New York
(State
or other jurisdiction of
incorporation
or organization)
|
14-1702188
(I.R.S.
Employer Identification No.)
|
122 Smith Road
Kinderhook, New York
(Address
of principal executive offices)
|
12106
(Zip
Code)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common
Stock
|
ABMC
|
OTCQB®
Venture Market
|
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
|
|
Smaller reporting
company
|
☒
|
Non-accelerated
filer
|
☐
|
Emerging growth
company
|
☐
|
PAGE
|
||
|
||
Business
|
3
|
|
Risk
Factors
|
8
|
|
Unresolved
Staff Comments
|
15
|
|
Properties
|
15
|
|
Legal
Proceedings
|
15
|
|
Mine
Safety Disclosures
|
15
|
|
|
|
|
|
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
16
|
|
Selected
Financial Data
|
17
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
Financial
Statements and Supplementary Data
|
24
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
24
|
|
Controls
and Procedures
|
24
|
|
Other
Information
|
25
|
|
|
|
|
|
|
|
Directors,
Executive Officers, and Corporate Governance
|
26
|
|
Executive
Compensation
|
26
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
26
|
|
Certain
Relationships and Related Transactions, and Director
Independence
|
26
|
|
Principal
Accounting Fees and Services
|
26
|
|
|
|
|
|
|
|
Exhibits,
Financial Statement Schedules
|
27
|
|
Form
10-K Summary
|
27
|
|
|
|
|
|
29
|
Year ended December
31, 2020
|
High
|
Low
|
Quarter
ended December 31, 2020
|
$0.27
|
$0.09
|
Quarter
ended September 30, 2020
|
$1.19
|
$0.13
|
Quarter
ended June 30, 2020
|
$1.09
|
$0.12
|
Quarter
ended March 31, 2020
|
$0.43
|
$0.06
|
Year ended December
31, 2019
|
High
|
Low
|
Quarter
ended December 31, 2019
|
$0.09
|
$0.06
|
Quarter
ended September 30, 2019
|
$0.08
|
$0.06
|
Quarter
ended June 30, 2019
|
$0.10
|
$0.04
|
Quarter
ended March 31, 2019
|
$0.10
|
$0.07
|
Plan Category
|
Number of securities to be issued
upon exercise of outstanding options,
warrants and
rights
(a)
|
Weighted-average exercise price of
outstanding options,
warrants and
rights
(b)
|
Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities
reflected in column
(a))
(c)
|
Equity Compensation
Plans approved by security holders*
|
1,987,000
|
$0.13
|
5,730,000
|
Facility
|
Debtor
|
Balance as of
December 31, 2020
|
Due
Date
|
Loan and Security
Agreement
|
Cherokee Financial,
LLC
|
$900,000
|
February 15,
2021
|
Revolving Line of
Credit
|
Crestmark
Bank
|
$277,000
|
June 22,
2021
|
Term
Loan
|
Cherokee Financial,
LLC
|
$220,000
|
February 15,
2021
|
PPP
Loan
|
Crestmark Bank,
SBA
|
$332,000
|
April 22,
2022
|
Term
Loan
|
Individual
|
$50,000
|
May 4,
2021
|
Term
Loan
|
Individual
|
$25,000
|
Not
Applicable
|
Total
Debt
|
|
$1,804,000
|
|
|
PAGE
|
Report
of Independent Registered Public Accounting Firm – UHY
LLP
|
F-2
|
Balance
Sheets
|
F-4
|
Statements of
Operations
|
F-5
|
Statements of
Changes in Stockholders’ Deficit
|
F-6
|
Statements of Cash
Flows
|
F-7
|
Notes
to Financial Statements
|
F-8
|
Number
|
Description of Exhibits
|
|
|
Certificate of
Incorporation(1)
|
|
Amended
and Restated Bylaws (2)
|
|
Amended
and Restated Bylaws (3)
|
|
Sixth
amendment to the Certificate of Incorporation (2)
|
|
Securities Purchase
Agreement(4)
|
|
Lease
dated August 1, 1999/New Jersey facility (5)
|
|
Employment Contract
between the Company and Melissa A. Waterhouse(6)
|
|
Amendment No. 11 to
New Jersey facility lease, dated November 20, 2017(7)
|
|
Amendment No. 12 to
New Jersey facility lease, dated December 24, 2019(8)
|
|
Purchase Agreement
dated December 8, 2020 by and between the Company and Lincoln Park
Capital Fund, LLC(9)
|
|
Registration Rights
Agreement dated December 8, 2020 by and between the Company and
Lincoln Park Capital Fund, LLC(9)
|
|
Fiscal
2001 Nonstatutory Stock Option Plan (filed as part of the
Company’s Proxy Statement for its Fiscal 2002 Annual Meeting
and incorporated herein by reference) (a)(b)
|
|
2013
Equity Compensation Plan (filed as Appendix A to the
Company’s Proxy Statement for its fiscal year ended December
31, 2012 and incorporated herein by reference)(a)(c)
|
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer/Chief Financial Officer
|
|
Section
1350 Certification of the Chief Executive Officer/Chief Financial
Officer
|
|
101
|
The
following materials from our Annual Report on Form 10-K for the
year ended December 31, 2020, formatted in XBRL (Extensible
Business Reporting Language): (i) Balance Sheet, (ii) Statements of
Income (iii) Statements of Cash Flows, (iv) Statements of Changes
in Stockholders’ Equity and (v) Notes to Financial
Statements.
|
|
AMERICAN BIO MEDICA
CORPORATION
|
|
|
|
|
|
|
Date:
April
15, 2021
|
By:
|
/s/ Melissa A.
Waterhouse
|
|
|
|
Melissa A. Waterhouse |
|
|
|
Chief Executive
Officer (Principal Executive Officer)
Principal Financial
Officer
Principal
Accounting Officer Title |
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Melissa A.
Waterhouse
|
|
|
|
Melissa A. Waterhouse |
|
|
|
Chief Executive
Officer (Principal Executive Officer)
Principal Financial
Officer
Principal
Accounting Officer Title |
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Peter Jerome
|
|
|
|
Peter Jerome |
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jean Neff
|
|
|
|
Jean Neff |
|
|
|
Director and Corporate Secretary |
|
|
|
|
PAGE
|
|
|
Report
of Independent Registered Public Accounting Firm – UHY
LLP
|
F-2
|
|
|
Balance
Sheets
|
F-4
|
|
|
Statements
of Operations
|
F-5
|
|
|
Statements
of Changes in Stockholders’ Deficit
|
F-6
|
|
|
Statements
of Cash Flows
|
F-7
|
|
|
Notes
to Financial Statements
|
F-8
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$98,000
|
$4,000
|
Accounts
receivable, net of allowance for doubtful accounts of $22,000 at
December 31, 2020 and $34,000 at December 31, 2019
|
407,000
|
370,000
|
Inventory, net of
allowance of $279,000 at December 31, 2020 and $291,000 at December
31, 2019
|
536,000
|
810,000
|
Prepaid expenses
and other current assets
|
104,000
|
6,000
|
Right of use asset
– operating leases
|
35,000
|
34,000
|
Total current
assets
|
1,180,000
|
1,224,000
|
Property, plant and
equipment, net
|
576,000
|
644,000
|
Patents,
net
|
108,000
|
116,000
|
Right of use asset
– operating leases
|
41,000
|
73,000
|
Other
assets
|
21,000
|
21,000
|
Total
assets
|
$1,926,000
|
$2,078,000
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$577,000
|
$652,000
|
Accrued expenses
and other current liabilities
|
620,000
|
518,000
|
Right of use
liability – operating leases
|
33,000
|
34,000
|
Wages
payable
|
107,000
|
104,000
|
Line of
credit
|
277,000
|
337,000
|
PPP
Loan
|
332,000
|
0
|
Current portion of
long-term debt, net of deferred finance costs
|
75,000
|
42,000
|
Total current
liabilities
|
2,021,000
|
1,687,000
|
Long-term
debt/other liabilities, net of current portion and deferred
financing costs
|
1,120,000
|
1,108,000
|
Right of use
liability – operating leases
|
41,000
|
73,000
|
Total
liabilities
|
3,182,000
|
2,868,000
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
Stockholders’
deficit:
|
|
|
Preferred stock;
par value $.01 per share; 5,000,000 shares authorized, none issued
and outstanding
|
0
|
0
|
Common stock; par
value $.01 per share; 50,000,000 shares authorized; 37,703,476
issued and outstanding as of December 31, 2020 and 32,680,984
issued and outstanding as of December 31, 2019
|
377,000
|
327,000
|
Additional paid-in
capital
|
21,717,000
|
21,437,000
|
Accumulated
deficit
|
(23,350,000)
|
(22,554,000)
|
Total
stockholders’ (deficit)
|
(1,256,000)
|
(790,000)
|
Total liabilities
and stockholders’ (deficit)
|
$1,926,000
|
$2,078,000
|
|
Year
Ended
December
31,
|
|
|
2020
|
2019
|
|
|
|
Net
sales
|
$4,147,000
|
$3,655,000
|
|
|
|
Cost of goods
sold
|
2,909,000
|
2,471,000
|
|
|
|
Gross
profit
|
1,238,000
|
1,184,000
|
|
|
|
Operating
expenses:
|
|
|
Research and
development
|
90,000
|
82,000
|
Selling and
marketing
|
493,000
|
459,000
|
General and
administrative
|
1,276,000
|
1,236,000
|
|
1,859,000
|
1,777,000
|
|
|
|
Operating
loss
|
(621,000)
|
(593,000)
|
|
|
|
Other income /
(expense):
|
|
|
Interest
expense
|
(175,000)
|
(265,000)
|
Other income,
net
|
2,000
|
172,000
|
|
(173,000)
|
(93,000)
|
|
|
|
Net
loss before tax
|
(794,000)
|
(686,000)
|
|
|
|
Income tax
(expense) / benefit
|
(2,000)
|
5,000
|
|
|
|
Net
loss
|
$(796,000)
|
$(681,000)
|
|
|
|
Basic
and diluted loss per common share
|
$(0.02)
|
$(0.02)
|
|
|
|
Weighted average
number of shares outstanding – basic and diluted
|
35,558,105
|
32,526,669
|
|
Common
Stock
|
|
|
|
|
|
Shares
|
Amount
|
Additional Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
|
|
|
|
|
Balance –
January 1, 2019
|
32,279,368
|
$323,000
|
$21,404,000
|
$(21,873,000)
|
$(146,000)
|
Shares issued to Cherokee in
connection with loan
|
200,000
|
2,000
|
12,000
|
|
14,000
|
Shares issued for board meeting
attendance in lieu of cash
|
201,616
|
2,000
|
15,000
|
|
17,000
|
Share based payment
expense
|
|
|
6,000
|
|
6,000
|
Net loss
|
|
|
|
(681,000)
|
(681,000)
|
Balance –
December 31, 2019
|
32,680,984
|
$327,000
|
$21,437,000
|
$(22,554,000)
|
$(790,000)
|
Shares issued to Cherokee in
connection with loan
|
300,000
|
3,000
|
18,000
|
|
21,000
|
Shares issued under February 2020
Private Placement
|
2,842,856
|
28,000
|
171,000
|
|
199,000
|
Shares issued to Lincoln Park for
purchases under the 2020 Lincoln Park equity
line
|
500,000
|
5,000
|
120,000
|
|
125,000
|
Shares issued to Lincoln Park for
commitment under the 2020 Lincoln Park equity
line
|
1,250,000
|
13,000
|
125,000
|
|
138,000
|
Non cash costs of commitment shares
under Lincoln Park equity line
|
|
|
(138,000)
|
|
(138,000)
|
Expenses related to the 2020
Lincoln Park equity line
|
|
|
(48,000)
|
|
(48,000)
|
Shares issued for board meeting
attendance in lieu of cash
|
129,636
|
1,000
|
30,000
|
|
31,000
|
Share based payment
expense
|
|
|
2,000
|
|
2,000
|
Net loss
|
|
|
|
(796,000)
|
(796,000)
|
Balance –
December 31, 2020
|
37,703,476
|
$377,000
|
$21,717,000
|
$(23,350,000)
|
$(1,256,000)
|
|
Year
Ended
|
Year
Ended
|
|
December
31,
|
December
31,
|
|
2020
|
2019
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$(796,000)
|
$(681,000)
|
Adjustments to
reconcile net loss to net cash (used in) / provided by operating
activities:
|
|
|
Depreciation and
amortization
|
79,000
|
81,000
|
Amortization of
debt issuance costs
|
17,000
|
108,000
|
Penalty added
Cherokee loan balance
|
20,000
|
0
|
Provision for bad
debts
|
3,000
|
(2,000)
|
Provision for slow
moving and obsolete inventory
|
157,000
|
96,000
|
Share-based payment
expense
|
2,000
|
6,000
|
Director fee paid
with restricted stock
|
31,000
|
17,000
|
Refinance fee paid
with restricted stock
|
21,000
|
0
|
Changes
in:
|
|
|
Accounts
receivable
|
(40,000)
|
84,000
|
Inventory
|
117,000
|
113,000
|
Prepaid expenses
and other current assets
|
(67,000)
|
23,000
|
Accounts
payable
|
(75,000)
|
293,000
|
Accrued expenses
and other current liabilities
|
45,000
|
94,000
|
Wages
payable
|
3,000
|
(174,000)
|
Net cash (used in)
/ provided by operating activities
|
(483,000)
|
58,000
|
|
|
|
Cash
flows from investing activities:
|
|
|
Purchase
of property, plant, and equipment
|
(4,000)
|
0
|
Net cash used in
investing activities
|
(4,000)
|
0
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds from debt
financing
|
407,000
|
86,000
|
Payments on debt
financing
|
(42,000)
|
(88,000)
|
Proceeds from
private placement
|
199,000
|
0
|
Proceeds from
Lincoln Park Financing
|
125,000
|
0
|
Expenses from
Lincoln Park Financing
|
(48,000)
|
0
|
Proceeds from lines
of credit
|
3,949,000
|
3,835,000
|
Payments on lines
of credit
|
(4,009,000)
|
(4,000,000)
|
Net cash provided
by / (used in) financing activities
|
581,000
|
(167,000)
|
|
|
|
Net
increase in/ (decrease in) cash and cash equivalents
|
94,000
|
(109,000)
|
Cash and cash
equivalents – beginning of period
|
4,000
|
113,000
|
Cash and cash
equivalents – end of period
|
$98,000
|
$4,000
|
Supplemental
disclosures of cash flow information:
|
|
|
Non-Cash
transactions:
|
|
|
Debt issuance cost
paid with restricted stock
|
$0
|
$14,000
|
Loans converted to
stock
|
$35,000
|
$0
|
Commitment
shares issued to Lincoln park, charged to Paid in
Capital
|
$138,000
|
$0
|
Cash paid during
the year for interest
|
$152,000
|
$155,000
|
Cash paid for
taxes
|
$2,000
|
$0
|
|
December 31,
2020
|
December 31,
2019
|
Warrants
|
0
|
2,000,000
|
Options
|
1,987,000
|
2,252,000
|
Total
|
1,987,000
|
4,252,000
|
|
December 31,
2020
|
December 31,
2019
|
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
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
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
|
|
December 31,
2020
|
December 31,
2019
|
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
|
|
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
|
2021
|
$684,000
|
2022
|
1,120,000
|
2023
|
0
|
2024
|
0
|
2025
|
0
|
|
$1,804,000
|
|
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%)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
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
|
|
Year ended December 31, 2020
|
Year ended December 31, 2019
|
||||
|
Shares
|
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
|
NA
|
|
80,000
|
$0.07
|
|
Exercised
|
0
|
NA
|
|
0
|
NA
|
|
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
|
|
|
Options
Outstanding
|
Options
Exercisable
|
|||
|
|
|
Weighted Average
Remaining
|
|
Weighted
Average
|
|
Shares
|
Weighted Average
Exercise Price
|
Life in
Years
|
Shares
|
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
|
TOTAL
|
1,987,000
|
$0.13
|
4.26
|
1,987,000
|
$0.13
|
|
Year Ended December
31
|
|
|
2020
|
2019
|
Volatility
|
NA
|
85%
|
Expected term
(years)
|
NA
|
10
years
|
Risk-free interest
rate
|
NA
|
2.01%
|
Dividend
yield
|
NA
|
0%
|
|
Year Ended December
31, 2020
|
Year Ended December
31, 2019
|
||||
|
Shares
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic
Value
|
Shares
|
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
|
NA
|
|
0
|
NA
|
|
Exercised
|
0
|
NA
|
|
0
|
NA
|
|
Cancelled/expired
|
(2,000,000)
|
NA
|
|
(0)
|
NA
|
|
Warrants
outstanding at end of year
|
0
|
NA
|
None
|
2,000,000
|
$0.18
|
None
|
Warrants
exercisable at end of year
|
0
|
NA
|
|
2,000,000
|
$0.18
|
|
2021
|
39,000
|
2022
|
38,000
|
2023
|
1,000
|
2024
|
1,000
|
Thereafter
|
1,000
|
|
$80,000
|
|
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
|
$3,655,000
|
Document And Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2020 |
Apr. 15, 2021 |
Jun. 30, 2020 |
|
Cover [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2020 | ||
Document Fiscal Year Focus | 2020 | ||
Document Fiscal Period Focus | FY | ||
Entity Registrant Name | AMERICAN BIO MEDICA CORP | ||
Entity Central Index Key | 0000896747 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation State Country Code | NY | ||
Entity File Number | 0-28666 | ||
Entity Public Float | $ 30,235,000 | ||
Entity Common Stock, Shares Outstanding | 40,003,476 |
BALANCE SHEETS (Parenthetical) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts receivable, current | $ 22,000 | $ 34,000 |
Inventory valuation reserves | $ 279,000 | $ 291,000 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 37,703,476 | 32,680,984 |
Common stock, shares outstanding | 37,703,476 | 32,680,984 |
STATEMENT OF OPERATIONS - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Income Statement [Abstract] | ||
Net sales | $ 4,147,000 | $ 3,655,000 |
Cost of goods sold | 2,909,000 | 2,471,000 |
Gross profit | 1,238,000 | 1,184,000 |
Operating expenses: | ||
Research and development | 90,000 | 82,000 |
Selling and marketing | 493,000 | 459,000 |
General and administrative | 1,276,000 | 1,236,000 |
Operating expenses | 1,859,000 | 1,777,000 |
Operating loss | (621,000) | (593,000) |
Other income / (expense): | ||
Interest expense | (175,000) | (265,000) |
Other income, net | 2,000 | 172,000 |
Other income / (expense) | (173,000) | (93,000) |
Net loss before tax | (794,000) | (686,000) |
Income tax expense | (2,000) | 5,000 |
Net loss | $ (796,000) | $ (681,000) |
Basic and diluted loss per common share | $ (0.02) | $ (0.02) |
Weighted average number of shares outstanding - basic and diluted | 35,558,105 | 32,526,669 |
THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||
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:
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:
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.
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INVENTORY |
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INVENTORY | Inventory is comprised of the following:
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PROPERTY, PLANT AND EQUIPMENT |
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PROPERTY, PLANT AND EQUIPMENT | Property, plant and equipment, at cost, are as follows:
Depreciation expense was $71,000 in Fiscal 2020 and $74,000 in Fiscal 2019.
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | Accrued expenses and other current liabilities consisted of the following:
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DEBT AND LINE OF CREDIT |
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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:
At December 31, 2020, the following are the debt maturities for each of the next five years:
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.
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INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
Significant components of the Company’s deferred income tax assets are as follows:
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.
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OTHER INCOME / EXPENSE |
12 Months Ended |
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Dec. 31, 2020 | |
Other Income and Expenses [Abstract] | |
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.
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STOCKHOLDERS' EQUITY |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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)
The following table presents information relating to stock options outstanding as of December 31, 2020:
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:
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.
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.
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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS |
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
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:
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.
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LINCOLN PARK EQUITY LINE OF CREDIT |
12 Months Ended |
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Dec. 31, 2020 | |
Line of Credit Facility [Abstract] | |
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.
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SUBSEQUENT EVENTS |
12 Months Ended |
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Dec. 31, 2020 | |
Subsequent Events [Abstract] | |
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.
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SEGMENT AND GEOGRAPHIC INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
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THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
Cash equivalents | The Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. |
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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. |
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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. |
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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. |
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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. |
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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.
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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. |
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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. |
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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:
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.
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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:
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.
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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. |
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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. |
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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) |
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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. |
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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. |
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Reclassifications | Certain items have been reclassified from the prior years to conform to the current year presentation. |
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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.
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THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
Shares outstanding |
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INVENTORY (Tables) |
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Inventory |
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PROPERTY, PLANT AND EQUIPMENT (Tables) |
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) |
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Accrued expenses and other current liabilities |
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DEBT AND LINE OF CREDIT (Tables) |
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Maturities of long-term debt |
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INCOME TAXES (Tables) |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective income tax rate reconciliation |
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Deferred tax assets and liabilities |
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STOCKHOLDERS' EQUITY (Tables) |
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Valuation assumptions |
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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Tables) |
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Future minimum rental payments for operating leases |
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SEGMENT AND GEOGRAPHIC INFORMATION (Tables) |
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Segment reporting information |
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THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (Details) - shares |
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Dec. 31, 2020 |
Dec. 31, 2019 |
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Weighted average number diluted shares outstanding adjustment | 1,987,000 | 4,252,000 |
Warrants | ||
Weighted average number diluted shares outstanding adjustment | 0 | 2,000,000 |
Stock Options | ||
Weighted average number diluted shares outstanding adjustment | 1,987,000 | 2,252,000 |
THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
12 Months Ended | |
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Dec. 31, 2020 |
Dec. 31, 2019 |
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Net loss | $ (796,000) | $ (681,000) |
Net cash provided by operating activities | (483,000) | 58,000 |
Increase/decrease in cash | 94,000 | (109,000) |
Working capital | (841,000) | (463,000) |
Accumulated deficit | (23,350,000) | (22,554,000) |
Allowance for doubtful accounts | 22,000 | 34,000 |
Allowance for slow moving and obsolete inventory | 279,000 | 291,000 |
Accumulated amortization of patents | $ 198,000 | $ 190,000 |
Securities not included in diluted loss per share | 1,987,000 | 4,252,000 |
Accounts Receivable | Customer One | ||
Concentration of credit risk | 68.00% | 55.60% |
Accounts Receivable | Customer Two | ||
Concentration of credit risk | 15.00% | |
Sales Revenue | Customer One | ||
Concentration of credit risk | 35.20% | 44.80% |
INVENTORY (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
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Inventory Disclosure [Abstract] | ||
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) |
Inventory, net | $ 536,000 | $ 810,000 |
PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
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 |
Property, plant and equipment, gross | 3,976,000 | 3,973,000 |
Less accumulated depreciation | (3,400,000) | (3,329,000) |
Property, plant and equipment, net | $ 576,000 | $ 644,000 |
PROPERTY, PLANT AND EQUIPMENT (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation | $ 71,000 | $ 74,000 |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Payables and Accruals [Abstract] | ||
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 |
Accrued expenses and other current liabilities | $ 620,000 | $ 518,000 |
DEBT AND LINE OF CREDIT (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Long-term debt, gross | $ 1,804,000 | $ 1,479,000 |
Less debt discount & issuance costs (Cherokee Financial, LLC loan) | 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 |
Cherokee Financial LLC | ||
Long-term debt, gross | 900,000 | 900,000 |
Crestmark Line of Credit | ||
Long-term debt, gross | 277,000 | 337,000 |
2018 Term Loan with Cherokee Financial LLC | ||
Long-term debt, gross | 0 | 7,000 |
2019 Term Loan with Cherokee Financial LLC | ||
Long-term debt, gross | 220,000 | 200,000 |
July 2019 Term Loan with Chaim Davis | ||
Long-term debt, gross | 0 | 10,000 |
2019 Convertible Note | ||
Long-term debt, gross | 0 | 25,000 |
April 2020 PPP Loan with Crestmark | ||
Long-term debt, gross | 332,000 | 0 |
November 2020 Shareholder Note with Chaim Davis | ||
Long-term debt, gross | 25,000 | 0 |
November 2020 Shareholder Note | ||
Long-term debt, gross | $ 50,000 | $ 0 |
DEBT AND LINE OF CREDIT (Details 1) |
Dec. 31, 2020
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
2021 | $ 684,000 |
2022 | 1,120,000 |
2023 | 0 |
2024 | 0 |
2025 | 0 |
Long-term debt | $ 1,804,000 |
INCOME TAXES (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Tax expense at federal statutory rate | (21.00%) | (21.00%) |
State tax expense, net of federal tax effect | 0.00% | 0.00% |
Expired NOL | 42.00% | 46.00% |
Deferred income tax asset valuation allowance | (21.00%) | (26.00%) |
Effective income tax rate | (0.00%) | (1.00%) |
INCOME TAXES (Details 1) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
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 |
INCOME TAXES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Deferred tax assets, valuation allowance | $ 3,443,000 | $ 3,667,000 |
Valuation allowance, deferred tax asset, change in amount | 224,000 | $ 217,000 |
Operating loss carryforwards | $ 3,123,000 |
STOCKHOLDERS' EQUITY (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Exercisable at end of period | 1,987,000 | |
Weighted average exercise price, exercisable, at end of period | $ 0.13 | |
Stock Options | ||
Shares, beginning balance | 2,252,000 | 2,222,000 |
Shares, granted | 0 | 80,000 |
Shares, exercised | 0 | 0 |
Shares, cancelled/expired | (265,000) | (50,000) |
Shares, ending balance | 1,987,000 | 2,252,000 |
Exercisable at end of period | 1,987,000 | 2,172,000 |
Weighted average exercise price, at beginning of period | $ 0.14 | $ 0.13 |
Weighted average exercise price, granted | .00 | 0.07 |
Weighted average exercise price, exercised | .00 | .00 |
Weighted average exercise price, cancelled/expired | .10 | 0.20 |
Weighted average exercise price, at end of period | .13 | 0.14 |
Weighted average exercise price, exercisable, at end of period | $ .13 | $ 0.13 |
Aggregate intrinsic value, outstanding at end of period | $ 291,324 | $ 1,000 |
STOCKHOLDERS' EQUITY (Details 2) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Stockholders' Equity Note [Abstract] | ||
Volatility | 0.00% | 85.00% |
Expected term (years) | 0 years | 10 years |
Risk-free interest rate | 0.00% | 2.01% |
Dividend yield | 0.00% | 0.00% |
STOCKHOLDERS' EQUITY (Details 3) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Exercisable at end of period | 1,987,000 | |
Options exercisable, weighted average exercise price | $ 0.13 | |
Warrants | ||
Shares, beginning balance | 2,000,000 | 2,000,000 |
Shares, granted | 0 | 0 |
Shares, exercised | 0 | 0 |
Shares, cancelled/expired | (2,000,000) | 0 |
Shares, ending balance | 0 | 2,000,000 |
Exercisable at end of period | 0 | 2,000,000 |
Weighted average exercise price, at beginning of period | $ 0.18 | $ 0.18 |
Weighted average exercise price, granted | .00 | 0.00 |
Weighted average exercise price, exercised | .00 | 0.00 |
Weighted average exercise price, cancelled/expired | .00 | 0.00 |
Weighted average exercise price, at end of period | .00 | 0.18 |
Options exercisable, weighted average exercise price | $ .00 | $ 0.18 |
Aggregate intrinsic value, outstanding at end of period | $ 0 | $ 0 |
STOCKHOLDERS' EQUITY (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Stockholders' Equity Note [Abstract] | ||
Share based payment expense related to stock options | $ 2,000 | $ 6,000 |
Debt issuance and deferred finance costs | 0 | $ 0 |
Unrecognized expense | $ 0 |
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details) |
Dec. 31, 2020
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2021 | $ 39,000 |
2022 | 38,000 |
2023 | 1,000 |
2024 | 1,000 |
Thereafter | 1,000 |
Total | $ 80,000 |
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 46,000 | $ 46,000 |
SEGMENT AND GEOGRAPHIC INFORMATION (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Net sales | $ 4,147,000 | $ 3,655,000 |
United States | ||
Net sales | 3,417,000 | 3,189,000 |
North America | ||
Net sales | 4,000 | 11,000 |
Europe | ||
Net sales | 55,000 | 108,000 |
Asia/Pacific Rim | ||
Net sales | 17,000 | 13,000 |
South America | ||
Net sales | 616,000 | 344,000 |
Africa | ||
Net sales | $ 38,000 | $ 0 |
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