10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

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

For the transition period from to

Commission File Number: 0-28666

AMERICAN BIO MEDICA CORPORATION

(Exact name of registrant as specified in its charter)

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

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

518-758-8158

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days x Yes ¨ No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ Yes x No

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

21,833,003 Common Shares as of November 9, 2012

American Bio Medica Corporation

Index to Quarterly Report on Form 10-Q

For the quarter ended September 30, 2012

		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011	3
	Unaudited Statements of Operations for the nine months ended September 30, 2012 and September 30, 2011	4
	Unaudited Statements of Operations for the three months ended September 30, 2012 and September 30, 2011	5
	Unaudited Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011	6
	Notes to Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		22

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

American Bio Medica Corporation

Balance Sheets

	September 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	0		$	93,000
Accounts receivable, net of allowance for doubtful accounts of $50,000 at September 30, 2012, and $66,000 at December 31, 2011		1,242,000			883,000
Inventory, net of allowance for slow moving and obsolete inventory of $469,000 at September 30, 2012 and $401,000 at December 31, 2011		3,079,000			3,239,000
Prepaid expenses and other current assets		83,000			61,000
Total current assets		4,404,000			4,276,000
Property, plant and equipment, net		1,225,000			1,304,000
Debt issuance costs, net		42,000			26,000
Patents, net		23,000			0
Other assets		26,000			30,000
Total assets	$	5,720,000		$	5,636,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Checks written in excess of cash balance	$	14,000		$	0
Accounts payable		1,027,000			631,000
Accrued expenses and other current liabilities		195,000			217,000
Wages payable		290,000			264,000
Line of credit		565,000			397,000
Current portion of long-term debt		1,435,000			872,000
Current portion of unearned grant		10,000			10,000
Total current liabilities		3,536,000			2,391,000
Other liabilities		144,000			143,000
Long-term debt		0			608,000
Related party note		124,000			124,000
Total liabilities		3,804,000			3,266,000
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, 0 issued and outstanding at September 30, 2012 and December 31, 2011
Common stock; par value $.01 per share; 50,000,000 shares authorized; 21,833,003 issued and outstanding at September 30, 2012 and 21,744,768 issued and outstanding at December 31, 2011		217,000			217,000
Additional paid-in capital		19,479,000			19,386,000
Accumulated deficit		(17,780,000	)		(17,233,000	)
Total stockholders’ equity		1,916,000			2,370,000
Total liabilities and stockholders’ equity	$	5,720,000		$	5,636,000

The accompanying notes are an integral part of the financial statements

3

American Bio Medica Corporation

Statements of Operations

(Unaudited)

	For The Nine Months Ended
	September 30,
	2012			2011
Net sales	$	7,041,000		$	6,898,000
Cost of goods sold		4,145,000			4,019,000
Gross profit		2,896,000			2,879,000
Operating expenses:
Research and development		162,000			170,000
Selling and marketing		1,503,000			1,319,000
General and administrative		1,658,000			1,563,000
		3,323,000			3,052,000
Operating loss		(427,000	)		(173,000	)
Other income / (expense):
Loss on disposal of property, plant and equipment		0			(1,000	)
Interest income		8,000			0
Interest expense		(129,000	)		(150,000	)
		(121,000	)		(151,000	)
Net loss before tax		(548,000	)		(324,000	)
Income tax benefit / (expense)		2,000			(6,000	)
Net loss	$	(546,000	)	$	(330,000	)
Basic and diluted loss per common share	$	(0.03	)	$	(0.02	)
Weighted average number of shares outstanding – basic and diluted		21,833,003			21,744,768

The accompanying notes are an integral part of the financial statements

4

American Bio Medica Corporation

Statements of Operations

(Unaudited)

	For The Three Months Ended
	September 30,
	2012			2011
Net sales	$	2,283,000		$	2,365,000
Cost of goods sold		1,392,000			1,399,000
Gross profit		891,000			966,000
Operating expenses:
Research and development		54,000			61,000
Selling and marketing		453,000			417,000
General and administrative		613,000			462,000
		1,120,000			940,000
Operating (loss) / income		(229,000	)		26,000
Other income / (expense):
Interest income		3,000			0
Interest expense		(38,000	)		(49,000	)
		(35,000	)		(49,000	)
Net loss before tax		(264,000	)		(23,000	)
Income tax expense		0			(5,000	)
Net loss	$	(264,000	)	$	(28,000	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.00	)
Weighted average number of shares outstanding – basic and diluted		21,833,003			21,744,768

The accompanying notes are an integral part of the financial statements

5

American Bio Medica Corporation

Statements of Cash Flows

(Unaudited)

	For The Nine Months Ended
	September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(546,000	)	$	(330,000	)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation		91,000			208,000
Loss on disposal of property, plant and equipment		0			1,000
Amortization of debt issuance costs		34,000			35,000
Provision for bad debts		(16,000	)		(14,000	)
Provision for slow moving and obsolete inventory		68,000			(6,000	)
Share-based payment expense		93,000			45,000
Changes in:
Accounts receivable		(344,000	)		(381,000	)
Inventory		92,000			434,000
Prepaid expenses and other current assets		(21,000	)		(28,000	)
Accounts payable		394,000			252,000
Accrued expenses and other current liabilities		(1,000	)		(63,000	)
Wages payable		26,000			36,000
Other assets		3,000
Other liabilities		2,000			2,000
Net cash (used in) / provided by operating activities		(125,000	)		191,000
Cash flows from investing activities:
Purchase of property, plant and equipment		(12,000	)		(141,000	)
Patent application costs		(23,000	)		0
Net cash used in investing activities		(35,000	)		(141,000	)
Cash flows from financing activities:
Payments on debt financing		(201,000	)		(103,000	)
Debt issuance costs		(50,000	)		0
Proceeds from bridge loan		150,000			0
Proceeds from equipment loan		0			11,000
Net proceeds from line of credit		168,000			27,000
Net cash provided by / (used in) financing activities		67,000			(65,000	)
Net decrease in cash and cash equivalents		(93,000	)		(15,000	)
Cash and cash equivalents - beginning of period		93,000			37,000
Cash and cash equivalents - end of period	$	0		$	22,000
Supplemental disclosures of cash flow information
Cash paid during period for interest	$	152,000		$	170,000
Cash paid during period for taxes		0			0

The accompanying notes are an integral part of the financial statements

6

AMERICAN BIO MEDICA CORPORATION

Notes to financial statements (unaudited)

September 30, 2012

Note A - Basis of Reporting

The accompanying unaudited interim 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 financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statement presentation. These unaudited interim financial statements should be read in conjunction with our audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, the interim 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, 2012, the results of our operations for the three and nine month periods ended September 30, 2012 and September 30, 2011, and cash flows for the nine month periods ended September 30, 2012 and September 30, 2011.

Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the year ending December 31, 2012. Amounts at December 31, 2011 are derived from our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

During the nine months ended September 30, 2012, there were no significant changes to our critical accounting policies, which are included in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

These unaudited interim financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, contained an explanatory paragraph regarding our ability to continue as a going concern. As of the date of this report, our current cash balances, together with cash generated from future operations and amounts available under current credit facilities may not be sufficient to fund operations for the next 12 months if sales levels do not improve (and an inability to market and sell our point of collection oral fluid drug tests in the Workplace market would negatively impact our revenues). If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to sell additional equity or obtain additional credit facilities. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.

Recent Accounting Standards

There were no new standards adopted that are expected to have a material impact on our interim financial statements.

Note B – 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, 2012 and 2011:

7

AMERICAN BIO MEDICA CORPORATION

	September 30, 2012		September 30, 2011
Warrants		375,000		75,000
Options		3,139,080		3,081,580

There were no securities included in the diluted net loss per common share for the three and nine months ended September 30, 2012 and September 30, 2011 (because the effect would have been anti-dilutive).

Note C – Litigation

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial, together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint (totaling $9,000,000).

On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery were expected to be completed by April 30, 2012, however, pretrial discovery was extended to September 28, 2012 due to an unexpected personal issue that occurred involving the Defendants attorney; this unexpected issue was unrelated to the case or the claims of the case. On September 11, 2012, pretrial discovery was extended again to December 14, 2012.

As previously disclosed, we received a warning letter from the U.S. Food and Drug Administration (“FDA”) in July 2009 that alleges we re marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

8

AMERICAN BIO MEDICA CORPORATION

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

In addition, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. 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.

Note D – Line of Credit and Debt

Loan and Security Agreement with Medallion Financial Corp (“Medallion”)

On April 20, 2012 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Medallion, a Senior Lender, to refinance the Company’s Line of Credit with Rosenthal.

Under the Loan Agreement, Medallion is providing the Company with up to $1,000,000 under a revolving secured line of credit (the “Medallion Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment. The maximum amount available under the Medallion Line of Credit is subject to an Advance Rate that consists of: 85% of eligible accounts receivable and up to 30% of eligible inventory (not to exceed $150,000). “Eligible Receivables” are defined as those receivables that are paid within ninety (90) days of the invoice date. Eligible Receivables consists of both domestic sales and those international sales made in North America. An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables. “Eligible Inventory” is defined as raw materials and finished goods that are not obsolete or unmerchantable and are acceptable to Medallion.

From the loan availability on the Closing Date, we drew approximately $566,000 to pay off our Line of Credit with Rosenthal and Rosenthal, Inc. (“Rosenthal”); see below for further information on the Rosenthal Line of Credit).

We were charged a facility fee of 1% of the balance of the Medallion Line of Credit on the Closing Date and will be charged the same facility fee of 1% on each anniversary of the Closing Date thereafter. Under the Loan Agreement, interest on outstanding borrowings is payable monthly and is charged at an annual rate equal to 4% above a base rate (which is the Wall Street Journal Prime as published from time to time. As of the date of this report, the Wall Street Journal Prime is 3.25%). If we were to default under the Loan Agreement, interest on outstanding borrowings under the Medallion Line of Credit would be charged at an annual rate of 2% above the interest rate in effect at the time of such default. We are subject to two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day. Prior to closing, we also paid a non-refundable fee in the amount of $10,000 to Medallion for field exam and due diligence costs.

So long as any obligations are due to Medallion under the Medallion Line of Credit, we must maintain stockholders’ equity of at least $1,750,000, and as of the date of this report, we are in compliance with this requirement.

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AMERICAN BIO MEDICA CORPORATION

We incurred $20,000 in costs related to the Medallion Line of Credit. These costs were fully expensed in the nine months ended September 30, 2012.

We incurred $8,000 and $31,000 in interest expense in the three and nine months ended September 30, 2012, respectively (no interest expense was incurred in the three and nine months ended September 30, 2011 as we did not close on the Medallion Line of Credit until April 2012).

The amount outstanding on the Medallion Line of Credit at September 30, 2012 was $565,000. Additional loan availability was $107,000, for a total Loan Availability of $672,000 as of September 30, 2012. No amounts were outstanding or available at September 30, 2011, as we did not close on the Medallion Line of Credit until April 2012.

Rosenthal Line of Credit

We previously entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. On February 28, 2012, we gave Rosenthal written notice of non-renewal as provided under the Financing Agreement, and as a result, the Financing Agreement terminated on May 31, 2012.

Under the Financing Agreement, Rosenthal provided the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit was collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 was subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula were subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we paid Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $7,000 and $23,000 in the three and nine months ended September 30, 2011, respectively (there were no ($0) additional administrative fees charged in the three and nine months ended September 30, 2012). Under the Financing Agreement, interest was payable monthly, and was charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $0 and $19,000, respectively in interest expense in the three and six months ended September 30, 2012. We incurred $14,000 and $42,000, respectively, in interest expense in the three and nine months ended September 30, 2011.

We incurred $41,000 in costs related to the Rosenthal Line of Credit. These costs were amortized over the three-year term of the Rosenthal Line of Credit; with the remaining $4,000 in costs being amortized in the second quarter of 2012. We amortized $0 and $7,000, respectively, in the three and nine months ended September 30, 2012. We amortized $4,000 and $11,000, respectively, in costs in the three and nine months ended September 30, 2011.

In April 2012, we drew approximately $566,000 from our Medallion Line of Credit to pay off the Rosenthal Line of Credit so the amount due on the Rosenthal Line of Credit as of September 30, 2012 was $0. The amount outstanding on the Rosenthal Line of Credit at December 31, 2011 was $397,000, with $361,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $36,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $159,000, for a total Loan Availability of $556,000 as of December 31, 2011.

First Niagara Bank Mortgage Consolidation Loan (“Mortgage Consolidation Loan”)

On February 23, 2011, we amended and extended our Mortgage Consolidation Loan with First Niagara Bank (“First Niagara”). The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. These costs were fully amortized as of September 30, 2012. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with a covenant (measured monthly) to maintain a certain level of liquidity (defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan). As of the date of this report, we are in compliance with this covenant.

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AMERICAN BIO MEDICA CORPORATION

The balance on the Mortgage Consolidation Loan was $639,000 at September 30, 2012 and $725,000 at December 31, 2011. Interest expense recognized in the nine months ended September 30, 2012 was $43,000 and interest expense recognized in the nine months ended September 30, 2011 was $50,000. Interest expense was $14,000 and $16,000, respectively, during the three months ended September 30, 2012 and September 30, 2011.

Copier Leases

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease is five years with an interest rate of 14.11%. In April 2012, we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease. The amount outstanding on this lease was $0 at September 30, 2012 and $3,000 at December 31, 2011.

In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was$1,000 at September 30, 2012 and $2,000 at December 31, 2011.

Debenture Financing

In August 2008, we completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrued interest at a rate of 10% per annum (payable by the Company semi-annually). As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $19,000 of expense related to these debt issuance costs in the nine months ended September 30, 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $24,000 of expense in the nine months ended September 30, 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants. We amortized $3,000 of expense in the three months ended September 30, 2012 and $8,000 of expense in the three months ended September 30, 2011; of which less than $1,000 was share based payment expense related to the Cantone warrants in both periods.

The unamortized balance was $0 as of September 30, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011. We also had $0 in accrued interest expense related to the Series A Debentures at September 30, 2012 and $31,000 December 31, 2011. The Company recognized $44,000 in interest expense during the nine months ended September 30, 2012 and $56,000 in interest expense during the nine months ended September 30, 2011. The Company recognized $6,000 in interest expense in the three months ended September 30, 2012 and $19,000 in interest expense in the three months ended September 30, 2011.

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Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months). We amortized $8,000 of these costs in the three months ended September 30, 2012.

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Debenture Amendment extends the due date of the Series A Debenture to August 31, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

On August 1, 2012, the Company entered into a Consulting Agreement (“Consulting Agreement”) with CAM. The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012). The warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item 1, Note E, “Series A Debenture Extension-Warrants”).

Note E – Stock Option Grants / Warrant Grants

Rosenthal Financing Option Grants

As a condition to the Financing Agreement with Rosenthal, our Chief Executive Officer, Stan Cipkowski (“Cipkowski”) was required to execute a Validity Guarantee (the “Validity Guarantee”) that includes representations and warranties with respect to the validity of the Company’s receivables and guarantees the accuracy of the Company’s reporting to Rosenthal related to its receivables and inventory. The Validity Guarantee places Cipkowski’s personal assets at risk in the event of a breach of such representations, warranties and guarantees. As part of the compensation for his execution of the Validity Guarantee, on July 1, 2009, Cipkowski was awarded an option grant representing 500,000 common shares of the Company under its Fiscal 2001 Stock Option Plan (the “2001 Plan”), at an exercise price of $0.20, the closing price of the Company’s common shares on the date of the grant. The option grant vests over 3 years in equal installments, and the first 33% (165,000 common shares) of the grant vested on July 1, 2010, the second 33%, (165,000 common shares) vested on July 1, 2011 and the final 34% (170,000 common shares) vested on July 1, 2012. We recognized $78,000 in share-based payment expense amortized over the required service period of 3 years. We recognized $13,000 in share-based payment expense for this grant in the nine months ended September 30, 2012 and $20,000 in share-based payment expense in the nine months ended September 30, 2011. We recognized $0 in share-based payment expense for this grant in the three months ended September 30, 2012 and $6,000 in share-based payment expense in the three months ended September 30, 2011. As of September 30 2012, there was $0 in unrecognized expense with 0 months remaining.

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As another condition to the Financing Agreement with Rosenthal, the Company’s President and Chairman of the Board, Edmund M. Jaskiewicz (“Jaskiewicz”) was required to execute an Agreement of Subordination and Assignment (“Subordination Agreement”) related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt was not payable, was junior in right to the Rosenthal Line of Credit and no payment could be accepted or retained by Jaskiewicz unless and until the Company satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

As compensation for his execution of the Subordination Agreement, on July 1, 2009 Jaskiewicz was awarded an option grant representing 50,000 common shares of the Company under its 2001 Plan at an exercise price of $0.20, the closing price of the Company’s common shares on July 1, 2009. The option grant (50,000 common shares) was 100% immediately exercisable on July 31, 2009. We recognized $8,000 during the year ended December 31, 2009 in share-based payment expense related to the grant of Jaskiewicz’s options upon issuance of the grant.

On July 1, 2010 (the first anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded a second option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.07, the closing price of the Company’s common shares on July 1, 2010. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2010. During the year ended December 31, 2010, we recognized $3,000 in share-based payment expense for this grant.

On July 1, 2011, (the second anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded an additional option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.12, the closing price of the Company’s common shares on July 1, 2011. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2011. We recognized the full share-based payment expense of $6,000 in the three months ended September 30, 2011.

December 2010 Employee Grant

On December 31, 2010, we issued options to purchase 275,000 shares of common stock under the 2001 Plan to 4 members of senior management and 8 other employees of the Company at an exercise price of $0.09 (the closing price of the Company’s common shares on December 31, 2010). These option grants vested 100% (275,000 common shares) on December 31, 2011. We recognized $25,000 in share-based payment expense over the required service period of one year. We recognized $0 in share-based payment expense related to these grants in the nine months ended September 30, 2012, and $20,000 of this expense in the nine months ended September 30, 2011. As of September 30, 2012, there was $0 in unrecognized expenses with 0 months remaining.

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Cipkowski and our controller J. Duncan Urquhart (“Urquhart”) were each required to execute Validity Guarantees (the “Validity Guarantees”). Under the Validity Guarantees, Cipkowski and Urquhart provide representations and warranties with respect to the validity of our receivables as well as guaranteeing the accuracy of our reporting to Medallion related to the Company’s receivables.

Cipkowski Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Cipkowski was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% on April 20, 2013 (82,500 common shares), 33% on April 20, 2014 (82,500 common shares) and 34% (85,000 common shares) on April 20, 2015.

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The fair value of the Cipkowski stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Urquhart Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Urquhart was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% (82,500 common shares) on April 20, 2013, 33% (82,500 common shares) on April 20, 2014 and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Urquhart stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Jaskiewicz was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Medallion Line of Credit and no payment may be accepted or retained by Jaskiewicz for the Jaskiewicz Debt unless and until we have paid and satisfied in full any obligations to Medallion. As compensation for his execution of the Subordination Agreement, on April 20, 2012 Jaskiewicz was awarded an option grant representing 150,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of the Company’s common shares on April 20, 2012. The option grant vests over three (3) years in installments as follows: 33% (49,500 common shares) on April 20, 2013, 33% (49,500 common shares) on April 20, 2014 and 34% (51,000 common shares) on April 20, 2015.

The fair value of the Jaskiewicz stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $27,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $2,000 in share-based payment expense in the three months ended September 30, 2012 and $4,000 in share-based payment expense in the nine months ended September 30, 2012. As of September 30, 2012, there was $23,000 in unrecognized share-based payment expense with 30 months remaining.

Series A Debenture Extension – Warrants

CRI Warrants

On July 31, 2012, we issued CRI warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.17 per share (the closing price of the Company’s common shares on July 31, 2012) (“CRI Warrants”). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CRI Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.51; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

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CAM Warrants

On August 1, 2012, we issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (“CAM Warrants”). The CAM Warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CAM Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.56; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $48,000 and the Company recognized $48,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares (for a total of 100,000) of the Company’s common stock to 2 non-executive employees at an exercise price of $0.18 (the closing price of the Company’s common shares on September 20, 2012). Both option grants vest over 3 years in installments as follows: 33% (33,000 common shares total) on September 20, 2013, 33% (33,000 common shares total) on September 20, 2014 and 34% (34,000 common shares total) on September 20, 2015.

We will recognize $18,000 in share-based payment expense over the vesting period of 3 years. We recognized less than $1,000 in share-based payment expense related to these grants in the three and nine months ended September 30, 2012. As of September 30, 2012, there was over $17,000 in unrecognized expenses with 35 months remaining.

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

General

The following discussion of our financial condition and the results of operations should be read in conjunction with the interim Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains, in addition to historical statements, forward-looking statements that involve risks and uncertainties. Our actual future results could differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the factors discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K on file with the SEC. Any forward-looking statement speaks only as of the date on which such statement is made and we do not intend to update any such forward-looking statements.

Overview

Sales in the nine months ended September 30, 2012 increased 2.1% when compared to the nine months ended September 30, 2011, although sales in the three months ended September 30, 2012 (“Third Quarter 2012”) decreased 3.5% when compared to the three months ended September 30, 2011 (“Third Quarter 2011”). Conditions in the global economy remain inconsistent and uncertain. Our core markets, Workplace and Government, are greatly affected by this economic uncertainty. We continue to believe that it will be some time before employment rates and government budgets return to pre-recession levels and remain at those levels, and therefore sometime before we will experience consistent, significant sales growth in these markets.

Given this uncertainty, we continue to examine all expenses closely in efforts to achieve profitability (if sales levels improve) or to minimize losses going forward (if sales remain at current levels decline). During the nine months ended September 30, 2012 we sustained a net loss of $546,000 from net sales of $7,041,000. We had cash used in operating activities of $125,000 for the nine months ended September 30, 2012.

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During the nine months ended September 30, 2012, we continued to market and distribute our point of collection products to detect the presence or absence of drugs of abuse in a urine or oral fluid specimen and our Rapid Reader® drug screen result and data management system. We also performed bulk test strip contract manufacturing services for unaffiliated third parties, and continued to focus our efforts on the sale of our CLIA waived Rapid TOX® product line.

Plan of Operations

We continue to focus on selling our point of collection drugs of abuse tests, and growing our business through direct sales (including but not limited to the pursuit of national accounts) and select distributors. We also continue to make efforts to identify and secure new contract work, such as contract manufacturing or contract assembly. Simultaneously with these efforts, we continue to concentrate on: the reduction of manufacturing costs and operating expenses, enhancement of our current products and development of new product platforms and configurations to address market trends.

Our continued existence is dependent upon several factors, including our ability to raise revenue levels and reduce costs to generate positive cash flows, and to obtain working capital by selling additional shares of Company common stock and/or securing additional credit facilities, as necessary.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011

Net Sales: Net sales in the nine months ended September 30, 2012 increased 2.1% when compared to net sales in the nine months ended September 30, 2011. Our sales were negatively impacted in the nine months ended September 30, 2011 due to the temporary and voluntarily cessation of marketing and selling of our oral fluid product in the Workplace market throughout most of the three months ended March 31, 2011 (“First Quarter 2011”). Workplace sales (some of which are national account oral fluid customers) improved; this was primarily a result of marketing cessation in the First Quarter 2011 referred to earlier in this paragraph, and the fact that unemployment rates improved slightly from 9.0% in September 2011 to 7.8% in September 2012 (although the jobless rate only improved slightly over the course of nine months ended September 30, 2012 from 8.3% in January 2012 to 7.8% in September 2012).

Contract manufacturing sales improved when comparing the nine months ended September 30, 2012 with the nine months ended September 30, 2011 as a result of increased contract manufacturing of a product to detect fetal amniotic rupture and a product to detect RSV (respiratory syncytial virus).

Government sales declined in the nine months ended September 30, 2012 when compared to the nine months ended September 30, 2011. Sales to government accounts continue to be negatively impacted by price pressures caused by competitors selling products manufactured outside of the United States. Most government contracts are awarded via an open solicitation process and in most cases, the company with the lowest priced product is awarded the contract. Since foreign manufacturers can offer their products at a lower price due to lower costs, including but not limited to, lower labor, material, regulatory and insurance costs, it has become increasingly difficult to compete from a cost standpoint. In addition, for some of the contracts we currently hold, decreased purchasing levels (in attempts to close budget deficits), have resulted in decreased buying by our customers.

International sales declined due to decreased sales to Latin America, offset by increased sales in other part of the world, including sales to Dräger Safety (under their trademark “DrugCheck”; in July 2011, we entered into a Purchase Agreement with Dräger Safety giving Dräger Safety distribution rights in Europe, Asia, Africa, and Central and South America; with certain markets and territories being exclusive to Dräger Safety).

COST OF GOODS SOLD/GROSS PROFIT: Cost of goods sold increased slightly to 58.9% of net sales in the nine months ended September 30, 2012, compared to 58.3% of net sales in the nine months ended September 30, 2011. Gross profit in the nine months ended September 30, 2012 was also relatively unchanged from the nine months ended September 30, 2011. We continuously monitor inventory levels and the amount of product being manufactured, however, certain direct labor and overhead costs are fixed, so when sales fluctuate up or down, those fixed costs are allocated to a reduced or increased number of manufactured strips, thus affecting our manufacturing cost per unit. When comparing the nine months ended September 30, 2012 with the nine months ended September 30, 2011, sales mix and manufacturing costs were relatively unchanged. We continuously evaluate our production personnel levels as well as our product manufacturing levels to ensure they are adequate to meet current and anticipated sales demands.

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OPERATING EXPENSES: Operating expenses increased 8.9% in the nine months ended September 30, 2012, when compared to the nine months ended September 30, 2011. We continuously assess our operating expenses to ensure they are adequate to elicit growth, support sales levels and address market trends and customer needs. In the nine months ended September 30, 2012, research and development expenses decreased slightly, and general and selling and marketing expense both increased; more specifically:

Research and Development (“R&D”) expense

R&D expense decreased when comparing the nine months ended September 30, 2012 with the nine months ended September 30, 2011. Decreases in salaries, employee related taxes and benefits and supplies were offset by increases in FDA compliance costs and phone/dues/patent fees. The decrease in salaries results from an employee departure. Our R&D department continues to focus their efforts on the enhancement of current products, development of new product platforms and exploration of contract manufacturing opportunities.

Selling and Marketing expense

Selling and marketing expense for the nine months September 30, 2012 increased 13.9% when compared to the nine months ended September 30, 2011. This increase is primarily a result of increases in sales salaries and employee related benefits (due to increased sales personnel), commissions (as a result of increased sales and sales personnel compensation changes), trade show expense, and advertising related expenses, offset by decreases in travel related expense (as a result of sales personnel compensation changes), postage and telephone costs. In the nine months ended September 30, 2012, we continued to promote our products through advertising, participation at trade shows and other marketing activities. Our direct sales force continued to focus their selling efforts in our target markets, which include, but are not limited to, Workplace and Government, as well as focusing on the Clinical market, primarily physicians and pain management clinics, with our CLIA waived Rapid TOX product line.

General and Administrative (“G&A”) expense

G&A expense for the nine months ended September 30, 2012 increased 6.1% when compared to the nine months ended September 30, 2011. Increases in investor relation costs (primarily from increased SEC report fees and expenses), patent and license costs, travel related expense, outside service fees (stemming from compliance with regulatory requirements related to sales outside of the United States), quality control salaries, and share-based payment expense were partially offset by decreases in warehouse salaries, shipping supplies, administrative salaries, consulting fees, accounting fees and utilities. Share-based payment expense was $93,000 in the nine months ended September 30, 2012 compared to $45,000 in the nine months ended September 30, 2011. This increase is primarily due to the issuance (and full expense recognition in the nine months ended September 30, 2012) of warrants to CRI and CAM in connection with the extension of the Series A Debentures (see Part I, Item I, Note E, “Series A Debenture Extension-Warrants”).

RESULTS OF OPERATIONS FOR THE THIRD QUARTER 2012 COMPARED TO THE THIRD QUARTER 2011

Net Sales: Net sales in the Third Quarter 2012 declined 3.5% when compared to net sales in the Third Quarter 2011. Sales to workplace accounts (including sales to national accounts) increased as unemployment rates improved slightly from 9.0% in September 2011 to 7.8% in September 2012 (although the jobless rate only improved slightly over the course of Third Quarter 2012 from 8.3% in July 2012 to 7.8% in September 2012).

Contract manufacturing sales continued to improve when comparing the Third Quarter 2012 with the Third Quarter 2011 as a result of increased contract manufacturing of a product to detect fetal amniotic rupture and a product to detect RSV (respiratory syncytial virus).

Government sales declined in the Third Quarter 2012 when compared to the Third Quarter 2011 for the same reasons discussed previously in the discussion related to the results of the nine months ended September 30, 2012 to the nine months ended September 30, 2011.

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International sales increased due to increased sales in Latin America and sales in the European Union, including sales to Dräger Safety (under their trademark “DrugCheck”; in July 2011, we entered into a Purchase Agreement with Dräger Safety giving Dräger Safety distribution rights in Europe, Asia, Africa, and Central and South America; with certain markets and territories being exclusive to Dräger Safety). These increases were offset by decreased sales in other parts of the world.

COST OF GOODS SOLD/GROSS PROFIT: Cost of goods sold increased to 61.0% of net sales in the Third Quarter 2012, compared to 59.2% of net sales in the Third Quarter 2011. Gross profit in the Third Quarter 2012 decreased to 39.0% when compared to 41.8% reported in the Third Quarter 2011. This increase in cost of goods as a percentage of sales stems primarily from a shift in sales mix (from sales of a higher margin in the Third Quarter 2011 to sales of a lower margin in the Third Quarter 2012).

OPERATING EXPENSES: Operating expenses increased 19.2% in the Third Quarter 2012, when compared to the Third Quarter 2011. We continuously assess our operating expenses to ensure they are adequate to elicit growth, support sales levels and address market trends and customer needs. In the Third Quarter 2012, research and development expenses decreased slightly, while general and administrative and selling and marketing expense increased; more specifically:

Research and Development (“R&D”) expense

R&D expense decreased 11.5% when comparing the Third Quarter 2012 with the Third Quarter 2011. Decreases in salaries and employee related benefits (as a result of an employee departure) and supplies were partially offset by an increase in FDA compliance costs. Our R&D department continues to focus their efforts on the enhancement of current products, development of new product platforms and exploration of contract manufacturing opportunities.

Selling and Marketing expense

Selling and marketing expense for the Third Quarter 2012 increased 8.6% when compared to the Third Quarter 2011. This increase is primarily a result of increases in commissions (as a result of sales personnel compensation changes), trade show related expenses and other advertising related costs, offset by decreases in sales salaries and travel related expense (as a result of the same sales personnel compensation changes), postage and telephone. In the Third Quarter 2012, we continued to promote our products through advertising, participation at trade shows and other marketing activities. Our direct sales force continued to focus their selling efforts in our target markets, which include, but are not limited to, Workplace and Government, as well as focusing on the Clinical market, primarily physicians and pain management clinics, with our CLIA waived Rapid TOX product line.

General and Administrative (“G&A”) expense

G&A expense for the Third Quarter 2012 increased 32.7% when compared to the Third Quarter 2011. Increases in administrative salaries (due to the return of a senior employee in operations), quality assurance salaries, patent and license costs, consulting fees and share-based payment expense were partially offset by decreases in warehouse salaries and shipping supplies, accounting fees and bank service fees. Share-based payment expense was $70,000 in the Third Quarter of 2012 compared to $19,000 in the Third Quarter 2011. This increase stems primarily from the issuance (and full expense recognition in the Third Quarter 2012) of warrants to CRI and CAM in connection with the extension of the Series A Debentures (see Part I, Item I, Note E, “Series A Debenture Extension-Warrants”).

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Liquidity and Capital Resources as of September 30, 2012

Our cash requirements depend on numerous factors, including product development activities, penetration of our core markets, and effective management of inventory levels and production levels in response to sales forecasts. We expect to devote capital resources to continue product development and research and development activities. We will examine other growth opportunities including strategic alliances and expect such activities will be funded from existing cash and cash equivalents, issuance of additional equity or additional borrowings, subject to market and other conditions. Our financial statements for the year ended December 31, 2011 were prepared assuming we will continue as a going concern. As of the date of this report, we do not believe that our current cash balances, together with cash generated from future operations and amounts available under our credit facilities will be sufficient to fund operations for the next twelve months. As of the date of filing this report, our First Niagara Mortgage Consolidation Loan will expire in less than 12 months. The Series A Debentures were set to expire on August 1, 2012, however we extended the Series A Debentures until August 1, 2013 (See Part I; Item I; Note D – Line of Credit and Debt). The Company is exploring possible financing alternatives for both of these credit facilities; including but not limited to extension and/or refinancing of the current credit facilities. If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to sell additional equity or obtain additional credit facilities. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.

As of September 30, 2012, we had a Mortgage Consolidation Loan with First Niagara and a Line of Credit with Medallion. The Medallion Line of Credit had a total loan availability of $672,000 as of September 30, 2012, with $107,000 of this amount available for borrowing.

Working capital

Our working capital decreased $1,017,000 at September 30, 2012 when compared to working capital at December 31, 2011 primarily as a result of the reclassification of our Mortgage Consolidation Loan with First Niagara from long term debt to short term debt (considering its maturity date of March 2, 2013). In addition, a decrease in cash and an increase in accounts payables were offset by a decrease in inventory, and increases in accounts receivable and prepaid assets.

We have historically satisfied net working capital requirements through cash from operations, bank debt, occasional proceeds from the exercise of stock options and warrants (approximately $623,000 since 2002) and through the private placement of equity securities ($3,299,000 in gross proceeds since August 2001, with net proceeds of $2,963,000 after placement, legal, transfer agent, accounting and filing fees).

Dividends

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

Cash Flows

Increases in accounts receivable and prepaid expenses and other current assets, offset by increases in accounts payable and provision for slow moving and obsolete inventory resulted in cash used in operating activities of $125,000 for the nine months ended September 30, 2012. The primary use of cash in the nine months ended September 30, 2012 and the nine months ended September 30, 2011 was funding of operations.

Net cash used in investing activities in the nine months ended September 30, 2012 was for investment in property, plant and equipment and patent application costs, net cash used in investing activities in the nine months ended September 30, 2011 was for investment in property, plant and equipment.

Net cash provided by financing activities in the nine months ended September 30, 2012 consisted of proceeds from a bridge loan and net proceeds from our line of credit, offset by payments on debt financing and debt issuance costs, while cash used in financing activities in the nine months ended September 30, 2011 consisted primarily of payments on debt financing offset by proceeds from an equipment loan and net proceeds from our line of credit.

At September 30, 2012, we had cash and cash equivalents of $0.

Outlook

Given our current sales levels and results of operations, we expect that we may need to raise additional capital in the year ending December 31, 2012 to be able to continue operations. If events and circumstances occur such that we do not meet our current operating plans, we are unable to raise sufficient additional equity or debt financing, or our credit facilities are insufficient or not available, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance.

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AMERICAN BIO MEDICA CORPORATION

Our primary short-term working capital needs relate to our efforts to increase high volume sales in the drugs of abuse testing market, to refine manufacturing and production capabilities and establish adequate inventory levels to support expected sales, while continuing support of research and development activities. We believe that our current infrastructure is sufficient to support our business; however, if at some point in the future we experience renewed growth in sales, we may be required to increase our infrastructure to support sales. It is also possible that additional investments in research and development, and increased expenditures in selling and marketing and general and administrative departments may be necessary in the future to: develop new products, enhance current products to meet the changing needs of the point of collection drugs of abuse testing market, grow contract manufacturing operations, promote our products in our markets and institute changes that may be necessary to comply with various public company reporting requirements, as well as FDA requirements related to the marketing and use of our products. We continue to take measures to attempt to control the rate of increase of these costs to be consistent with any sales growth rate we may experience in the near future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer (Principal Executive Officer)/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

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes to our risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, 2011, set forth in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2012 or set forth in our Current Report on Form 8-K filed with the Commission on July 10, 2012.

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

As compensation for their placement agent services related to the extension of the Series A Debentures, on July 31, 2012, we issued Cantone Research, Inc. warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.17 per share (the closing price of the Company’s common shares on July 31, 2012) (“CRI Warrants”). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”).

On August 1, 2012, we issued Cantone Asset Management, LLC warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (“CAM Warrants”). The CAM Warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item I, Note E, “Series A Debenture Extension”).

20

AMERICAN BIO MEDICA CORPORATION

In connection with our Bridge Loan from Cantone Asset Management, LLC (see Part I, Item 1, Note D, “Series A Debenture Extension”), on August 1, 2012, we instructed our transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted shares of the Company’s common stock were issued to CAM.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

4.19	Placement Agent Agreement by and between the Company and Cantone Research, Inc (incorporated by reference from Exhibit 4.19 to the Company’s Current Report on Form 8-K filed with the Commission on July 31, 2012).
4.20	Bridge Loan Agreement by and between the Company and Cantone Asset Management, LLC (incorporated by reference from Exhibit 4.20 to the Company’s Current Report on Form 8-K filed with the Commission on July 31, 2012).
4.21	Note (Bridge Loan) by and between the Company and Cantone Asset Management, LLC (incorporated by reference from Exhibit 4.21 to the Company’s Current Report on Form 8-K filed with the Commission on July 31, 2012).
4.22	Form of Debenture Amendment between the Company and Debenture Holders (incorporated by reference from Exhibit 4.22 to the Company’s Current Report on Form 8-K/A filed with the Commission on August 6, 2012).
4.23	Consulting Agreement between the Company and Cantone Asset Management, LLC (incorporated by reference from Exhibit 4.23 to the Company’s Current Report on Form 8-K/A filed with the Commission on August 6, 2012).
10.26	Employment Contract between the Company and Melissa A. Waterhouse (incorporated by reference from Exhibit 10.26 to the Company’s Current Report on Form 8-K filed with the Commission on April 25, 2012)
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, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheet, (ii) Statements of Income (iii) Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

21

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN BIO MEDICA CORPORATION

(Registrant)

By: /s/ Stan Cipkowski

Stan Cipkowski

Chief Financial Officer/Chief Executive Officer

Principal Financial Officer

Principal Accounting Officer

Dated: November 14, 2012

22

EX-31.1

Exhibit 31.1/Exhibit 31.2

CERTIFICATION

I, Stan Cipkowski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Bio Medica Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Stan Cipkowski

Stan Cipkowski

Chief Executive Officer/Chief Financial Officer

Principal Executive Officer/Principal Financial Officer

Principal Accounting Officer

Date: November 14, 2012

EX-32.1

Exhibit 32.1/Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of American Bio Medica Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2012 as filed with the Securities and Exchange Commission on November 14, 2012 (the “Report”), I, Stan Cipkowski, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stan Cipkowski

Stan Cipkowski

Chief Executive Officer/Chief Financial Officer

Principal Executive Officer/Principal Financial Officer

Principal Accounting Officer

November 14, 2012

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Line of Credit and Debt

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note D – Line of Credit and Debt

Loan and Security Agreement with Medallion Financial Corp (“Medallion”)

On April 20, 2012 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Medallion, a Senior Lender, to refinance the Company’s Line of Credit with Rosenthal.

Under the Loan Agreement, Medallion is providing the Company with up to $1,000,000 under a revolving secured line of credit (the “Medallion Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment. The maximum amount available under the Medallion Line of Credit is subject to an Advance Rate that consists of: 85% of eligible accounts receivable and up to 30% of eligible inventory (not to exceed $150,000). “Eligible Receivables” are defined as those receivables that are paid within ninety (90) days of the invoice date. Eligible Receivables consists of both domestic sales and those international sales made in North America. An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables. “Eligible Inventory” is defined as raw materials and finished goods that are not obsolete or unmerchantable and are acceptable to Medallion.

From the loan availability on the Closing Date, we drew approximately $566,000 to pay off our Line of Credit with Rosenthal and Rosenthal, Inc. (“Rosenthal”); see below for further information on the Rosenthal Line of Credit).

We were charged a facility fee of 1% of the balance of the Medallion Line of Credit on the Closing Date and will be charged the same facility fee of 1% on each anniversary of the Closing Date thereafter. Under the Loan Agreement, interest on outstanding borrowings is payable monthly and is charged at an annual rate equal to 4% above a base rate (which is the Wall Street Journal Prime as published from time to time. As of the date of this report, the Wall Street Journal Prime is 3.25%). If we were to default under the Loan Agreement, interest on outstanding borrowings under the Medallion Line of Credit would be charged at an annual rate of 2% above the interest rate in effect at the time of such default. We are subject to two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day. Prior to closing, we also paid a non-refundable fee in the amount of $10,000 to Medallion for field exam and due diligence costs.

So long as any obligations are due to Medallion under the Medallion Line of Credit, we must maintain stockholders’ equity of at least $1,750,000, and as of the date of this report, we are in compliance with this requirement.

We incurred $20,000 in costs related to the Medallion Line of Credit. These costs were fully expensed in the nine months ended September 30, 2012.

We incurred $8,000 and $31,000 in interest expense in the three and nine months ended September 30, 2012, respectively (no interest expense was incurred in the three and nine months ended September 30, 2011 as we did not close on the Medallion Line of Credit until April 2012).

The amount outstanding on the Medallion Line of Credit at September 30, 2012 was $565,000. Additional loan availability was $107,000, for a total Loan Availability of $672,000 as of September 30, 2012. No amounts were outstanding or available at September 30, 2011, as we did not close on the Medallion Line of Credit until April 2012.

Rosenthal Line of Credit

We previously entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. On February 28, 2012, we gave Rosenthal written notice of non-renewal as provided under the Financing Agreement, and as a result, the Financing Agreement terminated on May 31, 2012.

Under the Financing Agreement, Rosenthal provided the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit was collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 was subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula were subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we paid Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $7,000 and $23,000 in the three and nine months ended September 30, 2011, respectively (there were no ($0) additional administrative fees charged in the three and nine months ended September 30, 2012). Under the Financing Agreement, interest was payable monthly, and was charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $0 and $19,000, respectively in interest expense in the three and six months ended September 30, 2012. We incurred $14,000 and $42,000, respectively, in interest expense in the three and nine months ended September 30, 2011.

We incurred $41,000 in costs related to the Rosenthal Line of Credit. These costs were amortized over the three-year term of the Rosenthal Line of Credit; with the remaining $4,000 in costs being amortized in the second quarter of 2012. We amortized $0 and $7,000, respectively, in the three and nine months ended September 30, 2012. We amortized $4,000 and $11,000, respectively, in costs in the three and nine months ended September 30, 2011.

In April 2012, we drew approximately $566,000 from our Medallion Line of Credit to pay off the Rosenthal Line of Credit so the amount due on the Rosenthal Line of Credit as of September 30, 2012 was $0. The amount outstanding on the Rosenthal Line of Credit at December 31, 2011 was $397,000, with $361,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $36,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $159,000, for a total Loan Availability of $556,000 as of December 31, 2011.

First Niagara Bank Mortgage Consolidation Loan (“Mortgage Consolidation Loan”)

On February 23, 2011, we amended and extended our Mortgage Consolidation Loan with First Niagara Bank (“First Niagara”). The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. These costs were fully amortized as of September 30, 2012. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with a covenant (measured monthly) to maintain a certain level of liquidity (defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan). As of the date of this report, we are in compliance with this covenant.

The balance on the Mortgage Consolidation Loan was $639,000 at September 30, 2012 and $725,000 at December 31, 2011. Interest expense recognized in the nine months ended September 30, 2012 was $43,000 and interest expense recognized in the nine months ended September 30, 2011 was $50,000. Interest expense was $14,000 and $16,000, respectively, during the three months ended September 30, 2012 and September 30, 2011.

Copier Leases

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease is five years with an interest rate of 14.11%. In April 2012, we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease. The amount outstanding on this lease was $0 at September 30, 2012 and $3,000 at December 31, 2011.

In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was$1,000 at September 30, 2012 and $2,000 at December 31, 2011.

Debenture Financing

In August 2008, we completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrued interest at a rate of 10% per annum (payable by the Company semi-annually). As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $19,000 of expense related to these debt issuance costs in the nine months ended September 30, 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $24,000 of expense in the nine months ended September 30, 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants. We amortized $3,000 of expense in the three months ended September 30, 2012 and $8,000 of expense in the three months ended September 30, 2011; of which less than $1,000 was share based payment expense related to the Cantone warrants in both periods.

The unamortized balance was $0 as of September 30, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011. We also had $0 in accrued interest expense related to the Series A Debentures at September 30, 2012 and $31,000 December 31, 2011. The Company recognized $44,000 in interest expense during the nine months ended September 30, 2012 and $56,000 in interest expense during the nine months ended September 30, 2011. The Company recognized $6,000 in interest expense in the three months ended September 30, 2012 and $19,000 in interest expense in the three months ended September 30, 2011.

Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months). We amortized $8,000 of these costs in the three months ended September 30, 2012.

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Debenture Amendment extends the due date of the Series A Debenture to August 31, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

On August 1, 2012, the Company entered into a Consulting Agreement (“Consulting Agreement”) with CAM. The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012). The warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item 1, Note E, “Series A Debenture Extension-Warrants”).

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Litigation

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Legal Matters and Contingencies [Text Block]

Note C – Litigation

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial, together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint (totaling $9,000,000).

On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery were expected to be completed by April 30, 2012, however, pretrial discovery was extended to September 28, 2012 due to an unexpected personal issue that occurred involving the Defendants attorney; this unexpected issue was unrelated to the case or the claims of the case. On September 11, 2012, pretrial discovery was extended again to December 14, 2012.

As previously disclosed, we received a warning letter from the U.S. Food and Drug Administration (“FDA”) in July 2009 that alleges we re marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

In addition, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. 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.

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Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 0	$ 93,000
Accounts receivable, net of allowance for doubtful accounts of $50,000 at September 30, 2012, and $66,000 at December 31, 2011	1,242,000	883,000
Inventory, net of allowance for slow moving and obsolete inventory of $469,000 at September 30, 2012 and $401,000 at December 31, 2011	3,079,000	3,239,000
Prepaid expenses and other current assets	83,000	61,000
Total current assets	4,404,000	4,276,000
Property, plant and equipment, net	1,225,000	1,304,000
Debt issuance costs, net	42,000	26,000
Patents, net	23,000	0
Other assets	26,000	30,000
Total assets	5,720,000	5,636,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Checks written in excess of cash balance	14,000	0
Accounts payable	1,027,000	631,000
Accrued expenses and other current liabilities	195,000	217,000
Wages payable	290,000	264,000
Line of credit	565,000	397,000
Current portion of long-term debt	1,435,000	872,000
Current portion of unearned grant	10,000	10,000
Total current liabilities	3,536,000	2,391,000
Other liabilities	144,000	143,000
Long-term debt	0	608,000
Related party note	124,000	124,000
Total liabilities	3,804,000	3,266,000
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, 0 issued and outstanding at September 30, 2012 and December 31, 2011	0	0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 21,833,003 issued and outstanding at September 30, 2012 and 21,744,768 issued and outstanding at December 31, 2011	217,000	217,000
Additional paid-in capital	19,479,000	19,386,000
Accumulated deficit	(17,780,000)	(17,233,000)
Total stockholders’ equity	1,916,000	2,370,000
Total liabilities and stockholders’ equity	$ 5,720,000	$ 5,636,000

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Basis of Reporting

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Basis of Accounting [Text Block]

Note A - Basis of Reporting

The accompanying unaudited interim 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 financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statement presentation. These unaudited interim financial statements should be read in conjunction with our audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, the interim 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, 2012, the results of our operations for the three and nine month periods ended September 30, 2012 and September 30, 2011, and cash flows for the nine month periods ended September 30, 2012 and September 30, 2011.

Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the year ending December 31, 2012. Amounts at December 31, 2011 are derived from our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

During the nine months ended September 30, 2012, there were no significant changes to our critical accounting policies, which are included in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

These unaudited interim financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, contained an explanatory paragraph regarding our ability to continue as a going concern. As of the date of this report, our current cash balances, together with cash generated from future operations and amounts available under current credit facilities may not be sufficient to fund operations for the next 12 months if sales levels do not improve (and an inability to market and sell our point of collection oral fluid drug tests in the Workplace market would negatively impact our revenues). If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to sell additional equity or obtain additional credit facilities. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.

Recent Accounting Standards

There were no new standards adopted that are expected to have a material impact on our interim financial statements.

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Net Loss Per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note B – 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, 2012 and 2011:

	September 30, 2012		September 30, 2011
Warrants		375,000		75,000
Options		3,139,080		3,081,580

There were no securities included in the diluted net loss per common share for the three and nine months ended September 30, 2012 and September 30, 2011 (because the effect would have been anti-dilutive).

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Balance Sheets [Parenthetical] (USD $)	Sep. 30, 2012	Dec. 31, 2011
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 50,000	$ 66,000
Inventory, allowance for slow moving and obsolete inventory (in dollars)	$ 469,000	$ 401,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	21,833,003	21,744,768
Common stock, shares outstanding	21,833,003	21,744,768

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 30, 2012
Entity Registrant Name	AMERICAN BIO MEDICA CORP
Entity Central Index Key	0000896747
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	abmc
Entity Common Stock, Shares Outstanding		21,833,003
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

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Statements of Operations (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net sales	$ 2,283,000	$ 2,365,000	$ 7,041,000	$ 6,898,000
Cost of goods sold	1,392,000	1,399,000	4,145,000	4,019,000
Gross profit	891,000	966,000	2,896,000	2,879,000
Operating expenses:
Research and development	54,000	61,000	162,000	170,000
Selling and marketing	453,000	417,000	1,503,000	1,319,000
General and administrative	613,000	462,000	1,658,000	1,563,000
Operating Expenses, Total	1,120,000	940,000	3,323,000	3,052,000
Operating (loss) / income	(229,000)	26,000	(427,000)	(173,000)
Other income / (expense):
Loss on disposal of property, plant and equipment			0	(1,000)
Interest income	3,000	0	8,000	0
Interest expense	(38,000)	(49,000)	(129,000)	(150,000)
Nonoperating Income (Expense), Total	(35,000)	(49,000)	(121,000)	(151,000)
Net loss before tax	(264,000)	(23,000)	(548,000)	(324,000)
Income tax benefit / (expense)	0	(5,000)	2,000	(6,000)
Net loss	$ (264,000)	$ (28,000)	$ (546,000)	$ (330,000)
Basic and diluted loss per common share (in dollars per share)	$ (0.01)	$ 0.00	$ (0.03)	$ (0.02)
Weighted average number of shares outstanding - basic and diluted (in shares)	21,833,003	21,744,768	21,833,003	21,744,768

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Net Income / (Loss) Per Common Share (Details)	Sep. 30, 2012	Sep. 30, 2011
Warrants	375,000	75,000
Options	3,139,080	3,081,580

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Net Loss Per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share Reconciliation [Table Text Block]

Potential common shares outstanding as of September 30, 2012 and 2011:

	September 30, 2012		September 30, 2011
Warrants		375,000		75,000
Options		3,139,080		3,081,580

 

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Stock Option Grants / Warrant Grants (Details Textual) (USD $)	9 Months Ended				3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended									9 Months Ended	3 Months Ended	9 Months Ended					1 Months Ended					3 Months Ended	12 Months Ended				1 Months Ended			3 Months Ended		9 Months Ended			12 Months Ended					9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Jun. 29, 2009	Sep. 30, 2012 Cipkowski Medallion Grant [Member]	Sep. 30, 2012 Cipkowski Medallion Grant [Member]	Sep. 30, 2012 Urquhart Medallion Grant [Member]	Sep. 30, 2012 Urquhart Medallion Grant [Member]	Sep. 30, 2012 Jaskiewicz Medallion Grant [Member]	Sep. 30, 2012 Jaskiewicz Medallion Grant [Member]	Sep. 30, 2012 Cam Warrants [Member]	Sep. 30, 2012 Cam Warrants [Member]	Sep. 30, 2012 Cri Warrants [Member]	Sep. 30, 2012 Cri Warrants [Member]	Sep. 30, 2012 April 20, 2013 [Member] Cipkowski Medallion Grant [Member]	Sep. 30, 2012 April 20, 2013 [Member] Urquhart Medallion Grant [Member]	Sep. 30, 2012 April 20, 2013 [Member] Jaskiewicz Medallion Grant [Member]	Sep. 30, 2012 April 20, 2014 [Member] Cipkowski Medallion Grant [Member]	Sep. 30, 2012 April 20, 2014 [Member] Urquhart Medallion Grant [Member]	Sep. 30, 2012 April 20, 2014 [Member] Jaskiewicz Medallion Grant [Member]	Sep. 30, 2012 April 20, 2015 [Member] Cipkowski Medallion Grant [Member]	Sep. 30, 2012 April 20, 2015 [Member] Urquhart Medallion Grant [Member]	Sep. 30, 2012 April 20, 2015 [Member] Jaskiewicz Medallion Grant [Member]	Sep. 30, 2012 Employee Option Grant [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member] Two Non-Executive Employees [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member] September 20, 2013 [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member] September 20, 2014 [Member]	Sep. 30, 2012 September 2012 Employee Grants [Member] September 20, 2015 [Member]	Apr. 20, 2012 Medallion Financing Stock Option [Member] Urquhart [Member]	Apr. 20, 2012 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 31, 2011 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 31, 2010 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 31, 2009 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Sep. 30, 2011 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Dec. 31, 2009 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 01, 2011 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 01, 2010 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 01, 2009 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Jul. 31, 2012 Two Thousand and One Plan [Member]	Jul. 31, 2011 Two Thousand and One Plan [Member]	Jul. 31, 2010 Two Thousand and One Plan [Member]	Sep. 30, 2012 Two Thousand and One Plan [Member]	Sep. 30, 2011 Two Thousand and One Plan [Member]	Sep. 30, 2012 Two Thousand and One Plan [Member]	Dec. 31, 2011 Two Thousand and One Plan [Member]	Sep. 30, 2011 Two Thousand and One Plan [Member]	Dec. 31, 2011 Two Thousand and One Plan [Member]	Mar. 31, 2012 Two Thousand and One Plan [Member]	Dec. 31, 2010 Two Thousand and One Plan [Member] Employee Option Grant [Member]	Oct. 31, 2010 Two Thousand and One Plan [Member] Employee Option Grant [Member]	Jul. 01, 2009 Two Thousand and One Plan [Member] Rosenthal Financing Stock Option [Member] Cipkowski [Member]	Sep. 30, 2012 Two Thousand and One Plan [Member] Medallion Financing Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award Options Vested and Expected To Vest Percentage															33.00%	33.00%	33.00%	33.00%	33.00%	33.00%	34.00%	34.00%	34.00%																		34.00%	33.00%	33.00%						100.00%
Stock Options Grant Vested															82,500	82,500	49,500	82,500	82,500	49,500	85,000	85,000	51,000					33,000	33,000	34,000											170,000	165,000	165,000
Share-based Payment Expense Amortized Over Service Period	3 years																																																					3 years
Share-based Compensation	$ 93,000	$ 45,000			$ 4,000	$ 8,000	$ 4,000	$ 8,000	$ 2,000	$ 4,000	$ 8,000	$ 8,000	$ 3,000	$ 3,000											$ 1,000	$ 1,000								$ 3,000		$ 6,000	$ 8,000							$ 0	$ 6,000	$ 13,000		$ 20,000
Shares Held in Employee Stock Option Plan, Allocated																																						50,000	50,000	50,000											275,000	275,000	500,000
Percentage Of Stock Option Grant Exercisable																																	100.00%	100.00%	100.00%
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition						2 years 6 months		2 years 6 months		2 years 6 months		10 months		9 months										0 years		2 years 11 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						250,000		250,000		150,000																2
Stock Granted During Period, Value, Share-based Compensation, Gross						45,000		45,000		27,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate						0.00%		0.00%		0.00%		0.00%		0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate						1.99%		1.99%		1.99%		1.56%		1.51%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term						10 years		10 years		10 years		3 years		3 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate						88.00%		88.00%		88.00%		77.00%		77.00%
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period						3 years		3 years		3 years																3 years
Notes Payable, Related Parties, Noncurrent	124,000		124,000						124,000	124,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period												300,000		75,000
Share Based Compensation Arrangement By Share Based Payment Award Other Than Stock Options Granted Exercise Price Per Share												$ 0.16		$ 0.17
Warrant Expense In Future												48,000		12,000
Extension Period Of Warrants												1 year		1 year
Purchase Of Shares By Granted Of Stock Options																										50,000	100,000
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Exercise Price (in dollars per share)																																						$ 0.12	$ 0.07	$ 0.20											$ 0.09	$ 0.09	$ 0.20
Installments Periods of Vested Option																															3 years	3 years																3 years
Subordinated Debt	124,000
Amortized Share-based Payment Expenses																																																78,000
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost																																															19,000	20,000	25,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized					37,000	37,000	37,000	37,000	23,000	23,000	40,000	40,000	9,000	9,000										0	17,000	17,000																								7,000
Due to Affiliate				124,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price						$ 0.18		$ 0.18		$ 0.18																$ 0.18
Share-based Payment Expense in Future																									18,000	18,000																												2,000
Fair Value Assumptions, Expected Dividend Rate																																																						0.00%
Fair Value Assumptions, Risk Free Interest Rate																																																						1.99%
Fair Value Assumptions, Expected Term																																																						10 years
Fair Value Assumptions, Expected Volatility Rate																																																						88.00%
stock option grants recognize this share-based payment expense																																																						27,000
stock option grants unrecognized this share-based payment expense																																																						$ 23,000

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Litigation (Details Textual) (USD $)	1 Months Ended
	Mar. 31, 2011	Dec. 31, 2010
Litigation Settlement, Gross		$ 9,000,000
Loss Contingency Number of Causesof Actions Against Defendants	9
Pending Litigation [Member]
Litigation Settlement, Gross	150,000
Each Cause Of Actions [Member]
Litigation Settlement, Gross		$ 1,000,000

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Line of Credit and Debt (Details Textual) (USD $)	3 Months Ended		9 Months Ended					9 Months Ended		9 Months Ended	3 Months Ended	9 Months Ended		1 Months Ended	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended				1 Months Ended	9 Months Ended		1 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended		3 Months Ended		9 Months Ended				9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Jul. 30, 2012	Dec. 31, 2011	Jul. 31, 2012 Thirty Seven Debentures Holders [Member]	Sep. 30, 2012 Five Debentures Holders [Member]	Jul. 31, 2012 Five Debentures Holders [Member]	Sep. 30, 2012 Bridge Loan [Member]	Sep. 30, 2012 Medallion [Member]	Sep. 30, 2012 Medallion [Member]	Apr. 20, 2012 Medallion [Member]	Apr. 20, 2012 Rosenthal [Member]	Sep. 30, 2012 Rosenthal [Member]	Sep. 30, 2011 Rosenthal [Member]	Sep. 30, 2012 Rosenthal [Member]	Sep. 30, 2011 Rosenthal [Member]	Dec. 31, 2011 Rosenthal [Member]	Sep. 30, 2012 First Niagara Bank Mortgage Consolidation Loan [Member]	Sep. 30, 2011 First Niagara Bank Mortgage Consolidation Loan [Member]	Sep. 30, 2012 First Niagara Bank Mortgage Consolidation Loan [Member]	Sep. 30, 2011 First Niagara Bank Mortgage Consolidation Loan [Member]	Dec. 31, 2011 First Niagara Bank Mortgage Consolidation Loan [Member]	Feb. 23, 2011 First Niagara Bank Mortgage Consolidation Loan [Member]	May 31, 2007 R I C O H [Member]	Sep. 30, 2012 R I C O H [Member]	Dec. 31, 2011 R I C O H [Member]	Oct. 31, 2010 Marlin Leasing [Member]	Sep. 30, 2012 Marlin Leasing [Member]	Dec. 31, 2011 Marlin Leasing [Member]	Sep. 30, 2012 Series Debentures [Member]	Sep. 30, 2011 Series Debentures [Member]	Sep. 30, 2012 Series Debentures [Member]	Sep. 30, 2011 Series Debentures [Member]	Dec. 31, 2011 Series Debentures [Member]	Aug. 01, 2008 Series Debentures [Member]	Sep. 30, 2012 Cantone Series One Four Year Warrants [Member]	Sep. 30, 2011 Cantone Series One Four Year Warrants [Member]	Sep. 30, 2012 Cantone Series One Four Year Warrants [Member]	Sep. 30, 2011 Cantone Series One Four Year Warrants [Member]	Dec. 31, 2011 Cantone Series One Four Year Warrants [Member]	Aug. 01, 2008 Cantone Series One Four Year Warrants [Member]	Sep. 30, 2012 Wall Street Journal Prime [Member]
Line of Credit Facility, Affiliated Borrower			Medallion
Line of Credit Facility, Maximum Borrowing Capacity											$ 672,000	$ 672,000	$ 1,000,000			$ 1,500,000		$ 1,500,000
Line Of Credit Facility Advance Rate On Eligible Accounts Receivable													85.00%
Line Of Credit Facility Advance Rate On Eligible Inventory													30.00%
Line of Credit Facility, Amount Outstanding											565,000	565,000			566,000		566,000		397,000
Line Of Credit Non Refundable Fees											10,000
Minimum Maintainable Equity												1,750,000
Debt issuance costs, net	42,000		42,000			26,000																										0		0		19,000
Interest and Debt Expense												20,000		4,000			41,000																	0		31,000
Interest Expense, Debt											8,000	31,000			0	14,000	19,000	42,000		14,000	16,000	43,000	50,000									6,000	19,000	44,000	56,000
Line Of Credit Fecility Availability Of Additional Loans											107,000	107,000	150,000						159,000
Line Of Credit Facility Administrative Fees Amount For Month																		1,500
Line Of Credit Facility Administrative Fees Amount For Year																		15,000
Line Of Credit Facility Additional Administrative Fees Amount															0	7,000	0	23,000
Line Of Credit Facility Monthiy Interest Rate															0		4,000
Line Of Credit Facility Periodic Payment Interest																4,000	19,000	4,000
Amortization of debt issuance costs			34,000	35,000																																		3,000	8,000	19,000	24,000
Line Of Credit Facility Amount Outstanding Collateralized By Accounts Receivable																			361,000
Line Of Credit Facility Collateralized By Accounts Receivable Interest Rate																			8.00%
Line Of Credit Facility Amount Outstanding Collateralized By Inventory																			36,000
Line Of Credit Facility Amount Outstanding Collateralized By Inventory Interest Rate																			9.00%
Line of Credit Facility, Current Borrowing Capacity																			556,000
Debt Consolidation Loan, Maturity Date																							Mar. 01, 2013
Debt Consolidation Loan Amortization Period																							6 years
Debt Consolidation Loan, Amount																									815,000
Mortgage Consolidation Loan Interest Rate																									8.25%
Line of Credit Facility, Periodic Payment																							14,000
Debt Instrument, Periodic Payment, Principal																							15,000
Legal Fees																							2,000
Debte Consolidation Loan Outstanding																				639,000		639,000		725,000
Capital Lease Obligations																										17,000			4,000
Capital Lease Obligation Maturity Period																										5 Years			3 Years
Capital Lease Obligation Interest Rate																										14.11%			14.46%
Capital Lease Obligation Outstanding																											0	3,000		1,000	2,000
Capital Lease Agreement																											$1.00
Debentures Gross Proceeds Value																																					750,000
Debentures Net Proceeds Value																																					631,000
Debt Issuance Agent Fee and Expenses																																					54,000						52,500
Debt Issuance Legal and Accounting Fee																																					63,000
Debt Issuance State Filing Fee																																					2,000
Placement Agent Fee Percentage																																					10.00%						7.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights																																						30,450		30,450		44,550
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.16		$ 0.16																																			$ 0.37		$ 0.37		$ 0.4
Class of Warrant or Right, Expense or Revenue Recognized			$131,000																																					$12,000
Series A Debentures In Filling Period																																								Apr. 15, 2009
Series A Debentures In Amended Period																																								May 05, 2009
Amortization Of Debt Issuance Cost	3,000	8,000	19,000	24,000											0	4,000	7,000	11,000
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost																																						1,000	1,000	2,000	2,000
Line of Credit Facility, Commitment Fee Description											Charged the same facility fee of 1% on each anniversary
Line of Credit Facility, Covenant Terms											Two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day
Debt Instrument, Interest Rate Terms											Annual rate equal to 4% above a base rate
Debt Instrument Default Interest Rate Terms											An annual rate of 2% above the interest rate
Line of Credit Facility, Interest Rate During Period												25.00%																																3.25%
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum			10.00%
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Maximum			15.00%
Percentage Of Cash Fee Of Gross Amount Of Existing Debentures			5.00%
Placement Agent Services Compensation			37,500
Warrants Issued Amended Purchase Price Per Share			$ 0.17
Warrants Issued Amended Term			3 years
Non Accountable Expense Allowance Percentage On Gross Amount Of Debentures			1.00%
Non Accountable Expense Allowance			7,500									950
Reimbursed In Legal Fees			5,000
Amortization Period Of Debentures			12 months
Bridge Loan					150,000
Payments To Debentures Holders			100,000
Payments To Placement Agent Fees and Expenses			50,000
Debt Instrument, Maturity Date			Aug. 01, 2013							Aug. 01, 2013
Percentage Of Simple Interest In Advance Of Bridge Loan			15.00%
Percentage Of Gross Amount Of Existing Debentures To Issue Restricted Stock			10.00%
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures			15,000
Restricted Stock Award Issued Price Per Share			$ 0.17
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures			88,235
Debt, Current							645,000
Debt Instrument, Interest Rate, Stated Percentage							15.00%
Non Extend Of Debentures									105,000
Proceeds from Short-term Debt								$ 5,000		$ 100,000
Warrants Issued To Purchase Of Common Stock			300,000

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Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net loss	$ (546,000)	$ (330,000)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation	91,000	208,000
Loss on disposal of property, plant and equipment	0	1,000
Amortization of debt issuance costs	34,000	35,000
Provision for bad debts	(16,000)	(14,000)
Provision for slow moving and obsolete inventory	68,000	(6,000)
Share-based payment expense	93,000	45,000
Changes in:
Accounts receivable	(344,000)	(381,000)
Inventory	92,000	434,000
Prepaid expenses and other current assets	(21,000)	(28,000)
Accounts payable	394,000	252,000
Accrued expenses and other current liabilities	(1,000)	(63,000)
Wages payable	26,000	36,000
Other assets	3,000
Other liabilities	2,000	2,000
Net cash (used in) / provided by operating activities	(125,000)	191,000
Cash flows from investing activities:
Purchase of property, plant and equipment	(12,000)	(141,000)
Patent application costs	(23,000)	0
Net cash used in investing activities	(35,000)	(141,000)
Cash flows from financing activities:
Payments on debt financing	(201,000)	(103,000)
Debt issuance costs	(50,000)	0
Proceeds from bridge loan	150,000	0
Proceeds from equipment loan	0	11,000
Net proceeds from line of credit	168,000	27,000
Net cash provided by / (used in) financing activities	67,000	(65,000)
Net decrease in cash and cash equivalents	(93,000)	(15,000)
Cash and cash equivalents - beginning of period	93,000	37,000
Cash and cash equivalents - end of period	0	22,000
Supplemental disclosures of cash flow information
Cash paid during period for interest	152,000	170,000
Cash paid during period for taxes	$ 0	$ 0

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Stock Option Grants / Warrant Grants

9 Months Ended

Sep. 30, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note E – Stock Option Grants / Warrant Grants

Rosenthal Financing Option Grants

As a condition to the Financing Agreement with Rosenthal, our Chief Executive Officer, Stan Cipkowski (“Cipkowski”) was required to execute a Validity Guarantee (the “Validity Guarantee”) that includes representations and warranties with respect to the validity of the Company’s receivables and guarantees the accuracy of the Company’s reporting to Rosenthal related to its receivables and inventory. The Validity Guarantee places Cipkowski’s personal assets at risk in the event of a breach of such representations, warranties and guarantees. As part of the compensation for his execution of the Validity Guarantee, on July 1, 2009, Cipkowski was awarded an option grant representing 500,000 common shares of the Company under its Fiscal 2001 Stock Option Plan (the “2001 Plan”), at an exercise price of $0.20, the closing price of the Company’s common shares on the date of the grant. The option grant vests over 3 years in equal installments, and the first 33% (165,000 common shares) of the grant vested on July 1, 2010, the second 33%, (165,000 common shares) vested on July 1, 2011 and the final 34% (170,000 common shares) vested on July 1, 2012. We recognized $78,000 in share-based payment expense amortized over the required service period of 3 years. We recognized $13,000 in share-based payment expense for this grant in the nine months ended September 30, 2012 and $20,000 in share-based payment expense in the nine months ended September 30, 2011. We recognized $0 in share-based payment expense for this grant in the three months ended September 30, 2012 and $6,000 in share-based payment expense in the three months ended September 30, 2011. As of September 30 2012, there was $0 in unrecognized expense with 0 months remaining.

As another condition to the Financing Agreement with Rosenthal, the Company’s President and Chairman of the Board, Edmund M. Jaskiewicz (“Jaskiewicz”) was required to execute an Agreement of Subordination and Assignment (“Subordination Agreement”) related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt was not payable, was junior in right to the Rosenthal Line of Credit and no payment could be accepted or retained by Jaskiewicz unless and until the Company satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

As compensation for his execution of the Subordination Agreement, on July 1, 2009 Jaskiewicz was awarded an option grant representing 50,000 common shares of the Company under its 2001 Plan at an exercise price of $0.20, the closing price of the Company’s common shares on July 1, 2009. The option grant (50,000 common shares) was 100% immediately exercisable on July 31, 2009. We recognized $8,000 during the year ended December 31, 2009 in share-based payment expense related to the grant of Jaskiewicz’s options upon issuance of the grant.

On July 1, 2010 (the first anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded a second option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.07, the closing price of the Company’s common shares on July 1, 2010. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2010. During the year ended December 31, 2010, we recognized $3,000 in share-based payment expense for this grant.

On July 1, 2011, (the second anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded an additional option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.12, the closing price of the Company’s common shares on July 1, 2011. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2011. We recognized the full share-based payment expense of $6,000 in the three months ended September 30, 2011.

December 2010 Employee Grant

On December 31, 2010, we issued options to purchase 275,000 shares of common stock under the 2001 Plan to 4 members of senior management and 8 other employees of the Company at an exercise price of $0.09 (the closing price of the Company’s common shares on December 31, 2010). These option grants vested 100% (275,000 common shares) on December 31, 2011. We recognized $25,000 in share-based payment expense over the required service period of one year. We recognized $0 in share-based payment expense related to these grants in the nine months ended September 30, 2012, and $20,000 of this expense in the nine months ended September 30, 2011. As of September 30, 2012, there was $0 in unrecognized expenses with 0 months remaining.

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Cipkowski and our controller J. Duncan Urquhart (“Urquhart”) were each required to execute Validity Guarantees (the “Validity Guarantees”). Under the Validity Guarantees, Cipkowski and Urquhart provide representations and warranties with respect to the validity of our receivables as well as guaranteeing the accuracy of our reporting to Medallion related to the Company’s receivables.

Cipkowski Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Cipkowski was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% on April 20, 2013 (82,500 common shares), 33% on April 20, 2014 (82,500 common shares) and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Cipkowski stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Urquhart Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Urquhart was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% (82,500 common shares) on April 20, 2013, 33% (82,500 common shares) on April 20, 2014 and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Urquhart stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $4,000 in share-based payment expense in the three months ended September 30, 2012 and $8,000 in the nine months ended September 30, 2012. As of September 30, 2012, there was $37,000 in unrecognized share-based payment expense with 30 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Jaskiewicz was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Medallion Line of Credit and no payment may be accepted or retained by Jaskiewicz for the Jaskiewicz Debt unless and until we have paid and satisfied in full any obligations to Medallion. As compensation for his execution of the Subordination Agreement, on April 20, 2012 Jaskiewicz was awarded an option grant representing 150,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of the Company’s common shares on April 20, 2012. The option grant vests over three (3) years in installments as follows: 33% (49,500 common shares) on April 20, 2013, 33% (49,500 common shares) on April 20, 2014 and 34% (51,000 common shares) on April 20, 2015.

The fair value of the Jaskiewicz stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $27,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $2,000 in share-based payment expense in the three months ended September 30, 2012 and $4,000 in share-based payment expense in the nine months ended September 30, 2012. As of September 30, 2012, there was $23,000 in unrecognized share-based payment expense with 30 months remaining.

CRI Warrants

On July 31, 2012, we issued CRI warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.17 per share (the closing price of the Company’s common shares on July 31, 2012) (“CRI Warrants”). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CRI Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.51; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

CAM Warrants

On August 1, 2012, we issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (“CAM Warrants”). The CAM Warrants are exercisable through July 31, 2015 and have piggyback registration rights (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the CAM Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.56; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $48,000 and the Company recognized $48,000 (or the full expense) in share based payment expense in the three and nine months ended September 30, 2012.

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares (for a total of 100,000) of the Company’s common stock to 2 non-executive employees at an exercise price of $0.18 (the closing price of the Company’s common shares on September 20, 2012). Both option grants vest over 3 years in installments as follows: 33% (33,000 common shares total) on September 20, 2013, 33% (33,000 common shares total) on September 20, 2014 and 34% (34,000 common shares total) on September 20, 2015.

We will recognize $18,000 in share-based payment expense over the vesting period of 3 years. We recognized less than $1,000 in share-based payment expense related to these grants in the three and nine months ended September 30, 2012. As of September 30, 2012, there was over $17,000 in unrecognized expenses with 35 months remaining.