General
The following discussion and analysis provides information, which we believe is
relevant to an assessment and understanding of our financial condition and
results of operations. The discussion should be read in conjunction with the
Interim Condensed Financial Statements contained herein and the notes thereto
appearing elsewhere in this Quarterly Report on Form 10-Q. Certain statements
contained in this Quarterly Report on Form 10-Q, including, without limitation,
statements containing the words "believes", "anticipates", "estimates",
"expects", "intends", "projects", and words of similar import, are
forward-looking as that term is defined by the Private Securities Litigation
Reform Act of 1995 ("1995 Act"), and in releases issued by the United State
Securities and Exchange Commission (the "Commission"). These statements are
being made pursuant to the provisions of the 1995 Act and with the intention of
obtaining the benefits of the "Safe Harbor" provisions of the 1995 Act. We
caution that any forward-looking statements made herein are not guarantees of
future performance and that actual results may differ materially from those in
such forward-looking statements as a result of various factors, including, but
not limited to, any risks detailed herein, in our "Risk Factors" section of our
Form 10-K for the year ended December 31, 2021, in our most recent reports on
Form 10-Q and Form 8-K and from time to time in our other filings with the
Commission, and any amendments thereto. Any forward-looking statement speaks
only as of the date on which such statement is made, and we are not undertaking
any obligation to publicly update any forward-looking statements. Readers should
not place undue reliance on these forward-looking statements.
Overview/Plan of Operations
Sales of drug tests continue to be negatively impacted as customer pricing
continues to decrease as a result of our markets being saturated with products
made outside of the United States; primarily products made in China. This has
resulted in a commoditization of the onsite drug testing market at a time when
costs associated with labor, utilities, materials, insurance, etc. keep rising.
In attempts to retain current customers and/or attract new customers that
require lower pricing, we are offering two drug test product lines that are
manufactured in China.
In addition to the marketing of drug tests, we have continued to market various
Covid-19 rapid tests. All of the Covid-19 tests we are offering are being
marketed in accordance with the March 2020 Emergency Use Authorization ("EUA")
policy set forth by the United States Food and Drug Administration (FDA) and in
accordance with the individual EUAs issued for the products. We are currently
offering a number of different rapid antigen tests and rapid antibody tests that
can be used in various different settings, including home use; depending on
their specific EUA issuance.
In addition to increased costs, the materials used in the manufacture of our
drug test products are the same materials used in the manufacture of lateral
flow Covid-19 tests and this has resulted in supply chain delays; some of which
have negatively impacted our customer relationships.
Due to the Covid-19 pandemic, we are still not marketing our oral fluid drug
test (OralStat®) in the employment and insurance markets in the United States
(under a limited exemption set forth by the FDA). We remain hopeful that we can
effectively market our OralStat in the United States markets given its superior
sensitivity and accuracy. Initially we may re-introduce the product in markets
outside the United States via distribution relationships.
In 2019 we expanded our contract manufacturing operations with two new
customers. Unfortunately, the Covid-19 pandemic halted sales to these customers
throughout 2020 and into 2021 but, in the year ended December 31, 2021, we
started to ship orders to them again as their business started to return to
normal. We are hopeful that sales to these customers will improve as we get
further outside of the pandemic.
In our current fiscal year and beyond, we are focusing our efforts on further
penetration of our markets with our current products that we manufacture and
distribute and we are continually looking into other products to offer via
distribution relationships.
Although the cost of manufacturing drug tests in the United States is proving to
be nearly cost prohibitive, we do believe there are opportunities to capitalize
on our US-based lateral flow manufacturing capabilities; specifically for small
to mid-size diagnostic firms that require high quality manufacturing; especially
given the current challenges with getting imports into the United States.
Gross margin has been declining due to the increased costs of manufacturing in
the United States and the fact that overhead costs associated with our facility
in Kinderhook, NY cannot be decreased. As sales continue to decline, and these
costs cannot be adjusted downward, greater manufacturing inefficiencies occur.
The manufacturing inefficiencies are increasing despite our efforts to mitigate
them. We are also taking steps to obtain materials at the best available
pricing. However, in many cases, we are purchasing at much lower volumes than
the larger diagnostic companies and that results in higher per piece pricing. We
are currently looking into possible production alternatives in attempts to
address these fixed costs.
Operating expenses declined in the six months ended June 30, 2022 when compared
to the six months ended June 30, 2021. We continuously make efforts to control
operational expenses to ensure they are in line with sales including, but not
limited to, consolidating job responsibilities in certain areas of the Company,
securing more cost effective service providers and reduction of facility hours
so they are more in line with production and administrative needs.
From August 2013 until June 2020 and from April 2022 through the date of this
report, we maintained a salary deferral program for our sole executive officer,
our Chief Executive Officer/Principal Financial Officer Melissa Waterhouse. The
salary deferral program was initiated by Ms. Waterhouse voluntarily in both
August 2013 and April 2022. Another member of senior management participated in
the voluntary 2013 program until his retirement in November 2019. After the
member of senior management retired, we agreed to make payments on the deferred
compensation (i.e. deferred salary) owed to this individual. In the six months
ended June 30, 2021, we made payments totaling $22,000 to this individual and
his deferred compensation was paid in full in May 2021.
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Once the deferred compensation was paid in full to this individual in May 2021,
we began to make payments at the same rate to Ms. Waterhouse given the length of
time the amount had been owed and that Ms. Waterhouse had not received any
payments on her deferred compensation since August 2017. We made payments
totaling $10,000 to Ms. Waterhouse in the six months ended June 30, 2022 and
$5,000 in payments in the six months ended June 30, 2021. We stopped making
payments on Ms. Waterhouse's deferred compensation in April 2022 when Ms.
Waterhouse again voluntarily deferred her salary by 20%. As of June 30, 2022, we
had deferred compensation owed to Ms. Waterhouse in the amount of $71,000 and
$6,000 in payroll taxes that are due as payments are made to Ms. Waterhouse; for
a total of $77,000 in deferred compensation owed to Ms. Waterhouse. In addition,
as of June 30, 2022, we owe Ms. Waterhouse $16,000 in current salary that was
not paid.
Beginning in April 2022, another member of senior management participated in the
salary deferral program. As of June 30, 2022, we had deferred compensation owed
to this individual in the amount of $4,000 and $1,000 in payroll taxes that are
due as payments are made to this individual; for a total of $5,000 in deferred
compensation.
Our continued existence is dependent upon several factors, including our ability
to: 1) raise revenue levels even though the drug testing market continues to be
infiltrated by product manufactured outside of the United States as well as
being impacted by supply chain issues 2) further penetrate the markets (in and
outside of the United States) for the products we manufacture as well as
products we offer via distribution, 3) secure new contract manufacturing
customers, 4) control operational costs and manufacturing inefficiencies to
generate positive cash flows, 5) maintain our current credit facilities or
refinance our current credit facilities if necessary, and 6) if needed, obtain
working capital by selling additional shares of our common stock. Should the
Company not be able to achieve positive cash flows from operations or raise
additional funding, it may be required to further reduce or terminate
operations.
Results of operations for the six months ended June 30, 2022 compared to the six
months ended June 30, 2021NET SALES:Net sales for six months ended June 30, 2022 decreased by $559,000, or
51.1%, when compared to net sales in the six months ended June 30, 2021;
primarily as a result in a decline in sales of drugs of abuse ("DOA") tests that
we manufacture. The decline in DOA sales stems almost entirely from decreased
sales to our largest customer who has historically been a significant portion of
our revenues. This customer has two segments of their business for which we
supply products. They informed us in February 2022 that sales to one of those
segments (which we supplied exclusively) would decrease as a result of their
desire to have multiple vendors supplying the segment. They indicated this was
to ensure uninterrupted supply as they had experienced periodic supply
interruptions with us in 2021 (as a result of the supply chain issues we
experienced in 2021 and continue to experience into 2022; particularly with
plastics and other materials that are used to manufacture our drug tests;
materials that are also used in the manufacture of lateral flow Covid-19 tests).
They indicated that the other segment we supply would remain unchanged but, even
in that particular segment; we saw a decline in sales when comparing the six
months ended June 30, 2022 with the six months ended June 30, 2021. In addition
to the decline in sales to this customer, international sales also declined;
some of which is due to a backorder at June 30, 2022.
Partially offsetting these declines are increased contract manufacturing sales;
primarily in sales of our private labeled RSV test and increased distribution
sales; most of which is due to increased sales of the lower cost DOA tests we
are selling. Sales of Rapid Antigen Covid-19 tests slightly increased when
comparing the six months ended June 30, 2022 with the six months ended June 30,
2021; to $42,000 in the six months ended June 30, 2022 from $36,000 in the six
months ended June 30, 2021. However, given the continued downward trend of
pricing of these tests in the market and the fact that we are distributing these
tests (which requires further markup); we believe that sales of Covid-19 tests
will not have a significant impact on our sales going forward.
GROSS (LOSS) / PROFIT:For the first time in our operating history, we recorded a
gross loss in the six months ended June 30, 2022 of $(45,000); this is compared
to gross profit of $241,000 in the six months ended June 30, 2021. Gross profit
began to dramatically decline in the first quarter of 2022 and further declined
in the second quarter of 2022 due to even further reduced sales. This change to
a gross (loss) from a gross profit is almost entirely due to decreased sales to
our largest customer in one of their segments (previously discussed in net
sales). The two segments we were supplying were comprised of one with low margin
sales and one with higher margin sales. This allowed the Company to maintain an
appropriate blended gross profit margin on the sales to the customer. The
segment in which sales have decreased significantly is the segment in which
products were sold at a higher profit margin and this has significantly reduced
the blended gross profit margin on the account. At the same time, this decline
in sales has resulted in greater inefficiencies in manufacturing. Manufacturing
inefficiencies occur when production levels decrease but, not all costs can be
reduced to be in line with production levels because they are fixed; these costs
include but, are not limited to, depreciation, insurance, interest, taxes,
utilities and other costs associated with running our two facilities.
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We have taken steps to reduce manufacturing costs, including but not limited to,
costs associated with labor, to mitigate these inefficiencies; however, the
previously discussed fixed costs cannot easily be decreased. Given the price
sensitivity in our markets and the commoditized nature of drug testing products,
customer pricing is challenging; however, we did implement a price increase to
non-contractual customers in July 2021 however, the customer previously
discussed has a contracted price in place that is not as easily increased.
Operating expenses decreased 36.3% in the six months ended June 30, 2022
compared to the six months ended June 30, 2021. Expenses in Selling and
Marketing and General and Administrative expenses decreased and Research and
Development expenses remained relatively unchanged. More specifically:
Research and development ("R&D")
R&D expense remained relatively unchanged (with a minimal decrease of 2.4%) when
comparing the six months ended June 30, 2022 with the six months ended June 30,
2021. Salary expense was reduced slightly due to timing of pay periods. This
slight decrease was partially offset by an increase in utility costs in our New
Jersey facility. All other expenses remained relatively consistent when
comparing the two six-month periods. In the six months ended June 30, 2022, our
R&D department primarily focused their efforts on the enhancement of our current
products and validations related to drug testing product components.
Selling and marketing
Selling and marketing expense in the six months ended June 30, 2022 decreased
46.5% when compared to the six months ended June 30, 2021. Reductions in sales
salary expense and benefits (due to the termination of personnel for performance
reasons as well as an employee departure), reductions in costs associated with
shipping and promotional expense (due to the six months ended June 30, 2021
including fees paid to OTC Markets) were the primary reason for the decline in
expenses. All other expenses remained relatively consistent when comparing the
two six month periods.
In the six months ended June 30, 2022, we continued selling and marketing
efforts related to the drug tests we manufacture and we promoted lower cost
alternatives for onsite drug testing via distribution relationships. We also
marketed and sold rapid Covid-19 tests via distribution relationships. These
offerings did not result in increased selling and marketing expenses when
comparing the six months ended June 30, 2022 with the six months ended June 30,
2021. Terminations of sales personnel have been due to poor performance. While
we have taken efforts to increase the size of our sales team to further
penetrate our markets; no new sales reps were hired in the six months ended June
30, 2022 due to lack of qualified candidates. We continue to look for contract
manufacturing opportunities or situations in which we can leverage our U.S.
based manufacturing operations.
General and administrative ("G&A")
G&A expense decreased 36.1% in the six months ended June 30, 2022 when compared
to G&A expense in the six months ended June 30, 2021. The primary reason for the
decline is that the six months ended June 30, 2022 did not include any fees
associated with our loans with Cherokee while the six months ended June 30, 2022
included a total of $148,000 in fees incurred in connection with a penalty
related to extension of the Cherokee loans in February 2021.
In addition, quality assurance salaries declined (due to retirement of an
employee, departure of another employee as well as a reduced work week
implemented early in April 2022), general and administrative salaries and
benefits declined (due to fewer employees and the reduced work week implemented
in April 2022), accounting fees declined (due to lower costs from our new
accounting firm), and patent fees declined (due to less international patent
maintenance fees paid), along with other smaller declines in other expenses.
These declines were partially offset by increased consulting fees (due to the
execution of the Financial Advisory Agreement with Landmark Pegasus, Inc. in the
six months ended June 30, 2022), increased transfer agent expense and repairs
and maintenance. There was no expense related to share based payments in either
the six months ended June 30, 2022 or the six months ended June 30, 2021.
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OTHER INCOME AND EXPENSE: Other expense of $99,000 in the six months ended June
30, 2022 consisted of interest expense associated with our credit facilities
(our line of credit, our two loans with Cherokee Financial, LLC and shareholder
loans) and interest income of $1,000 for interest received in connection with
the ERC refund we received in June 2022. Other expense of $46,000 in the six
months ended June 30, 2021 consisted of interest expense associated with our
credit facilities (the same facilities indicated for the six months ended June
30, 2022) which was offset by other income of $50,000 related to certain
non-refundable prepayments (customer deposits) that were forfeited when the
customer did not remit the remaining amounts due on the order.
Results of operations for the three months ended June 30, 2022 compared to the
three months ended June 30, 2021NET SALES:Net sales for the three months ended June 30, 2022 decreased 65%, when
compared to net sales in the three months ended June 30, 2021 primarily as a
result in a decline in sales of DOA tests that we manufacture.
The decline in DOA sales stems almost entirely from decreased sales to our
largest customer who has historically been a significant portion of our
revenues. This customer has two segments of their business for which we supply
products. They informed us in February 2022 that sales to one of those segments
(which we supplied exclusively) would decrease as a result of their desire to
have multiple vendors supplying the segment. They indicated this was to ensure
uninterrupted supply as they had experienced periodic supply interruptions with
us in 2021 (as a result of the supply chain issues we experienced in 2021 and
continue to experience into 2022; particularly with plastics and other materials
that are used to manufacture our drug tests; materials that are also used in the
manufacture of lateral flow Covid-19 tests). They indicated that the other
segment we supply would remain unchanged but, even in that particular segment;
we saw a decline in sales when comparing the three months ended June 30, 2022
with the three months ended June 30, 2021. In addition to the decline in sales
to this customer, international sales also declined; some of which is due to a
backorder at June 30, 2022.
Partially offsetting these declines are increased contract manufacturing sales;
primarily in sales of our private labeled RSV test and increased distribution
sales; most of which is due to increased sales of the lower cost DOA tests we
are selling. In the three months ended June 30, 2022, we did not have sales of
Covid-19 tests and in the three months ended June 30, 2021 we only had $1,000 in
Covid-19 test sales. Market pricing of Covid-19 tests has continued to decline
over the last several months. Going forward, this will make it difficult for the
Company to sell these tests given we are only distributing them (which requires
further mark up to customers), therefore, we believe that sales of Covid-19
tests will not have a significant impact on our sales going forward.
GROSS (LOSS) / PROFIT:
For the first time in our operating history, we recorded a gross loss in the
three months ended June 30, 2022 of $(73,000); this is compared to gross profit
of $136,000 in the three months ended June 30, 2021. Gross profit began to
dramatically decline in the first quarter of 2022 and further declined in the
second quarter of 2022 due to even further reduced sales. This change to a gross
(loss) from a gross profit is almost entirely due to decreased sales to our
largest customer in one of their segments (previously discussed in net sales).
The two segments we were supplying were comprised of one with low margin sales
and one with higher margin sales. This allowed the Company to maintain an
appropriate blended gross profit margin on the sales to the customer. The
segment in which sales have decreased significantly is the segment in which
products were sold at a higher profit margin and this has significantly reduced
the blended gross profit margin on the account. At the same time, this decline
in sales has resulted in greater inefficiencies in manufacturing. Manufacturing
inefficiencies occur when production levels decrease but, not all costs can be
reduced to be in line with production levels because they are fixed; these costs
include but, are not limited to, depreciation, insurance, interest, taxes,
utilities and other costs associated with running our two facilities.
We have taken steps to reduce manufacturing costs, including but not limited to,
costs associated with labor, to mitigate these inefficiencies; however, the
previously discussed fixed costs are not able to be decreased. Given the price
sensitivity in our markets and the commoditized nature of drug testing products
increasing, customer pricing is challenging; however, we did implement a price
increase to non-contractual customers in July 2021 however, the customer
previously discussed has a contracted price in place that is not as easily
increased.
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OPERATING EXPENSES: Operating expenses decreased 27.9% in the three months ended
June 30, 2022 compared to the three months ended June 30, 2021. Expenses in all
operating expense divisions decreased. More specifically:
Research and development ("R&D")
R&D expense in the three months ended June 30, 2022 decreased 14.3% when
compared to the three months ended June 30, 2021. Salary expense decreased due
to timing of pay periods. This decrease was nominally offset by an increase in
utility costs in our New Jersey facility. All other expenses remained relatively
consistent when comparing the two three-month periods.
Selling and marketing
Selling and marketing expense in the three months ended June 30, 2022 decreased
43.1% when compared to the three months ended June 30, 2021. Reductions in sales
salary expense and benefits (due to the termination of personnel for performance
reasons as well as an employee departure) along with a reduction in promotional
expense (due to the six months ended June 30, 2021 including fees paid to OTC
Markets) were the primary reasons for the decline in expenses. These reductions
were partially offset by increased costs associated with shipping.
General and administrative ("G&A")
G&A expense decreased 25.1% in the three months ended June 30, 2022 when
compared to G&A expense in the three months ended June 30, 2021. Decreased costs
associated with general and administrative salaries and benefits (due to fewer
employees and the reduced work week implemented in April 2022), quality
assurance salaries (due to retirement of an employee, departure of another
employee as well as a reduced work week implemented early in April 2022), and
investor relations were partially offset by increased utility costs. There was
no expense related to share based payments in either the three months ended June
30, 2022 or the three months ended June 30, 2021.
OTHER INCOME AND EXPENSE:
Other expense of $51,000 in the three months ended June 30, 2022 consisted of
interest expense associated with our credit facilities (our line of credit, our
two loans with Cherokee Financial, LLC and shareholder loans) and interest
income of $1,000 for interest received in connection with the ERC refund we
received in June 2022. Other income of $1,000 in the three months ended June 30,
2021 consisted of other income of $50,000 related to certain non-refundable
prepayments (customer deposits) that were forfeited when the customer did not
remit the remaining amounts due on the order which was almost entirely offset by
interest expense associated with our credit facilities (our line of credit, our
two loans with Cherokee Financial, LLC and a shareholder loan.
Liquidity and Capital Resources as of June 30, 2022Our cash requirements depend on numerous factors, including but not limited to
manufacturing costs (such labor and overhead costs, raw materials, equipment,
etc.), selling and marketing initiatives, product development activities,
regulatory costs, legal costs, and effective management of inventory levels and
production levels in response to sales history and forecasts. We are examining
growth opportunities including strategic alliances and contract manufacturing.
Given our current and historical cash position, such activities would need to be
funded from the issuance of additional equity or additional credit borrowings,
subject to market and other conditions.
The following transactions materially impacted our liquidity and cash flow in
the six months ended June 30, 2022 and/or the six months ended June 30, 2021 or
are expected to have an impact on our cash flow in the year ending December 31,
2022:
Employee Retention Credit ("ERC")
As discussed in Note F to our financial statements, we have been expecting to
receive two ERC refunds totaling $400,000. On June 2, 2022, we received a refund
for the second quarter of 2021 in the amount of $199,000. This amount represents
the $198,000 claimed as a refund and $1,000 in interest.
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Lincoln Park Equity Line
On December 9, 2020, we 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 shares of our common
stock, par value $0.01 per share, subject to certain limitations set forth in
the Purchase Agreement, over a two year period. On December 29, 2020 we filed a
Form S-1 Registration Statement (the "Registration Statement"). We amended the
Registration Statement on January 7, 2021 and the SEC declared the Registration
Statement effective on January 11, 2021. In the six months ended June 30, 2022,
we were not able to sell any shares of common stock to Lincoln Park due to the
market price of our common shares (i.e. they are not closing at or above $0.05
per share and have not closed at that price since the latter part of the year
ended December 31, 2021). In the six months ended June 30, 2022, the Company
sold 4,900,000 shares of common stock to Lincoln Park (including 500,000 shares
required as an initial purchase under the Purchase Agreement) as Regular
Purchases and received proceeds of $564,000.
Going Concern
Our financial statements for the six months ended June 30, 2022 were prepared
assuming we will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. Our
current cash balances, together with cash generated from future operations, ERC
refunds and amounts available under our credit facilities will not be sufficient
to fund operations through August 2023. At June 30, 2022, we have Stockholders'
Deficit of $(1,708,000). Should the Company not be able to increase sales to
generate positive cash flows or obtain additional financing in the form of
additional loans or sale of equity, it will be required to reduce or terminate
operations.
Debt
Our loan and security agreement and 2019 Term Note with Cherokee for $1,000,000
and $240,000, respectively, expired on February 15, 2022. On June 14, 2022,
Cherokee agreed that they would defer the principal amounts due under the
Cherokee LSA until February 15, 2023 and that any applicable penalties would
also be deferred as long as the Company remains current on the quarterly
interest payments. Furthermore, any penalties will also be waived if the
principal amounts are paid on or prior to February 15, 2023.
We do not expect cash from operations within the next 12 months to be sufficient
to pay the amounts due under these credit facilities, which are due in full on
February 15, 2023. Given this, we will be required to refinance the facilities
either via a new debt facility or raising capital through some other means.
There is no assurance that such financing will be available or that we will be
able to complete financing on satisfactory terms, if at all or that we would be
able to raise capital via other means.
Throughout the six months ended June 30, 2022, we had a line of credit with
Crestmark Bank. The maximum availability on the line of credit is $1,000,000.
However, because the amount available under the line of credit is based upon our
accounts receivable, the amounts actually available under our line of credit
(historically) have been significantly less than the maximum availability. When
sales levels decline, we have reduced availability on our line of credit due to
decreased accounts receivable balances. As of June 30, 2022, based on our
availability calculation, there were no additional amounts available under the
line of credit because we draw any balance available on a daily basis. The
Crestmark line of credit automatically renewed on June 22, 2022 for another one
year term, or until June 22, 2023.
If availability under our line of credit (from sales) and/or cash received as
refunds under the ERC program are not sufficient to satisfy our working capital
and capital expenditure requirements, we will be required to seek additional
credit facilities or sell additional equity securities, or delay capital
expenditures which could have a material adverse effect on our business. There
is no assurance that such financing will be available or that we will be able to
complete financing on satisfactory terms, if at all.
As of June 30, 2022, we had the following debt/credit facilities:
Balance as of
June 30,
Facility Debtor 2022 Due Date
Loan and Security Agreement Cherokee February
Financial, 15, 2023
LLC $ 1,000,000
Revolving Line of Credit Crestmark June 22,
Bank 47,000 2023
Term Loan Cherokee February
Financial, 15, 2023
LLC 240,000
Term Loan Individual November
50,000 4, 2022
Term Loan Individual 175,000 NA (1)
Total Debt $ 1,512,000(1) The loan agreement was amended on July 13, 2022; one of the revisions made
was changing the maturity date from June 15, 2022 to no specific maturity date.
Working Capital Deficit
At June 30, 2022, we were operating at a working capital deficit of $2,220,000.
This compares to a working capital deficit of $1,484,000 at December 31, 2021.
The increase in the working capital deficit is primarily due to decline in cash
balances and accounts receivable (due to decreased sales) along with increased
debt facilities that are short-term facilities. We have historically satisfied
working capital requirements through cash from operations, bank debt and equity
financings.
Dividends
We have never paid any dividends on our common shares and anticipate that all
future earnings, if any, will be retained for use in our business, and
therefore, we do not anticipate paying any cash dividends.
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Cash Flow, Outlook/Risk
In the six months ended June 30, 2022, we had a net loss of $779,000 and net
cash used in operating activities of $82,000.
Our cash position decreased to $2,000 at June 30, 2022 from $115,000 at December
31, 2021 and $30,000 at June 30, 2021. Cash at December 31, 2021 was positively
impacted by an ERC refund in December 2021 (in the amount of $137,000). We did
receive an ERC refund in the amount of $198,000 in early June 2022; however, the
cash was used rather quickly to make debt payments, Cherokee interest payments
and other outstanding amounts due. In the year ending December 31, 2022, we are
expecting one more ERC refund in the amount of $202,000
In February 2022 we were informed by our largest customer that sales to one of
their segments (which we supplied exclusively) would decrease as a result of
their desire to have multiple vendors supplying the segment. This decrease in
sales to the one segment of their business also negatively impacts gross profit
as this segment is the more profitable segment from a margin perspective. This
has resulted in less profit to the Company which is negatively impacting cash
flows. While the Covid-19 pandemic is seemingly winding down, we continue to be
impacted by it in the form of material delays and cost increases (in both
manufacturing and other business costs).
The extent to which the pandemic and the commoditized nature of our markets will
continue to impact our business, liquidity, results of operations and financial
condition will depend on future developments, which are still uncertain and
cannot be predicted. Current levels of sales declines are impacting our
business, liquidity, results of operations and financial condition and our
ability to access the capital markets may also be limited. Prior to the fourth
quarter of the year ended December 31, 2021, we were able to utilize the Lincoln
Park Equity Line; however, the downturn of our common stock starting in the
third quarter of 2021 has prevented any further sales to be initiated.
Our ability to repay our current debt and other liabilities may also be affected
by general economic, financial, competitive, regulatory, legal, business and
other factors beyond our control, including those discussed herein. Given the
current state of our business and the current stock price, it is unlikely we
will be able to facilitate purchases under our Purchase Agreement with Lincoln
Park in the near future. If we are unable to meet our credit facility
obligations we will be required to raise money through new equity and/or debt
financing(s) and, there is no assurance that we would be able to find new
financing, or that any new financing would be at favorable terms.
We will continue to take steps to ensure that operating expenses remain in line
with sales levels and make every effort to control manufacturing costs, although
as previously discussed herein; certain overhead costs are fixed and cannot be
reduced to be in line with sales levels. We have consolidated job
responsibilities in multiple areas of the Company and this has enabled us to
implement personnel reductions. We are also promoting new products and service
offerings to diversify our revenue stream.
If we are forced to refinance our debt on less favorable terms, our results of
operations and financial condition would be further adversely affected by
increased costs and rates. There is also no assurance that we could obtain
alternative debt facilities. We may also be forced to pursue one or more
alternative strategies, such as restructuring, selling assets, reducing or
delaying capital expenditures or seeking additional equity capital. There can be
no assurances that any of these strategies could be implemented on satisfactory
terms, if at all.
If events and circumstances occur such that 1) we do not meet our current
operating plans to increase sales, 2) we are unable to raise sufficient
additional equity or debt financing, 3) we are unable to effect sales under the
Lincoln Park Equity Line, 4) we are unable to utilize equity as a form of
payment in lieu of cash or 5) our credit facilities are insufficient or not
available, we may be required to further reduce expenses or take other steps
which could have a material adverse effect on our future performance including
reducing or terminating operations.
© Edgar Online, source Glimpses
AMERICAN BIO MEDICA CORPORATION 
