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 March 31, 2021
 
 [ ] 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 incorporation or organization)
 (I.R.S. Employer 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)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
ABMC
OTCQB® Venture Market
 
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
 
☒ 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) ☒ 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    ☒
 
Emerging growth company    ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
 
41,203,476 Common Shares as of May 20, 2021
 
 

 
 
  American Bio Medica Corporation
 
Index to Quarterly Report on Form 10-Q
For the quarter ended March 31, 2021
 
PAGE
 
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 25
 
  
 
 
 
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
 
 
American Bio Medica Corporation
 
 
Condensed Balance Sheets
 
 
 
March 31,
 
 
December 31,
 
 
 
 2021
 
 
2020
 
ASSETS
 
 (Unaudited)
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 $63,000 
 $98,000 
Accounts receivable, net of allowance for doubtful accounts of $5,000 at March 31, 2021 and $22,000 at December 31, 2020
  337,000 
  407,000 
Inventory, net of allowance of $300,000 at March 31, 2021 and $279,000 at December 31, 2020
  507,000 
  536,000 
Prepaid expenses and other current assets
  106,000 
  104,000 
Right of use asset – operating leases
  35,000 
  35,000 
Total current assets
  1,048,000 
  1,180,000 
Property, plant and equipment, net
  560,000 
  576,000 
Patents, net
  106,000 
  108,000 
Right of use asset – operating leases
  32,000 
  41,000 
Other assets
  21,000 
  21,000 
Total assets
 $1,767,000 
 $1,926,000 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
Current liabilities
    
    
Accounts payable
 $629,000 
 $577,000 
Accrued expenses and other current liabilities
  526,000 
  620,000 
Right of use liability – operating leases
  34,000 
  33,000 
Wages payable
  111,000 
  107,000 
Line of credit
  245,000 
  277,000 
PPP Loan
  332,000 
  332,000 
Current portion of long-term debt, net of deferred finance costs
  1,290,000 
  75,000 
Total current liabilities
  3,167,000 
  2,021,000 
Long-term debt/other liabilities , net of current portion and deferred finance costs
  0 
  1,120,000 
Right of use liability – operating leases
  31,000 
  41,000 
Total liabilities
  3,198,000 
  3,182,000 
COMMITMENTS AND CONTINGENCIES
    
    
Stockholders' deficit:
    
    
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at March 31, 2021 and December 31, 2020
 
  0 
  0 
Common stock; par value $.01 per share; 50,000,000 shares authorized; 39,803,476 issued and outstanding at March 31, 2021 and 37,703,476 issued and outstanding as of December 31, 2020
  398,000 
  377,000 
Additional paid-in capital
  22,077,000 
  21,717,000 
Accumulated deficit
  (23,906,000)
  (23,350,000)
Total stockholders’ (deficit)
  (1,431,000)
  (1,256,000)
Total liabilities and stockholders’ (deficit)
 $1,767,000 
 $1,926,000 
 
 
The accompanying notes are an integral part of the condensed financial statements
 
 
 
 
3
 
 
 
American Bio Medica Corporation
 
 
  Condensed Statements of Operations
 
 
(Unaudited)
 
 
 
For The Three Months Ended
 
 
 
March 31,
 
 
 
2021
 
 
2020
 
 
 
 
 
 
 
 
Net sales
 $566,000 
 $729,000 
 
    
    
Cost of goods sold
  461,000 
  539,000 
 
    
    
Gross profit
  105,000 
  190,000 
 
    
    
Operating expenses:
    
    
Research and development
  20,000 
  34,000 
Selling and marketing
  83,000 
  88,000 
General and administrative
  511,000 
  339,000 
 
  614,000 
  461,000 
 
    
    
Operating loss
  (509,000)
  (271,000)
 
    
    
Other income / (expense):
    
    
Interest expense
  (47,000)
  (53,000)
Interest income
  0 
  (1,000)
 
  (47,000)
  (54,000)
 
    
    
Net loss before tax
  (556,000)
  (325,000)
 
    
    
Income tax expense
  0 
  0 
 
    
    
Net loss
 $(556,000)
 $(325,000)
 
    
    
Basic and diluted loss per common share
 $(0.01)
 $(0.01)
 
    
    
Weighted average number of shares outstanding – basic & diluted
  38,859,032 
  33,968,523 
 
    
    
 
The accompanying notes are an integral part of the condensed financial statements
 
 
 
4
 
 
 
 
American Bio Medica Corporation
 
 
Condensed Statements of Cash Flows
 
 
(Unaudited)
 
 
 
For The Three Months Ended
 
 
 
March 31,
 
 
 
2021
 
 
2020
 
Cash flows from operating activities:
 
 
 
 
 
 
 Net loss
 $(556,000)
 $(325,000)
  Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
    
    
     Depreciation and amortization
  18,000 
  20,000 
     Amortization of debt issuance costs
  0 
  37,000 
     Penalty added to Cherokee loan balance
  120,000 
  0 
Provision for bad debt
  (17,000)
  0 
 Provision for slow moving and obsolete inventory
  21,000 
  21,000 
 Share-based payment expense
  0 
  1,000 
 Director fee paid with restricted stock
  0 
  5,000 
     Refinance fee paid with restricted stock
  0 
  21,000 
     Changes in:
    
    
       Accounts receivable
  87,000 
  (26,000)
       Inventory
  8,000 
  66,000 
       Prepaid expenses and other current assets
  7,000 
  (257,000)
       Accounts payable
  52,000 
  43,000 
       Accrued expenses and other current liabilities
  (103,000)
  790,000 
 Wages payable
  4,000 
  35,000 
Net cash (used in) / provided by operating activities
  (359,000)
  431,000 
Cash flows from investing activities:
    
    
  Patent application costs
  0 
  0 
         Net cash provided by / (used in) investing activities
  0 
  0 
Cash flows from financing activities:
    
    
  Payments on debt financing
  (25,000)
  (3,000)
Proceeds from Private Placement
  0 
  164,000 
Proceeds from Lincoln Park financing
  381,000 
  0 
Proceeds from lines of credit
  595,000 
  1,155,000 
Payments on lines of credit
  (627,000)
  (1,170,000)
         Net cash provided by financing activities
  324,000 
  146,000 
Net change in cash and cash equivalents
  (35,000)
  577,000 
Cash and cash equivalents - beginning of period
  98,000 
  4,000 
Cash and cash equivalents - end of period
 $63,000 
 $581,000 
Supplemental disclosures of cash flow information
    
    
Non-Cash transactions:
    
    
Loans converted to stock
 $0 
 $35,000 
Cash paid during period for interest
 $41,000 
 $36,000 
 
 
The accompanying notes are an integral part of the condensed financial statements
 
 
 
5
 
 
Notes to condensed financial statements (unaudited)
March 31, 2021
 
Note A - Basis of Reporting
 
The accompanying unaudited interim condensed financial statements of American Bio Medica Corporation (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited interim condensed financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statement presentation. These unaudited interim condensed financial statements should be read in conjunction with audited financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, the interim condensed financial statements include all normal, recurring adjustments which are considered necessary for a fair presentation of the financial position of the Company at March 31, 2021, and the results of operations and cash flows for the three month periods ended March 31, 2021 (the “First Quarter 2021”) and March 31, 2020 (the “First Quarter 2020”).
 
Operating results for the First Quarter 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. Amounts at December 31, 2020 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
 
            
During the First Quarter 2021, there were no significant changes to the Company’s critical accounting policies, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
 
The preparation of these interim condensed financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates estimates, including those related to product returns, bad debts, inventories, income taxes, warranty obligations, contingencies and litigation. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
These unaudited interim condensed financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. The independent registered public accounting firm’s report on the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, contained an explanatory paragraph regarding the Company’s ability to continue as a going concern. As of the date of this report, the Company’s current cash balances, together with cash generated from future operations and amounts available under the Company’s credit facilities may not be sufficient to fund operations through May 2022.
 
Through the First Quarter of 2021, the Company had a line of credit with Crestmark Bank. The maximum availability on the Company’s line of credit was $1,000,000 beginning June 22, 2020 when the facility was amended and extended. However, because the amount available under the line of credit is based upon the Company’s accounts receivable, the amounts actually available under our line of credit (historically) have been significantly less than the maximum availability. As of March 31, 2021, based on the Company’s availability calculation, there were no additional amounts available under the Company’s line of credit because the Company draws any balance available on a daily basis.
 
In February 2021, our credit facilities with Cherokee Financial, LLC were extended for another 12 months, or until February 15, 2022, which is less than 12 months from the date of this report. Our total debt at March 31, 2021 with Cherokee Financial, LLC is $1,240,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities, which is due in full on February 15, 2022. We are currently looking at alternatives to refinance these facilities.
 
On December 9, 2020, we entered into a Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) under which Lincoln Park agreed to purchase from the Company, from time to time, up to $10,250,000 of our shares of common stock, par value $0.01 per share, subject to certain limitations set forth in the Purchase Agreement, during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we were required to file with the SEC, a registration statement on Form S-1 (the “Registration Statement”) to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the shares of common stock that we had already issued and sold to Lincoln Park (500,000 shares of common stock for a purchase price of $125,000 along with 1,250,000 shares of common stock issued to Lincoln Park’s for their irrevocable commitment to purchase common shares upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement), and shares of common stock we may in the future elect to issue and sell to Lincoln Park from time to time under the Purchase Agreement.
 
 
6
 
 
As discussed in more detail in “Cash Flow, Outlook/Risk”, if sales levels decline further, the Company will have reduced availability on its line of credit due to decreased accounts receivable balances. If availability under the Company’s line of credit and the Lincoln Park Security Agreement are not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to obtain additional credit facilities or sell additional equity securities, or delay capital expenditures, which could have a material adverse effect on the business. There is no assurance that such financing will be available or that the Company will be able to complete financing on satisfactory terms, if at all.
 
Recently Adopted Accounting Standards
 
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, issued in December 2019 reduces the complexity by removing exemptions and simplifying the accounting for franchise taxes, deferred taxes and taxes related to employee’s stock ownership plan. The requirements in ASU 2019-12 are effective for public companies for fiscal years beginning after December 15, 2020, including interim periods. The Company adopted ASU 2019-02 on January 1, 2021 and the adoption did not have an impact on the Company’s financial condition or results of operation.
 
ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)”, issued in January 2020, clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The requirements in ASU 2021-01 are effective for public companies for fiscal years beginning after December 15, 2020, including interim periods within the fiscal year. The Company adopted ASU 2020-01 on January 1, 2021 and the adoption did not have an impact on the Company’s financial condition or results of operation.
 
ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, issued in August 2020 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company adopted ASU 2020-06 on January 1, 2021 and the adoption did not have an impact on the Company’s financial condition or results of operation.
 
Accounting Standards Issued; Not Yet Adopted
 
There are not any new accounting standards issued but, not yet adopted in the First Quarter 2021.
 
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
 
Reclassifications
 
Certain items have been reclassified from the prior year to conform to the current year presentation.
 
 
7
 
 
Note B – Inventory
 
Inventory is comprised of the following:
 
 
 
March 31, 2021
 
 
December 31, 2020
 
 
 
 
 
 
 
 
Raw Materials
 $559,000 
 $534,000 
Work In Process
  103,000 
  127,000 
Finished Goods
  145,000 
  154,000 
Allowance for slow moving and obsolete inventory
  (300,000)
  (279,000)
 
 $507,000 
 $536,000 
Note C – Net Loss Per Common Share
 
            
Basic net loss per common share is calculated by dividing the net loss by the weighted average number of outstanding common shares during the period. Diluted net loss per common share includes the weighted average dilutive effect of stock options and warrants. Potential common shares outstanding as of March 31, 2021 and 2020:
 
 
 
March 31, 2021
 
 
March 31, 2020
 
Warrants
  0 
  0 
Options
  1,987,000 
  2,192,000 
Total
  1,987,000 
  2,192,000 
 
The number of securities not included in the diluted net loss per share for the First Quarter 2021 and the First Quarter 2020 was 1,987,000 and 2,192,000, respectively, as their effect would have been anti-dilutive due to the net loss in the First Quarter 2021 and First Quarter 2020.
 
Note D – Litigation/Legal Matters
 
From time to time, the Company may be named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate outcome of any such litigation cannot be predicted, if the Company is unsuccessful in defending any such litigation, the resulting financial losses are not expected to have a material adverse effect on the financial position, results of operations and cash flows of the Company.
 
 
8
 
 
Note E – Line of Credit and Debt
 
The Company’s Line of Credit and Debt consisted of the following as of March 31, 2021 and December 31, 2020:
 
 
March 31, 2021
December 31, 2020
Loan and Security Agreement with Cherokee Financial, LLC: 5 year note executed on February 15, 2015, at a fixed annual interest rate of 8% plus a 1% annual oversight fee, interest only and oversight fee paid quarterly with first payment being made on May 15, 2015, annual principal reduction payment of $75,000 due each year beginning on February 15, 2016, with a final balloon payment being due on February 15, 2020. Loan was extended for one year (until February 15, 2021) on February 15, 2020 under the same terms and conditions as original loan. Loan was further extended in February 2021 to February 15, 2022.A penalty of $100,000 was added to the loan principal and the annual interest rate was increased to 10% on February 15, 2021 in connection with the extension. Loan is collateralized by a first security interest in building, land and property.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
900,000
Crestmark Line of Credit: Line of credit maturing on June 22, 2022 with interest payable at a variable rate based on WSJ Prime plus 3% with a floor or 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early termination fee of 2% if terminated prior to natural expiration. Loan is collateralized by first security interest in receivables and inventory and the all-in interest rate as of the date of this report is 12.03%.
 
 
 
 
 
 
 
 
 
245,000
 
 
 
 
 
 
 
 
 
277,000
2019 Term Loan with Cherokee Financial, LLC: 1 year note at an annual fixed interest rate of 18% paid quarterly in arrears with first interest payment being made on May 15, 2019 and a balloon payment being due on February 15, 2020. Loan was extended in February 2020, until February 15, 2021, under the same terms and conditions. A penalty of $20,000 was added to the loan principal on February 15, 2020 in connection with the extension of the loan. Loan was further extended in February 2021 to February 15, 2022. Another penalty of $20,000 was added to the loan principal on February 15, 2021 in connection with the additional extension of the loan.
 
 
 
 
 
 
 
 
 
 
 
 
240,000
 
 
 
 
 
 
 
 
 
 
 
 
220,000
April 2020 PPP Loan with Crestmark: 2 year SBA loan at 1% interest with first payment due October 2020. Company intends to apply for forgiveness of loan under PPP guidelines after 24 weeks, or after October 2020.
 
 
 
 
332,000
 
 
 
 
332,000
November 2020 Shareholder Note: with Chaim Davis; no terms, note was paid on February 24, 2021 with proceeds from Lincoln Park financing.
 
 
 
0
 
 
 
25,000
November 2020 Shareholder Note: 6 month term loan at 7% interest (Prime + 3.75%) with the first interest only payment being made on February 4, 2021 and the final interest and $50,000 principal due on May 4, 2021. Loan was extended on May 4, 2021 (See Note H – Subsequent Event)
 
 
 
 
 
 
50,000
 
 
 
 
 
 
50,000
Total Debt
$
1,867,000
$
1,804,000
Current portion
$
1,867,000
$
684,000
Long-term portion, net of current portion
$
0
$
1,120,000
 
 
9
 
 
LOAN AND SECURITY AGREEMENT WITH CHEROKEE FINANCIAL, LLC (“CHEROKEE”)
 
On March 26, 2015, the Company entered into a LSA with Cherokee (the “Cherokee LSA”). The debt with Cherokee is collateralized by a first security interest in real estate and machinery and equipment. Under the Cherokee LSA, the Company was provided the sum of $1,200,000 in the form of a 5-year Note at a fixed annual interest rate of 8%; paid quarterly in arrears. In addition to the 8% interest, the Company is required to pay Cherokee a 1% annual fee for oversight and administration of the loan. This oversight fee is paid in cash and is paid contemporaneously with the quarterly interest payments. The Company received net proceeds of $80,000 after $1,015,000 of debt payments, and $105,000 in other expenses and fees. The expenses and fees (with the exception of the interest expense) were deducted from the balance on the Cherokee LSA and were amortized over the initial term of the debt (in accordance with ASU No. 2015-03). The Company was required to make annual principal reduction payments of $75,000 on each anniversary of the date of the closing; with the first principal reduction payment being made on February 15, 2016 and the last principal reduction payment being made on February 15, 2019; partially with proceeds received from a term loan with Cherokee (See 2019 Term Loan with Cherokee within this Note E).
 
On February 24, 2020, the Company completed a transaction related to a one-year Extension Agreement dated February 14, 2020 (the “Extension Agreement”) with Cherokee under which Cherokee extended the due date of the Cherokee LSA (with a balance of $900,000) to February 15, 2021. No terms of the facility were changed under the Extension Agreement. For consideration of the Extension Agreement, the Company issued 2% of the $900,000 principal, or $18,000, in 257,143 restricted shares of the Company’s common stock to Cherokee on behalf of their investors.
 
On February 24, 2021, the Company completed a transaction related to another one-year Extension Agreement dated February 14, 2021 (the “Second Extension Agreement”) with Cherokee under which Cherokee extended the due date of the Cherokee LSA to February 15, 2022.
 
Under the terms of the Second Extension Agreement, the Cherokee LSA was increased to $1,000,000 to include a $100,000 penalty that was due as a result of the Company being unable to pay back the principal balance to Cherokee on February 15, 2021. The annual interest rate on the extended Cherokee LSA was increased to a fixed rate of 10% (the prior fixed rate was 8%) plus a 1% annual oversight fee (that remained unchanged). Interest and the oversight fee are paid quarterly with the first payment being due on May 15, 2021. If the Company doesn’t pay off the principal on or before February 15, 2022, there will be an 8% delinquent fee charged. This delinquent fee will only apply to whatever the principal balance is on February 15, 2022. If the Company pays any portion (or all) of the principal back, the 8% fee will not be due on the prepaid amounts. The Company can prepay all of part of the facility back prior to February 15, 2022 with no penalty.
 
Cantone Research, Inc. earned a 3% fee on the extended principal of $900,000 (or $27,000) for their services related to securing the extension with Cherokee investors. This 3% service fee will be “rebated” when/if the Company prepays any, or a portion, of the loan. As an example, if the Company makes a principal reduction payment of $100,000, only $97,000 in cash will need to be remitted to Cherokee to have the $100,000 taken off the principal balance. The fee paid to Cantone Research, Inc. was recorded as a bank fee and is included in general and administrative expenses. No common stock was issued in connection with the extensions. The Company also agreed to pay Cherokee’s legal fees in the amount of $1,000.
 
In the event of default, this includes, but is not limited to; the Company’s inability to make any payments due under the Cherokee LSA (as amended) Cherokee has the right to increase the interest rate on the financing to 18%. The Company will continue to make interest payments and administrative fees quarterly on the Cherokee LSA. The Company can pay off the Cherokee loan at any time with no penalty; except that a 1% administration fee would be required to be paid to Cherokee to close out all participations.
 
The Company recognized $23,000 in interest expense related to the Cherokee LSA in the First Quarter 2021. The Company recognized $35,000 in interest expense related to the Cherokee LSA in the First Quarter 2020 (of which $17,000 is debt issuance cost amortization recorded as interest expense.
 
The Company had $17,000 in accrued interest expense at March 31, 2021 and $15,000 in accrued interest expense at March 31, 2020 related to the Cherokee LSA.
 
As of March 31, 2021, the balance on the Cherokee LSA was $1,000,000 including the $100,000 penalty referenced above. As of December 31, 2020, the balance on the Cherokee LSA was $900,000; however, the discounted balance was $884,000.
 
 
10
 
 
LINE OF CREDIT WITH CRESTMARK BANK (“CRESTMARK”)
 
On June 29, 2015 (the “Closing Date”), the Company entered into a Loan and Security Agreement (“LSA”) with Crestmark related to a revolving line of credit (the “Crestmark LOC”). The Crestmark LOC is used for working capital and general corporate purposes. Upon completion of the initial 5 year term, the Crestmark LOC automatically renews for additional one (1) year terms unless notice of termination from the Company is received by Crestmark not less than sixty (60) days prior to the end of the renewal term. The Company has not provided Crestmark with a notice of non-renewal and therefore, the Crestmark LOC will automatically renew on June 22, 2021 for another one year term, or until June 22, 2022.
 
The Company amended the Crestmark LOC on June 22, 2020 and, until this amendment, the maximum amount available under the Crestmark LOC was $1,500,000 (“Maximum Amount”). The Maximum Amount was subject to an Advance Formula comprised of: 1) 90% of Eligible Accounts Receivables (excluding, receivables remaining unpaid for more than 90 days from the date of invoice and sales made to entities outside of the United States), and 2) up to 40% of eligible inventory plus up to 10% of Eligible Generic Packaging Components not to exceed the lesser of $350,000, or 100% of Eligible Accounts Receivable. However, as a result of an amendment executed on June 25, 2018, the amount available under the inventory component of the line of credit was changed to 40% of eligible inventory plus up to 10% of Eligible Generic Packaging Components not to exceed the lesser of $250,000 (“Inventory Sub-Cap Limit”) or 100% of Eligible Accounts Receivable. In addition, the Inventory Sub-Cap Limit was reduced by $10,000 per month as of July 1, 2018 and thereafter on the first day of the month until the Inventory Sub-Cap Limit was reduced to $0, (making the Crestmark LOC an accounts-receivable based line only). This means that as of June 30, 2020, there was no inventory sub-cap. Upon execution of the June 2020 amendment, the Maximum Amount was reduced to $1,000,000 and with the Inventory Sub-Cap Limit gone as of July 1, 2020; the Crestmark LOC became a receivables-based only line of credit.
 
The Crestmark LOC has a minimum loan balance requirement of $500,000. At March 31, 2021, the Company did not meet the minimum loan balance requirement as our balance was $245,000. Under the LSA, Crestmark has the right to calculate interest on the minimum balance requirement rather than the actual balance on the Crestmark LOC (and they are exercising that right). The Crestmark LOC is secured by a first security interest in the Company’s inventory, and receivables and security interest in all other assets of the Company (in accordance with permitted prior encumbrances).
 
Prior to the amendment on June 22, 2020, the Crestmark LOC contained a minimum Tangible Net Worth (“TNW”) covenant (previously defined in other periodic reports). With the exception of the quarter ended June 30, 2019, the Company did not historically comply with the TNW covenant and Crestmark previously provided a number of waivers (for which the Company was charged $5,000 each). The TNW covenant was removed effective with the quarter ended June 30, 2020.
 
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, Crestmark is permitted to charge an Extra Rate. The Extra Rate is the Company’s then current interest rate plus 12.75% per annum.
 
Interest on the Crestmark LOC is at a variable rate based on the Prime Rate plus 3% with a floor of 5.25%. As of March 31, 2021 and as of the date of this report, the interest only rate on the Crestmark LOC is 6.25%. As of the date of this report, with all fees considered (the interest rate + an Annual Loan Fee of $7,500 + a monthly maintenance fee of 0.30% of the actual average monthly balance from the prior month), the interest rate on the Crestmark LOC is 12.03%.
 
The Company recognized $12,000 in interest expense in the First Quarter 2021 and $9,000 in interest expense in the First Quarter 2020 related to the Crestmark LOC. Given the nature of the administration of the Crestmark LOC, at March 31, 2021, the Company had $0 in accrued interest expense related to the Crestmark LOC, and there is $0 in additional availability under the Crestmark LOC.
 
At March 31, 2021, the balance on the Crestmark LOC was $245,000 and as of December 31, 2020, the balance on the Crestmark LOC was $277,000.
 
 
11
 
 
2019 TERM LOAN WITH CHEROKEE
 
On February 25, 2019, the Company entered into an agreement dated (and effective) February 13, 2019 with Cherokee under which Cherokee provided the Company with a loan in the amount of $200,000 (the “2019 Cherokee Term Loan”). Gross proceeds of the 2019 Cherokee Term Loan were $200,000; $150,000 of which was used to satisfy the 2018 Cherokee Term Loan, $48,000 (which was used to pay a portion of the $75,000 principal reduction payment; with the remaining $27,000 being paid with cash on hand) and $2,000 which was used to pay Cherokee’s legal fees in connection with the financing. The annual interest rate under the 2019 Cherokee Term Loan is 18% (fixed) paid quarterly in arrears with the first interest payment being made on May 15, 2019.
 
On February 24, 2020, the Company completed a transaction related to a one-year Extension Agreement dated February 14, 2020 (the “Extension Agreement”) with Cherokee under which Cherokee extended the due date of the 2019 Term Loan to February 15, 2021. No terms of the facility were changed under the Extension Agreement. For consideration of the Extension Agreement, the Company issued 1.5% of the $200,000 principal, or $3,000, in 42,857 restricted shares of the Company’s common stock to Cherokee. The Company also incurred a penalty in the amount of $20,000 which was added to the principal balance of the Cherokee Term Loan.
 
A final balloon payment was due on February 15, 2021; however the Company further extended the 2019 Cherokee Term Loan on February 24, 2021 to February 15, 2022. Under the terms of the extension, the 2019 Cherokee Term Loan was increased to $240,000 to include a $20,000 penalty that was due as a result of the Company being unable to pay back the principal balance to Cherokee on February 15, 2021. The annual interest rate under the 2019 Cherokee Term Loan remains fixed at 18% paid quarterly in arrears with the first interest payment being due on May 15, 2021. If the Company doesn’t pay off the principal on or before February 15, 2022, there will be an 8% delinquent fee charged. This delinquent fee will only apply to whatever the principal balance is on February 15, 2022. If the Company pays any portion (or all) of the principal back, the 8% fee will not be due on the prepaid amounts. The Company can prepay all of part of the facility back prior to February 15, 2022 with no penalty.
 
In the event of default, this includes, but is not limited to, the Company’s inability to make any payments due under the Agreement; Cherokee has the right to increase the interest rate on the financing to 20%.
 
The Company recognized $10,000 in interest expense related to the 2019 Cherokee Term Loan in the First Quarter 2021 and $11,000 in interest expense in the First Quarter 2020 (of which $1,000 is debt issuance cost amortization recorded as interest expense). The Company had $7,000 in accrued interest expense at March 31, 2021 and $5,000 in accrued interest expense at March 31, 2020 related to the 2019 Cherokee Term Loan.
 
The balance on the 2019 Cherokee Term Loan was $240,000 at March 31, 2021 and $220,000 at December 31, 2020.
 
SBA PAYCHECK PROTECTION LOAN (PPP LOAN)
 
On April 22, 2020, we entered into a Promissory Note (“PPP Note”) for $332,000 with Crestmark Bank, pursuant to the U.S. Small Business Administration Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by Congress and signed into law on March 27, 2020. The PPP Note is unsecured, bears interest at 1.00% per annum, with principal and interest payments deferred for the first six months, and matures in two years. The principal is payable in equal monthly installments, with interest, beginning on the first business day after the end of the deferment period. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program. Additionally, certain acts of the Company, including but not limited to: (i) the failure to pay any taxes when due, (ii) becoming the subject of a proceeding under any bankruptcy or insolvency law, (iii) making an assignment for the benefit of creditors, or (iv) reorganizing, merging, consolidating or otherwise changing ownership or business structure without PPP Lender’s prior written consent, are considered events of default which grant Lender the right to seek immediate payment of all amounts owing under the PPP Note. The Company intends to apply for forgiveness of loan in the amount of $332,000 under PPP guidelines after 24 weeks, or after October 2020. As of April 2021, the online application with Crestmark has been started and we are reconciling data with our payroll provider.
 
The Company recognized $1,000 in interest expense related to the PPP Loan in the First Quarter 2021 and $0 in interest expense in the First Quarter 2020 (as the PPP Loan was not in place until April 2020). The Company had $3,000 in accrued interest expense at March 31, 2021 and $2,000 in accrued interest expense at December 31, 2020 related to the PPP Loan. This accrued interest is eligible for forgiveness under PPP loan guidelines. The balance on the PPP Loan was $332,000 at March 31, 2021 and at December 31, 2020.
 
 
12
 
 
NOVEMBER 2020 LOAN WITH CHAIM DAVIS
 
On November 6, 2020, the Company entered into a loan agreement with our (now former) Chairman of the Board Chaim Davis, under which Davis provided the Company the sum of $25,000 (the “November 2020 Loan”). There were no expenses or interest related to the November 2020 loan. The Company incurred $0 in interest expense in the First Quarter 2021 and $0 in the First Quarter 2020 (as the facility was not in place until November 2020). The balance on the November 2020 Term Loan was $25,000 at December 31, 2020, and $0 at December 31, 2019 (as the facility was not in place at December 31, 2019). The principal in the amount of $25,000 was paid on February 24, 2021 with proceeds from the Lincoln Park equity line.
 
NOVEMBER 2020 TERM LOAN
 
On November 4, 2020, the Company entered into a loan agreement with an individual in the amount of $50,000. There were no expenses related to the term loan and the interest rate is 7% (Prime + 3.75%). The first interest only payment was paid on February 4, 2021 and the final interest payment and 50,000 principal was due on May 4, 2021. On May 4, 2021, the Company extended this loan for another 6 months, or until November 4, 2021. See Note H, Subsequent Event for more information on the extension.
 
The company recognized and accrued less than $1,000 of interest expense related to the term loan in the First Quarter 2021 and $0 in interest expense in the First Quarter 2020 (as the loan was not in place until November 4, 2020). The balance on the 2020 Term Loan was $50,000 at March 31, 2021 and $50,000 at December 31, 2020.
 
OTHER DEBT INFORMATION
 
In addition to the debt indicated previously, previous debt facilities (paid in full via refinance or conversion into equity) had financial impact on the First Quarter 2020. More specifically:
 
EQUIPMENT LOAN WITH CRESTMARK
 
On May 1, 2017, the Company entered into term loan with Crestmark in the amount of $38,000 related to the purchase of manufacturing equipment. The equipment loan was collateralized by a first security interest in a specific piece of manufacturing equipment. The Company executed an amendment to its LSA and Promissory Note with Crestmark. The amendments addressed the inclusion of the term loan into the LSA and an extension of the Crestmark LOC. No terms of the Crestmark LOC were changed in the amendment. The interest rate on the term loan is the WSJ Prime Rate plus 3%; or 6.25% as of the date of this report.
 
The Company did not incur any interest expense in the First Quarter 2021 as the Equipment Loan was satisfied in full in the quarter ended September 30, 2020. The Company incurred minimal interest expense in the First Quarter 2020 related to the Equipment Loan. The balance on the Equipment Loan was $0 at March 31, 2021 and $0 at December 31, 2020.
 
NOTE F – Stock Options and Warrants
 
The Company currently has two non-statutory stock option plans, the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) and the 2013 Equity Compensation Plan (the “2013 Plan”). Both plans have been adopted by our Board of Directors and approved by our shareholders. Both the 2001 Plan and the 2013 Plan have options available for future issuance. Any common shares issued as a result of the exercise of stock options would be new common shares issued from our authorized issued shares.
 
During the First Quarter 2021 and the First Quarter 2020, the Company issued 0 options to purchase shares of common stock.
 
 
13
 
 
Stock option activity for the First Quarter 2021 and the First Quarter 2020 is summarized as follows (the figures contained within the tables below have been rounded to the nearest thousand):
 
 
 
 
 
First Quarter 2021
 
 
First Quarter 2020
 
 
 
 
Shares
 
 
Weighted Average Exercise Price
 
 
Aggregate
Intrinsic Value as of
March 31, 2021
 
 
 
Shares
 
 
Weighted Average Exercise Price
 
 
Aggregate Intrinsic Value as of
March 31, 2020
 
Options outstanding at beginning of year
  1,987,000 
 $0.13 
 
 
 
  2,252,000 
 $0.14 
 
 
 
Granted
  0 
 
NA
 
 
 
 
  0 
 
NA
 
 
 
 
Exercised
  0 
 
NA
 
 
 
 
  0 
 
NA
 
 
 
 
Cancelled/expired
  0 
 
NA
 
 
 
 
  (60,000)
 $0.13 
 
 
 
Options outstanding at end of quarter
  1,987,000 
 $0.13 
 $107,000 
  2,192,000 
 $0.12 
 $2,000 
Options exercisable at end of quarter
  1,987,000 
 $0.13 
    
  2,112,000 
 $0.13 
    
 
 
The Company recognized $0 in share based payment expense in the First Quarter 2021 and $1,000 in share based payment expense in the First Quarter 2020. At March 31, 2021, there was approximately $0 of unrecognized share based payment expense related to stock options.
 
Warrants
 
Warrant activity for the First Quarter 2021 and the First Quarter 2020 is summarized as follows:
 
 
 
 
 
 
 
 
 First Quarter 2021 
 
First Quarter 2020
 
 
 
Shares
 
 
 Weighted Average Exercise Price
 
 
  Aggregate Intrinsic Value as of March 31, 2021
 
 
Shares
 
 
 Weighted Average Exercise Price
 
Aggregate Intrinsic Value as of March 31, 2020
Warrants outstanding at beginning of year
  0 
  NA 
    
  2,000,000 
 $0.18 
 
Granted
  0 
   NA 
    
  0 
   NA 
 
Exercised
  0 
   NA 
    
  0 
   NA 
 
Cancelled/expired
  0 
  NA 
    
  (2,000,000)
  NA 
 
Warrants outstanding at end of quarter
  0 
  NA 
 
None
 
  0 
  NA 
None
Warrants exercisable at end of quarter
  0 
  NA 
    
  0 
  NA 
 
 
In the First Quarter 2021 and First Quarter 2020, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding. As of March 31, 2021, there was $0 of total unrecognized expense.
 
 
14
 
 
NOTE G – Changes in Stockholders’ Deficit
 
The following table summarizes the changes in stockholders’ deficit for the three month periods ending March 31, 2021 and March 31, 2020:
 
 
 
Common Stock
 
   
   
   

 
Shares
 
 
Amount
 
 
Additional Paid in Capital
 
 
Accumulated Deficit
 
 
 
 
Total
 
Balance – January 1, 2021
  37,703,476 
 $377,000 
 $21,717,000 
 $(23,350,000)
 $(1,256,000)
Shares issued to Lincoln Park for balance of Initial Purchase under the 2020 Lincoln Park Equity Line
  500,000 
  5,000 
  120,000 
    
  125,000 
Shares issued to Lincoln Park for purchases under the 2020 Lincoln Pak Equity Line
  1,600,000 
  16,000 
  240,000 
    
  256,000 
Net loss
    
    
    
  (556,000)
  (556,000)
Balance – March 31, 2021
  39,803,476 
 $398,000 
 $22,077,000 
 $(23,906,000)
 $(1,431,000)
 
    
    
    
    
    
Balance – January 1, 2020
  32,680,984 
 $327,000 
 $21,437,000 
  (22,554,000)
 $(790,000)
Shares issued in connection with private placement
  2,842,856 
  28,000 
  171,000 
    
  199,000 
Shares issued to Cherokee in connection with loan
  300,000 
  3,000 
  18,000 
    
  21,000 
Share based payment expense
    
    
  1,000 
    
  1,000 
Shares issued for board meeting attendance in lieu of cash
  23,253 
  * 
  5,000 
    
  5,000 
Net loss
    
    
    
  (325,000)
  (325,000)
Balance – March 31, 2020
  35,847,093 
 $358,000 
 $21,632,000 
 $(22,879,000)
 $(889,000)
*indicates less than $1,000
    
    
    
    
    
 
LINCOLN PARK EQUITY LINE OF CREDIT – DECEMBER 2020
 
On December 9, 2020, the Company entered into a Purchase Agreement and a Registration Rights Agreement with Lincoln Park under which Lincoln Park agreed to purchase from the Company, from time to time, up to $10,250,000 of our shares of common stock, par value $0.01 per share, subject to certain limitations set forth in the Purchase Agreement, during the term of the Purchase Agreement (two years). Pursuant to the terms of the Registration Rights Agreement, the Company was required to file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 (the “Registration Statement”) to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the shares of common stock issued and sold as well as the shares of common stock that the Company may elect in the future to issue and sell to Lincoln Park from time to time under the Purchase Agreement.
 
On December 9, 2020, the Company sold 500,000 shares of common stock to Lincoln Park in an initial purchase under the Purchase Agreement for a purchase price of $125,000. As consideration for Lincoln Park’s irrevocable commitment to purchase common shares upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, on December 9, 2020, the Company also issued 1,250,000 shares of common stock to Lincoln Park as commitment shares. The commitment shares were valued at $138,000 and recorded as an addition to equity for the issuance of common stock and treated as a reduction to equity as a cost of capital to be raised under the Lincoln Park facility. While this commitment fee relates to the entire offering and the purchases of common shares that will occur over time, the Company has recorded the entire commitment fee as issuance costs in additional paid-in capital at the time the commitment fee was paid because the offering has been consummated, and there is no guaranteed future economic benefit from this payment.
 
 
15
 
 
The Company did not have the right to commence any further sales to Lincoln Park under the Purchase Agreement until all of the conditions that are set forth in the Purchase Agreement had been satisfied, including, but not limited to, the Registration Statement being declared effective by the SEC (at which time all conditions are satisfied, the “Commencement”).
 
On January 4, 2021, the Company was notified by the SEC that they would not review the Registration Statement on Form S-1 filed by the Company on December 29, 2020. The Company was subsequently instructed by the SEC (through counsel) to amend the originally filed Form S-1 to include certain information for the fiscal year ended December 31, 2020 in place of the information in the original filing that was for the fiscal year ended December 31, 2019. The Company filed a Form S-1/A on January 7, 2021 and requested (through counsel) that the SEC declare the Form S-1 effective on January 11, 2021. The SEC granted the Company’s request. On January 11, 2021, the Company sold the remaining 500,000 shares of common stock to Lincoln Park required as an initial purchase under the Purchase Agreement for a purchase price of $125,000.
 
From and after the Commencement, under the Purchase Agreement, on any business day selected by the Company on which the closing sale price of its common stock exceeds $0.05, the Company may direct Lincoln Park to purchase up to 200,000 common shares on the applicable purchase date (a “Regular Purchase”), which maximum number of shares may be increased to certain higher amounts up to a maximum of 250,000 common shares, if the market price of the Company’s common stock at the time of the Regular Purchase equals or exceeds $0.20 and which maximum number of shares may be further increased to certain higher amounts up to a maximum of 500,000 common shares, if the market price of the Company’s common stock at the time of the Regular Purchase equals or exceeds $0.50 (such share and dollar amounts subject to proportionate adjustments for stock splits, recapitalizations and other similar transactions as set forth in the Purchase Agreement), provided that Lincoln Park’s purchase obligation under any single Regular Purchase may not exceed $500,000. The purchase price of the shares of common stock the Company may elect to sell to Lincoln Park under the Purchase Agreement in a Regular Purchase, if any, will be based on 95% of the lower of: (i) the lowest sale price on the purchase date for such Regular Purchase and (ii) the arithmetic average of the three lowest closing sale prices for the Company’s common shares during the 15 consecutive business days ending on the business day immediately preceding the purchase date for a Regular Purchase (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction.) In addition to Regular Purchases, the Company may also direct Lincoln Park to purchase other amounts of the Company’s common shares in “accelerated purchases” and in “additional accelerated purchases” under the terms set forth in the Purchase Agreement.
 
Lincoln Park cannot require the Company to sell any common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. There are no upper limits on the price per share that Lincoln Park must pay for the Company’s common shares that the Company may elect to sell to Lincoln Park pursuant to the Purchase Agreement. In all instances, the Company may not sell common shares to Lincoln Park under the Purchase Agreement to the extent that the sale of shares would result in Lincoln Park beneficially owning more than 9.99% of our common shares. There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than the Company’s agreement not to enter into any “variable rate” transactions (as defined in the Purchase Agreement) with any third party, subject to certain exceptions set forth in the Purchase Agreement, for the period set forth in the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s common stock.
 
Actual sales of common stock, if any, to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Company’s common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds to the Company from sales of common stock to Lincoln Park under the Purchase Agreement, if any, will depend on the frequency and prices at which the Company sells common stock to Lincoln Park under the Purchase Agreement. Any proceeds that the Company receives from sales of common stock to Lincoln Park under the Purchase Agreement will be used at the sole discretion of Company management and will be used for general corporate purposes, capital expenditures and working capital.
 
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. During any “event of default” under the Purchase Agreement, Lincoln Park does not have the right to terminate the Purchase Agreement; however, the Company may not initiate any Regular Purchase or any other purchase of common shares by Lincoln Park, until such event of default is cured. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. In addition, in the event of bankruptcy proceedings by or against the Company, the Purchase Agreement will automatically terminate. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements, and may be subject to limitations agreed upon by the contracting parties.
 
In the First Quarter 2021, the Company sold a total of 2,100,000 shares of common stock to Lincoln Park (including the balance of the required initial purchase) as Regular Purchases and received proceeds of $381,000.
 
 
16
 
 
PRIVATE PLACEMENT – FEBRUARY 2020
 
On February 20, 2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Chaim Davis (the Chairman of our Board of Directors) and certain other accredited investors (the “Investors”), pursuant to which we agreed to issue and sell to the Investors in a private placement (the “Private Placement”), 2,842,857 Units (the “Units”).
 
Each Unit consists of one (1) share of our common stock, par value $0.01 per share (“Common Share”), at a price per Unit of $0.07 (the “Purchase Price”) for aggregate gross proceeds of approximately $199,000. We received net proceeds of $199,000 from the Private Placement as expenses related to the Private Placement were minimal. We did not utilize a placement agent for the Private Placement. We used the net proceeds for working capital and general corporate purposes.
 
The July 2019 Term Loan with Chaim Davis, Et Al and the December 2019 Convertible Note (See Note E); totaling $39,000, were both converted into equity as part of a private placement closed in February 2020. Any interest that was incurred under the July 2019 Term Loan with Chaim Davis, Et in 2019 and up to the conversion in February 2020 was forgiven by the holders and the December 2019 Convertible Note did not bear any interest.
 
We do not intend to register the Units issued under the Private Placement; rather the Units issued will be subject to the holding period requirements and other conditions of Rule 144.
 
The Purchase Agreement contains customary representations, warranties and covenants made solely for the benefit of the parties to the Purchase Agreement. Although our Chairman of the Board was an investor in the Private Placement, the pricing of the Units was determined by the non-affiliate investors.
 
NOTE H – SUBSEQUENT EVENTS
 
November 2020 Shareholder Note
 
On May 4, 2021, we entered into a six-month Extension Agreement (the “Extension”) with the shareholder. Under the Extension, the principal in the amount of $50,000 is now due on November 4, 2021. The interest rate and all other terms of the note remain unchanged under the Extension. The interest payment due to the shareholder on May 4, 2021 was paid as required with the next interest payment being due on August 4, 2021.
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
General
 
The following discussion and analysis provides information, which we believe is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Interim Condensed Financial Statements contained herein and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “estimates”, “expects”, “intends”, “projects”, and words of similar import, are forward-looking as that term is defined by the Private Securities Litigation Reform Act of 1995 (“1995 Act”), and in releases issued by the United State Securities and Exchange Commission (the “Commission”). These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the “Safe Harbor” provisions of the 1995 Act. We caution that any forward-looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward-looking statements as a result of various factors, including, but not limited to, any risks detailed herein, in our “Risk Factors” section of our Form 10-K for the year ended December 31, 2020, in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the Commission, and any amendments thereto. Any forward-looking statement speaks only as of the date on which such statement is made, and we are not undertaking any obligation to publicly update any forward-looking statements. Readers should not place undue reliance on these forward-looking statements.
 
 
17
 
 
Overview/Plan of Operations
 
Sales of drug tests continued to be negatively impacted by the price competitiveness in our core markets (government, employment and clinical) and by the Covid-19 pandemic. Sales related to Covid-19 testing also declined in the First Quarter 2021 compared to sales in the middle and latter part of the year ended December 31, 2020. In addition to the marketing of our drug tests, in the First Quarter 2021 we continued to market the Covid-19 IgG/IgM Rapid Test Cassette to detect Covid-19 antibodies in whole blood, serum or plasma (via a distribution agreement with Healgen Scientific, LLC, and we continued to market (via distribution) the Co-Diagnostics Logix Smart Covid-19 test. In December 2020, we announced that we were distributing a Rapid Covid-19 Antigen Test Cassette. In the middle of the First Quarter 2021, we were informed by the manufacturer that we could no longer offer the Covid-19 antigen test for sale in the United States.
 
In addition to the Covid-19 tests, we continued to offer additional products and services to diversify our revenue stream through third party relationships. We currently offer a lower-cost alternative for onsite drug testing, point of care products for certain infectious diseases and alternative drug testing sample methods. With the exception of the lower-cost drug test alternative, these offering have yet to materially positively impact sales. In the year ended December 31, 2019, we expanded our contract manufacturing operations with two (2) new customers. Unfortunately, the Covid-19 pandemic halted sales to these new customers in the year ended December 31, 2020. In the First Quarter 2021, we began discussions with these customers to resume sales given the introduction of Covid-19 vaccines and the belief that the need for their products will resume. We have open purchase orders (from 2020) with both customers and we expect to ship those orders starting the second quarter of 2021. One of the customers also placed an additional (new) order in April 2021.
 
Due to the Covid-19 pandemic, we are not yet marketing our oral fluid drug tests (OralStat®) in the employment and insurance markets in the United States (under a limited exemption set forth by the FDA). We remain hopeful that we can effectively market our OralStat in the United States markets given its superior sensitivity and accuracy. Initially we may re-introduce the product in markets outside the United States via distribution relationships.
 
In the First Quarter 2021, we also began the process of securing another Covid-19 antigen test and in late April 2021, we did secure the ability to offer a Covid-19 antigen/Influenza combination test (from an unrelated third party) along with another rapid Covid-19 antibody test (as an alternative to the Healgen antibody test as it has expanded use under the Emergency Use Authorization (“EUA”) policy set forth by the United States Food and Drug Administration (FDA). As with the other Covid-19 tests we are offering, the tests will be marketed in full compliance with the EUA policy.
 
We are focusing our efforts on further penetration of our markets with both current and new products (drug testing, Covid-19 and other diagnostic tests). We are also looking for avenues to capitalize on our US manufacturing operations. To that end, we are in the early stages of planning with a firm that would provide services related to public relations/social media to effectively communicate our manufacturing capabilities.
 
Operating expenses increased $153,000 in the First Quarter 2021 compared to the First Quarter 2020. This increase was solely in general and administrative and was due to increased fees associated with debt and accounting fees for the 2020 audit. We continuously make efforts to control operational expenses to ensure they are in line with sales. We have consolidated job responsibilities in certain areas of the Company as a result of employee retirement and other departures resulting in personnel reductions.
 
From August 2013 until June 2020, we maintained a 10% salary deferral program for our sole executive officer, our Chief Executive Officer/Principal Financial Officer Melissa Waterhouse. The salary deferral program was initiated by Ms. Waterhouse voluntarily. Until his departure in November 2019, another member of senior management participated in the program voluntarily. As of March 31, 2021, we had total deferred compensation owed to these two individuals in the amount of $125,000. We did not make any payments on deferred compensation to Ms. Waterhouse in the First Quarter 2021 or the First Quarter 2020; we have not made any payments on deferred compensation to Melissa Waterhouse since August 2017. After the member of senior management retired in November 2019, we agreed to make payments on the deferred comp owed to this individual. In the First Quarter 2021 and First Quarter 2020, we made payments totaling $13,000 and $14,000, respectively, to this individual. We will continue to make payments to the former member of senior management until the deferred compensation is paid in full; which is expected to be in May 2021. Once the payments cease to this individual, we intend to repay/make payments on the deferred compensation owed to Melissa Waterhouse considering the length of time the amount has been owed and the length of time since any payments were made to Ms. Waterhouse.
 
Our continued existence is dependent upon several factors, including our ability to: 1) raise revenue levels even though the drug testing market continues to be infiltrated by product manufactured outside of the United States as well as being impacted by the global health crisis caused by Covid-19, 2) further penetrate the markets (in and outside of the United States) for Covid-19 tests, 3) secure new contract manufacturing customers, 4) control operational costs to generate positive cash flows, 5) maintain our current credit facilities or refinance our current credit facilities if necessary, and 6) if needed, obtain working capital by selling additional shares of our common stock either to Lincoln Park or through an alternative method if necessary.
 
 
18
 
 
Results of operations for the First Quarter 2021 compared to the First Quarter 2020
 
NET SALES: Net sales for the First Quarter 2021 decreased 22.4% when compared to net sales in the First Quarter 2020. Sales of drug tests continue to be negatively impacted by the Covid-19 pandemic along with the price competitive nature of our core markets (government, employment and clinical). All of these markets are still requiring a lower amount of testing due to lingering stay at home orders, reduced workforce, telecommuting and reduced budgets (especially in the government market as financial resources are used for Covid-19 testing and vaccination. In the latter part of Fiscal 2020, we started to see some rebound in our drug testing markets, however, this rebound has not been consistent and we are unsure at this time when our drug testing markets will get back to normal. Sales in the Clinical markets improved slightly in the First Quarter 2021 when compared to the First Quarter 2020; this is a good sign for the Clinical market as they were not yet significantly impacted in the First Quarter 2020. This indicates we may be seeing a return to normalcy in the Clinical market. Our international drug testing sales were relatively flat when comparing the First Quarter 2021 with the First Quarter 2020. This indicates that while we are seeing some improvement in sales outside the United States, foreign markets are still being negatively impacted by the Covid-19 pandemic. Contract manufacturing sales improved in the First Quarter 2021 compared to the First Quarter 2020. This is primarily a result of orders of RSV (Respiratory Syncytial Virus) diagnostic tests in the First Quarter 2021. As indicated earlier in this document, the Covid-19 pandemic halted sales to two customers we secured in the year ended December 31, 2019. We have open purchase orders (from 2020) with both customers and we expect to ship those orders starting the second quarter of 2021. One of the customers also placed an additional (new) order in April 2021.
 
Sales of Covid-19 testing products also decreased in the First Quarter 2021 compared to the levels we were experiencing in the middle and latter part of the year ended December 31, 2020. In the middle of the First Quarter 2021, we were informed by the manufacturer that we could no longer offer the Covid-19 antigen test for sale in the United States. Prior to this notification, from December 2020 (when we began offering the test) and the middle of the First Quarter 2021, we were able to sell $135,000 of this product. In May 2021, we secured the ability to offer an EUA-issued Covid-19 antigen/Influenza combination test (from an unrelated third party) along with another EUA issued rapid Covid-19 antibody test (as an alternative to the Healgen antibody test). This additional antibody test is CLIA waived using fingerstick blood versus whole blood/serum or plasma via venipuncture. We are hopeful that this expanded and more convenient use enables us to garner a larger share of the antibody testing market. We are still offering the Healgen Covid-19 IgG/IgM Rapid Test Cassette in the First Quarter 2021; however due to a supply issue on the part of Healgen, sales of this test were minimal in the First Quarter 2021. We are also continuing to market (via distribution) the Co-Diagnostics Logix Smart Covid-19 test. Unfortunately, due to a large backorder of high-throughput machines that has continued through the First Quarter 2021, we still have not recorded any sales of the Logix Smart Covid-19 test. We are hopeful that the machine backorder will subside soon and we would then be able to provide this testing resource to customers. When infection surges occur, there is a higher demand for diagnostic tests (i.e. PCR’s or antigen tests) versus antibody tests (as antibody tests are not diagnostic tests). Now that vaccines are available in much higher quantities, the need for diagnostic tests has decreased. We still believe there is a need for Covid-19 antibody tests as a means to monitor the efficacy of vaccines or to determine the length of time that antibodies remain in the body but, as the pandemic endures, we now believe that need is lower than originally expected. In addition, quantitative antibody tests are in higher demand (i.e. tests that will determine the level of antibodies) versus a qualitative test that indicates that antibodies are present above a certain cut-off level, which are the tests we are offering. From a Covid-19 testing perspective, there are other new products available, such as tests for home/consumer use, and we are still exploring distribution opportunities of these products.
 
In addition to the negative sales impact from the customer side, we continue to experience delays in materials from vendors due to decreased production levels resulting from stay at home orders and reduced workforce numbers. While our staff continued to work due to the essential nature of our manufacturing, delays in materials resulted in customer backorders for specific products that required the materials in question.
 
Over the last several months, we have been working toward finalizing an agreement that we signed in 2020 under which we would provide manufacturing services for another diagnostic company. Depending on the timing of commencement and volume under the contract, we would expect this to have a positive impact on our revenue in the year ending December 31, 2021. We are also in the early stages of planning with a firm to provide services related to public relations/social media to effectively communicate our manufacturing capabilities in the United States.
 
GROSS PROFIT: Gross profit decreased to 18.6% of net sales in the First Quarter 2021 from 26.1% of net sales in the First Quarter 2020. Sales of products that we manufacture (primarily drug tests) decreased and this resulted in greater inefficiencies in manufacturing. Manufacturing inefficiencies occur when revenues decline (from manufacturing) because certain overhead costs are fixed and cannot be reduced; if fewer testing strips are produced and fewer products are assembled this results in higher costs being expensed through cost of goods. Lower product pricing to customers also negatively impacts gross profit. We are taking steps to reduce manufacturing costs, including but not limited to, costs associated with labor to mitigate these inefficiencies. Given the price sensitivity in our markets and the commoditized nature of drug testing products (as a result of competitive products manufactured outside the United States), increasing customer pricing is challenging; however, we are in the process of advising our customers of pricing increases. We are hopeful that customers realize the value of US-based manufacturing from both a supply and quality perspective.
 
 
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OPERATING EXPENSES: Operating expenses increased in the First Quarter 2021 compared to the First Quarter 2020. Research and Development and Selling and Marketing expenses decreased while general and administrative expenses increased. More specifically:
 
Research and development (“R&D”)
 
R&D expense decreased 41.2%, when comparing the First Quarter 2021 with the First Quarter 2020. Decreased FDA compliance costs (solely due to a timing issue related to our facility registrations) and supplies and materials costs (due to the validation of a new material for one of our drug testing products components in the First Quarter 2020; that did not recur in the First Quarter 2021) were the primary reason for the decrease in expenses. All other expenses in the First Quarter 2021 remained relatively consistent with expenses in the First Quarter 2020. In the First Quarter 2021, our R&D department primarily focused their efforts on the enhancement of our current products and the validations related to drug testing product components.
 
Selling and marketing
 
Selling and marketing expense in the First Quarter 2021 decreased 5.7% when compared to the First Quarter 2020. Reductions in sales salary expense and benefits (due to the termination of personnel) and car allowance expense (due to the same terminations), were partially offset by increased commission expense (as a result of the Covid-19 sales in the First Quarter 2021 that did not occur in the First Quarter 2020). All other expenses, including but not limited to marketing expenses, were relatively unchanged when comparing the quarters.
 
In the First Quarter 2021, we continued selling and marketing efforts related to our drug tests and we continued to take actions to secure new contract manufacturing customers. In addition, we promoted lower cost alternatives for onsite drug testing and point of care products for infectious disease (through relationships with third parties). We also marketed and sold antibody tests and diagnostic tests related to Covid-19 via distribution relationships. These offerings did not result in increased selling and marketing expenses, apart from increased commission costs. Although we decreased the size of our sales force in the year ended December 31, 2020, those reductions were made for performance reasons. We are seeking new personnel to increase the size of our sales team to further penetrate our markets. We will continue to take all steps necessary to ensure selling and marketing expenditures are in line with sales.
 
General and administrative (“G&A”)
 
G&A expense increased 50.7% in the First Quarter 2021 compared to the First Quarter 2020. The primary reasons for the increase were fees incurred in connection with the extension of the Cherokee loans, which totaled $148,000 and, $15,000 in increased accounting fees (related to the Fiscal 2020 audit). In addition, increased costs associated with quality assurance salaries (due to increased rate of pay), general and administrative salaries (due to one additional employee), warehouse supplies (due to timing of purchases), repairs and maintenance associated with production, the timing of maintenance fee payments, and ISO audit fees, were partially offset by decreased director fees (due to telephonic meeting fees versus in person meeting fees), accounting fees (due to timing of fees) and repairs and maintenance of the Kinderhook facility (due to repairs needed in the First Quarter 2020 that did not recur in the First Quarter 2021). Share based payment expense remained relatively unchanged to $0 in the First Quarter 2021 from $1,000 in the First Quarter 2020.
 
Other income and expense:
 
Other expense in the First Quarter 2021 and the First Quarter 2020 consisted of interest expense associated with our credit facilities (our line of credit and equipment loan with Crestmark Bank and our loans with Cherokee Financial, LLC).
 
 
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Liquidity and Capital Resources as of March 31, 2021
 
Our cash requirements depend on numerous factors, including but not limited to manufacturing costs (such as raw materials, equipment, etc.), selling and marketing initiatives, product development activities, regulatory costs, legal costs, and effective management of inventory levels and production levels in response to sales history and forecasts. We expect to devote capital resources related to selling and marketing initiatives. We are examining other growth opportunities including strategic alliances and contract manufacturing. Given our current and historical cash position, such activities would need to be funded from the issuance of additional equity or additional credit borrowings, subject to market and other conditions.
 
On December 9, 2020, the Company entered into a Purchase Agreement and a Registration Rights Agreement with Lincoln Park under which Lincoln Park agreed to purchase from the Company, from time to time, up to $10,250,000 of our shares of common stock, par value $0.01 per share, subject to certain limitations set forth in the Purchase Agreement, during the term of the Purchase Agreement (two years). Pursuant to the terms of the Registration Rights Agreement, the Company was required to file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 (the “Registration Statement”) to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the shares of common stock issued and sold as well as the shares of common stock that the Company may elect in the future to issue and sell to Lincoln Park from time to time under the Purchase Agreement.
 
On January 4, 2021, the Company was notified by the SEC that they would not review the Registration Statement on Form S-1 filed by the Company on December 29, 2020. The Company was subsequently instructed by the SEC (through counsel) to amend the originally filed Form S-1 to include certain information for the fiscal year ended December 31, 2020 in place of the information in the original filing that was for the fiscal year ended December 31, 2019. The Company filed a Form S-1/A on January 7, 2021 and requested (through counsel) that the SEC declare the Form S-1 effective on January 11, 2021. The SEC granted the Company’s request. In the First Quarter 2021, the Company sold 2,100,000 shares of common stock to Lincoln Park (including 500,000 shares required as an initial purchase under the Purchase Agreement) as Regular Purchases and received proceeds of $381,000.
 
Our financial statements for the year ended December 31, 2020 were prepared assuming we will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities in the normal course of business. Our current cash balances, together with cash generated from future operations and amounts available under our credit facilities (including the Lincoln Park equity facility) may not be sufficient to fund operations through May 2022. At March 31, 2021, we have Stockholders’ Deficit of $1,431,000.
 
Our loan and security agreement and 2019 Term Note with Cherokee for $900,000 and $220,000, respectively, expired on February 15, 2021; however, on February 24, 2021, the Company completed a transaction related to one-year Extension Agreements dated February 14, 2021 with Cherokee under which Cherokee extended the due date of the Cherokee LSA ($900,000) and the 2019 Term Loan with Cherokee ($220,000). Under the terms of the extension, the $900,000 (secured) Cherokee LSA was increased to $1,000,000 to include a $100,000 penalty that was due as a result of the Company being unable to pay back the principal balance to Cherokee on February 15, 2021. The annual interest rate on the extended Cherokee LSA was increased to a fixed rate of 10% (the prior fixed rate was 8%) plus a 1% annual oversight fee (that remained unchanged). In addition, the 2019 Cherokee Term Loan was increased to $240,000 to include a $20,000 penalty that was due as a result of the Company being unable to pay back the principal balance to Cherokee on February 15, 2021. Our total debt at March 31, 2021 with Cherokee Financial, LLC was $1,240,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities, which is due in full on February 15, 2022. We may be able to utilize the Lincoln Park equity facility to pay down a portion (or all) of the debt owed to Cherokee prior to the maturity date of February 15, 2022; however, as of the date of this report, that is not a certainty.
 
Through the First Quarter of 2021, we had a line of credit with Crestmark Bank. The maximum availability on the line of credit is $1,000,000. However, because the amount available under the line of credit is based upon our accounts receivable, the amounts actually available under our line of credit (historically) have been significantly less than the maximum availability. When sales levels decline, we have reduced availability on our line of credit due to decreased accounts receivable balances. As of March 31, 2021, based on our availability calculation, there were no additional amounts available under the line of credit because we draw any balance available on a daily basis. Upon completion of the initial 5 year term, the Crestmark line of credit automatically renews for additional one (1) year terms unless notice of termination from the Company is received by Crestmark not less than sixty (60) days prior to the end of the renewal term. The Company has not provided Crestmark with a notice of non-renewal and therefore, the Crestmark line of credit will automatically renew on June 22, 2021 for another one year term, or until June 22, 2022.
 
If availability under our line of credit and cash received from equity sales under the Lincoln Park Purchase Agreement are not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to obtain additional credit facilities or sell additional equity securities, or delay capital expenditures which could have a material adverse effect on our business. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.
 
 
21
 
 
As of March 31, 2021, we had the following debt/credit facilities:
 
Facility
Debtor
 
Balance as of
March 31, 2021
 
Due Date
Loan and Security Agreement
Cherokee Financial, LLC
 $1,000,000 
February 15, 2022
Revolving Line of Credit
Crestmark Bank
  245,000 
June 22, 2022
Term Loan
Cherokee Financial, LLC
  240,000 
February 15, 2022
PPP Loan
Crestmark Bank, SBA
  332,000 
April 22, 2022
Term Loan
Individual
  50,000 
November 4, 2021
Total Debt

 $1,867,000 
 
 
Working Capital Deficit
 
At the end of the First Quarter 2021, we were operating at a working capital deficit of $2,119,000. This compares to a working capital deficit of $1,650,000 at the end of the First Quarter 2020 and a working capital deficit of $841,000 at December 31, 2020. This increase in working capital deficit is primarily a result of decreased sales and, from December 31, 2020 to March 31, 2021, a change in classification of our debt with Cherokee from long-term to short-term. We have historically satisfied working capital requirements through cash from operations, bank debt and equity financings.
 
Dividends
 
We have never paid any dividends on our common shares and anticipate that all future earnings, if any, will be retained for use in our business, and therefore, we do not anticipate paying any cash dividends.
 
Cash Flow, Outlook/Risk
 
In the First Quarter 2021, we had a net loss of $556,000 and net cash used by operating activities of $359,000. Our cash position decreased from $581,000 in the First Quarter 2020 to $63,000 in the First Quarter 2021. This decrease stems from prepayments received from presales of Covid-19 tests in 2020 and $199,000 from the February 2020 equity private placement in the First Quarter 2020, which did not recur in the First Quarter 2021.
 
In March 2020, the World Health Organization declared Covid-19 to be a pandemic. Covid-19 has spread throughout the globe, including in the State of New York where our headquarters are located, and in the State of New Jersey where our strip manufacturing facility is located. In response to the outbreak, we have followed the guidelines of the U.S. Centers for Disease Control and Prevention (“CDC”) and applicable state government authorities to protect the health and safety of our employees, families, suppliers, customers and communities. While these existing measures and, Covid-19 generally, have not materially disrupted our business operations to date, any future actions necessitated by the Covid-19 pandemic may result in disruption to our business. While we have not seen a disruption in our business operations to date, our drug testing sales have been negatively impacted by the pandemic.
 
While the Covid-19 pandemic continues to evolve, we continue to assess the impact of the Covid-19 pandemic to best mitigate risk and continue the operations of our business. The extent to which the outbreak impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity or longevity of the Covid-19 pandemic and actions that may be taken to contain it or treat its impact, among others. If we, our customers or suppliers experience (or in some cases continue to experience) prolonged shutdowns or other business disruptions, our business, liquidity, results of operations and financial condition are likely to be materially adversely affected, and our ability to access the capital markets may be limited.
 
 
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On December 9, 2020, we entered into a Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with Lincoln Park under which Lincoln Park agreed to purchase from the Company, from time to time, up to $10,250,000 of our shares of common stock, par value $0.01 per share, subject to certain limitations set forth in the Purchase Agreement, during the term of the Purchase Agreement. We registered 9,750,000 shares of common stock under a Registration Statement on Form S-1 (as amended) and the Form S-1 was declared effective by the SEC on January 11, 2021 and going forward we are able to utilize the Lincoln Park equity facility to fund operations (if necessary), pay down other debt (whenever possible) and fund our growth initiatives. In the First Quarter 2021, we sold 2,100,000 shares of common stock to Lincoln Park as Regular Purchases and received proceeds of $381,000.
 
Our ability to repay our current debt may also be affected by general economic, financial, competitive, regulatory, legal, business and other factors beyond our control, including those discussed herein. If we are unable to meet our credit facility obligations and we are unable to facilitate purchases under our Purchase Agreement with Lincoln Park, we would be required to raise money through new equity and/or debt financing(s) and, there is no assurance that we would be able to find new financing, or that any new financing would be at favorable terms.
 
We will continue to take steps to ensure that operating expenses and manufacturing costs remain in line with sales levels. We have consolidated job responsibilities in certain areas of the Company and this enabled us to implement personnel reductions. Sales declines result in lower cash balances and lower availability on our line of credit at times. We are promoting new products and service offerings to diversify our revenue stream, including Covid-19 tests.
 
If we are forced to refinance our debt on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. There is also no assurance that we could obtain alternative debt facilities. We may also be forced to pursue one or more alternative strategies, such as restructuring, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be implemented on satisfactory terms, if at all.
 
If events and circumstances occur such that 1) we do not meet our current operating plans to increase sales, 2) we are unable to raise sufficient additional equity or debt financing, 3), we are unable to utilize equity as a form of payment in lieu of cash, or 4) our credit facilities are insufficient or not available, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance.
 
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.
 
 
23
 
 
PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
 
See Part I, Item 1, Note D in the Notes to interim condensed Financial Statements included in this report for a description of pending legal proceedings in which we may be a party.
 
Item 1A. Risk Factors
 
There have been no material changes to our risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, 2020.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
None.
 
Item 6. Exhibits
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief Financial Officer
Certification of the Chief Executive Officer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheet, (ii) Condensed Statements of Income (iii) Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements.
 
 
 
 
 
 
 
 
24
 
 
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)
 
 
 
 
 
Date: May 20, 2021
By:  
/s/ Melissa A. Waterhouse  
 
 
 
Melissa A. Waterhouse
 
 
 
Chief Executive Officer (Principal Executive Officer)
Principal Financial Officer
Principal Accounting Officer
 
 
 
 
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