
Screen and Rapid One, in addition to its oral fluid based test, the OralStat,
and its recently developed Rapid TEC series.
The Company continued its development of diagnostic tests or test
components using immunoassay lateral flow technology to diversify its product
line into the areas of mycotoxin detection, and respiratory disease. In
addition, components for an HIV test are being manufactured for an unaffiliated
third party, new drugs of abuse tests or test platforms are being developed to
respond to the changing needs in the marketplace and to penetrate new market
segments, and the Company is currently seeking and responding to inquiries for
OEM opportunities to leverage its technology. Management believes that sales
from its urine based drug test kits and the OralStat saliva based test will
continue to grow as a result of this focus on the core business and new sales
will increase from new product development.
Cost of goods sold for the three months ended June 30, 2004 was $1,548,000
or 48.5% of net sales as compared to $1,418,000 or 44.7% of net sales for the
three months ended June 30, 2003. The increase in cost of goods sold is
commensurate with the increase in sales. The decrease in gross margin is
associated with more complex procedures for assembling new products. Management
expects margins to improve as enhancements to the assembly procedures are
implemented.
Operating expenses increased $102,000, or 6.9%, to $1,589,000 in the
second quarter of 2004 as compared to $1,487,000 in the same period in 2003.
This increase is attributable to increased research and development expenditures
with the addition of a scientist and two technicians, increased sales expense
resulting from the addition of new field sales professionals, and net increases
in general and administrative expenses including $160,000 in professional fees
incurred in connection with the Company's response to an anonymous letter
received by its independent accountants.
Management believes that the amount of research and development, sales and
marketing and general and administrative costs may increase as the Company
continues its focus on long term growth and creates the necessary infrastructure
to: achieve its worldwide drug test marketing and sales goals, continue its
penetration of the direct sales market, and leverage new product initiatives.
However, management has implemented programs to control the rate of increase of
these costs to be more consistent with the expected sales growth rate of the
Company.
Research and development
Research and development ("R&D") expenses for the three months ended June
30, 2004 were $144,000 or 4.5% of net sales compared to $133,000 or 4.2% of net
sales for the three months ended June 30, 2003. The increase in expense is
primarily due to several new positions added to the R&D group during 2003 and
2004. Additional resources were added as part of management's initiatives to:
focus on new product development to meet the changing needs of the point of
10
collection drug of abuse testing market, develop test components for an HIV test
for an unaffiliated third party, and develop new uses of immunoassay lateral
flow technology. Management expects increases in R&D expenses as it explores new
markets and uses for its immunoassay technology.
Selling and marketing expense
Selling and marketing expense was $725,000 or 22.7% of net sales in the
second quarter of 2004, an increase of $31,000, from $694,000 or 21.9% of net
sales in the same three months in 2003. This increase is primarily due to
increases in salaries, benefits, travel and equipment costs associated with
additions to the field sales force during 2004. These increases have been offset
by savings in commissions resulting from changes to the commission plan
structure and softer than expected sales in the second quarter of 2004.
General and administrative expense
General and administrative expense increased by $60,000 in the second
quarter of 2004 compared to the same period in 2003. Total G&A expense in the
second quarter of 2004 was $720,000 or 22.6% of net sales compared to $660,000
or 20.8% of net sales in the three months ended June 30, 2003. Incremental legal
and accounting fees of $160,000 resulting from the Company's response to an
anonymous letter received by its independent accountants and non-cash
compensation of $129,000 relating to an agreement for financial advisory
services were offset by savings in salaries and wages, travel, entertainment and
telephone expense resulting from a reorganization in January 2004.
LIQUIDITY AND CAPITAL RESOURCES AS OF JUNE 30, 2004
The Company's cash requirements depend on numerous factors, including
product development activities, ability to penetrate the direct sales market,
market acceptance of its new products, and effective management of inventory
levels in response to sales forecasts. The Company expects to devote substantial
capital resources to continue its product development, expand manufacturing
capacity, and support its direct sales efforts. The Company will examine other
growth opportunities including strategic alliances and expects such activities
will be funded from existing cash and cash equivalents, issuance of additional
equity or debt securities or additional borrowings subject to market and other
conditions. The Company believes that its current cash balances, and cash
generated from future operations will be sufficient to fund operations for the
next twelve months. If cash generated from operations is insufficient to satisfy
the Company's working capital and capital expenditure requirements, the Company
may be required to sell additional equity or obtain additional credit
facilities. There is no assurance that such financing will be available or that
the Company will be able to complete financing on satisfactory terms, if at all.
Management believes that the amount of research and development, sales and
marketing and general and administrative costs may increase as the Company
continues its investment in long term growth and creates the necessary
infrastructure to: achieve its worldwide drug test marketing and sales goals,
continue its penetration of the direct sales market, support research and
development projects and leverage new product initiatives. However, management
has implemented programs to control the rate of increase of these costs to be
consistent with the expected sales growth rate of the Company.
The Company has working capital of $4,750,000 at June 30, 2004 as compared
to working capital of $4,032,000 at December 31, 2003. The Company has
historically satisfied its net working capital requirements, if needed, through
cash generated by proceeds from private placements of equity securities with
institutional investors. The Company has never paid any dividends on its common
shares and anticipates that all future earnings, if any, will be retained for
use in the Company's business and it does not anticipate paying any cash
dividends.
Net cash used in operating activities was $75,000 for the six months ended
June 30, 2004 compared to net cash used in operating activities of $33,000 for
the six months ended June 30, 2003. The net cash used in operating activities
11
during the first six months of 2004 resulted primarily from net income
associated with increased net sales and non-cash expenses, offset by increases
in accounts receivable and prepaid expenses and reductions in accounts and wages
payable. Prepaid expenses historically increase in the first half of the year as
a result of several large insurance premiums paid for annual coverage.
Reductions in accounts payable are as a result of increased cash flow.
Net cash used in investing activities was $196,000 for the six months
ended June 30, 2004 compared to net cash provided by investing activities of
$27,000 for the same period in 2003. The net cash used in investing activities
in 2004 was exclusively for investment in property, plant & equipment and was
comprised of Rapid Reader devices and software, computer replacement and upgrade
costs, a mold for a new product, and the purchase and installation of enhanced
sales tracking and forecasting software. In the first half of 2003 cash provided
by investing activities was comprised of proceeds from the sale of approximately
85 acres of land at the Company's headquarters in Kinderhook, NY totaling
$150,000, offset by $123,000 for the purchase of property, plant and equipment.
Net cash provided by financing activities was $637,000 for the six months
ended June 30, 2004, primarily consisting of proceeds from the exercise of
warrants totaling $528,000, proceeds from the exercise of options totaling
$53,000, and borrowings on a line of credit totaling $132,000 for the purchase
of inventory components. The line of credit is held by Hudson River Bank and
Trust Company ("HRBT") and has a maximum available line of $350,000, not to
exceed 70% of accounts receivable less than 60 days. The interest rate is .25%
above the HRBT prime rate and the Company is required to pay the principal down
to $0 for a 30 consecutive day period in each 12 months during which the line is
available. Net cash used in financing activities in the first half of 2003 were
comprised of borrowings on a line of credit totaling $40,000 and proceeds from a
grant of $25,000 offset by payments on long-term debt and capital lease
payments.
At June 30, 2004, the Company had cash and cash equivalents of $1,308,000.
The Company's primary short-term capital and working capital needs relate
to continued support of its research and development programs, opening new
distribution opportunities, focusing sales efforts on segments of the drugs of
abuse testing market that will yield high volume sales, increasing its
manufacturing and production capabilities, and establishing adequate inventory
levels to support expected sales.
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company's
President and CFO reviewed the Company's disclosure controls and procedures.
Based on this evaluation, the Company, including the President and CFO, have
concluded that the Company's disclosure controls and procedures are adequate to
ensure the clarity and material completeness of the Company's disclosure in its
periodic reports required to be filed with the SEC. Additionally, based upon
this most recent evaluation, we have concluded that there were no significant
changes in internal controls or other factors that could significantly affect
the internal controls of the company subsequent to the date of evaluation.
12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings:
See "Note C - Litigation" in the Notes to Financial Statements included in
this report for a description of pending legal proceedings in which the
Company is a party.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
The following matters were voted upon at the Company's Annual Meeting of
Shareholders (the "Meeting") held at the Marriott Hotel in Albany, New
York on June 18, 2003.
PROPOSAL 1 - ELECTION OF DIRECTORS
TOTAL SHARES VOTED: 19,761,654 OUTSTANDING SHARES: 21,282,268
PERCENT OF SHARES VOTED: 92.3
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Director For Pct. Withheld Pct.
-------- --- --- -------- ----
Edmund Jaskiewicz 19,470,069 98.5 291,585 1.5
Stan Cipkowski 19,348,517 97.9 413,137 2.1
Richard P. Koskey 19,534,644 98.9 227,010 1.1
Daniel W. Kollin 19,535,644 98.9 226,010 1.1
Anthony Costantino 19,536,114 98.9 225,510 1.1
All five nominees for election to the Board of Directors were elected.
PROPOSAL #2 - OTHER MATTERS
(NONE)
For 19,323,768 Pct 97.8
Against 220,350 Pct 1.1
Abstain 217,536 Pct 1.1
Item 5. Other Information
On June 15, 2004, the Company's Board of Directors approved the
payment of a monthly retainer in the amount of $8,000 effective July 1,
2004 to Edmund M. Jaskiewicz, the Company's President and a member of the
Board of Directors, in exchange for his services as patent and trademark
counsel to the Company and for his services as President. Mr. Jaskiewicz
had previously billed the Company monthly for such services. Mr.
Jaskiewicz's efforts on behalf of the Company have increased over the past
13
months and the Company expects such efforts to continue in the short-term.
In the fiscal year ended December 31, 2003, the Company paid Mr.
Jaskiewicz an aggregate of $63,000 in fees for his services as patent and
trademark counsel. As of June 30, 2004, this retainer agreement with the
company is an oral agreement with no specific duration or termination
date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of the Chairman of the Board and Chief
Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
10.19.1 Letter of Agreement dated June 21, 2004 by and between the
Company and Brean Murray & Co., Inc. related to amendments
made to the December 2, 2003 Financial Advisory Agreement
and the surrender by Brean Murray & Co., Inc of 150,000
warrants to purchase common stock.
(b) Reports on Form 8-K
On April 15, 2004, the Company filed a Form 8-K related to the late
filing of its 10-KSB for the fiscal year ending December 31, 2003 as a
result of an internal independent investigation initiated by the Company
in response to an anonymous letter received by its independent
accountants.
On June 14, 2004, the Company filed a Form 8-K related to the
resignation of Donal V. Carroll from the Company's Board of Directors.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
AMERICAN BIO MEDICA CORPORATION
(Registrant)
By: /s/ Keith E. Palmer
--------------------------------------
EVP of Finance, Chief Financial
Officer and Treasurer (Principal
Accounting Officer and duly
authorized Officer)
Dated: August 10, 2004
15