Note E – Line of Credit and Debt

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

	September 30, 2015		December 31, 2014
Loan and Security Agreement with Cherokee Financial, LLC⁽¹⁾: 5 year note at an annual interest rate of 8% plus a 1% annual oversight fee, interest only and oversight fee paid quarterly with first payment being due on May 15, 2015, annual principal reduction payment of $75,000 due each year on the anniversary of the closing date with a final balloon payment being due on March 26, 2020. Loan is collateralized by a first security interest in building, land and property.	$	1,200,000	$	0
Crestmark Line of Credit⁽²⁾: 3 year line of credit with interest payable at a variable rate based on WSJ Prime plus 2% with a floor or 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early term fee of 3% if terminated in year 1 and 2% if terminated in year 2 or after (and prior to natural expiration). Loan is collateralized by first security interest in receivable and inventory.		931,000		0
First Niagara⁽³⁾: Mortgage payable in equal monthly installments of $13,199 including interest at 8.25% until May 1, 2017 (“Maturity”), collateralized by the building, land and personal property⁽¹⁾		0		348,000

Debenture financing⁽⁴⁾: $523,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2013 through January 31, 2015, payable quarterly; maturity date of February 1, 2015⁽²⁾.		0		523,000
Bridge Loan with Cantone Asset Management, LLC⁽⁴⁾: Interest rate of 15% payable upon loan maturity; maturity date of February 1, 2015⁽³⁾.		0		200,000
Imperium Line of Credit⁽⁵⁾: Interest payable in arrears for the preceding calendar month on the first day of each calendar month at a rate of 8% per annum plus “PIK” interest at a 2% per annum. Unused line fee equal to 2% of the maximum amount available under the line, less the aggregate amounts outstanding to Imperium, payable on the first day of each calendar month. Collateral Monitoring Fee of $2,500 due on the first day of each month. Success fee of $175,000 if Imperium terminates due to an event of default, or if we terminate and pre-pay all amounts due to Imperium prior to the stated expiration date of January 16, 2016.		0		1,076,000

		2,131,000		2,147,000
Less debt discount (Cherokee Financial, LLC Loan)		(191,000)		(97,000)
Total debt	$	1,940,000	$	2,050,000

Current portion	$	1,006,000	$	1,837,000
Long-term portion	$	934,000	$	213,000

(1)

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

(2)

On June 29, 2015, the Company entered into a Loan and Security Agreement with Crestmark Bank. The purpose of the Crestmark LSA was to refinance the Company’s line of credit with Imperium at a better interest rate.

(3)

The mortgage through First Niagara Bank was satisfied in full on March 27, 2015 via a refinancing with Cherokee Financial, LLC.

(4)

The Series A Debentures and Bridge Loan with Cantone Asset Management, LLC were both satisfied in full on March 27, 2015 via a refinancing with Cherokee Financial, LLC.

(5)

On June 29, 2015, the Imperium Line of Credit was satisfied in Full via a refinancing with Crestmark Bank.

LOAN AND SECURITY AGREEMENT WITH CHEROKEE FINANCIAL, LLC.

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

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

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

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

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

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

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

LINE OF CREDIT WITH CRESTMARK BANK (“CRESTMARK”)

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

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

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

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

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

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

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

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

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

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

FIRST NIAGARA: MORTGAGE CONSOLIDATION LOAN

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

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

DEBENTURE FINANCING/BRIDGE LOAN

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

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

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

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

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

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

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

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

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

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

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