Note A - The Company and its Significant Accounting
Policies
The Company:
American Bio Medica
Corporation (the “Company”) 1) manufactures and sells
lateral flow immunoassay tests, primarily for the immediate
detection of drugs in urine and oral fluid, 2) provides strip
manufacturing and assembly and packaging services for unaffiliated
third parties and 3) sells (via distribution) a number of other
products related to the immediate detection of drugs in urine and
oral fluid as well as point of care diagnostic products via
distribution.
Going Concern:
The
Company’s financial statements have been prepared assuming
the Company will continue as a going concern, which assumes the
realization of assets and the satisfaction of liabilities in the
normal course of business. For the year ended December 31, 2020
(“Fiscal 2020”), the Company had a net loss of $796,000
and net cash used in operating activities of $483,000, compared to
a net loss of $681,000 and net cash provided by operating
activities of $58,000 in the year ended December 31, 2019
(“Fiscal 2019”). The Company’s cash position
increased by $94,000 in Fiscal 2020 and decreased by $109,000 in
Fiscal 2019. The Company had a working capital deficit of $841,000
at December 31, 2020 compared to a working capital deficit of
$463,000 at December 31, 2019. This increase in working capital
deficit is primarily due to the PPP loan amount in 2020 that is
expected to be forgiven in 2021.
As of
December 31, 2020, the Company had an accumulated deficit of
$23,350,000. Over the course of the last several fiscal years, the
Company has implemented a number of expense and personnel cuts,
implemented a salary and commission deferral program, consolidated
certain manufacturing operations of the Company, refinanced debt
and entered into an equity line of credit with Lincoln Park Capital
Fund, LLC.
Throughout most of
the six months ended June 30, 2020, we maintained a 10% salary
deferral program for our sole executive officer, our Chief
Executive Officer/Principal Financial Officer Melissa Waterhouse.
The 10% deferral program ceased in early June 2020 considering the
length of time the deferral was in place for Waterhouse (almost 7
years) and the balance owed. Until his departure in November 2019,
another member of senior management participated in the program. As
of December 31, 2020, we had total deferred compensation owed to
these two individuals in the amount of $138,000. We did not make
any payments on deferred compensation to Melissa Waterhouse in
Fiscal 2020 or in Fiscal 2019. After the member of senior
management retired in November 2019, we agreed to make payments for
the deferred comp owed to this individual. In Fiscal 2020, we made
payments totaling $57,000 to this individual and in Fiscal 2019 we
made payments of $4,000 to this individual. We will continue to
make payments to the former member of senior management
in the
year ended December 31, 2021 in the amount of $20,000 until
the deferred compensation is paid in full; which is expected to be
in May 2021. As cash flow from operations allows, we intend to
repay/make payments on the deferred compensation owed to Melissa
Waterhouse.
The
Company’s current cash balances, together with cash generated
from future operations and amounts available under its credit
facilities may not be sufficient to fund operations through April
2022. At December 31, 2020, the Company had negative
Stockholders’ Equity of $1,256,000.
The
Company’s loan and security agreement and 2020 Term Note with
Cherokee for $900,000 and $220,000, respectively, expired on
February 15, 2021. The Company did extend the facilities with
Cherokee in February 2021. (See Note K – Subsequent
Events).
On June
22, 2020, the Company extended the Crestmark line of credit until
June 22, 2021. All terms and conditions of the Crestmark line of
credit remain unchanged under the extension period with the
exception of the following, 1) the maximum availability under the
Crestmark line of credit was reduced from $1,500,000 to $1,000,000,
2) availability under the Crestmark line of credit is based on
receivables only (under the same terms), 3) the requirement for
field audits of the Company was removed, and 4) the Tangible Net
Worth (TNW) covenant was removed. 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
Crestmark line of credit has a maximum availability of $1,000,000;
however, the amount available under the line of credit is much
lower as it is based upon the balance of the Company’s
accounts receivable. As of December 31, 2020, based on an
availability calculation, there were no additional amounts
available under the Crestmark line of credit because the Company
draws any balance available on a daily basis. If sales levels
decline, the Company will have reduced availability on the line of
credit due to decreased accounts receivable balances. The line of
credit with Crestmark expires on June 22, 2021.
On
December 9, 2020, the Company 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, 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.
If
availability under the Crestmark line of credit and the Lincoln
Park equity line of credit is not sufficient to satisfy the
Company’s working capital and capital expenditure
requirements, the Company 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 Company’s 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.
The
Company’s ability to be in compliance with the obligations
under its current credit facilities will depend on the
Company’s ability to further increase sales. The
Company’s ability to repay its current debt may also be
affected by general economic, financial, competitive, regulatory,
legal, business and other factors beyond the Company’s
control, including those discussed herein. If the Company is unable
to meet its credit facility obligations, the Company would be
required to raise money through new equity and/or debt financing(s)
and, there is no assurance that the Company would be able to find
new financing, or that any new financing would be at favorable
terms.
The
Company’s history of limited cash flow and/or operating cash
flow deficits and its current cash position raise doubt about its
ability to continue as a going concern and its continued existence
is dependent upon several factors, including its ability to raise
revenue levels and control costs to generate positive cash flows,
to facilitate purchase under the Lincoln Park equity line of credit
to operations and/or obtain additional credit facilities. Obtaining
additional credit facilities may be more difficult as a result of
the tightening of credit markets and the Company’s operating
losses.
If
events and circumstances occur such that 1) the Company cannot
raise revenue levels, 2) the Company is unable to control
operational costs to generate positive cash flows, 3) the Company
cannot maintain its current credit facilities or refinance its
current credit facilities, 4) the Company is unable to utilize its
common stock as a form of payment in lieu of cash and 4) the
Company is unable to facilitate purchases under the Lincoln Park
equity line of credit, the Company may be required to further
reduce expenses or take other steps which could have a material
adverse effect on the Company’s future performance. The
Company’s financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amount of or classification of liabilities that
might be necessary as a result of this uncertainty.
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 the Company’s headquarters are
located, and in the State of New Jersey where the Company’s
strip manufacturing facility is located. The primary markets for
the Company’s DOA products were all negatively impacted by
the Covid-19 pandemic in Fiscal 2020 and this negative impact
continues in the early part of the year ending December 31, 2021
although the negative impact does appear to have diminished as
areas of the economy open up. This decline in DOA sales was offset
by sales of Covid-19 tests in Fiscal 2020.
While
the Covid-19 pandemic continues to evolve and as surges continue to
occur, 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 still uncertain and cannot be predicted,
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. There are still
numerous uncertainties associated with this outbreak, including the
number of individuals who will become infected, whether the
vaccines recently introduced will significantly mitigate the effect
of the virus, the extent of the protective and preventative
measures that have been put in place by both governmental entities
and other businesses and those that may be put in place in the
future, the further impact on the U.S. and world economy, and
various other uncertainties. Further, even after containment of the
virus any significant reduction in employee willingness to return
to work would result in a reduction of manufacturing
capacity.
We
expect the Covid-19 pandemic will continue to negatively affect
customer demand of our DOA products in Fiscal 2021 or at least part
of Fiscal 2021, but the final duration of this negative impact is
uncertain. The extent to which the Covid-19 pandemic may further
impact our business, operating results, financial condition, or
liquidity in the future will depend on future developments which
are evolving and highly uncertain including the duration of the
outbreak, travel restrictions, business and workforce disruptions,
the timing of reopening the economic regions in which we and our
customers do business and the effectiveness of actions taken to
contain and treat the disease. In addition, resurgence in the
number of cases of Covid-19 could further negatively impact our
business.
Significant Accounting Policies:
[1] Cash
equivalents: The Company considers all highly liquid
financial instruments purchased with a maturity of three months or
less to be cash equivalents.
[2] Accounts Receivable: Accounts receivable
consists of mainly trade receivables due from customers for the
sale of our products. Payment terms vary on a
customer-by-customer basis, and currently range from cash on
delivery to net 60 days. Receivables are considered past due
when they have exceeded their payment terms. Accounts
receivable have been reduced by an estimated allowance for doubtful
accounts. The Company estimates its allowance for doubtful accounts
based on facts, circumstances and judgments regarding each
receivable. Customer payment history and patterns, length of
relationship with the customer, historical losses, economic and
political conditions, trends and individual circumstances are among
the items considered when evaluating the collectability of the
receivables. Accounts are reviewed regularly for collectability and
those deemed uncollectible are written off. At December 31, 2020
and December 31, 2019, the Company had an allowance for doubtful
accounts of $22,000 and $34,000, respectively.
[3] Inventory: Inventory is stated at the
lower of cost or net realizable value. Work in process and finished
goods are comprised of labor, overhead and raw material costs.
Labor and overhead costs are determined on a rolling average cost
basis and raw materials are determined on an average cost basis. At
December 31, 2020 and December 31, 2019, the Company established an
allowance for slow moving and obsolete inventory of $279,000 and
$291,000, respectively.
[4] Income taxes: The Company follows ASC
740 “Income Taxes” (“ASC 740”) which
prescribes the asset and liability method whereby deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and
are measured using the enacted laws and tax rates that will be in
effect when the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits that are not expected to
be realized. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that such tax rate
changes are enacted. Under ASC 740, tax benefits are recorded only
for tax positions that are more likely than not to be sustained
upon examination by tax authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon ultimate settlement.
Unrecognized tax benefits are tax benefits claimed in the
Company’s tax returns that do not meet these recognition and
measurement standards.
On
December 22, 2017, the Tax Reform Act was signed into law. Among
the provisions, the Tax Reform ACT reduces the U.S. federal
corporate income tax rate from a maximum of 35% to a flat 21%
effective January 1, 2018, requires companies to pay a one-time
transition tax on deemed repatriated earnings of certain foreign
subsidiaries that were previously tax deferred, and creates new
taxes on certain foreign sourced earnings. At December 31, 2019,
the Company has completed its accounting for the tax effects of the
enactment of the Tax Reform Act. The Company has finalized the tax
effects on its existing deferred tax balances and the one-time
transition tax under Staff Accounting Bulletin No. 118 ("SAB 118").
The Company has also included current year impacts of the Tax
Reform Act in our tax provision. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to reverse.
[5] Depreciation and amortization: Property,
plant and equipment are depreciated on the straight-line method
over their estimated useful lives; generally 3-5 years for
equipment and 30 years for buildings. Leasehold improvements and
capitalized lease assets are amortized by the straight-line method
over the shorter of their estimated useful lives or the term of the
lease. Intangible assets include the cost of patent applications,
which are deferred and charged to operations over 19 years. The
accumulated amortization of patents is $198,000 at December 31,
2020 and $190,000 at December 31, 2019. Annual amortization expense
of such intangible assets is expected to be $8,000 per year for the
next 5 years.
[6] Revenue recognition: The Company adopted
ASU 2014-09, “Revenue from Contracts with Customers” in
the first quarter of Fiscal 2018.The Company's revenues result from
the sale of goods and reflect the consideration to which the
Company expects to be entitled. The Company records revenues based
on a five-step model in accordance with ASU 2014-09. The Company
has defined purchase orders as contracts in accordance with ASU
2014-09. For its customer contracts, the Company’s
performance obligations are identified; which is delivering goods
at a determined transaction price, allocation of the contract
transaction price with performance obligations (when applicable),
and recognition of revenue when (or as) the performance obligation
is transferred to the customer. Goods are transferred when the
customer obtains control of the goods (which is upon shipment to
the customer). The Company's revenues are recorded at a point in
time from the sale of tangible products. Revenues are recognized
when products are shipped.
Product
returns, discounts and allowances are variable consideration and
are recorded as a reduction of revenue in the same period that the
related sale is recorded. The Company has reviewed the overall
sales transactions for variable consideration and has determined
that these costs are not significant. The Company has not
experienced any impairment losses, has no future performance
obligations and does not capitalize costs to obtain or fulfill
contracts.
[7] Shipping and handling: Shipping and
handling fees charged to customers are included in net sales, and
shipping and handling costs incurred by the Company, to the extent
of those costs charged to customers, are included in cost of
sales.
[8] Research and development: Research and
development (“R&D”) costs are charged to operations
when incurred. These costs include salaries, benefits, travel,
costs associated with regulatory applications, supplies,
depreciation of R&D equipment and other miscellaneous
expenses.
[9] Net
loss per common share: Basic loss per common share is
calculated by dividing net loss by the weighted average number of
outstanding common shares during the period.
Potential common
shares outstanding as of December 31, 2020 and 2019:
|
|
|
|
|
Warrants
|
0
|
2,000,000
|
|
Options
|
1,987,000
|
2,252,000
|
|
Total
|
1,987,000
|
4,252,000
|
For
Fiscal 2020 and Fiscal 2019, the number of securities not included
in the diluted loss per share was 1,987,000 and 4,252,000,
respectively, as their effect was anti-dilutive due to a net loss
in each year.
[10] Use
of estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Our management
believes the major estimates and assumptions impacting our
financial statements are the following:
●
estimates of the
fair value of stock options and warrants at date of grant;
and
●
estimates of
accounts receivable reserves; and
●
estimates of the
inventory reserves; and
●
estimates of
accruals and liabilities; and
●
deferred tax
valuation.
The
fair value of stock options issued to employees, members of our
Board of Directors, and consultants and of warrants issued in
connection with debt financings is estimated on the date of grant
based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected
remaining lives of the awards. The assumptions used in calculating
the fair value of share-based payment awards represent management's
best estimates, but these estimates involve inherent uncertainties
and the application of management judgment.
As a
result, if factors change and the Company uses different
assumptions, the Company's equity-based compensation expense could
be materially different in the future. In addition, the Company is
required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. In estimating
the Company's forfeiture rate, the Company analyzed its historical
forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options
outstanding.
If the
Company's actual forfeiture rate is materially different from its
estimate, or if the Company reevaluates the forfeiture rate in the
future, the equity-based compensation expense could be
significantly different from what we have recorded in the current
period.
Actual
results may differ from estimates and assumptions of future
events.
[11] Impairment of long-lived assets: The
Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of
those assets. The Company has performed an analysis of the
undiscounted cash flows expected to be generated from the
Company’s fixed assets and intangibles. Based on the
Company’s analysis, the Company believes the carrying values
of these assets are recoverable and impairment does not
exist.
[12] Financial Instruments: The carrying
amounts of cash, accounts receivable, accounts payable, accrued
expenses, and other assets/liabilities approximate their fair value
based on the short term nature of those items.
Estimated fair
value of financial instruments is determined using available market
information. In evaluating the fair value information, considerable
judgment is required to interpret the market data used to develop
the estimates. The use of different market assumptions and/or
different valuation techniques may have a material effect on the
estimated fair value amounts.
Accordingly, the
estimates of fair value presented herein may not be indicative of
the amounts that could be realized in a current market
exchange.
ASC
Topic 820, “Fair Value Measurements and Disclosures”
(“ASC Topic 820”) establishes a hierarchy for ranking
the quality and reliability of the information used to determine
fair values. ASC Topic 820 requires that assets and liabilities
carried at fair value be classified and disclosed in one of the
following three categories:
Level
1: Unadjusted quoted market prices in active markets for identical
assets or liabilities.
Level
2: Unadjusted quoted prices in active markets for similar assets or
liabilities, unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active, or inputs
other than quoted prices are observable for the asset or
liability.
Level
3: Unobservable inputs for the asset or liability.
The
Company endeavors to utilize the best available information in
measuring fair value. Financial assets and liabilities are
classified based on the lowest level of input that is significant
to the fair value measurement. The following methods and
assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash
—The carrying amount reported in the balance sheet for cash
and cash equivalents approximates its fair value due to the
short-term maturity of these instruments.
Line of
Credit and Long-Term Debt—The carrying amounts of the
Company’s borrowings under its line of credit agreement and
other long-term debt approximates fair value, based upon current
interest rates, some of which are variable interest
rates.
Other
Asset/liabilities – The carrying amounts reported in the
balance sheet for other current assets and liabilities approximates
their fair value, based on the nature of the assets and
liabilities.
In
August 2018, ASU 2018-13, “Fair Value Measurement (Topic
820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement”, was issued. ASU 2018-03 adds,
modifies and removes several disclosure requirements relative to
the three levels of inputs used to measure fair value in accordance
with Topic 820, “Fair Value Measurement.” ASU 2018-13
was effective for fiscal years beginning after December 15, 2019,
including interim periods within that fiscal year. The Company
adopted ASU 2018 on January 1, 2020 and the adoption did not have
an impact on its financial position or results of
operations.
[13] Accounting for share-based payments and
stock warrants: In
accordance with the provisions of ASC Topic 718, “Accounting
for Stock Based Compensation”, the Company recognizes
share-based payment expense for stock options and warrants. In June
2018, ASU 2018-07,
“Compensation - Stock Compensation/Improvements to
Nonemployee Share-Based Payment Accounting”, was issued. ASU
2018-07 expanded the scope of ASC Topic 718 to include share-based
payment transactions for acquiring goods and services from
nonemployees. The requirements of Topic 718 must be applied to
nonemployee awards except for certain exemptions specified in the
amendment. ASU 2018-07 was effective for fiscal years beginning
after December 15, 2018, including interim reporting periods within
that fiscal year. The Company adopted ASU 2018-07 in the First
Quarter 2019 and the adoption did not have a material impact on its
financial position or results of operations considering the limited
occasions where the Company has issued share based awards to
nonemployees for goods or services.
The
weighted average fair value of options issued and outstanding in
Fiscal 2020 and Fiscal 2019 was $0.13 in each year. (See Note H [2]
– Stockholders’ Equity)
The
Company accounts for derivative instruments in accordance with ASC
Topic 815 “Derivatives and Hedging” (“ASC Topic
815”). The guidance within ASC Topic 815 requires the Company
to recognize all derivatives as either assets or liabilities on the
statement of financial position unless the contract, including
common stock warrants, settles in the Company’s own stock and
qualifies as an equity instrument. A contract designated as an
equity instrument is included in equity at its fair value, with no
further fair value adjustments required; and if designated as an
asset or liability is carried at fair value with any changes in
fair value recorded in the results of operations. There were no
warrants issued and outstanding at December 31, 2020. The weighted
average fair value of warrants issued and outstanding at December
31, 2019 was $0.18. (See Note H [3] – Stockholders’
Equity)
[14] Concentration of credit risk: The
Company sells products primarily to United States customers and
distributors. Credit is extended based on an evaluation of the
customer’s financial condition.
At
December 31, 2020, one customer accounted for 68.0% of the
Company’s net accounts receivable. A substantial portion of
this balance was collected in the first quarter of the year ending
December 31, 2021. Due to the long standing nature of the
Company’s relationship with this customer and contractual
obligations, the Company is confident it will recover these
amounts.
At
December 31, 2019, one customer accounted for 55.6% of the
Company’s net accounts receivable and another customer
accounted for 15.0%. All of these amounts were recovered in Fiscal
2020.
The
Company has established an allowance for doubtful accounts of
$22,000 and $34,000 at December 31, 2020 and December 31, 2019,
respectively, based on factors surrounding the credit risk of our
customers and other information.
One of
the Company’s customers accounted for 35.2% of net sales in
Fiscal 2020 and 44.8% of net sales in Fiscal 2019. Excluding sales
of Covid testing products, the same customer accounted for 59.0% of
net sales in Fiscal 2020.
The
Company maintains certain cash balances at financial institutions
that are federally insured and at times the balances have exceeded
federally insured limits.
[15] Reporting comprehensive income: The
Company reports comprehensive income in accordance with the
provisions of ASC Topic 220, “Reporting Comprehensive
Income” (“ASC Topic 220”). The provisions of ASC
Topic 220 require the Company to report the change in the Company's
equity during the period from transactions and events other than
those resulting from investments by, and distributions to, the
shareholders. For Fiscal 2020 and Fiscal 2019, comprehensive income
was the same as net income.
[16] Reclassifications: Certain items have
been reclassified from the prior years to conform to the current
year presentation.
[17]
New accounting pronouncements:
In
the year ended December 31, 2020, we adopted the following
accounting standards set forth by the Financial Accounting
Standards Board (“FASB”):
ASU 2018-13, “Fair Value
Measurement (Topic 820): Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement”,
issued in August 2018, adds, modifies and removes several
disclosure requirements relative to the three levels of inputs used
to measure fair value in accordance with Topic 820, “Fair
Value Measurement.” ASU 2018-13 is effective for fiscal years
beginning after December 15, 2019, including interim periods within
that fiscal year. The Company adopted ASU 2018-13 in the First
Quarter 2020 and the adoption did not have an impact on the
Company’s financial condition or its results of
operations.
ASU 2019-08, Compensation –
Stock Compensation (Topic 718) and Revenue from Contracts with
Customers (Topic 606)”, issued in November 2019,
clarifies that an entity must measure and classify share-based
payment awards granted to a customer by applying the guidance in
Topic 718. ASU 2019-08 is effective for fiscal years beginning
after December 15, 2019, including interim reporting periods within
those fiscal years. The Company adopted ASU 2019-08 in the First
Quarter 2020 and the adoption did not have an impact on the
Company’s financial condition or its results of
operations.
Accounting
Standards Issued; Not Yet Adopted
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.
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.
NOTE B - INVENTORY
Inventory is
comprised of the following:
|
|
|
|
|
Raw
Materials
|
$534,000
|
$670,000
|
|
Work In
Process
|
127,000
|
141,000
|
|
Finished
Goods
|
154,000
|
290,000
|
|
Allowance for slow
moving and obsolete inventory
|
(279,000)
|
(291,000)
|
|
|
$536,000
|
$810,000
|
NOTE C – PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment, at cost, are as follows:
|
|
|
|
|
|
|
|
|
Land
|
$102,000
|
$102,000
|
|
Buildings
and improvements
|
1,352,000
|
1,352,000
|
|
Manufacturing
and warehouse equipment
|
2,110,000
|
2,107,000
|
|
Office
equipment (incl. furniture and fixtures)
|
412,000
|
412,000
|
|
|
3,976,000
|
3,973,000
|
|
Less
accumulated depreciation
|
(3,400,000)
|
(3,329,000)
|
|
|
$576,000
|
$644,000
|
Depreciation
expense was $71,000 in Fiscal 2020 and $74,000 in Fiscal
2019.
NOTE D – ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued
expenses and other current liabilities consisted of the
following:
|
|
|
|
|
Accounting
fees
|
$80,000
|
$77,000
|
|
Interest
payable
|
22,000
|
15,000
|
|
Accounts receivable
credit balances
|
5,000
|
55,000
|
|
Sales tax
payable
|
164,000
|
142,000
|
|
Deferred
compensation
|
138,000
|
191,000
|
|
Customer
Deposits
|
167,000
|
10,000
|
|
Other current
liabilities
|
44,000
|
28,000
|
|
|
$620,000
|
$518,000
|
NOTE E – DEBT AND LINE OF CREDIT
The
Company’s Line of Credit and Debt consisted of the following
as of December 31, 2020 and December 31, 2019:
|
|
December
31, 2020
|
December
31, 2019
|
|
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; see Note K; Subsequent Events.
Loan is collateralized by a first security interest in building,
land and property.
|
|
$
900,000
|
$
|
900,000
|
|
Crestmark Line of Credit: Line of credit maturing on
September 22, 2021 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 12.08%.
|
|
277,000
|
|
337,000
|
|
Crestmark Equipment Term Loan: 38 month equipment loan related
to the purchase of manufacturing equipment, at an interest rate of
WSJ Prime Rate plus 3%; or 6.25%. The loan was satisfied in the
quarter ended September 30, 2020.
|
|
0
|
|
7,000
|
|
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 for
another 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;
see Note K; Subsequent Events.
|
|
220,000
|
|
200,000
|
|
July 2019 Term Loan with Chaim Davis, et al: Notes at an
annual fixed interest rate of 7.5% paid monthly in arrears with the
first payment being made on September 1, 2019 and the final payment
being made on October 1, 2020. Loan principal was fully converted
into restricted common shares on March 2, 2020 as part of the
February 2020 private placement.
December 2019 Convertible Note: Convertible note with a
conversion date of 120 days or upon the closing of a 2020 funding
transaction (whichever is sooner). Note principal was fully
converted into restricted common shares on March 2, 2020 as part of
our February 2020 private placement.
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.
|
|
0
0
332,000
|
|
10,000
25,000
0
|
|
November 2020 Shareholder Note with Chaim Davis; no terms,
note was paid on February 24, 2021 with proceeds from Lincoln Park
financing.
|
|
25,000
|
|
0
|
|
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.
|
|
50,000
|
|
0
|
|
|
|
$
1,804,000
|
$
|
1,479,000
|
|
Less
debt discount & issuance costs (Cherokee Financial, LLC
loans)
|
|
0
|
|
(17,000)
|
|
Total
debt, net
|
|
$
1,804,000
|
$
|
1,462,000
|
|
|
|
|
|
|
|
Current
portion
|
|
$
684,000
|
$
|
354,000
|
|
Long-term
portion, net of current portion
|
|
$
1,120,000
|
$
|
1,125,000
|
At
December 31, 2020, the following are the debt maturities for each
of the next five years:
|
2021
|
$684,000
|
|
2022
|
1,120,000
|
|
2023
|
0
|
|
2024
|
0
|
|
2025
|
0
|
|
|
$1,804,000
|
AMERICAN BIO MEDICA CORPORATION
Notes
to financials
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%. 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 new, larger term loan with Cherokee (See
2019 Term Loan with Cherokee within this Note E).
On
February 24, 2020 (the “Closing Date”), 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.
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%. If the amount due is not
paid by the extended due date, Cherokee will automatically add a
delinquent payment penalty of $100,000 to the outstanding
principal.
The
Company will continue to make interest only payments quarterly on
the Cherokee LSA. In addition to the 8% interest, the Company pays
Cherokee a 1% annual fee for oversight and administration of the
loan. This oversight fee is paid in cash and is paid
contemporaneously with the quarterly interest payments. The Company
can pay off the Cherokee 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 $89,000 in interest expense related to the
Cherokee LSA in Fiscal 2020 (of which $16,000 is debt issuance cost
amortization recorded as interest expense) and $166,000 in interest
expense related to the Cherokee LSA in Fiscal 2019 (of which
$94,000 is debt issuance cost amortization recorded as interest
expense).
The
Company had $12,000 in accrued interest expense at December 31,
2020 related to the Cherokee LSA and $10,000 in accrued interest
expense at December 31, 2019.
As of
December 31, 2020, the balance on the Cherokee LSA was $900,000. As
of December 31, 2019, the balance on the Cherokee LSA was $900,000;
however, the discounted balance was $884,000.
A final
balloon payment was due on February 15, 2021; however, the Company
further extended the Cherokee LSA. See “Note K –
Subsequent Events” for information regarding the extension of
the Cherokee LSA.
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. The Company amended the Crestmark LOC
on June 22, 2020 and as a result of this amendment, the Crestmark
LOC expires on June 22, 2021.
Until
the amendment on June 22, 2020, the Crestmark LOC provided the
Company with a revolving line of credit up to $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 is no inventory sub-cap. Upon execution of the
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 is a receivables-based only line of credit.
The
Crestmark LOC has a minimum loan balance requirement of $500,000.
At September 30, 2020, the Company did not meet the minimum loan
balance requirement as our balance was $208,000. 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 under 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 December 31, 2020, the interest only
rate on the Crestmark LOC was 6.25% due to a decrease in the Prime
Rate effective March 15, 2020. 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 was 13.2%.
The
Company recognized $41,000 in interest expense related to the
Crestmark LOC in Fiscal 2020 and $46,000 in interest expense
related to the Crestmark LOC in Fiscal 2019.
Given
the nature of the administration of the Crestmark LOC, at December
31, 2020, the Company had $0 in accrued interest expense related to
the Crestmark LOC, and there is $0 in additional availability under
the Crestmark LOC.
As of
December 31, 2020, the balance on the Crestmark LOC was $277,000,
and as of December 31, 2019, the balance on the Crestmark LOC was
$337,000.
EQUIPMENT LOAN WITH CRESTMARK
On May
1, 2017, the Company entered into term loan with Crestmark in the
amount of $38,000 related to the purchase of manufacturing
equipment. The equipment loan is collateralized by a first security
interest in a specific piece of manufacturing equipment. The
Company executed an amendment to its LSA and Promissory Note with
Crestmark. The amendments addressed the inclusion of the term loan
into the LSA and an extension of the Crestmark LOC. No terms of the
Crestmark LOC were changed in the amendment. The interest rate on
the term loan was the WSJ Prime Rate plus 3%; or 6.25%. The loan
was satisfied in the quarter ended September 30, 2020.
The
Company incurred minimal interest expense in the Fiscal 2020
related to the Equipment Loan and less than $1,000 in interest
expense in Fiscal 2019. The balance on the Equipment Loan is $0 at
December 31, 2020 and $7,000 at December 31, 2019.
2019 TERM LOAN WITH CHEROKEE
On
February 25, 2019 (the “Closing Date”), the Company
entered into an agreement dated (and effective) February 13, 2019
(the “Agreement”) with Cherokee under which Cherokee
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. In connection with the 2019 Cherokee Term Loan, the
Company issued 200,000 restricted shares of common stock to
Cherokee in the three months ended March 31, 2019.
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 and the latest interest payment being
made in September 2020. The loan was required to be paid in full on
February 15, 2020.
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.
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% and Cherokee will automatically add a
delinquent payment penalty of $20,000 to the outstanding
principal.
The
Company recognized $40,000 in interest expense related to the 2019
Cherokee Term Loan in Fiscal 2020 (of which $1,000 is debt issuance
cost amortization recorded as interest expense) and $48,000 in
interest expense (of which $15,000 was debt issuance costs recorded
as interest expense) in Fiscal 2019.
The
Company had $7,000 in accrued interest expense at December 31, 2020
related to the Cherokee Term Loan and $5,000 in accrued interest
expense at December 31, 2019. The balance on the 2019 Term Loan is
$220,000 at December 31, 2020 (including the $20,000 penalty
referenced above). As of
December 31, 2019, the balance on the Cherokee Term Loan was
$200,000; however, the discounted balance was
$199,000.
A final
balloon payment was due on February 15, 2021; however the Company
further extended the 2019 Cherokee Term Loan. See “Note K
– Subsequent Events” for information regarding the
extension of the Cherokee Term Loan.
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 $2,000 in interest expense related to the PPP
loan in Fiscal 2020. The $2,000 was accrued at December 31, 2020
and is eligible for forgiveness under PPP guidelines. As of
December 31, 2020, the balance on the PPP Note was $332,000 and as
of December 31, 2019, the balance on the PPP Note was $0 (as the
facility was not in place at December 31, 2019).
NOVEMBER 2020 LOAN WITH CHAIM DAVIS
On
November 6, 2020, the Company entered into a loan agreement with
our 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
Fiscal 2020 and $0 in interest expense in Fiscal 2019 (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 is due on February 4, 2021 and the
final interest payment and 50,000 principal is due on May 4, 2021.
The company recognized and accrued less than $1,000 of interest
expense related to the term loan in Fiscal 2020 and $0 in interest
expense in Fiscal 2019 (as the loan was not in place at December
31, 2019). The balance on the 2020 Term Loan was $50,000 at
December 31, 2020 and $0 at December 31, 2019 (as the loan was not
in place at December 31, 2019).
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 Fiscal 2020 and/or Fiscal 2019. More
specifically:
2018 TERM LOAN WITH CHEROKEE
On
March 2, 2018, the Company entered into a one-year Loan Agreement
made as of February 15, 2018 (the “Closing Date”) with
Cherokee under which Cherokee provided the Company with $150,000
(the “2018 Cherokee Term Loan”). The proceeds from the
2018 Cherokee Term Loan were used by the Company to pay a $75,000
principal reduction payment to Cherokee that was due on February
15, 2018 and $1,000 in legal fees incurred by Cherokee. Net
proceeds (to be used for working capital and general business
purposes) were $74,000. The annual interest rate for the 2018
Cherokee Term Loan was 12% to be paid quarterly in arrears with the
first interest payment being made on May 15, 2018. In connection
with the 2018 Cherokee Term Loan, the Company issued 150,000
restricted shares of common stock to Cherokee on March 8, 2018. The
2018 Cherokee Term Loan was required to be paid in full on February
15, 2019 and was paid in full via refinance into the 2019 Term Loan
with Cherokee.
The
Company recognized $3,000 in interest expense related to the 2018
Cherokee Term Loan in Fiscal 2019 (of which $2,000 was debt
issuance costs recorded as interest expense). As of December 31,
2020 and December 31, 2019, the balance on the 2018 Cherokee Term
Loan was $0 as the Company paid the facility in full with proceeds
from the 2019 Term Loan with Cherokee.
JULY 2019 TERM LOAN WITH CHAIM DAVIS, ET AL
On July
31, 2019, the Company entered into loan agreements with two (2)
individuals, under which each individual provided the Company the
sum of $7,000 (for a total of $14,000) to be used in connection
with certain fees and/or expenses related legal matters of the
Company (the “July 2019 Term Loan”). One of the
individuals was our Chairman of the Board Chaim Davis. There were
no expenses related to the July 2019 Term Loan. The first payment
of principal and interest was due on September 1, 2019 and the last
payment of principal and interest was due on October 1, 2020. The
annual interest rate of the July 2019 Term Loan was fixed at 7.5%
(which represented the WSJ Prime Rate when the loan agreements were
executed) +2.0%.
The
balance on the 2019 Term Loan was $10,000 at December 31, 2019. In
February 2020, all amounts loaned under the July 2019 Term Loan
were converted into equity as part of the February 2020 Private
Placement. . Any interest that was incurred under the facility in
2019 and up to the conversion in February 2020 was forgiven by the
holders. The balance on the July 2019 Term Loan was $0 at December
31, 2020.
DECEMBER 2019 CONVERTIBLE NOTE
On
December 31, 2019, the Company entered into a Convertible Note with
one individual in the amount of $25,000 (“2019 Convertible
Note”). Under the terms of the 2019 Convertible Note, the
principal amount would convert into equity within 120 days of the
origination of the note or upon the close of a contemplated private
placement in early 2020, whichever was sooner. The 2019 Convertible
Note did not bear any interest and was ultimately converted into
equity as part of a private placement closed in February 2020. The
balance on the 2019 Convertible Note was $0 at December 31, 2020
and $25,000 at December 31, 2019.
NOTE
F – INCOME TAXES
The
Company follows ASC 740 “Income Taxes” (“ASC
740”) which prescribes the asset and liability method whereby
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted laws and tax rates
that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits that are
not expected to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted. Under ASC 740, tax benefits
are recorded only for tax positions that are more likely than not
to be sustained upon examination by tax authorities. The amount
recognized is measured as the largest amount of benefit that is
greater than 50 percent likely to be realized upon ultimate
settlement. Unrecognized tax benefits are tax benefits claimed in
the Company’s tax returns that do not meet these recognition
and measurement standards.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act) was enacted in response to the COVID-19 pandemic.
The CARES Act, among other things, permits NOL carryovers and
carrybacks to offset 100% of taxable income for taxable years
beginning before 2021. In addition, the CARES Act allows NOLs
incurred in tax years 2018, 2019, and 2020 to be carried back to
each of the five preceding taxable years to generate a refund of
previously paid income taxes. The CARES Act also contains
modifications on the limitation of business interest for tax years
beginning in 2019 and 2020. The modifications to Section 163(j)
increase the allowable interest expense deduction. Any tax benefit
as a result of the CARES Act is primarily due to the carryback of
net operating losses to prior years and increased interest expense
deductions.
A
reconciliation of the U.S. Federal statutory income tax rate to the
effective income tax rate is as follows:
|
|
Year
Ended
December 31,
2020
|
Year
Ended
December 31,
2019
|
|
Tax expense at
federal statutory rate
|
(21%)
|
(21%)
|
|
State tax expense,
net of federal tax effect
|
0%
|
0%
|
|
Expired
NOL
|
42%
|
46%
|
Deferred income tax
asset valuation allowance
|
(21%)
|
(26%)
|
Effective income
tax rate
|
(0%)
|
(1%)
|
AMERICAN BIO MEDICA CORPORATION
Notes
to financials
Significant
components of the Company’s deferred income tax assets are as
follows:
|
|
|
|
|
|
|
|
|
Inventory
capitalization
|
$8,000
|
$8,000
|
|
Inventory
allowance
|
73,000
|
76,000
|
|
Allowance for
doubtful accounts
|
6,000
|
9,000
|
|
Accrued
compensation
|
18,000
|
18,000
|
|
Stock based
compensation
|
162,000
|
168,000
|
|
Deferred wages
payable
|
36,000
|
50,000
|
|
Depreciation
– Property, Plant & Equipment
|
(5,000)
|
(1,000)
|
|
Research and
development credits
|
22,000
|
0
|
|
Net operating loss
carry-forward
|
3,123,000
|
3,339,000
|
|
Total gross
deferred income tax assets
|
3,443,000
|
3,667,000
|
Less deferred
income tax assets valuation allowance
|
(3,443,000)
|
(3,667,000)
|
Net deferred income
tax assets
|
$0
|
$0
|
The
valuation allowance for deferred income tax assets as of December
31, 2020 and December 31, 2019 was $3,443,000 and $3,667,000,
respectively. The net change in the deferred income tax assets
valuation allowance was $224,000 for Fiscal 2020 and $217,000 for
Fiscal 2019. The Company believes that it is more likely than not
that the deferred tax assets will not be realized.
As of
December 31, 2020, the prior three years remain open for
examination by the federal or state regulatory agencies for
purposes of an audit for tax purposes.
At
December 31, 2020, the Company had Federal net operating loss
carry-forwards for income tax purposes of approximately $3,123,000
and research and development credits of $22,000. The
Company’s net operating loss carry-forwards began to expire
in 2019 and continue to expire through 2035. In assessing the
realizability of deferred income tax assets, management considers
whether or not it is more likely than not that some portion or all
deferred income tax assets will be realized. The ultimate
realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
the projected future taxable income and tax planning strategies in
making this assessment.
The
Company’s ability to utilize the operating loss
carry-forwards may be subject to an annual limitation in future
periods pursuant to Section 382 of the Internal Revenue Code of
1986, as amended, if future changes in ownership
occur.
The
Company recognizes potential interest and penalties related to
income tax positions as a component of the provision for income
taxes on operations. The Company does not anticipate that total
unrecognized tax benefits will materially change in the next twelve
months.
NOTE G – OTHER INCOME / EXPENSE
Other
expense in Fiscal 2020 consisted of interest expense associated
with our credit facilities, offset by non-refundable deposits for
cancelled Covid test orders. Other expense in Fiscal 2019 consisted
of interest expense associated with our credit facilities, offset
by other income from proceeds for an insurance claim related to our
New Jersey facility (a claim that resulted from actions of a
service vendor) and a gain on an accrual for a contingent
liability.
AMERICAN BIO MEDICA CORPORATION
Notes
to financials
NOTE H – STOCKHOLDERS’ EQUITY
[1] Stock option plans: 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.
[2] Stock options: During Fiscal 2020, the
Company issued 0 options to purchase shares of common stock. During
Fiscal 2019, the Company issued four stock option grants to
non-employee members of our board of directors (under the Fiscal
2001 Plan) to purchase 20,000 shares of common stock (each); for a
total of 80,000 common shares.
As of
December 31, 2020, there were 1,987,000 options issued and
outstanding under the 2001 Plan. There were no options issued under
the 2013 Plan, making the total issued and outstanding options
1,987,000 as of December 31, 2020. Of the total options issued and
outstanding, 1,987,000 were fully vested as of December 31, 2020.
As of December 31, 2020, there were 1,730,000 options available for
issuance under the 2001 Plan and 4,000,000 options available under
the 2013 Plan.
Stock
option activity for Fiscal 2020 and Fiscal 2019 is summarized as
follows: (the figures contained within the tables below have been
rounded to the nearest thousand)
|
|
Year ended December 31, 2020
|
Year ended December 31, 2019
|
|
|
|
Weighted Average Exercise
Price
|
Aggregate Intrinsic Value as of December 31,
2020
|
Shares
|
Weighted Average Exercise
Price
|
Aggregate Intrinsic Value as of
December 31, 2019
|
|
Options
outstanding at beginning of year
|
2,252,000
|
$0.13
|
|
2,222,000
|
$0.13
|
|
|
Granted
|
0
|
|
|
80,000
|
$0.07
|
|
|
Exercised
|
0
|
|
|
0
|
|
|
|
Cancelled/expired
|
(265,000)
|
$0.10
|
|
(50,000)
|
$0.20
|
|
|
Options
outstanding at end of year
|
1,987,000
|
$0.13
|
$291,324
|
2,252,000
|
$0.13
|
$1,000
|
|
Options
exercisable at end of year
|
1,987,000
|
$0.13
|
|
2,172,000
|
$0.13
|
|
The
following table presents information relating to stock options
outstanding as of December 31, 2020:
|
|
|
|
|
|
|
|
Weighted Average
Remaining
|
|
Weighted
Average
|
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.07 - $0.11
|
910,000
|
$0.11
|
5.59
|
910,000
|
$0.11
|
|
$0.12 - $0.16
|
780,000
|
$0.13
|
3.68
|
780,000
|
$0.13
|
|
$0.18 - $0.26
|
297,000
|
$0.19
|
1.68
|
297,000
|
$0.19
|
|
|
1,987,000
|
$0.13
|
4.26
|
1,987,000
|
$0.13
|
The
following table summarizes weighted-average assumptions using the
Black-Scholes option-pricing model used on the date of the grants
issued during Fiscal 2020 and Fiscal 2019:
|
|
|
|
|
|
|
|
Volatility
|
NA
|
85%
|
|
Expected term
(years)
|
NA
|
|
|
Risk-free interest
rate
|
NA
|
2.01%
|
|
Dividend
yield
|
NA
|
0%
|
The
Company recognized $2,000 in share based payment expense related to
stock options in Fiscal 2020, and $5,000 in share based payment
expense related to stock options in Fiscal 2019. As of December 31,
2020, there was $0 of total unrecognized share based payment
expense related to stock options.
Warrant
activity for Fiscal 2020 and Fiscal 2019 is summarized as follows.
Any common shares issued as a result of the exercise of warrants
would be new common shares issued from our authorized issued
shares.
|
|
Year Ended December
31, 2020
|
Year Ended December
31, 2019
|
|
|
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic
Value
|
|
Weighted Average
Exercise Price
|
Aggregate Intrinsic
Value
|
|
Warrants
outstanding at beginning of year
|
2,000,000
|
$0.18
|
|
2,000,000
|
$0.18
|
|
|
Granted
|
0
|
|
|
0
|
|
|
|
Exercised
|
0
|
|
|
0
|
|
|
|
Cancelled/expired
|
(2,000,000)
|
|
|
(0)
|
|
|
Warrants
outstanding at end of year
|
0
|
|
|
2,000,000
|
$0.18
|
|
Warrants
exercisable at end of year
|
0
|
|
|
2,000,000
|
$0.18
|
|
The
Company recognized $0 in debt issuance and deferred finance costs
related to the issuance of these warrants outstanding in Fiscal
2020 and Fiscal 2019. As of December 31, 2020, there was $0 of
total unrecognized expense.
NOTE I – COMMITMENTS, CONTINGENCIES AND OTHER
MATTERS
[1] Operating leases: The Company leases
office and R&D/production facilities in New Jersey under a,
non-cancellable operating lease through December 31, 2019. In
December 2019, the Company extended the lease for the New Jersey
facility through December 31, 2022. The Company also leases office
support equipment through July 2022 and December 2025. At December
31, 2019, the future minimum rental payments under these operating
leases are as follows:
|
2021
|
39,000
|
|
2022
|
38,000
|
|
2023
|
1,000
|
|
2024
|
1,000
|
|
Thereafter
|
1,000
|
|
|
$80,000
|
Rent
Expense was $46,000 in Fiscal 2020 and Fiscal 2019.
[2] Employment agreements: The Company has
an employment agreement in place with its Chief Executive
Officer/Principal Financial Officer, Melissa Waterhouse. The
employment agreement with Ms. Waterhouse provides for a $160,000
annual salary (although the salary of Ms. Waterhouse was deferred
by 10% through the June 2020; resulting in deferred compensation
due to Waterhouse in the amount of $106,000 through December 31,
2020). The employment agreement contains severance provisions; in
the event the Company terminates Ms. Waterhouse’s employment
for any reason other than cause (which is defined under the
employment agreement), Ms. Waterhouse would receive severance pay
equal to 12 months of her base salary at the time of termination,
with continuation of all medical benefits during the twelve-month
period at the Company’s expense. In addition, Ms. Waterhouse
may tender her resignation and elect to exercise the severance
provision if she is required to relocate more than 50 miles from
the Company’s New York facility as a continued condition of
employment, if there is a substantial change in the
responsibilities normally assumed by her position, or if she is
asked to commit or conceal an illegal act by an officer or member
of the board of directors of the Company. In the case of a change
in control of the Company, Ms. Waterhouse would be entitled to
severance pay equal to two times her base salary under certain
circumstances.
[3]
Legal:
ABMC v. Todd Bailey
On
August 5, 2019, we settled litigation with Todd Bailey; a former
Vice President, Sales & Marketing and sales consultant of the
Company until December 23, 2016; hereinafter referred to as
“Bailey”). The litigation was filed by the Company in
the Northern District of New York in February 2017. Our complaint
sought damages related to profits and revenues that resulted from
actions taken by Bailey related to our customers. The settlement
also addressed a counter-claim filed by Bailey in October 2017
(filed originally in Minnesota but, transferred to the Norther
District of New York in January 2019). Bailey was seeking deferred
commissions in the amount of $164,000 that he alleged were owed to
him by the Company. These amounts were originally deferred under a
deferred compensation program initiated in 2013; a program in which
Bailey was one of the participants. We believed the amount sought
was not due to Bailey given the actions indicated in our
litigation.
Under
the settlement, both parties elected to resolve the litigation and
settle any and all claims made within the litigation. Neither party
admitted to any of the allegations contained within the ABMC v.
Baily litigation (including any allegations made by Bailey in his
counterclaim). Both parties also agreed to dismiss all claims made
against each other.
Other
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 our company.
NOTE J – LINCOLN PARK EQUITY LINE OF CREDIT
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.
The
Company does 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 have 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”). 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.
The
shares of common stock are being offered and sold by the Company to
Lincoln Park under the Purchase Agreement in reliance upon an
exemption from the registration requirements of the Securities Act
afforded by Section 4(a)(2) of the Securities Act and Rule 506(b)
of Regulation D promulgated thereunder. The Company filed the
Registration Statement on Form S-1 with the SEC on December 29,
2020.
NOTE K – SUBSEQUENT EVENTS
LINCOLN PARK REGISTRATION STATEMENT EFFECTIVENESS
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.
CHEROKEE FINANCIAL LLC LOAN EXTENSIONS
On
February 24, 2021 (the “Closing Date”), the Company
completed a transaction related to one-year Extension Agreements
dated February 14, 2021 (the “Extension Agreement(s)”)
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). 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.
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 will remain 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.
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.
NOTE L- SEGMENT AND GEOGRAPHIC INFORMATION
The
Company operates in one reportable segment. All of the
Company’s long-lived assets are located within the United
States.
Information
concerning net sales by principal geographic location is as
follows:
|
|
Year
Ended
December
31,
2020
|
Year
Ended
December
31,
2019
|
|
United
States
|
$3,417,000
|
$3,189,000
|
|
North America (not
domestic)
|
4,000
|
11,000
|
|
Europe
|
55,000
|
108,000
|
|
Asia/Pacific
Rim
|
17,000
|
13,000
|
|
South
America
|
616,000
|
344,000
|
|
Africa
|
38,000
|
0
|
|
|
$4,147,000
|
$3,655,000
|