Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - AMERICAN BIO MEDICA CORPv424005_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN BIO MEDICA CORPv424005_ex31-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

 

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2015

 

¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from        to

 

Commission File Number: 0-28666

 

AMERICAN BIO MEDICA CORPORATION
 

 

(Exact name of registrant as specified in its charter)

 

New York 14-1702188
   
   
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

122 Smith Road, Kinderhook, New York   12106
     
     
(Address of principal executive offices)   (Zip Code)

 

518-758-8158
 

 

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the 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 preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) x Yes ¨ No

 

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-2 of the Exchange Act) ¨ Yes x No

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 

26,032,930 Common Shares as of November 13, 2015

 

 

 

 

American Bio Medica Corporation

 

Index to Quarterly Report on Form 10-Q

For the quarter ended September 30, 2015

 

PAGE
   
PART I – FINANCIAL INFORMATION 3
     
Item 1. Condensed Financial Statements 3
  Condensed Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 3
  Condensed Unaudited Statements of Operations for the nine months ended September 30, 2015 and September 30, 2014 4
  Condensed Unaudited Statements of Operations for the three months ended September 30, 2015 and September 30, 2014 5
  Condensed Unaudited Statements of Cash Flows for the nine months ended September 30, 2015 and September 30, 2014 6
  Notes to Condensed Financial Statements (unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Item 4. Controls and Procedures 20
     
PART II – OTHER INFORMATION 20
     
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Mine Safety Disclosures 20
Item 5. Other Information 20
Item 6. Exhibits 21
     
Signatures   22

  

 2 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements

 

American Bio Medica Corporation        
Condensed Balance Sheets        
         
   September 30,   December 31, 
   2015   2014 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $224,000   $352,000 
Accounts receivable, net of allowance for doubtful accounts of $46,000 at September 30, 2015, and $47,000 at December 31, 2014   802,000    814,000 
Inventory, net of allowance of $387,000 at September 30, 2015 and $324,000 at December 31, 2014   1,848,000    1,722,000 
Current portion of deferred financing   0    43,000 
Prepaid expenses and other current assets   80,000    85,000 
Total current assets   2,954,000    3,016,000 
           
Property, plant and equipment, net   923,000    983,000 
Patents   69,000    65,000 
Other assets   14,000    14,000 
Deferred finance costs   256,000    0 
Total assets  $4,216,000   $4,078,000 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $429,000   $410,000 
Accrued expenses and other current liabilities   211,000    192,000 
Wages payable   287,000    264,000 
Line of credit, net   931,000    979,000 
Current portion of long-term debt, net   75,000    858,000 
Total current liabilities   1,933,000    2,703,000 
           
Other liabilities   68,000    68,000 
Related party note   124,000    124,000 
Long-term debt   934,000    213,000 
Total liabilities   3,059,000    3,108,000 
           
COMMITMENTS AND CONTINGENCIES          
           
Stockholders’ equity:          
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, 0 issued and outstanding at September 30, 2015 and December 31, 2014          
Common stock; par value $.01 per share; 50,000,000 shares authorized; 26,032,930 issued and outstanding at September 30, 2015 and 23,648,315 issued and outstanding at December 31, 2014   260,000    236,000 
Additional paid-in capital   20,649,000    20,356,000 
Accumulated deficit   (19,752,000)   (19,622,000)
           
Total stockholders’ equity   1,157,000    970,000 
           
Total liabilities and stockholders’ equity  $4,216,000   $4,078,000 

 

The accompanying notes are an integral part of the condensed financial statements

 

 3 

 

 

American Bio Medica Corporation

Condensed Statements of Operations

(Unaudited)

 

   For The Nine Months Ended 
   September 30, 
   2015   2014 
         
Net sales  $4,860,000   $5,604,000 
           
Cost of goods sold   2,543,000    3,213,000 
           
Gross profit   2,317,000    2,391,000 
           
Operating expenses:          
Research and development   125,000    183,000 
Selling and marketing   899,000    839,000 
General and administrative   1,332,000    1,408,000 
    2,356,000    2,430,000 
           
Operating loss   (39,000)   (39,000)
           
Other income / (expense):          
Other income, net   72,000    16,000 
Interest income   (1,000)   0 
Interest expense   (162,000)   (187,000)
Loss on disposition of assets, net   0    (41,000)
    (91,000)   (212,000)
           
Loss before tax   (130,000)   (251,000)
           
Income tax benefit / (expense)   0    (1,000)
           
Net loss  $(130,000)  $(252,000)
           
Basic and diluted loss per common share  $(0.01)  $(0.01)
           
Weighted average number of shares outstanding – basic and diluted   25,557,021    23,268,792 

 

The accompanying notes are an integral part of the condensed financial statements

 

 4 

 

 

American Bio Medica Corporation

Condensed Statements of Operations

(Unaudited)

 

   For The Three Months Ended 
   September 30, 
   2015   2014 
         
Net sales  $1,590,000   $1,750,000 
           
Cost of goods sold   823,000    1,027,000 
           
Gross profit   767,000    723,000 
           
Operating expenses:          
Research and development   45,000    92,000 
Selling and marketing   291,000    280,000 
General and administrative   388,000    475,000 
    724,000    847,000 
           
Operating income / (loss)   43,000    (124,000)
           
Other income / (expense):          
Other income, net   0    15,000 
Interest income   0    (1,000)
Interest expense   (45,000)   (60,000)
Loss on disposition of assets, net   0    (41,000)
    (45,000)   (87,000)
           
Loss before tax   (2,000)   (211,000)
           
Income tax benefit   0    0 
           
Net loss  $(2,000)  $(211,000)
           
Basic and diluted loss per common share  $(0.00)  $(0.01)
           
Weighted average number of shares outstanding – basic and diluted   26,032,930    23,466,785 

 

The accompanying notes are an integral part of the condensed financial statements

 

 5 

 

 

American Bio Medica Corporation

Condensed Statements of Cash Flows

(Unaudited)

 

   For The Nine Months Ended 
   September 30, 
   2015   2014 
Cash flows from operating activities:          
Net loss  $(130,000)  $(252,000)
  Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation   70,000    85,000 
Loss on disposal of fixed assets   0    41,000 
Amortization of debt issuance costs   187,000    216,000 
Provision for bad debts   (1,000)   (12,000)
Provision for slow moving and obsolete inventory   63,000    30,000 
Share-based payment expense   27,000    30,000 
Changes in:          
Accounts receivable   13,000    105,000 
Inventory   (189,000)   189,000 
Prepaid expenses and other current assets   5,000    3,000 
Accounts payable   19,000    (87,000)
Accrued expenses and other current liabilities   18,000    (191,000)
Wages payable   23,000    47,000 
           
Net cash provided by operating activities   105,000    204,000 
           
Cash flows from investing activities:          
Proceeds from sale of equipment   0    10,000 
Purchase of property, plant and equipment   (10,000)   (21,000)
Patent application costs   (4,000)   (11,000)
Net cash used in investing activities   (14,000)   (22,000)
           
Cash flows from financing activities:          
Proceeds from / (Payments on) debt financing   130,000    (183,000)
Deferred finance costs   (205,000)   (7,000)
Proceeds from lines of credit   5,090,000    5,082,000 
Payments on lines of credit   (5,234,000)   (5,287,000)
Net cash used in financing activities   (219,000)   (395,000)
           
Net decrease in cash and cash equivalents   (128,000)   (213,000)
Cash and cash equivalents - beginning of period   352,000    646,000 
           
Cash and cash equivalents - end of period  $224,000   $433,000 
           
Supplemental disclosures of cash flow information          
Cash paid during period for interest  $176,000   $186,000 

 

The accompanying notes are an integral part of the condensed financial statements

 

 6 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Notes to condensed financial statements (unaudited)

 

September 30, 2015

 

Note A - Basis of Reporting

 

The accompanying unaudited interim condensed financial statements of American Bio Medica Corporation (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited interim condensed financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statement presentation. These unaudited interim condensed financial statements should be read in conjunction with the Company’s audited condensed financial statements and related notes contained in its Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, the interim condensed financial statements include all normal, recurring adjustments which are considered necessary for a fair presentation of the financial position of the Company at September 30, 2015, the results of our operations for the three and nine month periods ended September 30, 2015 and September 30, 2014, and cash flows for the nine month periods ended September 30, 2015 and September 30, 2014.

 

Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of results that may be expected for the year ending December 31, 2015. Amounts at December 31, 2014 are derived from the Company’s audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

During the nine months ended September 30, 2015, there were no significant changes to the Company’s critical accounting policies, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

The preparation of these interim condensed financial statements requires the Company 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, the Company evaluates estimates, including those related to product returns, bad debts, inventories, income taxes, warranty obligations, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

These unaudited interim financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. The Company’s independent registered public accounting firm’s report on the financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2014, contained an explanatory paragraph regarding the Company’s ability to continue as a going concern. As of the date of this report, the Company’s current cash balances, together with cash generated from future operations and amounts available under current credit facilities may not be sufficient to fund operations for the next 12 months if sales levels do not improve. If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, the Company will 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.

 

Recent Accounting Standards

 

Certain reclassifications have been made to the prior period to confirm to the presentation of the current period.

 

 7 

 

 

AMERICAN BIO MEDICA CORPORATION

 

In August 2015, FASB issued Accounting Standards Update (“ASU”) No 2015-14, “Revenue from Contracts with Customers”. This update defers the effective dates of ASU No. 2014-09 (originally issued in June 2014) for public business entities by one year, or until annual reporting periods beginning after December 15, 2017, including interim reporting periods within the reporting period. ASU No. 2014-09 gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The Company is continuing to review the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows or financial condition.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statements.

 

Note B – Inventory

 

Inventory is comprised of the following:

 

   September 30, 2015   December 31, 2014 
         
Raw Materials  $1,122,000   $1,136,000 
Work In Process   449,000    390,000 
Finished Goods   664,000    520,000 
Allowance for slow moving and obsolete inventory   (387,000)   (324,000)
   $1,848,000   $1,722,000 

 

Note C – Net Loss Per Common Share

 

Basic net loss per common share is calculated by dividing the net loss by the weighted average number of outstanding common shares during the period. Diluted net loss per common share includes the weighted average dilutive effect of stock options and warrants. Potential common shares outstanding as of September 30, 2015 and 2014:

 

   September 30, 2015   September 30, 2014 
Warrants   2,385,000    3,303,000 
Options   1,435,000    2,558,000 

 

The number of securities not included in the diluted net loss per common share for the three and nine months ended September 30, 2015 and the three and nine months ended September 30, 2014 (because the effect would have been anti-dilutive) was 3,820,000 and 5,861,000, respectively.

 

Note D – Litigation

 

From time to time, the Company is named in legal proceedings in connection with matters that arise during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if the Company is unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. The Company is not aware of any significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.

 

 8 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Note E – Line of Credit and Debt

 

The Company’s Line of Credit and Debt consisted of the following as of September 30, 2015 and December 31, 2014:

 

   September 30, 2015   December 31, 2014 
Loan and Security Agreement with Cherokee Financial, LLC(1): 5 year note at an annual interest rate of 8% plus a 1% annual oversight fee, interest only and oversight fee paid quarterly with first payment being due on May 15, 2015, annual principal reduction payment of $75,000 due each year on the anniversary of the closing date with a final balloon payment being due on March 26, 2020. Loan is collateralized by a first security interest in building, land and property.   $1,200,000   $0 
Crestmark Line of Credit(2): 3 year line of credit with interest payable at a variable rate based on WSJ Prime plus 2% with a floor or 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early term fee of 3% if terminated in year 1 and 2% if terminated in year 2 or after (and prior to natural expiration). Loan is collateralized by first security interest in receivable and inventory.    931,000    0 

First Niagara(3):

Mortgage payable in equal monthly installments of $13,199 including interest at 8.25% until May 1, 2017 (“Maturity”), collateralized by the building, land and personal property(1)

   0    348,000 
           

Debenture financing(4):

$523,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2013 through January 31, 2015, payable quarterly; maturity date of February 1, 2015(2).

   0    523,000 

Bridge Loan with Cantone Asset Management, LLC(4):

Interest rate of 15% payable upon loan maturity; maturity date of February 1, 2015(3).

   0    200,000 

Imperium Line of Credit(5): Interest payable in arrears for the preceding calendar month on the first day of each calendar month at a rate of 8% per annum plus “PIK” interest at a 2% per annum.

Unused line fee equal to 2% of the maximum amount available under the line, less the aggregate amounts outstanding to Imperium, payable on the first day of each calendar month.

Collateral Monitoring Fee of $2,500 due on the first day of each month.

Success fee of $175,000 if Imperium terminates due to an event of default, or if we terminate and pre-pay all amounts due to Imperium prior to the stated expiration date of January 16, 2016.

   0    1,076,000 
           
    2,131,000    2,147,000 
Less debt discount (Cherokee Financial, LLC Loan)   (191,000)   (97,000)
Total debt  $1,940,000   $2,050,000 
           
Current portion  $1,006,000   $1,837,000 
Long-term portion  $934,000   $213,000 

 

(1)On March 26, 2015, the Company entered into a Loan and Security Agreement with Cherokee Financial, LLC (the “Cherokee LSA”). The purpose of the Cherokee LSA was to refinance the Series A Debentures and Cantone Asset Management LLC Bridge Loan (both of which matured on February 1, 2015) and the Mortgage Consolidation Loan with First Niagara Bank at a better interest rate.
   
(2)On June 29, 2015, the Company entered into a Loan and Security Agreement with Crestmark Bank. The purpose of the Crestmark LSA was to refinance the Company’s line of credit with Imperium at a better interest rate.

 

 9 

 

 

AMERICAN BIO MEDICA CORPORATION

 

(3)The mortgage through First Niagara Bank was satisfied in full on March 27, 2015 via a refinancing with Cherokee Financial, LLC.
   
(4)The Series A Debentures and Bridge Loan with Cantone Asset Management, LLC were both satisfied in full on March 27, 2015 via a refinancing with Cherokee Financial, LLC.
   
(5)On June 29, 2015, the Imperium Line of Credit was satisfied in Full via a refinancing with Crestmark Bank.

 

LOAN AND SECURITY AGREEMENT WITH CHEROKEE FINANCIAL, LLC.

 

On March 26, 2015, the Company entered into a Loan and Security Agreement with Cherokee Financial, LLC (the “Cherokee LSA”). The purpose of the Cherokee LSA was to refinance the Company’s Series A Debentures and Cantone Asset Management Bridge Loan (both of which matured on February 1, 2015), as well as the Company’s Mortgage Consolidation Loan with First Niagara Bank at a better interest rate. The loan is collateralized by a first security interest in the same assets as the First Niagara Bank loan (i.e. real estate and machinery and equipment). Under the Cherokee LSA, the Company was provided the sum of $1,200,000 in the form of a 5-year Note at an annual interest rate of 8%. The Company will make interest only payments quarterly on the Cherokee Note, with the first interest payment being due (and paid) on May 15, 2015. The Company will also make an annual principal reduction payment of $75,000 on each anniversary of the date of the closing with the first principal reduction payment being due on March 26, 2016. A final balloon payment is due on March 26, 2020. In addition to the 8% interest, the Company will pay Cherokee Financial, LLC a 1% annual fee (in cash and paid contemporaneously with payment of quarterly interest) for oversight and administration of the loan. The Company can call the Cherokee Note at anytime with no penalty; except that a 1% administration fee would be required to be paid to Cherokee Financial, LLC to close out all participations.

 

The Company issued 1.8 million restricted shares of the Company’s common stock to Cherokee Financial LLC. The Company will also issue an additional 0.5 restricted shares of the Company’s common stock, or 600,000 restricted shares, to Cherokee Financial LLC on March 26, 2016, however, if the Company has repaid the Cherokee Note in full prior to this date, the Company is not obligated to issue these additional shares.

 

As placement agent for the transaction, CRI received a 5% cash fee on the $1.2 million, or $60,000, and 200,000 restricted shares of the Company’s common stock. The Company will also issue an additional 196,000 restricted shares of the Company’s common stock to CRI on March 26, 2016 as an additional placement agent fee and expense allowance, however, if the Company has repaid the Cherokee Note in full prior to this date, the Company is not obligated to issue these additional shares.

 

The Company received net proceeds of $80,000 after $1,015,000 of debt payments, $60,000 in placement agent fees, $19,000 in legal fees, $19,000 in expenses, $3,000 in state filing fees and $4,000 in interest expense (for 8% interest on $511,000 in new participations received from February 24, 2015 through March 25, 2015). With the exception of the interest expense, the Company will be amortizing these expenses over the term of the Cherokee LSA, or 5 years as deferred finance and debt issuance costs. From these net proceeds, in April 2015, the Company also paid $15,000 in interest expense related to 15% interest on $689,000 in Series A Debentures and CAM Bridge Loan for the period of February 1, 2015 through March 25, 2015.

 

The nine months ended September 30, 2015 includes $39,000 in expense related to the Cherokee LSA, and the nine months ended September 30, 2014 includes $0 in expense. The three months ended September 30, 2015 includes $17,000 in expense related to the Cherokee LSA, and the three months ended September 30, 2014 includes $0 in expense.

 

The Company recognized $48,000 in interest expense in the nine months ended September 30, 2015, and $0 in interest expense in the nine months ended September 30, 2014. The Company recognized $24,000 in interest expense in the three months ended September 30, 2015, and $0 in interest expense in the three months ended September 30, 2014. At September 30, 2015, the Company had $13,000 in accrued interest expense related to the Cherokee LSA.

 

As of September 30, 2015, the balance on the Cherokee LSA was $1,200,000.

 

 10 

 

AMERICAN BIO MEDICA CORPORATION

 

LINE OF CREDIT WITH CRESTMARK BANK (“CRESTMARK”)

 

On June 29, 2015 (the “Closing Date”), the Company entered into a three-year Loan and Security Agreement (“LSA”) with Crestmark Bank (“Crestmark”), a new Senior Lender, to refinance the Company’s Line of Credit with Imperium Commercial Finance, LLC (“Imperium”). The Crestmark Line of Credit is used for working capital and general corporate purposes.

 

Under the LSA, Crestmark is providing the Company with a Line of Credit of up to $1,500,000 (“Maximum Amount”) with a minimum loan balance requirement of $500,000. The Line of Credit is secured by a first security interest in the Company’s inventory, and receivables and security interest in all other assets of the Company (in accordance with permitted prior encumbrances).

 

The Maximum Amount is subject to an Advance Formula comprised of: 1) 90% of Eligible Accounts Receivables (excluding, receivables remaining unpaid for more than 90 days from the date of invoice and sales made to entities outside of the United States), and 2) up to 40% of eligible inventory plus up to 10% of Eligible Generic Packaging Components not to exceed the lesser of $500,000 (“Inventory Sub-Cap Limit”), or 100% of the Eligible Accounts Receivable. The Inventory Sub-Cap Limit is being reduced by $10,000 per month starting August 1, 2015 until the Inventory Sub-Cap Limit is permanently reduced to $350,000.

 

So long as any obligations are due to Crestmark, the Company must comply with a minimum Tangible Net Worth (“TNW”) Covenant. Under the LSA, as of June 30, 2015 and at all times thereafter, the Company must maintain a TNW of at least $1,650,000. Additionally, if a quarterly net income is reported, the TNW covenant will increase by 50% of the reported net income. If a quarterly net loss is reported, the TNW covenant will remains the same as the prior quarter’s covenant amount. TNW is defined as: Total Assets less Total Liabilities less the sum of (i) the aggregate amount of non-trade receivables, (ii) prepaid expenses, (iii) deposits, (iv) net lease hold improvements, (v) goodwill and (vi) any other intangible asset, plus Subordinated Debt. For purposes of the TNW covenant calculation, the Company’s Mortgage with Cherokee Financial LLC is considered to be subordinated debt given Crestmark’s first security interest in inventory and receivables is not affected by Cherokee Financial LLC’s security interest in other Company assets.

 

If the Company terminates the LSA prior to its 3 year term, an early exit fee is due as follows: 3% of the Maximum Amount (plus any additional amount owed to Crestmark at time of termination) if terminated in year 1, and 2% if terminated in year 2 or anytime thereafter.

 

In the event of a default of the LSA, which includes but is not limited to, failure of the Company to make any payment when due and non-compliance with the TNW covenant, permits Crestmark to charge an Extra Rate. The Extra Rate is the Company’s then current interest rate plus 12.75% per annum.

 

Under the LSA, interest on the Crestmark Line of Credit is at a variable rate based on the Wall Street Journal Prime Rate plus 2% with a floor of 5.25%. As of the date of this report, the interest rate on the Crestmark Line of Credit is 5.25%. In addition to the interest rate, on the Closing Date and on each one-year anniversary date thereafter, the Company will pay Crestmark a Loan Fee of 0.50%, or $7,500, and a Monthly Maintenance Fee of 0.30% of the actual average monthly loan balance from the prior month will be paid to Crestmark. When these additional fees are considered, the rate on the Crestmark is 9.35% annually (the Imperium Line of Credit rate was 12% when all fees were considered).

 

In addition to the Loan Fee paid to Crestmark on the Closing Date, the Company had to pay a Success Fee (i.e. early termination fee) to Imperium in the amount of $50,000 on the Closing Date, and a Broker’s Fee of 5%, or $75,000, to Landmark Pegasus Inc. Prior to the Closing, the Company paid $12,000 in due diligence fees to Crestmark. The Company also incurred $3,000 of its own legal costs related to the Crestmark Line of Credit. These expenses are all being amortized over the term of the Crestmark Line of Credit, or three years. The Company recognized $6,000 of these costs in the three months ended September 30, 2015, and $8,000 of these costs in the nine months ended September 30, 2015. The Company recognized $0 of costs in the three and nine months ended September 30, 2014.

 

 11 

 

 

AMERICAN BIO MEDICA CORPORATION

 

The Company recognized $21,000 in interest expense related to the Crestmark Line of Credit in the nine months ended September 30, 2015, and $0 in interest expense in the nine months ended September 30, 2014. The Company recognized $21,000 in interest expense related to the Crestmark Line of Credit in the three months ended September 30, 2015, and $0 in interest expense in the three months ended September 30, 2014. Given the nature of the administration of the Crestmark Line of Credit, at September 30, 2015, the Company had $0 in accrued interest expense related to the Crestmark Line of Credit.

 

As of September 30, 2015, the balance on the Crestmark Line of Credit was $931,000.

 

FIRST NIAGARA: MORTGAGE CONSOLIDATION LOAN

 

On April 28, 2014, the Company entered into a Third Amendment to the Loan Agreement (the “Third Mortgage Consolidation Loan Amendment”) with First Niagara Bank. The Mortgage Consolidation Loan continued to be secured by the Company’s facility in Kinderhook, New York as well as various pieces of machinery and equipment. Under the Third Mortgage Consolidation Loan Amendment, the Mortgage Consolidation Loan was recast into a 3-year fully amortizing note through May 1, 2017. The interest rate of the amended facility was decreased from 9.25% to 8.25%, and the monthly payment was reduced from $14,115 to $13,199. The Company was required to pay First Niagara a renewal fee of 1% of the principal balance as of April 1, 2014, or $4,200. No principal reduction payment was required. All other terms of the Mortgage Consolidation Loan remained unchanged, including compliance with a covenant. The Mortgage Consolidation Loan was satisfied in full on March 27, 2015 via a refinancing with Cherokee Financial, LLC.

 

Interest expense recognized was $5,000 in the nine months ended June 30, 2015, and $24,000 in the nine months ended September 30, 2014. Interest expense recognized was $0 in the three months ended September 30, 2015, and $8,000 in the three months ended September 30, 2014. The balance on the Mortgage Consolidation Loan was $0 at September 30, 2015 and $348,000 at December 31, 2014, respectively.

 

DEBENTURE FINANCING/BRIDGE LOAN

 

In August 2008, the Company completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The Series A Debentures’ original interest rate was 8% and the original maturity date was August 1, 2012. In 2012, $645,000 in Series A Debentures were extended to August 2013 at an increased interest rate of 15%. In 2013, $634,500 in Series A Debentures were extended to August 2014 at the same interest rate of 15%. Throughout the extensions indicated previously, certain holders did not wish to extend their investment. Given this, the Company entered into bridge loans with Cantone Asset Management, LLC (CAM), one for $150,000 in 2012 and another for $200,000 in 2013. Both bridge loans were at an interest rate of 15% (however, the interest on the 2013 bridge loan was paid in advance in the form of 300,000 restricted common shares of ABMC stock). The Company incurred $87,000 in costs related to the 2013 debenture extension, as well as $76,000 in expense related to warrants issued to debenture holder who extended for another 12 months. The Company amortized $0 in costs and warrant expense in the nine months ended September 30, 2015, and $65,000 in costs and $44,000 in warrant expense in the nine months ended September 30, 2014. The Company amortized $0 in costs and warrant expense in the three months ended September 30, 2015, and $21,000 in costs and $3,000 in warrant expense in the three months ended September 30, 2014. As of September 30, 2015, there was $0 in unrecognized costs and warrant expense with 0 months remaining.

 

On February 7, 2014, the Company paid $91,000 to certain Debenture Holders; bringing the balance due to Debenture Holders to $543,000. The Series A Debentures and the 2013 bridge loan matured on August 1, 2014 and the Company was unable to pay back the Series A Debentures principal of $543,000 and/or the $200,000 related to the 2013 Bridge Loan (together the “Debenture Debt”). The Company was however able to continue to make interest payments on the Debenture Debt. All but one of the 27 Series A Debenture holders agreed to forbear from exercising remedies of default related to the non-payment of principal until February 1, 2015. The Company repaid the principal of $20,000 to this one Series A Debenture holder bringing the balance on the Debentures to $523,000. The maturity of the 2013 bridge loan was also extended to February 1, 2015.

 

 12 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Throughout the course of the debenture financings, the Company utilized Cantone Research, Inc (“CRI”) as the placement agent and also used CRI’s assistance in obtaining forbearance agreements from debenture holders. CRI received placement agent fees, expense allowance fees and other fees for these services and these fees were recognized throughout 2008 and 2013. The last fee (in 2014; for assisting the Company in obtaining forbearance agreements from the holders) was 2% of the forbearing amount and was paid with $7,000 in cash and 1% in 58,575 restricted shares of the Company’s common stock. A stock price of $0.12 per share was used to determine the number of restricted shares to be issued to CRI. The Company also reimbursed CRI’s legal fees of $1,000. The Company amortized these costs (totaling $15,000) over the course of the forbearance period, or over 6 months. The Company recognized $0 in expense in the nine months ended September 30, 2015, and $85,000 in expense in the nine months ended September 30, 2014. The Company recognized $0 in expense in the three months ended September 30, 2015, and $28,000 in expense in the 3 months ended September 30, 2014. As of September 30, 2015, there is $0 in unrecognized expense with 0 month remaining.

 

The Company recognized $22,000 in interest expense in the nine months ended September 30, 2015, and $85,000 in interest expense in the nine months ended September 30, 2014. The Company recognized $0 in interest expense in the three months ended September 30, 2015, and $28,000 in interest expense in the three months ended September 30, 2015. The Company had $0 in accrued interest expense at September 30, 2015. As of September 30, 2015, the balance on the Debenture Debt is $0.

 

LINE OF CREDIT WITH IMPERIUM COMMERCIAL FINANCE, LLC (“IMPERIUM”)

 

On January 16, 2013 (the “Imperium Closing Date”), the Company entered into a 3-year Loan and Security Agreement (“LSA”) with Imperium, a Senior Lender.

 

Under the LSA, the Company was provided with a revolving loan facility (the “Imperium Line of Credit”), which was secured by a first security interest in all receivables, inventory, and intellectual property rights along with a second security interest in machinery and equipment (together the “Collateral”). On March 6, 2014, Imperium amended the Borrowing Base of the Imperium Line of Credit. More specifically, the amount available under the Imperium Line of Credit was capped to the lower of (i) $1,000,000, or (ii) 100% of the eligible outstanding accounts receivable. The Imperium facility also originally included a supplemental advance that was a discretionary facility secured by the same Collateral as the Imperium Line of Credit.

 

Under the LSA, so long as any obligations were due to Imperium, the Company was required to maintain certain minimum EBITDA (Earnings Before Interest, Taxes Depreciation and Amortization) requirements. The Company did not comply with this covenant starting in the First Quarter of 2013. The Company received a waiver from Imperium for the three months ended March 31, 2013 (for which the Company paid a fee of $10,000). No further formal waivers were issued, but no notice of default was received either.

 

The Company incurred $435,000 in costs related to the Imperium Line of Credit, and these costs were being amortized over the term of the facility (3 years). On June 29, 2015, all indebtedness due to Imperium was paid in full and Imperium’s security in the Company’s assets was terminated. The Company was required to pay fee of $50,000 to Imperium in the form of an early termination fee.

 

The Company recognized $137,000 in costs in the nine months ended September 30, 2015 (of which $69,000 was accelerated costs due to the early termination of the line of credit), and $103,000 in costs in the nine months ended September 30, 2014. The three months ended September 30, 2015 included $0 in costs and the three months ended September 30, 2014 included $34,000 in costs.

 

The Company incurred $39,000 in interest expense in the nine months ended September 30, 2015, and $76,000 in interest expense in the nine months ended September 20, 2014. The Company incurred $0 in interest expense in the 3 months ended September 30, 2015, and $25,000 in interest expense in the three months ended September 30, 2014. As of September 30, 2015, the Company had $0 in accrued interest related to the Imperium Line of Credit, and the balance of the Imperium Line of Credit was $0.

 

Note F - Stock Options / Warrant Grants

 

Stock Options

 

The Company currently has three non-statutory stock option plans, the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”), the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) and the 2013 Equity Compensation Plan (the “2013 Plan”).

 

 13 

 

 

AMERICAN BIO MEDICA CORPORATION

 

During the nine months ended September 30, 2015, the Company issued options (all under the 2001 Plan) to purchase 90,000 shares of common stock to its board members and an option to purchase 250,000 common shares to stock to the Company’s CEO Melissa Waterhouse as compensation for her execution of a Validity Guarantee (“VG”) required under the Crestmark Line of Credit. All options were issued with an exercise price based on the closing price of the Company’s common shares on the date of grant. The Board member options vest 100% on the 1-year anniversary of the date of the grant and the Waterhouse VG stock option vests over the terms of the Crestmark Line of Credit, or over 3 years. During the nine months ended September 30, 2014, the Company issued options to purchase 80,000 shares of common stock to employees and directors under the 2001 Plan.

 

During the three months ended September 30, 2015, the Company issued 0 stock options. During the three months ended September 30, 2014, the Company issued 0 stock options.

 

Stock option activity for the nine months ended September 30, 2015, and the nine months ended September 30, 2014 is summarized as follows:

 

Nine months ended September 30, 2015  Nine months ended September 30, 2014 
   Shares   Weighted
Average
Exercise
Price
   Aggregate
 Intrinsic 
Value as of 
September 
30, 2015
   Shares   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value as of
September
30,
2014
 
Options outstanding at beginning of period   1,295,000   $0.27         3,316,000   $0.69      
Granted   340,000   $0.12         80,000   $0.12      
Exercised   0    NA         0    NA      
Cancelled/expired   (200,000)  $0.90         (838,000)  $1.07      
Options outstanding at end of period   1,435,000    0.14   $16,300    2,558,000   $0.22   $6,150 
Options exercisable at end of period   1,027,000   $0.15         2,209,000   $0.23      

 

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued during the nine months ended September 30, 2014 and 2013:

 

   Nine months ended September 30, 
   2015   2014 
Volatility   63% - 64%    197%
Expected term (years)   10    7.5 yrs 
Risk-free interest rate   1.92% - 2.33%    0.87%
Dividend yield   0%   0%

 

As of September 30, 2015, there was approximately $40,000 of total unrecognized compensation cost related to vested and non-vested stock options, which vest over time. That cost is expected to be recognized over a period ranging from 5 to 32 months.

 

Warrants

 

Warrant activity for the nine months ended September 30, 2015 and the nine months ended September 30, 2014 is summarized as follows:

 

 14 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Nine months ended September 30, 2015  Nine months ended September 30, 2014 
   Shares   Weighted
Average
Exercise
Price
   Aggregate 
Intrinsic 
Value as of 
September 
30, 2015
   Shares   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value as of
September
30, 2014
 
Warrants outstanding at beginning of period   3,303,000   $0.17         3,303,000   $0.17      
Granted   0    NA         0    NA      
Exercised   0    NA         0    NA      
Cancelled/expired   (918,000)  $0.15         0   $0.14      
Warrants outstanding at end of period   2,385,000   $0.17   $0    3,303,000   $0.17   $0 
                               
Warrants exercisable at end of period   2,385,000   $0.17         3,303,000   $0.17      

 

The Company recognized $100,000 and $50,000 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding in the nine months ended September 30, 2015 and September 30, 2014, respectively. The Company recognized $0 and $25,000 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding in the three months ended September 30, 2015 and September 30, 2014, respectively.

 

The increase in costs from an annual comparison perspective is related to the accelerated amortization of the expense due to the early termination of the Imperium Line of Credit. As of September 30, 2015, there is $0 in total unrecognized expense associated with the issuance of the above warrants outstanding.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

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 Interim Condensed Financial Statements contained herein and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Certain statements contained in this Quarterly Report on Form 10-Q, 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 (“1995 Act”), and in releases issued by the United State Securities and Exchange Commission (the “Commission”). 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, in our “Risk Factors” section of our Form 10-K for the year ended December 31, 2014, in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the Commission, and any amendments thereto. Any forward-looking statement speaks only as of the date on which such statement is made, and we are not undertaking any obligation to publicly update any forward-looking statements. Readers should not place undue reliance on these forward-looking statements.

 

Overview/Plan of Operations

 

Sales in the nine and three months ended September 30, 2015 decreased when compared to sales in the nine and three months ended September 30, 2014. During the nine months ended September 30, 2015, we recorded an operating loss of $39,000 and a net loss of $130,000; this compares to an operating profit of $39,000 and a net loss of $212,000 in the nine months ended September 30, 2014. During the three months ended September 30, 2015, we recorded an operating profit of $43,000 and a net loss of $2,000; this compares to an operating loss of $124,000 and a net loss of $211,000 in the three months ended September 30, 2014. We had cash provided by operating activities of $105,000 and $204,000 for the nine months ended September 30, 2015 and September 30, 2014, respectively.

 

 15 

 

 

AMERICAN BIO MEDICA CORPORATION

 

In the fourth quarter of 2014, we partially consolidated some of our manufacturing operations. More specifically, we closed down 2 of the 3 units we were leasing in Logan Township, New Jersey and we moved certain manufacturing operations up to our (owned) facility in Kinderhook, New York. The manufacturing operations moved are consistent with operations already occurring in the New York facility. The 1 remaining unit in New Jersey continues to house bulk strip manufacturing and research and development. The cost of the partial consolidation was approximately $92,000 and most of this expense was incurred in the fourth quarter of 2014. We began to see savings (in site costs, shipping, etc) on January 1, 2015. We expect to see a 100% return on this investment by the end of the year ending December 31, 2015. The nine months ended September 30, 2015 includes increased manufacturing efficiency resulting in better profit margins, as a result of this partial consolidation.

 

We continuously examine all expenses in efforts to achieve profitability (if sales levels improve) or to minimize losses going forward (if sales continue to decline). The salary and commission deferral program, (started in August 2013) continued throughout the nine months ended September 30, 2015. The deferral program consists of a 20% salary deferral for our executive officer (Melissa Waterhouse), and our non-executive VP Operations, as well as a 20% commission deferral for a sales consultant, and a 25% commission deferral of employee commissions (the deferral of employee commissions was reduced from 50% to 25% in July 2015. As of September 30, 2015, we have deferred salary compensation owed of $50,000 and deferred commision owed of $96,000. Over the course of the program, we have repaid portions of the deferred salaries and commissions (with payments totaling $96,000 in the nine months ended September 30, 2015, and $49,000 in the nine months ended September 30, 2014). As cash flow from operations allows, we intend to continue to make paybacks, however the deferral program is continuing and we expect it will continue for up to another 12 months.

 

In addition, as part of our debt restructuring initiatives, in the nine months ended September 30, 2015, we refinanced substantially all of our existing debt in efforts to decrease our interest costs and increase cash flow. In March 2015, we entered into a $1,200,000 Loan and Security Agreement with Cherokee Financial, LLC (the “Cherokee LSA”). The Cherokee LSA refinanced our Series A Debentures, CAM Bridge Loan and our Mortgage Consolidation Loan with First Niagara Bank. The interest rate on the Cherokee loan facility is 8% with a 1% oversight fee while the interest rate on the Series A Debentures and CAM Bridge Loan was 15%, and the interest rate on the Fist Niagara loan was 8.25%. In June 2015, we entered into an up to $1,500,000 Loan and Security Agreement with Crestmark Bank that refinanced our line of credit with Imperium. The annual all-in rate (including interest and fees) on the Crestmark Line of Credit is currently 9.35% (the interest rate component is variable based on WSJ prime). The Imperium line of credit annual all-in rate was 12%.

 

General and Administrative expense in the nine months ended September 30, 2015 does include increased debt issuance costs and deferred finance costs as a results of accelerated amortization of expenses associated with the Imperium Line of Credit. Since the Imperium Line of Credit was terminated early, we were required to record all of the expense (approximately $69,000) in the second quarter of 2015 when it was originally going to be amortized until January 2016.

 

We continue to believe that new products and our ability to sell those markets in new markets will be the primary growth driver in 2015 and beyond. We continue to take steps to receive a marketing clearance from the U.S. Food and Drug Administration to sell an all-inclusive, urine based, drug testing cups to customers requiring a CLIA waived product. In early 2015, we also began development on a new assay that is now nearly complete and barring any unexpected issues; product launch is expected in late 2015. We also have a number of new assays planned in research and development. We remain focused on selling our point of collection drugs of abuse tests, and growing our business through direct sales and select distributors. We are also making efforts to identify and secure new contract work and possible diversification alternatives.

 

 16 

 

 

AMERICAN BIO MEDICA CORPORATION

 

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2014

 

NET SALES: Net sales in the nine months ended September 30, 2015 declined 13.3% when compared to net sales in the nine months ended September 30, 2014.

 

Government sales declined in the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014 primarily due to the loss of two state contracts (both of which switched to using a product manufactured outside of the United States). In addition, contract-manufacturing sales declined as a result of an inventory surplus at one of our contract-manufacturing customers. The surplus has been used and contract-manufacturing levels have returned to a level more in line with historical sales. While we have had periods in which government sales improve, price competition with foreign manufacturers remains. Early indications are that our urine-based, all-inclusive drug test (launched in the first quarter of 2015) is allowing us to be more cost competitive in this market.

 

International sales were also down in the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. Increased European sales were offset by an increase in sales in Latin America and other part of the world in the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014.

 

COST OF GOODS SOLD/GROSS PROFIT: Cost of goods decreased to 52.3% of net sales in the nine months ended September 30, 2015 from 57.3% of net sales in the nine months ended September 30, 2014. Gross profit increased to 47.73% of net sales in the nine months ended September 30, 2015 from 42.7% of net sales in the nine months ended September 30, 2014. Expense reductions and the partial consolidation of manufacturing operations have enabled us to somewhat overcome the continued price pressures in our markets, resulting in increased gross profit from sales. We continuously monitor manufacturing and inventory levels to ensure they are appropriate to meet current and anticipated sales demands.

 

OPERATING EXPENSES: Operating expenses decreased by 3.0% in the nine months ended September 30, 2015 when compared to operating expenses in the nine months ended September 30, 2014. Research and development and general and administrative expenses decreased while selling and marketing expenses increased. More specifically:

 

Research and Development (“R&D”) expense

 

R&D expense decreased 31.7% when comparing the nine months ended September 30, 2015 to the nine months ended September 30, 2014. This stems primarily from decreased FDA compliance costs (due to timing of actions taken to submit a marketing application to FDA) and decreased utility costs (as a result of the consolidation of our New Jersey facility). These reductions were nominally offset by and increase in supply and material costs.

 

Our R&D department continues to focus their efforts on the enhancement of current products, development of new testing assays, new product platforms and exploration of contract manufacturing opportunities. In the nine months ended September 30, 2015, development of a new drug assay continued. We expect to launch the new assay in the year ending December 31, 2015.

 

Selling and Marketing expense

 

Selling and marketing expense in the nine months ended September 30, 2015 increased by 7.2% when compared to selling and marketing expense in the nine months ended September 30, 2014. Throughout the nine months ended September 30, 2015, we made investments in selling and marketing. More specifically, we hired new regional sales managers, attended more trade shows, completed the redesign of marketing materials and purchased new trade show equipment. These investments resulted in increases to sales salaries, trade show expense and travel expense. These increases were partially offset by a decrease in sales commissions (due to changes in our commission compensation structure and reduced sales levels) and postage.

 

We expect to make additional investments in selling and marketing throughout the year ending December 31, 2015. Our direct sales force continues to focus their selling efforts in our target markets, which include, but are not limited to, Workplace and Government, as well as focusing on the physician and pain management clinic market with our CLIA waived Rapid TOX product line, and focusing on the forensic and international markets for our OralStat® product.

 

 17 

 

 

AMERICAN BIO MEDICA CORPORATION

 

General and Administrative (“G&A” expense)

 

G&A expense for the nine months ended September 30, 2015 decreased 5.4% when compared to the nine months ended September 30, 2014. Decreases in salaries and benefits, broker fees, building rental, patent and licenses, government contract fees and bank service fees were partially offset by increases in consulting fees, relocation expense (due to the consolidation of our NJ facility), outside service fees (due to increased ISO auditing fees) and repair and maintenance. Share based payment expense was $27,000 in the nine months ended September 30, 2015 compared to $30,000 in the nine months ended September 30, 2014.

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 (“THIRD QUARTER 2015”) COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2014 (“THIRD QUARTER 2014”)

 

Net Sales: Net sales in the Third Quarter 2015 declined 9.1% when compared to net sales in the Third Quarter 2014. Government sales in the Third Quarter 2015 were still impacted by the loss of two state contracts (both of which switched to using a product manufactured outside of the United States). In addition, due to budget constraints, one of our government accounts started to use our all-inclusive urine cup when they previously were using a more expensive ABMC product line so, while the amount of product being purchased has not changed, the revenues received from this account have somewhat declined. These declines were partially offset by an increase in contract manufacturing and international sales; more specifically, sales in Latin America. The increase in contract manufacturing is due to the fact that purchases by one of our customers are back in line with historical levels after an inventory surplus issue.

 

COST OF GOODS SOLD/GROSS PROFIT: Cost of goods decreased to 51.8% of net sales in the Third Quarter 2015 from 58.7% of net sales in the Third Quarter 2014. Gross profit increased to 48.2% of net sales in the Third Quarter 2015 from 41.3% of net sales in Third Quarter 2014. While price pressures from foreign manufacturers and overall market conditions continue to impact sales margins, expense reductions made, and the partial consolidation of our manufacturing operations, have enabled us to somewhat overcome these issues and become more profitable from a manufacturing perspective. Production personnel levels, product manufacturing levels and inventory are continuously monitored to ensure they are adequate to meet current and anticipated sales demands.

 

OPERATING EXPENSES: Operating expenses decreased by 14.5% in the Third Quarter 2015, compared to the Third Quarter 2014. Research and development and general and administrative expenses decreased while selling and marketing expenses increased. More specifically:

 

Research and Development (“R&D”) expense

 

R&D expense decreased 51.1% when comparing the Third Quarter 2015 with the Third Quarter 2014. This stems primarily from decreased FDA compliance costs (due to timing of actions taken to submit a marketing application to FDA) and decreased utility costs (as a result of the consolidation of our New Jersey facility). These reductions were nominally offset by and increase in supply and material costs. In the three months ended September 30, 2015, development of a new drug assay continued. We expect to launch the new assay in the year ending December 31, 2015.

 

Selling and Marketing expense

 

Selling and marketing expense increased 3.9% in the Third Quarter 2015, when compared to the Third Quarter 2014. Increased sales salaries (due to increased sales personnel) and increased trade show expense and sales travel were partially offset by a decrease in sales commissions (due to changes in our commission compensation structure and reduced sales levels).

 

General and Administrative (“G&A” expense)

 

G&A expense for the Third Quarter 2015 decreased 18.3% when compared to the Third Quarter 2014. Decreases in salaries and benefits, consulting fees, broker fees, legal fees, and bank service fees (all a result of decreased refinancing activity) were partially offset by increases in insurance, computer related expenses, repairs and maintenance and shipping supplies. Share based payment expense was $9,000 in the three months ended September 30, 2015, compared to $11,000 in the three months ended September 30, 2014.

 

 18 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Liquidity and Capital Resources as of September 30, 2015

 

Our cash requirements depend on numerous factors, including but not limited to manufacturing costs (such as raw materials, equipment, etc.), selling and marketing initiatives, product development activities, and effective management of inventory levels and production levels in response to sales forecasts. We expect to devote capital resources to continue selling and marketing initiatives and product development/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. Our financial statements for the year ended December 31, 2014 were prepared assuming we will continue as a going concern. Although our financial condition has improved when comparing the nine months ended September 30, 2015 with the nine months ended September 30, 2014, our current cash balances, together with cash generated from future operations and amounts available under our credit facilities may not 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.

 

As of September 30, 2015, we had the following debt/credit facilities:

 

Facility  Debtor  Balance as of September 30, 2015 
Loan and Security Agreement  Cherokee Financial, LLC  $1,200,000 
Revolving Line of Credit  Crestmark Bank  $931,000 

 

Working Capital

 

Our working capital increased $708,000 at September 30, 2015 when compared to working capital at December 31, 2014 primarily as a result of an increase in inventory and a decrease in the current portion of our long-term debt (as a result of our refinancing completed in March 2015). We have historically satisfied net working capital requirements through cash from operations and bank debt.

 

Dividends

 

We have never paid any dividends on our common shares and anticipate that all future earnings, if any, will be retained for use in our business, and therefore, we do not anticipate paying any cash dividends.

 

Cash Flows

 

Cash provided by operations of $105,000 for the nine months ended September 30, 2015 is comprised of a net loss of $130,000, an increase in inventory of $189,000 and an increase in accounts and wages payable. The increase in inventory stems primarily from new components related to the Company’s all-inclusive drug test cup launched in early 2015.

 

Net cash used in investing activities in the nine months ended September 30, 2015 was for the purchase of property, plant and equipment and patent application costs, while net cash used in investing activities in the nine months ended September 30, 2014 was for the purchase of property, plant and equipment, patent application costs and proceeds from the sale of equipment.

 

Net cash used in financing activities in the nine months ended September 30, 2015 consisted of proceeds from our refinancing offset by debt payments, deferred finance costs and net proceeds from our lines of credit. Net cash used in financing activities in the nine months ended September 30, 2015 consisted of payments on debt financing, deferred finance costs and payments on our line of credit, offset by proceeds from our line of credit.

 

At September 30, 2015 we had cash and cash equivalents of $224,000.

 

 19 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Outlook

 

Although our financial condition has improved over previous recent fiscal years, 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.

 

Our ability to repay our current debt will depend primarily upon our future operating performance, which may be affected by general economic, financial, competitive, regulatory, business and other factors beyond our control, including those discussed herein. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment of any indebtedness we may have.

 

Our failure to comply with the covenant under our revolving credit facility could result in an event of default, which, if not cured or waived, could result in the Company being required to pay higher costs associated with the indebtedness. If we are forced to refinance our debt on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. We may also be forced to pursue one or more alternative strategies, such as restructuring, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be effected on satisfactory terms, if at all.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer (Principal Executive Officer)/Principal Financial Officer, together with other members of management, has reviewed and evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this review and evaluation, our Principal Executive Officer/Principal Financial Officer concluded that our 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.

 

(b) Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See Part I, Item 1, Note D in the Notes to interim Condensed Financial Statements included in this report for a description of pending legal proceedings in which we may be a party.

 

Item 1A. Risk Factors

 

There have been no material changes to our risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 20 

 

 

AMERICAN BIO MEDICA CORPORATION

 

Item 6. Exhibits

 

31.1/31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief Financial Officer
32.1/32.2 Certification of the Interim Chief Executive Officer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheet, (ii) Condensed Statements of Income (iii) Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements.

 

 21 

 

 

AMERICAN BIO MEDICA CORPORATION

 

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/ Melissa A. Waterhouse
  Melissa A. Waterhouse
  Chief Executive Officer (Principal Executive Officer)
  Principal Financial Officer
  Principal Accounting Officer

 

Dated: November 16, 2015

 

 22