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

~~518-758-8158~~

518-758-8158

---------------------------

(~~Registrant’s~~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 xYes¨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)xYes¨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

		~~Emerging growth company~~	¨ ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)¨YesxNo

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

~~29,297,333~~

32,518,361 Common Shares as of ~~November 14, 2017~~

May 20, 2019

American Bio Medica Corporation

Index to Quarterly Report on Form 10-Q

For the quarter ended ~~September 30, 2017~~

March 31, 2019

		~~PAGE~~
PART I – FINANCIAL INFORMATION		PAGE

Item 1.	Condensed Financial Statements	1
	Condensed Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018

~~Item 1.~~	~~Condensed Financial Statements~~	3
	~~Condensed Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016~~	3
	Condensed Unaudited Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016~~March 31, 2018	4
	Condensed Unaudited Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016~~March 31, 2018	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20 16
Item 4.	Controls and Procedures	20 16

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	20 17
Item 1A.	Risk Factors	21 17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21 17
Item 3.	Defaults Upon Senior Securities	21 17
Item 4.	Mine Safety Disclosures	21 17
Item 5.	Other Information	21 17
Item 6.	Exhibits	21 17

Signatures		22

P~~PART~~ART I –- FINANCIAL INFORMATION

I~~Item~~tem 1. Condensed Financial Statements

~~American Bio Medica Corporation~~

~~Condensed Balance Sheets~~

September 30, December 31,
2017 2016
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 150,000 $ 156,000
Accounts receivable, net of allowance for doubtful accounts of $51,000 at September 30, 2017 and $49,000 at December 31, 2016 521,000 556,000
Inventory, net of allowance of $453,000 at September 30, 2017 and $449,000 at December 31, 2016 1,462,000 1,582,000
Prepaid expenses and other current assets 49,000 92,000
Total current assets 2,182,000 2,386,000

Property, plant and equipment, net 810,000 824,000
Patents, net 107,000 93,000
Other assets 21,000 21,000
Deferred finance costs – line of credit, net 23,000 47,000
Total assets $ 3,143,000 $ 3,371,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 306,000 $ 304,000
Accrued expenses and other current liabilities 287,000 276,000
Wages payable 257,000 299,000
Line of credit 580,000 639,000
Current portion of long-term debt 87,000 75,000
Total current liabilities 1,517,000 1,593,000

Long-term debt, net of current portion and deferred finance costs 748,000 753,000
Other long-term liabilities 22,000 0
Total liabilities 2,287,000 2,346,000

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at September 30, 2017 and December 31, 2016 0 0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 29,297,333 issued and outstanding at September 30, 2017 and 28,842,788 issued and outstanding at December 31, 2016 293,000 288,000
Additional paid-in capital 21,115,000 21,037,000
Accumulated deficit (20,552,000 ) (20,300,000 )
Total stockholders’ equity 856,000 1,025,000
Total liabilities and stockholders’ equity $ 3,143,000 $ 3,371,000

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

~~American Bio Medica Corporation~~

~~Condensed Statements of Operations~~

~~(Unaudited)~~

For The Nine Months Ended
September 30,
2017 2016

Net sales $ 3,975,000 $ 4,392,000

Cost of goods sold 2,279,000 2,441,000

Gross profit 1,696,000 1,951,000

Operating expenses:
Research and development 94,000 136,000
Selling and marketing 531,000 827,000
General and administrative 1,154,000 1,106,000
1,779,000 2,069,000

Operating loss (83,000 ) (118,000 )

Other income / (expense):
Interest expense (204,000 ) (210,000 )
Other income, net 34,000 200,000
(170,000 ) (10,000 )

Net loss before tax (253,000 ) (128,000 )

Income tax benefit / (expense) 1,000 (2,000 )

Net loss $ (252,000 ) $ (130,000 )

Basic and diluted loss per common share $ (0.01 ) $ (0.01 )

Weighted average number of shares outstanding – basic & diluted 29,129,168 27,056,216

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

~~American Bio Medica Corporation~~

~~Condensed Statements of Operations~~

~~(Unaudited)~~

For The Three Months Ended
September 30,
2017 2016

Net sales $ 1,354,000 $ 1,417,000

Cost of goods sold 788,000 806,000

Gross profit 566,000 611,000

Operating expenses:
Research and development 26,000 28,000
Selling and marketing 159,000 275,000
General and administrative 376,000 368,000
561,000 671,000

Operating income / (loss) 5,000 (60,000 )

Other income / (expense):
Interest expense (70,000 ) (71,000 )
Other income, net 14,000 44,000
(56,000 ) (27,000 )

Net loss before tax (51,000 ) (87,000 )

Income tax benefit / (expense) 2,000 (1,000 )

Net loss $ (49,000 ) $ (88,000 )

Basic and diluted loss per common share $ (0.00 ) $ (0.00 )

Weighted average number of shares outstanding – basic & diluted 29,297,333 27,284,308

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

American Bio Medica Corporation
Condensed Balance Sheets
	March 31,	December 31,
	2019	2018
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$54,000	$113,000
Accounts receivable, net of allowance for doubtful accounts of $36,000 at March 31, 2019 and $36,000 at December 31, 2018	392,000	452,000
Inventory, net of allowance of $276,000 at March 31, 2019 and $268,000 at December 31, 2018	973,000	1,019,000
Prepaid expenses and other current assets	48,000	29,000
Total current assets	1,467,000	1,613,000
Property, plant and equipment, net	699,000	718,000
Patents, net	121,000	123,000
Other assets	29,000	21,000
Total assets	$2,316,000	$2,475,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$521,000	$359,000
Accrued expenses and other current liabilities	440,000	449,000
Wages payable	276,000	278,000
Line of credit	421,000	502,000
Current portion of long-term debt, net of deferred finance costs	1,013,000	237,000
Total current liabilities	2,671,000	1,825,000
Long-term debt/other liabilities , net of current portion and deferred finance costs	12,000	796,000
Total liabilities	2,683,000	2,621,000
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at March 31, 2019 and December 31, 2018	0	0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 32,518,361 issued and outstanding at March 31, 2019 and 32,279,368 issued and outstanding as of December 31, 2018	325,000	323,000
Additional paid-in capital	21,421,000	21,404,000
Accumulated deficit	(22,113,000)	(21,873,000)
Total stockholders’ deficit	(367,000)	(146,000)
Total liabilities and stockholders’ deficit	$2,316,000	$2,475,000
The accompanying notes are an integral part of the condensed financial statements

~~American Bio Medica Corporation~~

~~Condensed Statements of Cash Flows~~

~~(Unaudited)~~

For The Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (252,000 ) $ (130,000 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 64,000 69,000
Amortization of debt issuance costs 94,000 90,000
Provision for bad debts 2,000 0
Provision for slow moving and obsolete inventory 2,000 63,000
Share-based payment expense 33,000 49,000
Changes in:
Accounts receivable 32,000 (49,000 )
Inventory 116,000 127,000
Prepaid expenses and other current assets 96,000 21,000
Accounts payable 2,000 (38,000 )
Accrued expenses and other current liabilities 11,000 (6,000 )
Wages payable (42,000 ) (11,000 )
Net cash provided by operating activities 158,000 185,000

Cash flows from investing activities:
Patent application costs (20,000 ) (6,000 )
Purchase of property, plant & equipment (44,000 ) 0
Net cash used in investing activities (64,000 ) (6,000 )

Cash flows from financing activities:
Proceeds (payments) on debt financing (41,000 ) (75,000 )
Proceeds from lines of credit 4,729,000 4,609,000
Payments on lines of credit (4,788,000 ) (4,650,000 )
Net cash used in financing activities (100,000 ) (116,000 )

Net (decrease in) / increase in cash and cash equivalents (6,000 ) 63,000
Cash and cash equivalents - beginning of period 156,000 158,000

Cash and cash equivalents - end of period $ 150,000 $ 221,000

Supplemental disclosures of cash flow information
Cash paid during period for interest $ 110,000 $ 119,000
Cash paid / (received) during period for taxes $ (1,000 ) $ 2,000
Consulting expense prepaid with restricted stock $ 50,000 $ 49,000
Debt issuance cost paid with restricted stock $ 0 $ 96,000
Related party note payable paid with restricted stock $ 0 $ 154,000

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

American Bio Medica Corporation
Condensed Statements of Operations
(Unaudited)
	For The Three Months Ended
	March 31,
	2019	2018

Net sales	$923,000	$1,041,000

Cost of goods sold	617,000	669,000

Gross profit	306,000	372,000

Operating expenses:
Research and development	19,000	25,000
Selling and marketing	113,000	161,000
General and administrative	348,000	392,000
	480,000	578,000

Operating loss	(174,000)	(206,000)

Other income / (expense):
Interest expense	(67,000)	(71,000)
Other income, net	1,000	10,000
	(66,000)	(61,000)

Net loss before tax	(240,000)	(267,000)

Income tax expense	0	0

Net loss	$(240,000)	$(267,000)

Basic and diluted loss per common share	$(0.01)	$(0.01)

Weighted average number of shares outstanding – basic	32,367,963	29,822,770
Weighted average number of shares outstanding – diluted	32,367,963	29,822,770

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

American Bio Medica Corporation
Condensed Statements of Cash Flows
(Unaudited)
	For The Three Months Ended
	March 31,
	2019	2018
Cash flows from operating activities:
Net loss	$(240,000)	$(267,000)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation and amortization	20,000	20,000
Amortization of debt issuance costs	29,000	33,000
Allowance for doubtful accounts	0	(1,000)
Provision for slow moving and obsolete inventory	21,000	21,000
Share-based payment expense	2,000	4,000
Director fee paid with restricted stock	3,000	0
Changes in:
Accounts receivable	60,000	(72,000)
Inventory	25,000	64,000
Prepaid expenses and other current assets	(19,000)	36,000
Accounts payable	162,000	56,000
Accrued expenses and other current liabilities	(9,000)	43,000
Wages payable	(2,000)	7,000
Net cash provided by / (used in) operating activities	52,000	(56,000)

Cash flows from investing activities:
Patent application costs	0	(6,000)
Net cash provided by / (used in) investing activities	0	(6,000)

Cash flows from financing activities:
Proceeds from debt financing	48,000	150,000
Payments on debt financing	(78,000)	(78,000)
Proceeds from lines of credit	941,000	1,095,000
Payments on lines of credit	(1,022,000)	(1,049,000)
Net cash (used in) / provided by financing activities	(111,000)	118,000

Net change in cash and cash equivalents	(59,000)	56,000
Cash and cash equivalents - beginning of period	113,000	36,000

Cash and cash equivalents - end of period	$54,000	$92,000

Supplemental disclosures of cash flow information
Non-Cash transactions:
Consulting expense paid with restricted stock	$0	$25,000
Debt issuance cost paid with restricted stock	$16,000	$18,000
Director fee paid with restricted stock	$3,000	$0
Patent application costs	$0	$6,000
Cash paid during period for interest	$39,000	$36,000
The accompanying notes are an integral part of the condensed financial statements

Notes to condensed financial statements (unaudited)

~~September 30, 2017~~

March 31, 2019

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 audited financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. 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, 2017,~~March 31, 2019, and the results of operations ~~for the three and nine month periods ended September 30, 2017 and September 30, 2016~~ and cash flows for the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2019 (the “First Quarter 2019”) and ~~September 30, 2016.~~

March 31, 2018 (the “First Quarter 2018”).

Operating results for the ~~three and nine months ended September 30, 2017~~First Quarter 2019 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2017.~~2019. Amounts at December 31, ~~2016~~2018 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2018.

During the ~~nine months ended September 30, 2017,~~First Quarter 2019, with the exception of the adoption of ASU 2016-02, “Leases”, 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, ~~2016.~~

2018.

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 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 condensed 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 independent registered public accounting firm’s report on the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, contained an explanatory paragraph regarding the Company’s ability to continue as a going concern. As of the date of this report, ~~our~~the Company’s current cash balances, together with cash generated from future operations and amounts available under ~~our~~the Company’s credit facilities may not be sufficient to fund operations through ~~November 2018. On~~ May ~~1, 2017, we extended our line of credit.~~2020. The ~~new expiration date of our~~Company’s current line of credit ismatures on June 29, 2020. The maximum availability on ~~our~~the Company’s line of credit remains to be $1,500,000. However, the amount available under ~~our~~the Company’s line of credit is based upon ~~our~~the Company’s accounts receivable and inventory. As of ~~September 30, 2017,~~March 31, 2019, based on ~~our~~the Company’s availability calculation, there were no additional amounts available under ~~our~~the Company’s line of credit because ~~we draw~~the Company draws any balance available on a daily basis.

As of the date of this report, our credit facilities with Cherokee Financial, LLC have expiration dates of less than 12 months. Our total debt at March 31, 2019 with Cherokee Financial, LLC is $1,100,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities, which is due in full on February 15, 2020. We have had initial discussions with Cherokee Financial, LLC regarding a new facility that would refinance the amounts due under their current credit facilities.

As discussed in more detail in “Cash Flow, Outlook/Risk”, if sales levels decline further, wethe Company will have reduced availability on ~~our~~its line of credit due to decreased accounts receivable balances. In addition, wethe Company would expect ~~our~~its inventory levels to decrease if sales levels decline further, and this would also ~~will~~ result in reduced availability on ~~our~~the Company’s line of credit. In addition to this reduced availability, in June 2018, the Company’s line of credit was amended to reduce the maximum availability under the inventory component of its line of credit over the remaining term of the line of credit; until the availability under the inventory component of the line of credit is $0. While this will not result in a material impact to the Company’s availability all at once, it will ultimately remove availability related to the Company’s inventory under the line of credit. If availability under ~~our~~the Company’s line of credit is not sufficient to satisfy ~~our~~its working capital and capital expenditure requirements, wethe Company will be required to obtain additional credit facilities or sell additional equity securities, or delay capital ~~expenditures.~~expenditures, which could have a material adverse effect on our business. There is no assurance that such financing will be available or that wethe Company will be able to complete financing on satisfactory terms, if at all.

Recently Adopted Accounting Standards

~~We have disclosed~~

The Company adopted the ~~adoption of previously released~~following accounting standards ~~in earlier quarterly reports filed with~~set forth by the U.S. Securities and Exchange Commission (the “Commission”); these adoptions did not have an impact on our financial statement or results of operations. In the three months ended September 30, 2017, we determined that ASU 2017-07, “Compensation - Retirement Benefits” and ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350)” (both previously disclosed in our Form 10-Q for the period ended June 30, 2017) did not apply to the Company. We did not adopt any new accounting standards in the three months ended September 30, 2017.

Financial Accounting Standards ~~Issued; Not Yet Adopted~~

~~ASU 2017-11, “Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging”.~~ ASU 2017-11 was issued in July 2017. The amendments in ASU 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature will no longer preclude equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would not be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of ASU 2017-11.

~~ASU 2017-09, “Compensation – Stock Compensation (Topic 718)”.~~ ASU 2017-09 was issued in May 2017. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. More specifically, that an entity should account for the effects of modification unless all the following are met: 1) the fair value, calculated or intrinsic value of the modified award is the same fair value, calculated or intrinsic value of the original award immediately before the original award is modified, 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original grant is modified. The current disclosure requirements in Topic 718 apply regardless of whether accounting modification is applied. ASU 2017-09 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of ASU 2017-09.

~~ASU 2017-01, “Business Combinations (Topic 805)”.~~ ASU 2017-01 was issued in January 2017. The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of ASU 2017-01.

Board (“FASB”):

ASU 2016-02, “Leases”. ~~ASU 2016-02 was~~, issued in February 2016, ~~and it~~ requires a lessee to recognize a lease liability and a right-of-use asset on its balance sheet for all leases, including operating leases, with a term greater than 12 months. Lease classification will determine whether a lease is reported as a financing transaction in the income statement and statement of cash flows. ASU 2016-02 does not substantially change lessor accounting, but it does make certain changes related to leases for which collectability of the lease payments is uncertain or there are significant variable payments. Additionally, ASU 2016-02 makes several other targeted amendments including a) revising the definition of lease payments to include fixed payments by the lessee to cover lessor costs related to ownership of the underlying asset such as for property taxes or insurance; b) narrowing the definition of initial direct costs which an entity is permitted to capitalize to include only those incremental costs of a lease that would not have been incurred if the lease had not been obtained; c) requiring seller-lessees in a sale-leaseback transaction to recognize the entire gain from the sale of the underlying asset at the time of sale rather than over the leaseback term; and d) expanding disclosures to provide quantitative and qualitative information about lease transactions. ASU 2016-02 is effective for all annual and interim periods beginning January 1, 2019, and is required to be applied retrospectively to the earliest period presented at the date of initial application, with early adoption permitted.

ASU 2018-11, “Leases (Topic 842); Targeted Improvements”, issued in July 2018, provides a transition election to not restate comparative periods for the effects of applying the new standard. This transition election permits entities to change the date of initial application to the beginning of the year of adoption and to recognize the effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings. The Company ~~is currently evaluating~~adopted the standards using the transition election and the cumulative effect adjustment to the opening balance of retained earnings did not have a material impact on the Company’s financial conditions or its results of ~~adopting~~ operations.

ASU ~~2016-02.~~

~~ASU 2014-09, “Revenue from Contracts with Customers”.~~ ~~ASU 2014-09 was~~2018-20, “Leases (Topic 842)”, issued in ~~May 2014~~December 2018, clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor, are no longer required to be recognized in the lessor's financial statements.

ASU 2019-01, Leases (Topic 842)”, issued in March 2019 includes amendments that are of a similar nature to the items typically addressed in the Codification improvements project. However, FASB decided to issue a separate update for the improvements related to Update 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements.

The Company adopted ASU 2016-02, ASU 2018-11, ASU 2018-20 and ASU 2019-01 in the First Quarter 2019. In reviewing the Company’s current leases, there were two operating leases that fell within the scope of the standard, as amended, one for a copier in the Company’s New York facility and another lease related to the Company’s New Jersey facility. In the First Quarter 2019, the Company has recognized a lease liability and a right-of-use asset on its balance sheet related to both of these leases.

ASU 2017-11, “Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging”, issued in July 2017, changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature will no longer preclude equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would not be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it ~~provides~~is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for ~~revenue recognition. The core principle of~~contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). ASU ~~2014-09~~2017-11 is ~~that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange~~effective for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. Examples of the use of judgments and estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The update also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 provides for two transition methods to the new guidance: a retrospective approach and a modified retrospective approach. In August 2015, ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” was issued as a revision to ASU 2014-09. ASU 2015-14 revised the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017.~~2018. Early adoption is ~~permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU No. 2014-09).~~permitted. The Company ~~is currently evaluating~~adopted ASU 2017-11 in the ~~transition methods~~First Quarter 2019 and the ~~impact of adopting this ASU.~~

~~There are no other accounting pronouncements issues during the nine months ended September 30, 2017 that are expected to~~adoption did not have ~~or that could have a significant~~an impact on ~~our~~its financial position or results of operations.

ASU 2018-07, “Compensation - Stock Compensation/Improvements to Nonemployee Share-Based Payment Accounting”, issued in June 2018, expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The requirements of Topic 718 must be applied to nonemployee awards except for certain exemptions specified in the amendment. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted ASU 2018-07 in the First Quarter 2019 and the adoption did not have a material impact, on its financial position or results of operations considering the limited occasions where the Company has issued share based awards to nonemployees for goods or services.

Accounting Standards Issued; Not Yet Adopted

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, issued in August 2018, adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, “Fair Value Measurement.” ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The Company is evaluating the impact of ASU 2018-13.

Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.

Reclassifications

Certain items have been reclassified from the prior year to conform to the current year presentation.

Note B – Inventory

Inventory is comprised of the following:

September 30, 2017 December 31, 2016

Raw Materials $ 1,053,000 $ 1,028,000
Work In Process 438,000 385,000
Finished Goods 424,000 618,000
Allowance for slow moving and obsolete inventory (453,000 ) (449,000 )
$ 1,462,000 $ 1,582,000

	March 31, 2019	December 31, 2018

Raw Materials	$742,000	$778,000
Work In Process	193,000	184,000
Finished Goods	314,000	325,000
Allowance for slow moving and obsolete inventory	(276,000)	(268,000)
	$973,000	$1,019,000

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, 2017~~March 31, 2019 and ~~2016:~~

September 30, 2017 September 30, 2016

Warrants 2,060,000 2,060,000
Options 2,147,000 2,182,000
4,207,000 4,242,000

2018:

	March 31, 2019	March 31, 2018

Warrants	2,000,000	2,000,000
Options	2,222,000	2,147,000
	4,222,000	4,147,000

The number of securities not included in the diluted net loss per share for the ~~three~~First Quarter 2019 and ~~nine months ended September 30, 2017~~the First Quarter 2018 was ~~4,207,000,~~4,222,000 and 4,147,000, respectively, as their effect would have been anti-dilutive due to the net loss in ~~each period.~~

~~The number of securities not included in~~ the ~~diluted net loss per share for the three~~First Quarter 2019 and ~~nine months ended September 30, 2016 was 4,242,000, as their effect would have been anti-dilutive due to the net loss in each period.~~

First Quarter 2018.

Note D – Litigation/Legal Matters

~~In February 2017, the~~

ABMC v. Todd Bailey

The Company ~~filed a complaint~~has ongoing litigation in the ~~Supreme Court of the State~~Northern District of New York ~~in Columbia County~~ against Premier Biotech Inc., ~~Premier Biotech Labs, LLC~~ and its ~~principals, including its President~~principal, Todd Bailey ~~and Peckham Vocational Industries, Inc.~~(“Bailey”) (together the “Defendants”)~~. Mr.~~ that was filed in February 2017. Bailey formerly served as the Company’s Vice President of Sales and Marketing and as a sales consultant until December 23, 2016. The complaint seeks preliminary and permanent injunctions and a temporary restraining order against Todd Bailey (for his benefit or the benefit of another party or entity) related to the solicitation of Company customers as well as damages related to any profits and revenues that ~~would result~~results from ~~actions~~action taken by the Defendants related to Company customers.

In March 2017, the complaint was moved to the federal court in the Northern District of New York. In April 2017, the Defendants filed a motion to dismiss, to which the Company responded on April 21, 2017. On July 10,early 2017, the Company ~~was notified that it was~~became aware of actions taken by the Defendants, including but not ~~awarded~~limited to, action taken specifically related to a Company contract with a state agency ~~for which it has held a contract~~(held by the Company in excess of 10 ~~years. The contract in question is included in the February 2017 complaint.~~years). The Company believes that the Defendants actions related to this customer and a RFP that was issued by the state agency resulted in the loss of the contract award to the Company and the award of the contract to Peckham Vocational Industries, Inc. (a then vendor of the Company) and Premier ~~Biotech.~~Biotech, Inc. in July 2017. This contract historically accounted for 10-15% of the Company’s annual revenue. ~~The Company continued to hold a contract with the agency through September 30, 2017.~~ The Company did protest the award of the contract to Peckham and Premier Biotech, and the state agency advised the Company on July 26, 2017 that they denied the Company’s protest of the award. The Company continued to hold a contract with the agency through September 30, 2017.

After the award of the contract, the Company amended its complaint against the Defendants to show actual damages caused by the Defendants and to show proprietary and confidential information (belonging to the Company) used by the Defendants in their response to the RFP. This confidential information belonging to the Company enabled the Defendants to comply with specifications of the ~~RFP.~~RFP and undercut the Company’s pricing. The Defendants filed a response to the court opposing ~~our~~the Company’s supplemental motion and wethe Company filed ~~our~~ reply papers to the Defendants response on November 2, 2017.

In January 2018, the court ruled on the motion to dismiss (that was filed by the Defendants in 2017). The court found that there was jurisdiction over the Defendants. The court did not rule on the other motions before them. In February 2018, the Company filed a motion for reconsideration and for leave to serve a supplemental/amended complaint. The new filing addressed (among other things) the Company’s intent to further supplement its complaint based on additional (subsequent) damage alleged by the Company on the part of the Defendants. In September 2018, the court ruled on the motions filed in February 2018. The court granted in part and denied in part our motions for reconsideration. More specifically, our motions supplementing claims of the Bailey’s breach of contract and damages related to the same, and Bailey’s misappropriation of the Company’s trade secrets were granted. The Company’s motions related to unjust enrichment and tortious interference were not granted. Defendants’ motion to dismiss was once again denied. The Company filed its supplemental motions as required on October 12, 2018. On November 1, 2018, the Defendants filed their response to our supplemental motions. In January 2019, an initial conference was held to discuss the case management plan and exchange mandatory disclosures. On January 31, 2019, the court referred the case for participation in the Mandatory Mediation Program.

In January 2019, Bailey’s complaint previously filed in Minnesota was transferred as a counter-claim in the Company’s complaint against Bailey. Bailey is seeking deferred commissions of $164,000 he alleges are owed to him by the Company. These amounts were originally deferred under a deferred compensation program initiated in 2013; a program in which Bailey was one of the participants. The Company has responded to the Bailey counterclaim and believes these amounts are not due to Bailey given the actions indicated in the Company’s litigation.

On April 5, 2019, a mediation conference was held. As of the date of this report, there is no discernible outcome of the ~~Company~~medication conference. The deadline for completion of mediation is ~~awaiting~~May 31, 2019. Given the ~~court’s rulings~~stage of the litigation, management is not yet able to opine on the ~~parties’ motions.~~

~~In addition, from time to time, the Company may be named in legal proceedings in connection with matters that arise during the normal course of business. While the ultimate~~ outcome of ~~any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation,~~its complaint or the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no 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.

counterclaim.

Note E – Line of Credit and Debt

September 30, 2017 December 31, 2016
Loan and Security Agreement with Cherokee Financial, LLC: 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 made on May 15, 2015, annual principal reduction payment of $75,000 due each year beginning on February 15, 2016, with a final balloon payment being due on February 15, 2020. Loan is collateralized by a first security interest in building, land and property. $ 1,050,000 $ 1,125,000

Crestmark Line of Credit: Line of credit (with a current termination date of June 22, 2020) 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 termination fee of 2% if terminated in year 2 or after (and prior to natural expiration). Loan is collateralized by first security interest in receivables and inventory. 580,000 639,000

Crestmark Equipment Term Loan: 38 month equipment loan related to the purchase of manufacturing equipment, at an interest rate of WSJ Prime Rate plus 3%; or 7.25% as of the date of this report. 34,000 0
1,664,000 1,764,000
Less debt discount & issuance costs (Cherokee Financial, LLC Loan) (227,000 ) (297,000 )
Total debt, net 1,437,000 1,467,000

Current portion 667,000 714,000
Long-term portion, net of current portion $ 770,000 $ 753,000

March 31,
2019

December 31,
2018

Loan and Security Agreement with Cherokee Financial, LLC: 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 made on May 15, 2015, annual principal reduction payment of $75,000 due each year beginning on February 15, 2016, with a final balloon payment being due on February 15, 2020. Loan is collateralized by a first security interest in building, land and property
$900,000
$975,000
Crestmark Line of Credit: 3 year line of credit maturing on June 22, 2020 with interest payable at a variable rate based on WSJ Prime plus 3% with a floor of 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early termination fee of 2% if terminated prior to natural expiration. Loan is collateralized by first security interest in receivables and inventory and the all-in interest rate as of the date of this report is 13.69%.

421,000
  502,000
Crestmark Equipment Term Loan: 38 month equipment loan related to the purchase of manufacturing equipment, at an interest rate of WSJ Prime Rate plus 3%; or 8.50% as of the date of this report.
  16,000
  19,000
2018 Term Loan with Cherokee Financial, LLC: 1 year note at an annual fixed interest rate of 12% paid quarterly in arrears with first interest payment being made on May 15, 2018 and a balloon payment being due on February 15, 2019. Loan was refinanced in February 2019.
  0
  150,000
2019 Term Loan with Cherokee Financial, LLC: 1 year note at an annual fixed interest rate of 18% paid quarterly in arrears with first interest payment being made on May 15, 2019 and a balloon payment being due on February 15, 2020.
  200,000
  0

$1,537,000
$1,646,000
Less debt discount & issuance costs (Cherokee Financial, LLC Loan)
  (99,000)
  (111,000)
Total debt, net
$1,438,000
$1,535,000



Current portion
$1,533,000
$739,000
Long-term portion, net of current portion
$4,000
$796,000

LOAN AND SECURITY AGREEMENT WITH CHEROKEE FINANCIAL, LLC

(“CHEROKEE”)

On March 26, 2015, the Company entered into a LSA with Cherokee ~~Financial, LLC~~ (the “Cherokee LSA”). The ~~purpose of the~~debt with Cherokee LSA was to refinance, at a better interest rate, 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 (“First Niagara”). The loan is collateralized by a first security interest in 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 ana fixed annual interest rate of 8%. The Company is making interest only payments quarterly on the Cherokee ~~Note,~~LSA, with the first interest payment paid on May 15, 2015. The Company is also required to 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 made on February 15, 2016 and the most recent principal reduction payment being made on February ~~16, 2017.~~15, 2019; partially with proceeds received from a new, larger term loan with Cherokee (See 2019 Term Loan with Cherokee within this Note E). A final balloon payment is due on ~~March 26,~~February 15, 2020. In addition to the 8% interest, the Company pays Cherokee ~~Financial, LLC (“Cherokee”)~~ a 1% annual fee for oversight and administration of the loan. This oversight fee is paid in cash and is paid contemporaneously with the quarterly interest payments. The Company can pay off the Cherokee ~~Note~~loan at ~~anytime~~any time with no penalty; except that a 1% administration fee would be required to be paid to Cherokee to close out all participations.

The Company issued 1.8 million restricted shares of the Company’s common stock to Cherokee for payment of fees. In addition, because the loan was not repaid in full as of March 19, 2016, the Company issued another 600,000 restricted shares of common stock to Cherokee in March 2016.

As placement agent for the transaction, Cantone Research, Inc. (“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. In addition, because the loan was not repaid in full as of March 19, 2016, the Company issued another 196,000 restricted shares of common stock to CRI in March 2016.

The Company received net proceeds of $80,000 after $1,015,000 of debt payments, ~~$60,000~~and $105,000 in ~~placement agent~~other expenses and fees. The expenses and 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 adoption of ASU No. 2015-03 in the First Quarter 2016, these transaction costs (with the exception of the interest expense) are ~~now~~ being deducted from the balance on the Cherokee LSA and are being amortized over the term of the ~~debt.~~

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.

debt (in accordance with ASU No. 2015-03).

The Company recognized ~~$128,000~~$42,000 in interest expense related to the Cherokee LSA in the nine months ended September 30, 2017 (of which $70,000 is debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards in the first quarter of 2016, and $137,000 in interest expense in the nine months ended September 30, 2016 (of which $64,000 was debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards in the first quarter of 2016). The Company recognized $45,000 in interest expense related to the Cherokee LSA in the three months ended September 30, 2017First Quarter 2019 (of which $23,000 is debt issuance cost amortization recorded as interest ~~expense as a result of the adoption of new accounting standards in the first quarter of 2016)~~expense) and ~~$47,000~~$44,000 in interest expense related to the Cherokee LSA in the ~~three months ended September 30, 2016~~First Quarter 2018 (of which ~~$23,000 was~~$24,000 is debt issuance cost amortization recorded as interest ~~expense as a result of the adoption of new accounting standards in the first quarter of 2016)~~expense).

The Company had ~~$11,000~~$15,000 in accrued interest expense at ~~September 30, 2017,~~March 31, 2019 related to the Cherokee LSA, and ~~$18,000~~$13,000 in accrued interest expense at December 31, ~~2016.~~

2018.

As of ~~September 30, 2017,~~March 31, 2019, the balance on the Cherokee LSA is ~~$1,050,000;~~$900,000; however the discounted balance is ~~$823,000.~~$814,000. As of December 31, ~~2016,~~2018, the balance on the Cherokee LSA was ~~$1,125,000;~~$975,000; however the discounted balance ~~net of debt discount and debt issuance costs was $828,000.~~

is $866,000.

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 related to a ~~new Senior Lender, to refinance the Company’s Line~~revolving line of ~~Credit with Imperium Commercial Finance, LLC (“Imperium”~~credit (the “Crestmark LOC”). The Crestmark ~~Line of Credit~~LOC is used for working capital and general corporate ~~purposes. On May 1, 2017, the Company entered into term loan with Crestmark in the amount of $38,000 related to the purchase of manufacturing equipment (See “Equipment Loan with Crestmark”),~~purposes and in connection with this equipment loan, the Company executed an amendment to its LSA and Promissory Note with Crestmark. The amendments addressed the inclusion of the equipment loan into the Crestmark LSA and an extension of the Company’s line of credit with Crestmark. Apart from the extension of the LSA, no terms of the line of credit were changed in the amendment. The termination date of the Crestmark line of credit was changed fromexpires on June 22, ~~2018 to June 22, 2020 under the amendments.~~

~~Under the LSA,~~2020.

The Crestmark ~~is providing~~LOC provides the Company with a ~~Line~~revolving line of ~~Credit of~~credit up to $1,500,000 (“Maximum Amount”) with a minimum loan balance requirement of $500,000. At March 31, 2019, the Company did not meet this minimum loan balance requirement as our balance was $421,000. Under the LSA, Crestmark has the right to calculate interest on the minimum balance requirement rather than the actual balance on the Crestmark LOC. The ~~Line of Credit~~Crestmark LOC 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 $350,000, or 100% of Eligible Accounts Receivable. However, as a result of an amendment executed on June 25, 2018, the amount available under the inventory component of the line of credit was changed to 40% of eligible inventory plus up to 10% of Eligible Generic Packaging Components not to exceed the lesser of $250,000 (“Inventory Sub-Cap Limit”), or 100% of ~~the~~ Eligible Accounts Receivable.

In addition, the Inventory Sub-Cap Limit is being permanently reduced by $10,000 per month as of July 1, 2018 and thereafter on the first day of the month until the Inventory Sub-Cap Limit is reduced to $0.

So long as any obligations are due to Crestmark, the Company must comply with a minimum Tangible Net Worth (“TNW”) Covenant. ~~Under~~As a result of an amendment executed on June 25, 2018, the ~~LSA,~~TNW covenant was reduced from $650,000 to $150,000 as ~~amended, the Company must maintain a TNW~~ of ~~at least $650,000.~~June 30, 2018. 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 remain the same as the prior quarter’s covenant amount. TNW is still defined as: Total Assets less Total Liabilities less the sum of (i) the aggregate amount of non-trade accounts receivables, including accounts receivables from affiliated or related persons, (ii) prepaid expenses, (iii) deposits, (iv) net lease hold improvements, (v) goodwill and (vi) any other asset that would be treated as an intangible asset under GAAP; plus Subordinated Debt. Subordinated Debt means any and all indebtedness presently or in the future incurred by the Company to any creditor of the Company entering into a written subordination agreement with Crestmark. The Company has not complied with the TNW covenant since the year ended December 31, 2017 but, has received waivers from Crestmark. As consideration for the granting of the waiver for December 31, 2017, Crestmark increased the interest rate on the Crestmark LOC from Prime Rate plus 2% to Prime Rate plus 3%. The increase in interest rate was effective as of May 1, 2018. Thereafter, and through the year ended December 31, 2018, the Company was charged a fee of $5,000 for each waiver. The Company is not in compliance with the TNW covenant as of March 31, 2019; as of the date of this ~~covenant at September 30, 2017.~~

report, the Company is in the process of obtaining another waiver from Crestmark. Due to internal requirements within Crestmark, the waiver could not be obtained prior to the date of this report.

If the Company terminates the LSA prior to June 22, 2020, an early exit fee of 2% of the Maximum Amount (plus any additional amounts owed to Crestmark at the time of termination) would be due.

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 (that is not waived by Crestmark), Crestmark is permitted to charge an Extra Rate. The Extra Rate is the Company’s then current interest rate plus 12.75% per annum.

~~Under~~ As of the ~~LSA, interest~~date of this report, Crestmark has not elected to charge the Extra Rate even though the Company is not in compliance with the TNW covenant as of March 31, 2019 as the Company expects to receive a waiver from Crestmark.

Interest on the Crestmark ~~Line of Credit~~LOC is at a variable rate based on the ~~Wall Street Journal~~ Prime Rate plus 2%3% with a floor of 5.25%. As of ~~the date of this report,~~March 31, 2019, the interest only rate on the Crestmark ~~Line~~LOC was 8.50%. As of ~~Credit is 6.25%. In addition to the~~March 31, 2019, with all fees considered (the interest rate ~~on the Closing Date and on each one-year anniversary date thereafter, the Company will pay Crestmark a~~+ an Annual Loan Fee of ~~0.50%, or~~ $7,500 ~~and~~+ a ~~Monthly Maintenance Fee~~monthly maintenance fee of 0.30% of the actual average monthly ~~loan~~ balance from the prior ~~month will be paid to Crestmark. As of the date of this report,~~month), the interest rate ~~in effect is 10.93% (with all fees; including the weighted annual fee, which is charged~~ on the ~~closing date anniversary and is $7,500 regardless of our balance on the line of credit)~~Crestmark LOC was 13.69%.

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~~recognized $13,000 in interest expense related to the Crestmark ~~Line~~LOC in First Quarter 2019 ($0 of ~~Credit. With the exception of the early term fee ($50,000) paid~~which was debt issuance costs related to ~~Imperium (which was fully expensed in the year ended December 31, 2015), these expenses are all being amortized over the initial term of the Crestmark Line of Credit, or three years.~~interest expense). The Company recognized ~~$24,000 of this expense~~$21,000 in the nine months ended September 30, 2017 and in the nine months ended September 30, 2016. The Company recognized $8,000 of this expense in the three months ended September 30, 2017 and in the three months ended September 30, 2016.

~~The Company recognized $76,000 of~~ interest expense related to the Crestmark Line of Credit in the nine months ended September 30, 2017 (of which $24,000 is debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards) and $73,000 in interest expense in the nine months ended September 30, 2016 (of which $26,000 is debt issuance cost amortization recorded as interest expense). The Company recognized $25,000 of interest expense in the three months ended September 30, 2017First Quarter 2018 (of which $8,000 iswas debt issuance ~~cost amortization recorded as~~costs related to interest expense) ~~and $24,000 in interest expense in the three months ended September 30, 2016 (of which $8,000 is debt issuance cost amortization recorded as interest expense)~~.

Given the nature of the administration of the Crestmark ~~Line of Credit,~~LOC, at ~~September 30, 2017,~~March 31, 2019, the Company had $0 in accrued interest expense related to the Crestmark Line of Credit, and there is $0 in additional availability under the Crestmark ~~Line of Credit.~~

LOC.

As of ~~September 30, 2017,~~March 31, 2019, the balance on the Crestmark ~~Line of Credit was $580,000,~~LOC is $421,000, and as of December 31, ~~2016,~~2018, the balance on the Crestmark ~~Line of Credit~~LOC was ~~$639,000.~~

$502,000.

EQUIPMENT LOAN WITH CRESTMARK

On May 1, 2017, the Company entered into term loan with Crestmark in the amount of $38,000 related to the purchase of manufacturing equipment. The equipment loan is collateralized by a first security interest in a specific piece of manufacturing equipment. The Company executed an amendment to its LSA and Promissory Note with Crestmark. The amendments addressed the inclusion of the term loan into the LSA and an extension of the ~~Company’s line of credit with Crestmark.~~Crestmark LOC. No terms of the ~~line of credit~~Crestmark LOC were changed in the amendment. The interest rate on the term loan is the WSJ Prime Rate plus 3%; or ~~7.25%~~8.50% as of the date of this report. The ~~termination~~Company incurred less than $1,000 in interest expense related to the Equipment Loan in the First Quarter 2019 and in the First Quarter 2018. Given the Company has not yet received the waiver for the TNW compliance at March 31, 2019, the Company is in default under the Equipment Loan with Crestmark as of the date of this report. This results in the ~~Crestmark line of credit was changed from June 22, 2018 to June 22, 2020 under the amendments.~~Equipment Loan being due and payable if called by Crestmark. The balance on the ~~equipment loan was $34,000~~Equipment Loan is $16,000 at March 31, 2019 and $19,000 at December 31, 2018.

2018 TERM LOAN WITH CHEROKEE

On March 2, 2018, the Company entered into a one-year Loan Agreement made as of ~~September 30, 2017.~~

February 15, 2018 (the “Closing Date”) with Cherokee under which Cherokee provided the Company with $150,000 (the “2018 Cherokee Term Loan”). The proceeds from the 2018 Cherokee Term Loan were used by the Company to pay a $75,000 principal reduction payment to Cherokee that was due on February 15, 2018 and $1,000 in legal fees incurred by Cherokee. Net proceeds (to be used for working capital and general business purposes) were $74,000.

The annual interest rate for the 2018 Cherokee Term Loan was 12% to be paid quarterly in arrears with the first interest payment being made on May 15, 2018. The 2018 Cherokee Term Loan was required to be paid in full on February 15, 2019. In connection with the 2018 Cherokee Term Loan, the Company issued 150,000 restricted shares of common stock to Cherokee on March 8, 2018.

The Company recognized $3,000 in interest expense related to the 2018 Cherokee Term Loan in the First Quarter 2019 (of which $2,000 was debt issuance costs recorded as interest expense) and $5,000 of interest expense in the First Quarter 2018, of which $3,000 was debt issuance costs recorded as interest expense. As of March 31, 2019, the balance on the 2018 Cherokee Term Loan is $0 as the Company paid the facility in full with the proceeds from another loan facility from Cherokee (See 2019 Cherokee Term Loan). The balance of the 2018 Cherokee Term Loan was $0 at March 31, 2019 (as it was refinanced; see 2019 Term Loan with Cherokee) and $150,000 at December 31, 2018.

2019 TERM LOAN WITH CHEROKEE

On February 25, 2019 (the “Closing Date”), the Company entered into an agreement dated (and effective) February 13, 2019 (the “Agreement”) with Cherokee under which Cherokee is providing the Company with a loan in the amount of $200,000 (the “2019 Cherokee Term Loan”). The Agreement provided the Company with $200,000; $150,000 of which was used to satisfy the 2018 Term Loan and an additional $50,000 in gross proceeds; $48,000 in net proceeds after Cherokee’s legal fees in connection with the financing. The Company utilized the net proceeds to pay a portion of the $75,000 principal reduction payment under the Company’s Loan and Security Agreement with Cherokee (with the remaining $27,000 being paid with cash on hand).

The annual interest rate under the new term loan is 18% paid quarterly in arrears with the first interest payment being due on May 15, 2019. The loan is required to be paid in full on February 15, 2020 unless paid off earlier (with no penalty) at the Company’s sole discretion. In connection with the Loan Agreement, the Company issued 200,000 restricted shares of common stock to Cherokee in the First Quarter 2019.

In the event of default, this includes, but is not limited to, the Company’s inability to make any payments due under the Agreement, Cherokee has the right to increase the interest rate on the financing to 20%, automatically add a delinquent payment penalty of $20,000 to the outstanding principal and the Company would be required to issue an additional 200,000 shares of restricted common stock.

The Company recognized $9,000 in interest expense related to the 2019 Cherokee Term Loan in the First Quarter 2019 (of which $3,000 was debt issuance costs recorded as interest expense) and $0 of interest expense in the First Quarter 2018 (as the 2019 Term Loan was not in place in the First Quarter 2018). The balance on the 2019 Term Loan is $200,000 at March 31, 2019 (however, the discounted balance is $187,000), and $0 at December 31, 2018 (as the facility was not in place at December 31, 2018).

NOTE F – Stock Options and Warrants

The Company currently has two non-statutory stock option plans, the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) and the 2013 Equity Compensation Plan (the “2013 Plan”). Both plans have been adopted by our Board of Directors and approved by our shareholders. Both the 2001 Plan and the 2013 Plan have options available for future issuance. Any common shares issued as a result of the exercise of stock options would be new common shares issued from our authorized issued shares.

During the ~~three months ended September 30, 2017~~First Quarter 2019 and ~~September 30, 2016,~~the First Quarter 2018, the Company issued 0 ~~stock options.~~

options to purchase shares of common stock.

Stock option activity for the ~~nine months ended September 30, 2017~~First Quarter 2019 and ~~September 30, 2016~~the First Quarter 2018 is summarized as follows (the figures contained within the tables below have been rounded to the nearest thousand):

Nine months ended September 30, 2017 Nine months ended September 30, 2016

Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value as of
September 30,
2017

Shares

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value as of
September 30,
2016

Options outstanding at beginning of period 2,107,000 $ 0.13 1,435,000 $ 0.13
Granted 40,000 $ 0.13 830,000 $ 0.11
Exercised 0 NA 0 NA
Cancelled/expired 0 NA (83,000 ) $ 0.19
Options outstanding at end of period 2,147,000 $ 0.13 $ 15,000 2,182,000 0.13 $ 30,000
Options exercisable at end of period 1,647,000 $ 0.13 1,184,000 $ 0.14

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, 2017 and September 30, 2016:

Nine months ended
2017 2016
Volatility 81 % 62% - 66 %
Expected term (years) 10 years 10 years
Risk-free interest rate 2.16 % 1.57% - 1.94 %
Dividend yield 0 % 0 %

		First Quarter 2019			First Quarter 2018
	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of March 31, 2019	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of March 31, 2018
Options outstanding at beginning of year	2,222,000	$0.13		2,147,000	$0.13
Granted	0	NA		0	NA
Exercised	0	NA		0	NA
Cancelled/expired	0	NA		0	NA
Options outstanding at end of year	2,222,000	$0.13	$1,000	2,147,000	$0.13	$15,000
Options exercisable at end of year	2,142,000	$0.13		2,022,000	$0.13

The Company recognized ~~$33,000~~$2,000 in share based payment expense in the ~~nine months ended September 30, 2017~~First Quarter 2019 and, ~~$49,000~~$4,000 in share based payment expense in the ~~nine months ended September 30, 2016. The Company recognized $10,000 in~~First Quarter 2018. At March 31, 2019 there was approximately $1,000 of total unrecognized share based payment expense in the three months ended September 30, 2017 and $13,000 in share based payment expense in the three months ended September 30, 2016. As of September 30, 2017, there was approximately $16,000 of total unrecognized compensation cost related to ~~non-vested~~ stock ~~options, which vest over time. The~~options. This cost is expected to be recognized over ~~a period ranging from 3-8~~2 months.

Warrants

Warrant activity for the ~~nine months ended September 30, 2017~~First Quarter 2019 and ~~September 30, 2016~~the First Quarter 2018 is summarized as follows:

Nine months ended September 30, 2017 Nine months ended September 30, 2016

Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
as of
September 30,
2017

Shares
Weighted
Average
Exercise
Price Aggregate
Intrinsic Value
as of
September 30,
2016
Warrants outstanding at beginning of period 2,060,000 $ 0.18 2,385,000 $ 0.17
Granted 0 NA 0 NA
Exercised 0 NA 0 NA
Cancelled/expired 0 NA (325,000 ) $ 0.14
Warrants outstanding at end of period 2,060,000 $ 0.18 $ 0 2,060,000 $ 0.18 $ 0
Warrants exercisable at end of period 2,060,000 $ 0.18 2,060,000 $ 0.18

		First Quarter 2019			First Quarter 2018
	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of March 31, 2019	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of March 31, 2018
Warrants outstanding at beginning of year	2,000,000	$0.18		2,060,000	$0.18
Granted	0	NA		0	NA
Exercised	0	NA		0	NA
Cancelled/expired	0	NA		60,000	$0.18
Warrants outstanding at end of year	2,000,000	$0.18	None	2,000,000	$0.18	None
Warrants exercisable at end of year	2,000,000	$0.18		2,000,000	$0.18

In the ~~nine months ended September 30, 2017~~First Quarter 2019 and ~~September 30, 2016,~~First Quarter 2018, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding. ~~In the three months ended September 30, 2017 and September 30, 2016, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants.~~ As of ~~September 30, 2017,~~March 31, 2019, there was $0 of total unrecognized expense.

~~NOTE G – SUBSEQUENT EVENT~~

On October 20, 2017, the Company received notice that Todd Bailey (“Bailey”), its former Vice President of Sales & Marketing and sales consultant filed a complaint against the Company in the State of Minnesota seeking deferred commissions of $164,000 that Bailey alleges is owed to him by the Company. Bailey is one of the defendants in the litigation discussed previously in Note D. On November 2, 2017, we filed a Notice of Removal in this action to move the matter from state to federal court. On November 9, 2017, we filed a motion to dismiss or, in the alternative to transfer venue and consolidate, the Bailey complaint with our litigation filed previously against Bailey and others (see Note D).

I~~Item~~tem 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, ~~2016,~~2018, 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

~~Our ability to maintain and/or increase sales continues to be~~

Sales in the First Quarter 2019 were negatively impacted by the expiration of a ~~very cost-competitive market currently dominated by products made outside~~government account in the second quarter of 2018 as well as the price competitive nature of the market in which we sell our drugs of abuse products. Products manufactured outside the United ~~States. Evidenced by~~States continue to dominate one of our core markets, Government/Law Enforcement; for which most of the ~~fact~~business is obtained via a bidding process that ~~sales~~puts a tremendous amount of value on the cheapest price. We continue to feel the impact of the loss of another government account in late 2017 (an account that is the ~~nine months ended September 30, 2017 decreased again when compared to the same period last year. In addition, our sales have been impacted by actions taken by~~subject of litigation we initiated against a former Vice President, Sales ~~& Marketing/Sales Consultant. We have initiated litigation against this former employee/consultant related to these actions (see Note D – Litigation/Legal Matters).~~

During the nine months ended September 30, 2017, we recorded an operating loss of $83,000. This compares to an operating loss of $118,000 in the same period last year. Decreased operating expenses were the primary cause of the improvement in operating loss (relative to sales). Net loss in the nine months ended September 30, 2017 was $252,000, compared to a net loss of $130,000 in the same period last year. This is primarily due to other income of $200,000 (of which $150,000 was related to a tech transfer with a contract manufacturing customer) in the nine months ended September 30, 2016 that did not reoccur in the nine months ended September 30, 2017.

We had cash provided by operating activities of $158,000 in the nine months ended September 30, 2017. This compares to cash provided by operating activities of $185,000 in the nine months ended September 30, 2016.

We continuously examine all expenses in efforts to achieve profitability (when/if sales levels improve) or to minimize losses going forward (if sales continue to decline). Over the course of the last two fiscal years (Fiscal 2016 and Fiscal 2015), we refinanced substantially all of our existing debt at lower interest rates, manufactured our products in a partially consolidated operating environment, and maintained a salary and commission deferral program; all as part of our efforts to decrease expenses and improve cash flow.

The salary and commission deferral program previously referenced continued throughout the nine months ended September 30, 2017. The deferral program currently consists of a 20% salary deferral for our executive officer and our non-executive VP Operations (and previously included the former Vice President Sales & Marketing/Sales Consultant, ~~referred~~Todd Bailey, (See Note D-Litigation/Legal Matters). This account did not impact the sales decline when comparing First Quarter 2019 to ~~earlier in this report; until his termination in December 2016). As of September 30, 2017,~~First Quarter 2018; however, we had total deferred compensation owed of $253,000. Over the course of the program, we repaid portions of the deferred compensation (with $29,000 in payments in the nine months ended September 30, 2017 and $70,000 in payments in the nine months ended September 30, 2016.). 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.

~~We continue to~~do believe that ~~new products~~sales under this account would have continued to improve over time and for this reason, the loss of this account continues to negatively impact our ability to sell those products in new markets will be a future growth driver. In August 2017, the U.S. Food and Drug Administration granted over-the-counter marketing clearance for our Rapid TOX Cup II (an all-inclusive, urine based drug testing cup). We are hopeful that this marketing clearance will enable us to further penetrate clinical markets as to increase our business with our laboratory alliance.

Although our primary markets continue to be extremely price-competitive, this marketing clearance should enable us to garner new sales in clinical markets (such as pain management and drug treatment) because although price is always a factor, quality and accuracy are equally important in these clinical markets.

New assays and product platform developments are also in our future research and development plans. We remain focused on selling our point of collection drugs of abuse tests, and growing our business through direct sales and select distributors.

minimize declines and/or grow sales.

Over the ~~course of the~~ last 1218 months, we have ~~reorganized and restructured our sales and marketing department. In addition, we~~ brought on new products and service offerings to diversify our revenue stream through third party relationships. These new products and services include products for the detection of alcohol and alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) ~~as well as toxicology management services. In addition, we~~. We are also now offering customers lower-cost alternatives for onsite drug testing. Sales of other products and services in the First Quarter 2019 were $41,000; while this is not a significant portion of our sales, these sales did assist with reducing the sales declines for those accounts where cost if the only factor in a customer’s purchase decision.

We are focusing our efforts on 1) further penetration of the clinical markets with new products, 2) drug testing with oral fluid in the workplace and 3) contract manufacturing. We are hopeful that our OTC marketing clearance for our Rapid TOX Cup® II product line, lower cost product alternatives and additional diagnostic products will enable us to increase sales in the clinical markets. In addition, we are currently working with our laboratory alliance in efforts to increase sales under our current contract. A change in the regulatory environment (due to certain exemptions set forth by the U.S. Food and Drug Administration related to workplace and insurance drug testing) has resulted in new efforts to re-enter the workplace market with oral fluid drug testing options. And finally, we are ~~reviewing our~~currently discussing a number of contract manufacturing ~~operations~~opportunities with other entities; one of which started to generate sales in the First Quarter 2019.

Operating expenses continued to decline when comparing First Quarter 2019 with First Quarter 2018. This is a result of our continued efforts to ~~capitalize on offerings~~ensure that expenses are in ~~that area. We have not derived any significant revenue from these new additions; however,~~line with revenue. In the ~~majority~~year ended December 31, 2018, we consolidated job responsibilities in certain areas of the ~~relationships were only finalized in March/April 2017.~~

~~In September 2016, our contract manufacturing sales began to decrease on an annual basis due to a manufacturing shift with one of our contract customers. More specifically,~~Company as a result of employee retirement and other departures; this consolidation enabled us to implement personnel reductions. We also continued to maintain a ~~tech transfer with~~salary deferral program for our sole executive officer and another member of senior management throughout the ~~customer, they are now their own primary supplier with~~First Quarter 2019. The salary deferral program consists of a 10% salary deferral for our Chief Executive Officer/Principal Financial Officer Melissa Waterhouse and our non-executive VP Operations. The salary deferral level was reduced from 20% as of October 1, 2018 given the ~~Company moving into a position~~length of ~~back up or secondary supplier. Although contract manufacturing is not considered a material portion~~time the deferral has been in place and the increasing balances on the deferred compensation. As of ~~our net sales, given this expected change,~~March 31, 2019, we ~~are making efforts~~had total deferred compensation owed to identify and secure new contract work and possible diversification alternatives. In connection with the tech transfer, we received a $300,000 tech transfer fee from this customer. We recognized $150,000 related to this tech transfer fee as other incomethese two individuals in the ~~nine months ended September 30, 2016.~~

amount of $175,000. As cash flow from operations allows, we intend to repay portions of the deferred compensation, however we did not make any payments on deferred compensation in the First Quarter 2019 or the Frist Quarter 2018. We expect the salary deferral program will continue for an undetermined period of time.

Our continued existence is dependent upon several factors, including our ability to: 1) raise revenue levels even though we have ~~suffered~~lost significant accounts and the ~~loss~~market continues to be infiltrated by product manufactured outside of ~~a material contract that will impact sales starting October 1, 2017,~~the United States, 2) control operational costs to generate positive cash flows, 3) maintain our current credit facilities or refinance our current credit facilities if necessary, and 4) if needed, our ability to obtain working capital by selling additional shares of our common stock.

Results of operations for the ~~nine months ended September 30, 2017~~

First Quarter 2019 compared to the ~~nine months ended September 30, 2016~~

First Quarter 2018

NET SALES:Net sales for the ~~nine months ended September 30, 2017~~First Quarter 2019 decreased ~~9.5%~~11.3%, when compared to net sales in the ~~nine months ended September 30, 2016. The decrease in~~First Quarter 2018. Decreased international sales (due to what we believe is ~~a result~~timing of ~~the anticipated decrease in contract manufacturing~~orders from customers), decreased government sales ~~in the nine months ended September 30, 2017 when compared~~(due to the nine months ended September 30, 2016. More specifically, contract manufacturing sales declined by approximately $222,000 (of which $197,000 was to the customer involved with the tech transfer). The remaining $195,000 in decreased sales resulted primarily from a decrease in government sales (most of which is due to the lossexpiration of an account in the ~~fourth~~second quarter of ~~the year ended December 31, 2016). These declines~~2018) and other decreased sales in various other markets were partially offset by ~~an increase in national accounts~~increased contract manufacturing sales (due to a new contract manufacturing customer and ~~international sales to Latin and South America.~~

increased regional clinical sales.

GROSS PROFIT:Gross profit ~~in the nine months ended September 30, 2017~~ decreased to ~~42.7% of net sales compared to 44.2%~~33.2% of net sales in the ~~nine months ended September 30, 2016. While we are still maintaining manufacturing efficiencies, there were certain periods within~~First Quarter 2019 from 35.7% of net sales in the ~~nine months ended September 30, 2017~~First Quarter 2018. The decline in gross profit stems primarily from the fact that ~~we produced less~~decreased sales resulted in a decrease in the number of testing strips ~~due~~made and product assembled and packaged for shipment in the First Quarter 2019, when compared to First Quarter 2018. The majority of our labor and overhead costs are fixed. When revenues decline, fewer testing strips are produced; this results in a manufacturing inefficiency (i.e. less fixed overhead cost absorption and a higher amount being expensed through cost of goods). In addition, the low product ~~sales mix.~~

prices from foreign manufacturers have required us to decrease pricing of our own products to be more competitive. And finally, the lower cost product alternative is generally sold at margins lower than our production margins. We have taken actions to adjust our production schedules to mitigate future inefficiencies and, we closely examine our gross profit margins on our manufactured products and the products we distribute.

OPERATING EXPENSES: Operating expenses decreased ~~14.0%~~17.0%, in the ~~nine months ended September 30, 2017~~First Quarter 2019 compared to the ~~nine months ended September 30, 2016.~~First Quarter 2018. Expenses in ~~research and development and selling and marketing decreased while general and administrative expense increased.~~all operational divisions decreased. More specifically:

Research and development (“R&D”)

R&D expense decreased ~~30.9%~~24.0%, when comparing the ~~nine months ended September 30, 2017~~First Quarter 2019 with the ~~same period last year.~~First Quarter 2018. Decreased FDA compliance costs ~~associated with the~~(solely due to a timing ~~of actions taken~~issue related to our ~~FDA marketing clearance~~facility registrations) were the primary reason for ~~Rapid TOX Cup II were partially offset by an increase~~the decline in ~~supplies and materials. Our~~expenses. All other expense remained relatively consistent with expense in the First Quarter 2018. In the First Quarter 2019, our R&D department ~~continues to focus~~primarily focused their efforts on the enhancement of our current products ~~the development of new testing assays, new product platforms~~ and the evaluation of potential contract manufacturing ~~opportunities.~~

opportunities as well as the final product development of our new contract manufacturing customer.

Selling and marketing

Selling and marketing expense in the ~~nine months ended September 30, 2017~~First Quarter 2019 decreased ~~35.7%~~29.8% when compared to the ~~same period last year. One of~~First Quarter 2018. Reductions in sales & marketing salaries, benefits and travel (due to decreased sales and marketing personnel), reduced attendance at trade shows, were the primary reasons for the ~~decline~~decline. Other expense in ~~expenses is~~selling and marketing also decreased ~~commission expense.~~slightly (also due to decreased employees in most cases). In the ~~latter part of December 2016,~~First Quarter 2019, we terminated our relationship with a sales consultant due to competitive issues that arose during our relationship; we subsequently filed a complaint against this consultant in the early part of 2017 (See Note D – Litigation/Legal Matters). In addition to the decline in commissions, sales salaries and benefits, customer relations expense, postage and marketing consulting expenses decreased. These declines were minimally offset by an increase in costs associated with trade show attendance. Our direct sales force continues to focus their efforts in our target markets, which include, but are not limited to, Workplace, Government, and Clinical (i.e. pain management and drug treatment) and in the forensic and international markets for our oral fluid product. Our sales force has also started to promote newpromoted additional products ~~and service offerings to diversify our revenue stream. These new products and services~~ (through relationships with third parties) ~~include products~~ for the detection of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) ~~as well as toxicology management services,~~ and lower-cost alternatives for onsite drug testing. ~~And finally, with~~The addition of these offerings did not result in increased selling and marketing expenses. In the ~~FDA marketing clearance granted in August 2017,~~year ended December 31, 2018, we refocused our ~~sales force is also promoting the new market application~~efforts on further penetration of the ~~product~~clinical markets, took efforts to re-enter the workplace market with oral fluid drug testing options and increased our contract manufacturing business. We are continuing these efforts in the ~~clinical market.~~

year ending December 31, 2019. However, we will take all steps necessary to ensure selling and marketing expenditures are in line with sales.

General and administrative (“G&A”)

G&A expense ~~increased 4.3%~~decreased 11.2%, in the nine months ended September 30, 2017 when compared to the same period last year. Increases in legal fees (due to the initiation of litigation in the early part of 2017; see Note D – Litigation/Legal Matters), and accounting fees were partially offset by reduced expenses related to investor relations (due to decreased travel), telephone and non-cash compensation (I.e. share based payment expense; due to less options outstanding subject to amortization). Share based payment expense was $33,000 in the nine months ended September 30, 2017 compared to $49,000 in the nine months ended September 30, 2016.

~~Results of operations for the three months ended September 30, 2017~~

~~compared to the three months ended September 30, 2016~~

~~NET SALES:~~Net sales for the three months ended September 30, 2017 declined 4.4% when compared to the three months ended September 30, 2016. The decrease in sales results from a decrease in government sales (most of which is due to the loss of an account in the fourth quarter of 2016), and a decline in contract manufacturing sales. These declines were partially offset by increased sales to Latin America and South America and to national accounts.

~~GROSS PROFIT:~~Gross profit decreased to 41.8% of net sales in the three months ended September 30, 2017 compared to gross profit of 43.1% of net sales in the three months ended September 30, 2016. While we are still maintaining manufacturing efficiencies, there were certain periods within the three months ended September 30, 2017 that we produced less testing strips due to the product sales mix.

~~OPERATING EXPENSES:~~ Operating expenses decreased 16.4% in the three months ended September 30, 2017, compared to the three months ended September 30, 2016. Expenses in research and development and selling and marketing decreased while general and administrative expense increased. More specifically:

~~Research and development (“R&D”)~~

R&D expense decreased 7.1% when comparing the three months ended September 30, 2017 with the three months ended September 30, 2016. Decreased supplies and materials costs were partially offset by increased employee benefit costs. Our R&D department continues to focus their efforts on the enhancement of current products, the development of new testing assays, new product platforms and the evaluation of contract manufacturing opportunities.

~~Selling and marketing~~

Selling and marketing expense in the three months ended September 30, 2017 decreased 42.2% when compared to the three months ended September 30, 2016. One of the primary reasons for the decline in expenses is related to decreased commission expense. In the latter part of December 2016, we terminated our relationship with a sales consultant due to competitive issues that arose during our relationship; we subsequently filed a complaint against this consultant in the early part of 2017 (See Note D – Litigation/Legal Matters). In addition to the decline in commissions, sales salaries and benefits, customer relations expense, and marketing consulting expenses decreased. These declines were minimally offset by an increase sales travel expense. Our direct sales force continues to focus their efforts in our target markets, which include, but are not limited to, Workplace, Government, and Clinical (i.e. pain management and drug treatment) and in the forensic and international markets for our oral fluid product. Our sales force has also started to promote new products and service offerings to diversify our revenue stream. These new products and services (through relationships with third parties) include products for the detection of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) as well as toxicology management services, and lower-cost alternatives for onsite drug testing. And finally, with the FDA marketing clearance granted in August 2017, our sales force is also promoting the new market application of the product in the clinical market.

~~General and administrative (“G&A”)~~

~~G&A expense increased 2.2% in the three months ended September 30, 2017~~First Quarter 2019 when compared to G&A expense in the ~~three months ended September 30, 2016. Increased~~First Quarter 2018. Decreased costs associated with administrative employees (due to fewer employees and the consolidation of job responsibilities in certain areas of the Company), consultant fees, legal fees (associated with timing of activities in the ABMC vs. Bailey litigation), ISO certification fees (due to the ~~initiation~~timing of ~~litigation in the early part of 2017; see Note D – Litigation/Legal Matters)~~our ISO audit this year versus last year) were partially offset by ~~reduced expenses related to telephone, consulting fees, brokers~~increased accounting fees and ~~non-cash compensation (i.e. share based payment expense; due~~bank service fees (due to ~~less options outstanding subject to amortization)~~costs associated with covenant waivers). Share based payment expense ~~was $10,000~~also declined to $2,000 in the ~~three months ended September 30, 2017 compared to $13,000~~First Quarter 2019 from $4,000 in the ~~three months ended September 30, 2016.~~

First Quarter 2018.

Other income and expense:

Other expense in the First Quarter 2019 and First Quarter 2018 consisted of interest expense associated with our credit facilities (our line of credit and equipment loan with Crestmark Bank and our loans with Cherokee Financial, LLC), offset by other income related to gains on certain liabilities.

Liquidity and Capital Resources as of ~~September 30, 2017~~

March 31, 2019

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, regulatory costs, legal costs associated with current litigation, and effective management of inventory levels and production levels in response to sales history and forecasts. We expect to devote capital resources related to ~~continue~~ selling and marketing initiatives and ~~product development/research and development activities.~~we expect that we will incur increased legal costs due to ongoing litigation in the year ending December 31, 2019. We are examining other growth opportunities including strategic alliances. Given our current and historical cash position, ~~we expect~~ such activities would need to be funded from the issuance of additional equity or additional credit borrowings, subject to market and other conditions. Our financial statements for the year ended December 31, ~~2016~~2018 were prepared assuming we will continue as a going concern.

On December 20, 2018, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Chaim Davis (the Chairman of our Board of Directors) and certain other accredited investors (altogether the “Investors”), under which we issued and sold to the Investors in a private placement (the “Private Placement”) 2,000,000 units (the “Units”). We closed on the Private Placement on December 24, 2018. Each Unit consists of one (1) share of the Company’s common stock, par value $0.01 per share (“Common Share”), at a price per Unit of $0.10 (the “Purchase Price”) for aggregate gross proceeds of approximately $200,000. Our net proceeds were $200,000 as expenses related to the Private Placement were minimal. We did not utilize a placement agent for the Private Placement. The net proceeds were used for working capital and general corporate purposes.

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 through ~~November 2018.~~May 2020. At March 31, 2019, we have negative Stockholders’ Equity of $367,000. Our ~~current~~loan and security agreement with Cherokee Financial, LLC expires on February 15, 2020 and our line of credit expires on June 22, ~~2020~~2020. Our 2019 Term Loan with Cherokee Financial LLC expires on February 15, 2020. As March 31, 2019, all amounts due under our Loan and Security Agreement with Cherokee Financial, LLC were included in our short-term debt given the facility expires in less than 12 months. Although our line of credit has a maximum availability of ~~$1,500,000. However,~~$1,500,000, the amount available under our line of credit is much lower as it is based upon the balance of our accounts receivable and inventory. As of ~~September 30, 2017,~~March 31, 2019, based on our availability calculation, there were no additional amounts available under our line of credit because we draw any balance available on a daily basis. If sales levels continue to decline, ~~further,~~ we will have reduced availability on our line of credit due to decreased accounts receivable balances. In addition, we would expect our inventory levels to continue to decrease if sales levels decline further, which would result in further reduced availability on our line of credit. In addition to decreased inventory value, as a result of an amendment executed on June 25, 2018, the amount available under the inventory component of the line of credit was changed to 40% of eligible inventory plus up to 10% of Eligible Generic Packaging Components not to exceed the lesser of $250,000 (“Inventory Sub-Cap Limit”) or 100% of Eligible Accounts Receivable. In addition, starting July 1, 2018, the Inventory Sub-Cap Limit is being permanently reduced by $10,000 per month on the first day of each month until the Inventory Sub-Cap Limit is reduced to $0. Although this “staggered” reduction did not have a material immediate impact on our availability under the line of credit, it will eventually result in no availability under the line of credit related to inventory and the line of credit will be an accounts receivable based line only.

If availability under our line of credit is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to obtain additional credit facilities or sell additional equity securities, or delay capital ~~expenditures.~~expenditures which could have a material adverse effect on our business. 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, 2017,~~March 31, 2019, we had the following debt/credit facilities:

Facility Debtor Balance as of September 30, 2017
Loan and Security Agreement Cherokee Financial, LLC $ 1,050,000
Revolving Line of Credit Crestmark Bank $ 580,000
Capital Equipment Loan Crestmark Bank $ 34,000

Facility	Debtor	Balance as of March 31, 2019
Loan and Security Agreement	Cherokee Financial, LLC	$900,000
Revolving Line of Credit	Crestmark Bank	$421,000
Equipment Loan	Crestmark Bank	$16,000
Term Loan	Cherokee Financial, LLC	$200,000
Total Debt		$1,537,000

Working Capital

~~Our~~

At the end of the First Quarter 2019, we are operating at a working capital ~~was $664,000 at September 30, 2017;~~deficit of $1,204,000; this is a ~~decrease of $129,000 when compared to~~greater working capital ~~of $793,000 at~~deficit than reported for the year ended December 31, ~~2016.~~2018 ($212,000). This ~~decrease~~increase in our working capital isdeficit was primarily ~~the~~a result of ~~decreased sales.~~all amounts under our Loan and Security Agreement (with Cherokee Financial, LLC) being recorded as short term liability instead of a significant portion of the loan being recorded as a long-term liability (due to the upcoming expiration of the facility in February 2020). Decreased sales also negatively impacted our working capital. We have historically satisfied 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 Flow, Outlook/Risk

We ~~do not expect significant increases in expenses during the year ending December 31, 2017 and as evidenced by our operating expenses for the year ended December 31, 2016 (“Fiscal 2016”), we~~ have taken steps (and will continue to take steps) to ensure that operating expenses and manufacturing costs remain in line with sales ~~levels.~~levels, however, we are incurring increased costs related to litigation, our line of credit (due to covenant non-compliance that has been previously waived by our lender) and other administrative requirements. We have consolidated job responsibilities in other areas of the Company and this enabled us to implement personnel reductions. In ~~2017,~~other efforts to reduce cash requirements, we ~~will continue~~have issued shares of restricted stock in lieu of cash. More specifically, we issued (1) 277,778 restricted shares of common stock to ~~focus~~Landmark Pegasus, Inc. in connection with an extension of our ~~efforts~~Financial Advisory Agreement in June 2018, and (2) 107,813 restricted shares of common stock to our Chairman of the Board for his attendance at two meetings of our Board of Directors in 2018 and one meeting in the First Quarter 2019 and (3) 200,000 restricted shares of common stock to Cherokee Financial, LLC in connection with our 2019 Term Loan. In addition, in December 2018, we closed on ~~improving sales. Such steps include, but are not limited~~a private placement of 2,000,000 shares of our common stock resulting in net proceeds of $200,000.We expect to ~~further penetrating~~issue additional restricted shares of common stock for attendance at meetings of the ~~Clinical markets such~~Board of Directors if a director (or directors) choose(s) payment in shares in lieu of cash as ~~pain management~~their form of payment.

The continuous decline in sales results in lower than average cash balances and ~~drug treatment now that~~lower availability on our ~~Rapid TOX Cup II received OTC marketing clearance from FDA~~line of credit at times. Two large government accounts (one of which was in ~~August~~the year ended December 31, 2017 and ~~entering into strategic~~the other in the year ended December 31, 2016) were lost due to alleged actions on the part of a former Vice President Sales and Marketing/Sales Consultant (Todd Bailey) and are the subject of ongoing litigation. These two accounts represented approximately $1,000,000 in annual sales to the Company (of which $718,000 impacted sales revenues in Fiscal 2018; when compared to Fiscal 2017). Also, in the early part of Fiscal 2018, we had another government contract expire and this contributed to the sales decline in the First Quarter 2019 (when compared to First Quarter 2018). To address the declines, we are promoting new products and service offerings to diversify our revenue stream. These new products and services (through relationships with third ~~parties to offer additional products and services to our customers. This includes~~parties) include products for the detection of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) ~~as well as toxicology management services,~~ and lower-cost alternatives for onsite drug testing. WeAlso, a change in the regulatory environment (due to certain exemptions set forth by the U.S. Food and Drug Administration related to workplace and insurance drug testing) has resulted in new efforts to re-enter the workplace market with oral fluid drug testing options. And finally, we are ~~hopeful that these additional product and service offerings will have~~currently discussing a ~~positive impact on~~number of contract manufacturing opportunities with other entities; one of which started to generate sales in the ~~future. In~~First Quarter 2019 which did partially offset the ~~nine months ended September 30, 2017, we utilized cash resources to complete our FDA marketing application process (which resulted~~sales declines in ~~a marketing clearance in August 2017) and to take~~ other steps that could result in increased sales. In addition, cash resources have been utilized to initiate litigation against Premier Biotech Inc., and its President, Todd Bailey (a former Vice President and sales consultant of the Company), and Peckham Vocational Industries, Inc., among others. While we expect additional cash resourcesareas.

Our ability to be ~~used related to the ligation, we do not expect additional expenditures related to marketing clearances~~ in ~~the year ending December 31, 2017.~~

None of these efforts related to sales, or any other efforts being taken related to other operational activities, resulted in a substantial increase in cash requirements in the nine months ended September 30, 2017. In the second quarter of the year ended December 31, 2016, we receivedcompliance with our ~~final payment of $150,000 related to a tech transfer with one of~~obligations under our ~~contract-manufacturing customers. The loss of a state agency contract starting October 1, 2017 is expected to have a material impact~~current credit facilities will depend on our ability to replace lost sales and further increase sales. If we are unable to recoup this loss (which has historically been 10-15% of our annual sales), it is possible that our current line of credit (and advance rates) would not be adequate for our cash requirements in the year ending December 31, 2017, especially if expense levels do not decline in line with the sales decline and especially considering the costs related to litigation. In addition, extraordinary events could occur that would result in unexpected, increased expenditures.

If events and circumstances occur such that 1) we do not meet our current operating plans to increase sales, 2) we are unable to raise sufficient additional equity or debt financing, or 3) 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,~~(all of which is due within the next 12 months) may also be affected by ~~the loss of a material contract in October 2017,~~ general economic, financial, competitive, regulatory, legal, business and other factors beyond our control, including those discussed herein. ~~In addition,~~If we ~~cannot assure you~~are unable to meet our credit facility obligations, we would be required to raise money through new equity and/or debt financing(s) and, there is no assurance that ~~future borrowings~~we would be able to find new financing, or ~~equity~~that any new financing ~~will~~would be ~~available~~at favorable terms.

We were not in compliance with the TNW covenant under our Crestmark LOC as March 31, 2019. As of the date of this report, the Company is in the process of obtaining another waiver from Crestmark related to the TNW non-compliance for the ~~payment~~First Quarter 2019. Due to internal requirements within Crestmark, the waiver could not be obtained prior to the date of ~~any indebtedness we may have.~~

~~Our~~this report. The Company expects to be charged a fee of $5,000 for this waiver when it is received. A failure to comply with the TNW covenant under our ~~revolving credit facility~~Crestmark LOC (a failure that is not waived by Crestmark) could result in an event of default, which, if not cured, ~~or waived,~~ could result in the Company being required to pay much 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. There is also no assurance that we could obtain alternative debt facilities. 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 implemented on satisfactory terms, if at all.

As of the date of this report, our credit facilities with Cherokee Financial, LLC have expiration dates of less than 12 months. Our total debt at March 31, 2019 with Cherokee Financial, LLC is $1,100,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities. We have had initial discussions with Cherokee Financial, LLC regarding a new facility that would refinance the amounts due under their current credit facilities. Our line of credit facility with Crestmark Bank expires in June 2020. We have not had such discussions with Crestmark Bank; however, we would expect to begin discussions in the near future.

If events and circumstances occur such that 1) we do not meet our current operating plans to increase sales, 2) we are unable to raise sufficient additional equity or debt financing, 3), we are unable to utilize equity as a form of payment in lieu of cash, or 4) 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. Although we have good relationships with our current creditors and we do believe that we will be able to refinance our current credit facilities, if we are unable to refinance our debt with Cherokee Financial, LLC, this would result in a default which could result in Cherokee Financial, LLC exercising their rights which includes, but is not limited to, forfeiture of the collateral assets under their facilities. A default under our facilities with Cherokee Financial, LLC would also create a cross-default under our line of Credit with Crestmark Bank. Such default could also result in Crestmark Bank exercising their rights under our line of credit which includes, but it not limited to, forfeiture of the collateral assets under the line of credit.

I~~Item~~tem 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.

I~~Item~~tem 4. Controls and Procedures

~~(a)~~

~~Evaluation of Disclosure Controls and Procedures~~

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer (Principal Executive Officer)/Chief Financial 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~~

(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.

P~~PART~~ART II – OTHER INFORMATION

I~~Item~~tem 1. Legal Proceedings

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

I~~Item~~tem 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, ~~2016, except for those disclosures made in our Form 10-Q for the three and six months ended June 30, 2017 filed with the Commission on August 14, 2017.~~

2018.

I~~Item~~tem 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~

As previously disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on March 1, 2019, in connection with our 2019 Term Loan with Cherokee Financial, LLC, we were required to issue 200,000 restricted shares of common stock to Cherokee Financial, LLC within 60 days of February 15, 2019 (the closing date of the term loan). We issued the required shares on March 5, 2019.

I~~Item~~tem 3. Defaults Upon Senior Securities

None.

I~~Item~~tem 4. Mine Safety Disclosures

Not applicable.

I~~Item~~tem 5. Other Information

None.

I~~Item~~tem 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 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, 2017, 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.

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 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 March 31, 2019, 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.

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)
	~~(Registrant)~~

Date: May 20, 2019	By:	/s/ Melissa A. Waterhouse
		Melissa A. Waterhouse
		Chief Executive Officer (Principal Executive Officer)
	Principal Financial Officer
	Principal Accounting Officer

~~Dated: November 14, 2017~~

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

	~~AMERICAN BIO MEDICA CORPORATION~~New York	14-1702188
	~~(Exact name of registrant as specified in its charter)~~

	September 30,			December 31,
	2017			2016
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	150,000		$	156,000
Accounts receivable, net of allowance for doubtful accounts of $51,000 at September 30, 2017 and $49,000 at December 31, 2016		521,000			556,000
Inventory, net of allowance of $453,000 at September 30, 2017 and $449,000 at December 31, 2016		1,462,000			1,582,000
Prepaid expenses and other current assets		49,000			92,000
Total current assets		2,182,000			2,386,000

Property, plant and equipment, net		810,000			824,000
Patents, net		107,000			93,000
Other assets		21,000			21,000
Deferred finance costs – line of credit, net		23,000			47,000
Total assets	$	3,143,000		$	3,371,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	306,000		$	304,000
Accrued expenses and other current liabilities		287,000			276,000
Wages payable		257,000			299,000
Line of credit		580,000			639,000
Current portion of long-term debt		87,000			75,000
Total current liabilities		1,517,000			1,593,000

Long-term debt, net of current portion and deferred finance costs		748,000			753,000
Other long-term liabilities		22,000			0
Total liabilities		2,287,000			2,346,000

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at September 30, 2017 and December 31, 2016		0			0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 29,297,333 issued and outstanding at September 30, 2017 and 28,842,788 issued and outstanding at December 31, 2016		293,000			288,000
Additional paid-in capital		21,115,000			21,037,000
Accumulated deficit		(20,552,000	)		(20,300,000	)
Total stockholders’ equity		856,000			1,025,000
Total liabilities and stockholders’ equity	$	3,143,000		$	3,371,000

	For The Nine Months Ended
	September 30,
	2017			2016

Net sales	$	3,975,000		$	4,392,000

Cost of goods sold		2,279,000			2,441,000

Gross profit		1,696,000			1,951,000

Operating expenses:
Research and development		94,000			136,000
Selling and marketing		531,000			827,000
General and administrative		1,154,000			1,106,000
		1,779,000			2,069,000

Operating loss		(83,000	)		(118,000	)

Other income / (expense):
Interest expense		(204,000	)		(210,000	)
Other income, net		34,000			200,000
		(170,000	)		(10,000	)

Net loss before tax		(253,000	)		(128,000	)

Income tax benefit / (expense)		1,000			(2,000	)

Net loss	$	(252,000	)	$	(130,000	)

Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)

Weighted average number of shares outstanding – basic & diluted		29,129,168			27,056,216

	September 30, 2017			December 31, 2016

Raw Materials	$	1,053,000		$	1,028,000
Work In Process		438,000			385,000
Finished Goods		424,000			618,000
Allowance for slow moving and obsolete inventory		(453,000	)		(449,000	)
	$	1,462,000		$	1,582,000

	September 30, 2017		September 30, 2016

Warrants		2,060,000		2,060,000
Options		2,147,000		2,182,000
		4,207,000		4,242,000

	March 31, 2019	December 31, 2018
Loan and Security Agreement with Cherokee Financial, LLC: 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 made on May 15, 2015, annual principal reduction payment of $75,000 due each year beginning on February 15, 2016, with a final balloon payment being due on February 15, 2020. Loan is collateralized by a first security interest in building, land and property	$900,000	$975,000
Crestmark Line of Credit: 3 year line of credit maturing on June 22, 2020 with interest payable at a variable rate based on WSJ Prime plus 3% with a floor of 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early termination fee of 2% if terminated prior to natural expiration. Loan is collateralized by first security interest in receivables and inventory and the all-in interest rate as of the date of this report is 13.69%.	421,000	502,000
Crestmark Equipment Term Loan: 38 month equipment loan related to the purchase of manufacturing equipment, at an interest rate of WSJ Prime Rate plus 3%; or 8.50% as of the date of this report.	16,000	19,000
2018 Term Loan with Cherokee Financial, LLC: 1 year note at an annual fixed interest rate of 12% paid quarterly in arrears with first interest payment being made on May 15, 2018 and a balloon payment being due on February 15, 2019. Loan was refinanced in February 2019.	0	150,000
2019 Term Loan with Cherokee Financial, LLC: 1 year note at an annual fixed interest rate of 18% paid quarterly in arrears with first interest payment being made on May 15, 2019 and a balloon payment being due on February 15, 2020.	200,000	0
	$1,537,000	$1,646,000
Less debt discount & issuance costs (Cherokee Financial, LLC Loan)	(99,000)	(111,000)
Total debt, net	$1,438,000	$1,535,000

Current portion	$1,533,000	$739,000
Long-term portion, net of current portion	$4,000	$796,000

	Nine months ended September 30, 2017						Nine months ended September 30, 2016
	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value as of September 30, 2017		Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value as of September 30, 2016
Options outstanding at beginning of period		2,107,000	$	0.13				1,435,000		$	0.13
Granted		40,000	$	0.13				830,000		$	0.11
Exercised		0		NA				0			NA
Cancelled/expired		0		NA				(83,000	)	$	0.19
Options outstanding at end of period		2,147,000	$	0.13	$	15,000		2,182,000			0.13	$	30,000
Options exercisable at end of period		1,647,000	$	0.13				1,184,000		$	0.14

	Nine months ended
	2017			2016
Volatility		81	%		62% - 66	%
Expected term (years)		10 years			10 years
Risk-free interest rate		2.16	%		1.57% - 1.94	%
Dividend yield		0	%		0	%

Facility	Debtor	Balance as of September 30, 2017
Loan and Security Agreement	Cherokee Financial, LLC	$	1,050,000
Revolving Line of Credit	Crestmark Bank	$	580,000
Capital Equipment Loan	Crestmark Bank	$	34,000