	122 Smith Road, Kinderhook, New York		12106
	(Address of principal executive offices)		(Zip Code)

~~518-758-8158~~

518-758-8158

~~(Registrant’s~~

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ABMC	OTC Markets Pink

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days x☐ Yes¨ ☒ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)x ☒ Yes¨ ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer	¨ ☐	Accelerated filer	¨
			☐
Non-accelerated filer	¨ ☐	Smaller reporting company	x
			☒
		Emerging growth company	¨ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)¨ ☐ Yesx ☒ No

Indicate the number of shares outstanding of each of the ~~issuer’s~~issuer's classes of common stock, as of the latest practicable date:

~~29,297,333~~

35,953,476 Common Shares as of ~~November 14, 2017~~

September 15, 2020

American Bio Medica Corporation

Index to Quarterly Report on Form 10-Q

For the quarter ended ~~September~~June 30, ~~2017~~

2020

		~~PAGE~~
PART I – FINANCIAL INFORMATION		PAGE

Item 1.	Condensed Financial Statements	3

~~Item 1.~~	~~Condensed Financial Statements~~	3
	Condensed Balance Sheets as of ~~September~~June 30, ~~2017~~2020 (unaudited) and December 31, ~~2016~~2019	3
	Condensed Unaudited Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	4
	Condensed Unaudited Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2025
Item 4.	Controls and Procedures	2025

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	2025
Item 1A.	Risk Factors	2125
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2125
Item 3.	Defaults Upon Senior Securities	2126
Item 4.	Mine Safety Disclosures	2126
Item 5.	Other Information	2126
Item 6.	Exhibits	2126

Signatures			22

PART I –- FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

~~American Bio Medica Corporation~~

~~Condensed Balance Sheets~~

September 30, December 31,
2017 2016
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 150,000 $ 156,000
Accounts receivable, net of allowance for doubtful accounts of $51,000 at September 30, 2017 and $49,000 at December 31, 2016 521,000 556,000
Inventory, net of allowance of $453,000 at September 30, 2017 and $449,000 at December 31, 2016 1,462,000 1,582,000
Prepaid expenses and other current assets 49,000 92,000
Total current assets 2,182,000 2,386,000

Property, plant and equipment, net 810,000 824,000
Patents, net 107,000 93,000
Other assets 21,000 21,000
Deferred finance costs – line of credit, net 23,000 47,000
Total assets $ 3,143,000 $ 3,371,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 306,000 $ 304,000
Accrued expenses and other current liabilities 287,000 276,000
Wages payable 257,000 299,000
Line of credit 580,000 639,000
Current portion of long-term debt 87,000 75,000
Total current liabilities 1,517,000 1,593,000

Long-term debt, net of current portion and deferred finance costs 748,000 753,000
Other long-term liabilities 22,000 0
Total liabilities 2,287,000 2,346,000

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at September 30, 2017 and December 31, 2016 0 0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 29,297,333 issued and outstanding at September 30, 2017 and 28,842,788 issued and outstanding at December 31, 2016 293,000 288,000
Additional paid-in capital 21,115,000 21,037,000
Accumulated deficit (20,552,000 ) (20,300,000 )
Total stockholders’ equity 856,000 1,025,000
Total liabilities and stockholders’ equity $ 3,143,000 $ 3,371,000

~~The accompanying notes are an integral part of the condensed financial statements~~

~~American Bio Medica Corporation~~

~~Condensed Statements of Operations~~

~~(Unaudited)~~

For The Nine Months Ended
September 30,
2017 2016

Net sales $ 3,975,000 $ 4,392,000

Cost of goods sold 2,279,000 2,441,000

Gross profit 1,696,000 1,951,000

Operating expenses:
Research and development 94,000 136,000
Selling and marketing 531,000 827,000
General and administrative 1,154,000 1,106,000
1,779,000 2,069,000

Operating loss (83,000 ) (118,000 )

Other income / (expense):
Interest expense (204,000 ) (210,000 )
Other income, net 34,000 200,000
(170,000 ) (10,000 )

Net loss before tax (253,000 ) (128,000 )

Income tax benefit / (expense) 1,000 (2,000 )

Net loss $ (252,000 ) $ (130,000 )

Basic and diluted loss per common share $ (0.01 ) $ (0.01 )

Weighted average number of shares outstanding – basic & diluted 29,129,168 27,056,216

~~The accompanying notes are an integral part of the condensed financial statements~~

~~American Bio Medica Corporation~~

~~Condensed Statements of Operations~~

~~(Unaudited)~~

For The Three Months Ended
September 30,
2017 2016

Net sales $ 1,354,000 $ 1,417,000

Cost of goods sold 788,000 806,000

Gross profit 566,000 611,000

Operating expenses:
Research and development 26,000 28,000
Selling and marketing 159,000 275,000
General and administrative 376,000 368,000
561,000 671,000

Operating income / (loss) 5,000 (60,000 )

Other income / (expense):
Interest expense (70,000 ) (71,000 )
Other income, net 14,000 44,000
(56,000 ) (27,000 )

Net loss before tax (51,000 ) (87,000 )

Income tax benefit / (expense) 2,000 (1,000 )

Net loss $ (49,000 ) $ (88,000 )

Basic and diluted loss per common share $ (0.00 ) $ (0.00 )

Weighted average number of shares outstanding – basic & diluted 29,297,333 27,284,308

~~The accompanying notes are an integral part of the condensed financial statements~~

American Bio Medica Corporation
Condensed Balance Sheets
	June 30,	December 31,
	2020	2019
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$225,000	$4,000
Accounts receivable, net of allowance for doubtful accounts of $34,000 at June 30, 2020 and at December 31, 2019	350,000	370,000
Inventory, net of allowance of $355,000 at June 30, 2020 and $291,000 at December 31, 2019	769,000	810,000
Prepaid expenses and other current assets	133,000	6,000
Right of use asset – operating leases	34,000	34,000
Total current assets	1,511,000	1,224,000
Property, plant and equipment, net	608,000	644,000
Patents, net	112,000	116,000
Right of use asset – operating leases	58,000	73,000
Other assets	21,000	21,000
Total assets	$2,310,000	$2,078,000

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$627,000	$652,000
Accrued expenses and other current liabilities	663,000	543,000
Right of use liability – operating leases	32,000	34,000
Wages payable	134,000	104,000
Line of credit	226,000	337,000
PPP Loan	332,000	0
Current portion of long-term debt, net of deferred finance costs	1,121,000	17,000
Total current liabilities	3,135,000	1,687,000
Long-term debt/other liabilities , net of current portion and deferred finance costs	0	1,108,000
Right of use liability – operating leases	58,000	73,000
Total liabilities	3,193,000	2,868,000
COMMITMENTS AND CONTINGENCIES
Stockholders' deficit:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at June 30, 2020 and December 31, 2019	0	0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 35,953,476 issued and outstanding at June 30, 2020 and 32,680,984 issued and outstanding as of December 31, 2019	359,000	327,000
Additional paid-in capital	21,658,000	21,437,000
Accumulated deficit	(22,900,000)	(22,554,000)
Total stockholders’ deficit	(883,000)	(790,000)
Total liabilities and stockholders’ deficit	$2,310,000	$2,078,000
The accompanying notes are an integral part of the condensed financial statements

~~American Bio Medica Corporation~~

~~Condensed Statements of Cash Flows~~

~~(Unaudited)~~

For The Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (252,000 ) $ (130,000 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 64,000 69,000
Amortization of debt issuance costs 94,000 90,000
Provision for bad debts 2,000 0
Provision for slow moving and obsolete inventory 2,000 63,000
Share-based payment expense 33,000 49,000
Changes in:
Accounts receivable 32,000 (49,000 )
Inventory 116,000 127,000
Prepaid expenses and other current assets 96,000 21,000
Accounts payable 2,000 (38,000 )
Accrued expenses and other current liabilities 11,000 (6,000 )
Wages payable (42,000 ) (11,000 )
Net cash provided by operating activities 158,000 185,000

Cash flows from investing activities:
Patent application costs (20,000 ) (6,000 )
Purchase of property, plant & equipment (44,000 ) 0
Net cash used in investing activities (64,000 ) (6,000 )

Cash flows from financing activities:
Proceeds (payments) on debt financing (41,000 ) (75,000 )
Proceeds from lines of credit 4,729,000 4,609,000
Payments on lines of credit (4,788,000 ) (4,650,000 )
Net cash used in financing activities (100,000 ) (116,000 )

Net (decrease in) / increase in cash and cash equivalents (6,000 ) 63,000
Cash and cash equivalents - beginning of period 156,000 158,000

Cash and cash equivalents - end of period $ 150,000 $ 221,000

Supplemental disclosures of cash flow information
Cash paid during period for interest $ 110,000 $ 119,000
Cash paid / (received) during period for taxes $ (1,000 ) $ 2,000
Consulting expense prepaid with restricted stock $ 50,000 $ 49,000
Debt issuance cost paid with restricted stock $ 0 $ 96,000
Related party note payable paid with restricted stock $ 0 $ 154,000

~~The accompanying notes are an integral part of the condensed financial statements~~

American Bio Medica Corporation
Condensed Statements of Operations
(Unaudited)
	For The Six Months Ended
	June 30,
	2020	2019

Net sales	$2,486,000	$1,880,000

Cost of goods sold	1,714,000	1,269,000

Gross profit	772,000	611,000

Operating expenses:
Research and development	52,000	39,000
Selling and marketing	319,000	219,000
General and administrative	656,000	682,000
	1,027,000	940,000

Operating loss	(255,000)	(329,000)

Other (expense) / income :
Interest expense	(91,000)	(134,000)
Other income, net	0	169,000
	(91,000)	35,000

Net loss before tax	(346,000)	(294,000)

Income tax expense	0	(2,000)

Net loss	$(346,000)	$(296,000)

Basic and diluted loss per common share	$(0.01)	$(0.01)

Weighted average number of shares outstanding – basic & diluted	34,937,236	32,445,244

The accompanying notes are an integral part of the condensed financial statements

American Bio Medica Corporation
Condensed Statements of Operations
(Unaudited)
	For The Three Months Ended
	June 30,
	2020	2019

Net sales	$1,758,000	$958,000

Cost of goods sold	1,176,000	652,000

Gross profit	582,000	306,000

Operating expenses:
Research and development	19,000	20,000
Selling and marketing	230,000	107,000
General and administrative	317,000	334,000
	566,000	461,000

Operating income /(loss)	16,000	(155,000)

Other (expense) / income:
Interest expense	(37,000)	(67,000)
Other income, net	0	168,000
	(37,000)	101,000

Net loss before tax	(21,000)	(54,000)

Income tax expense	0	(2,000)

Net loss	$(21,000)	$(56,000)

Basic and diluted loss per common share	$(0.00)	$(0.00)

Weighted average number of shares outstanding – basic & diluted	35,905,948	32,521,675

The accompanying notes are an integral part of the condensed financial statements

American Bio Medica Corporation Condensed Statements of Cash Flows
(Unaudited)
	For The Six Months Ended
	June 30,
	2020	2019
Cash flows from operating activities:
Net loss	$(346,000)	$(296,000)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation and amortization	41,000	42,000
Amortization of debt issuance costs	37,000	55,000
Allowance for doubtful accounts	0	0
Provision for slow moving and obsolete inventory	72,000	42,000
Share-based payment expense	2,000	3,000
Director fee paid with restricted stock	30,000	5,000
Refinance fee paid with restricted stock	21,000	0
Changes in:
Accounts receivable	20,000	59,000
Inventory	(32,000)	153,000
Prepaid expenses and other current assets	(112,000)	28,000
Accounts payable	(25,000)	196,000
Accrued expenses and other current liabilities	103,000	(6,000)
Wages payable	31,000	(137,000)
Net cash (used in) / provided by operating activities	(158,000)	144,000


Cash flows from financing activities:
Proceeds from debt financing	332,000	48,000
Payments on debt financing	(6,000)	(81,000)
Proceeds from Private Placement	164,000	0
Proceeds from lines of credit	2,352,000	1,902,000
Payments on lines of credit	(2,463,000)	(2,027,000)
Net cash provided by / (used in) financing activities	379,000	(158,000)

Net change in cash and cash equivalents	221,000	(14,000)
Cash and cash equivalents - beginning of period	4,000	113,000

Cash and cash equivalents - end of period	$225,000	$99,000

Supplemental disclosures of cash flow information
Non-Cash transactions:
Debt issuance cost paid with restricted stock	$0	$14,000
Loans converted to stock	$39,000	$0
Director fees paid with restricted stock	$30,000	$5,000
Cash paid during period for interest	$73,000	$79,000
Cash paid during period for taxes	$0	$2,000
The accompanying notes are an integral part of the condensed financial statements

N~~Notes~~otes to condensed financial statements (unaudited)

~~September~~

June 30, ~~2017~~

2020

Note A –- Basis of Reporting

The accompanying unaudited interim condensed financial statements of American Bio Medica Corporation (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited interim condensed financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statement presentation. These unaudited interim condensed financial statements should be read in conjunction with audited financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. In the opinion of management, the interim condensed financial statements include all normal, recurring adjustments which are considered necessary for a fair presentation of the financial position of the Company at ~~September~~June 30, ~~2017,~~2020, and the results of operations for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 and cash flows for the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016.~~

2019.

Operating results for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2017.~~2020. Amounts at December 31, ~~2016~~2019 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2019.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, there were no significant changes to the Company’s critical accounting policies, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2019.

The preparation of these interim condensed financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates estimates, including those related to product returns, bad debts, inventories, income taxes, warranty obligations, contingencies and litigation. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

These unaudited interim condensed financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. The independent registered public accounting firm’s report on the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, contained an explanatory paragraph regarding the Company’s ability to continue as a going concern. As of the date of this report, ~~our~~the Company’s current cash balances, together with cash generated from future operations and amounts available under ~~our~~the Company’s credit facilities may not be sufficient to fund operations through ~~November 2018. On May 1, 2017, we extended our~~September 2021.

Through the six months ended June 30, 2020, the Company had a line of ~~credit.~~credit with Crestmark Bank. The ~~new expiration date~~maximum availability on the Company’s line of ~~our~~credit was $1,500,000 until the line of credit was amended and extended on June 22, 2020 when the maximum availability was reduced to $1,000,000. However, because the amount available under the line of credit is ~~June 29, 2020. The maximum availability on our line of credit remains to be $1,500,000. However,~~based upon the ~~amount~~Company’s accounts receivable and inventory, the amounts actually available under our line of credit ~~is based upon our accounts receivable and inventory.~~(historically) have been significantly less than the maximum availability. As of ~~September~~June 30, ~~2017,~~2020, based on ~~our~~the Company’s availability calculation, there were no additional amounts available under ~~our~~the Company’s line of credit because ~~we draw~~the Company draws any balance available on a daily basis.

In February 2020, our credit facilities with Cherokee Financial, LLC were extended for another 12 months, or until February 15, 2021 (which is less than 12 months from the date of this report). Our total debt at June 30, 2020 with Cherokee Financial, LLC is $1,120,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities, which is due in full on February 15, 2021. We are currently looking at alternatives to further extend or refinance these facilities.

As discussed in more detail in “Cash Flow, Outlook/Risk”, if sales levels decline, ~~further, we~~the Company will have reduced availability on ~~our~~its line of credit due to decreased accounts receivable balances. ~~In addition, we would expect our inventory levels to decrease if sales levels decline further, and this also will result in reduced availability on our line of credit.~~ If availability under ~~our~~the Company’s line of credit is not sufficient to satisfy ~~our~~its working capital and capital expenditure requirements, wethe Company will be required to obtain additional credit facilities or sell additional equity securities, or delay capital ~~expenditures.~~expenditures, which could have a material adverse effect on the business. There is no assurance that such financing will be available or that wethe Company will be able to complete financing on satisfactory terms, if at all.

Recently Adopted Accounting Standards

~~We have disclosed~~

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the ~~adoption~~Disclosure Requirements for Fair Value Measurement”, issued in August 2018, adds, modifies and removes several disclosure requirements relative to the three levels of ~~previously released accounting standards~~inputs used to measure fair value in ~~earlier quarterly reports filed~~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 ~~U.S. Securities~~First Quarter 2020 and ~~Exchange Commission (the “Commission”); these adoptions~~the adoption did not have an impact on ~~our~~the Company’s financial ~~statement~~condition or its results of operations. ~~In the three months ended September 30, 2017, we determined that~~

ASU ~~2017-07, “Compensation - Retirement Benefits”~~2019-08, Compensation – Stock Compensation (Topic 718) and ~~ASU 2017-04 “Intangibles - Goodwill and Other~~Revenue from Contracts with Customers (Topic ~~350)~~606)” (both previously disclosed in our Form 10-Q for the period ended June 30, 2017) did not apply to the Company. We did not adopt any new accounting standards in the three months ended September 30, 2017.

~~Accounting Standards Issued; Not Yet Adopted~~

~~ASU 2017-11, “Earnings Per Share, Distinguishing Liabilities from Equity, Derivatives and Hedging”.~~ ~~ASU 2017-11 was~~, issued in ~~July 2017. The amendments~~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 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature will no longer preclude equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would not be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). ASU 2017-112019-08 is effective for ~~fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2018.~~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 will be effective for public companies for fiscal years beginning after December 15, 2020, including interim periods. The Company is evaluating the impact of ASU 2019-12.

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 2019-12 will be effective for public companies for fiscal years beginning after December 15, 2020, including interim periods within the fiscal year. Early adoption is permitted. The Company is evaluating the impact of ASU ~~2017-11.~~

~~ASU 2017-09, “Compensation – Stock Compensation (Topic 718)”.~~ ~~ASU 2017-09 was~~2020-01.

Any other new accounting pronouncements recently issued, ~~in May 2017. The amendments in ASU 2017-09 provide guidance about which changes~~but not yet effective, have been reviewed and determined to ~~the terms~~be not applicable or conditions of a share-based payment award require an entity to apply modification accounting. More specifically, that an entity should account for the effects of modification unless all the following are met: 1) the fair value, calculated or intrinsic value of the modified award is the same fair value, calculated or intrinsic value of the original award immediately before the original award is modified, 2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original grant is modified. The current disclosure requirements in Topic 718 apply regardless of whether accounting modification is applied. ASU 2017-09 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of ASU 2017-09.

~~ASU 2017-01, “Business Combinations (Topic 805)”.~~ ASU 2017-01 was issued in January 2017. The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of ASU 2017-01.

~~ASU 2016-02, “Leases”.~~ ASU 2016-02 was issued in February 2016 and it requires a lessee to recognize a lease liability and a right-of-use asset on its balance sheet for all leases, including operating leases, with a term greater than 12 months. Lease classification will determine whether a lease is reported as a financing transaction in the income statement and statement of cash flows. ASU 2016-02 does not substantially change lessor accounting, but it does make certain changeswere related to ~~leases for which collectability~~technical amendments or codification. As a result, the adoption of the lease payments is uncertain or there are significant variable payments. Additionally, ASU 2016-02 makes several other targeted amendments including a) revising the definition of lease payments to include fixed payments by the lessee to cover lessor costs related to ownership of the underlying asset such as for property taxes or insurance; b) narrowing the definition of initial direct costs which an entity is permitted to capitalize to include only those incremental costs of a lease that would not have been incurred if the lease had not been obtained; c) requiring seller-lessees in a sale-leaseback transaction to recognize the entire gain from the sale of the underlying asset at the time of sale rather than over the leaseback term; and d) expanding disclosures to provide quantitative and qualitative information about lease transactions. ASU 2016-02 is effective for all annual and interim periods beginning January 1, 2019, and is required to be applied retrospectively to the earliest period presented at the date of initial application, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02.

~~ASU 2014-09, “Revenue from Contracts with Customers”.~~ ASU 2014-09 was issued in May 2014 and it provides guidance for revenue recognition. The core principle of ASU 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. Examples of the use of judgments and estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The update also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 provides for two transition methods to the new guidance: a retrospective approach and a modified retrospective approach. In August 2015, ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” was issued as a revision to ASU 2014-09. ASU 2015-14 revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU No. 2014-09). The Company is currently evaluating the transition methods and the impact of adopting this ASU.

~~There are no other~~ accounting pronouncements, ~~issues during the nine months ended September 30, 2017 that are~~when effective, is not expected to have ~~or that could have~~ a ~~significant impact~~material effect on ~~our~~the Company’s financial position or results of operations.

Reclassifications

Certain items have been reclassified from the prior year to conform to the current year presentation.

Note B – Inventory

Inventory is comprised of the following:

September 30, 2017 December 31, 2016

Raw Materials $ 1,053,000 $ 1,028,000
Work In Process 438,000 385,000
Finished Goods 424,000 618,000
Allowance for slow moving and obsolete inventory (453,000 ) (449,000 )
$ 1,462,000 $ 1,582,000

	June 30, 2020	December 31, 2019

Raw Materials	$679,000	$670,000
Work In Process	124,000	141,000
Finished Goods	321,000	290,000
Allowance for slow moving and obsolete inventory	(355,000)	(291,000)
	$769,000	$810,000

Note C – Net Loss Per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted average number of outstanding common shares during the period. Diluted net loss per common share includes the weighted average dilutive effect of stock options and warrants. Potential common shares outstanding as of ~~September~~June 30, ~~2017~~2020 and ~~2016:~~

September 30, 2017 September 30, 2016

Warrants 2,060,000 2,060,000
Options 2,147,000 2,182,000
4,207,000 4,242,000

2019:

	June 30, 2020	June 30, 2019

Warrants	0	2,000,000
Options	2,192,000	2,302,000
	2,192,000	4,302,000

The number of securities not included in the diluted net loss per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and the three and six months ended June 30, 2019 was ~~4,207,000,~~2,192,000 and 4,302,000, respectively, as their effect would have been anti-dilutive due to the net loss in ~~each period.~~

~~The number~~both of ~~securities not included in the diluted net loss per share for~~ the three and ~~nine months ended September 30, 2016 was 4,242,000, as their effect would have been anti-dilutive due to the net loss in each period.~~

six month periods.

Note D – Litigation/Legal Matters

~~In February 2017,~~

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 filed a complaint in the Supreme Court of the State of New York in Columbia County against Premier Biotech Inc., Premier Biotech Labs, LLC and its principals, including its President Todd Bailey, and Peckham Vocational Industries, Inc. (together the “Defendants”). Mr. Bailey formerly served as the Company’s Vice President of Sales and Marketing and as a sales consultant until December 23, ~~2016.~~2016; hereinafter referred to as “Bailey”). The complaint seeks preliminary and permanent injunctions and a temporary restraining order against Todd Bailey (for his benefit or the benefit of another party or entity) related to the solicitation of Company customers as well as damages related to any profits and revenues that would result from actions takenlitigation was filed by the ~~Defendants related to~~ Company ~~customers. In March 2017, the complaint was moved to the federal court~~ in the Northern District of New ~~York. In April~~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 ~~Defendants filed~~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 ~~motion~~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 to which the Company responded on April 21, 2017. On July 10, 2017, the Company was notified that it was not awarded a contract with a state agency for which it has held a contract in excess of 10 years. The contract in question is included in the February 2017 complaint. The Company believes that the Defendants actions related to this customer and a RFP that was issued by the state agency resulted in the loss of the contract award to the Company and the award of the contract to Peckham and Premier Biotech. This contract historically accounted for 10-15% of the Company’s annual revenue. The Company continued to hold a contract with the agency through September 30, 2017. The Company did protest the award of the contract to Peckham and Premier Biotech, and the state agency advised the Company on July 26, 2017 that they denied the Company’s protest of the award. The Company amended its complaintall claims made against the Defendants to show actual damages caused by the Defendants and to show proprietary and confidential information (belonging to the Company) used by the Defendants in their response to the RFP. This confidential information belonging to the Company enabled the Defendants to comply with specifications of the RFP. The Defendants filed a response to the court opposing our supplemental motion and we filed our reply papers to the Defendants response on November 2, 2017. As of the date of this report, the Company is awaiting the court’s rulings on the parties’ motions.

~~In addition, from~~each other.

From time to time, the Company may be named in legal proceedings in connection with matters that ~~arise~~arose during the normal course of business. While the ultimate outcome of any such litigation cannot be predicted, if ~~we are~~the Company is unsuccessful in defending any such litigation, the resulting financial losses ~~could~~are not expected to have ana material adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.

Note E – Line of Credit and Debt

September 30, 2017 December 31, 2016
Loan and Security Agreement with Cherokee Financial, LLC: 5 year note at an annual interest rate of 8% plus a 1% annual oversight fee, interest only and oversight fee paid quarterly with first payment being 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 is collateralized by a first security interest in building, land and property. $ 1,050,000 $ 1,125,000

Crestmark Line of Credit: Line of credit (with a current termination date of June 22, 2020) with interest payable at a variable rate based on WSJ Prime plus 2% with a floor or 5.25%; loan fee of 0.5% annually & monthly maintenance fee of 0.3% on actual loan balance from prior month. Early termination fee of 2% if terminated in year 2 or after (and prior to natural expiration). Loan is collateralized by first security interest in receivables and inventory. 580,000 639,000

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 7.25% as of the date of this report. 34,000 0
1,664,000 1,764,000
Less debt discount & issuance costs (Cherokee Financial, LLC Loan) (227,000 ) (297,000 )
Total debt, net 1,437,000 1,467,000

Current portion 667,000 714,000
Long-term portion, net of current portion $ 770,000 $ 753,000

The Company’s Line of Credit and Debt consisted of the following as of June 30, 2020 and December 31, 2019:

June 30,
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 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 June 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 12.65%.
  226,000
  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% as of the date of this report.
  1,000
  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 year (or 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.
  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.
  0
  10,000
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.
  0
  25,000
April 2020 PPP Loan with Crestmark: 2 year SBA loan at 1% interest with first payment due October 2020. Company intends to apply for forgiveness of loan under PPP guidelines after 24 weeks, or in October 2020.
  332,000
  0

$1,679,000
$1,479,000
Less debt discount & issuance costs (Cherokee Financial, LLC loans)
  0
  (17,000)
Total debt, net
$1,679,000
$1,462,000



Current portion
$1,679,000
$354,000
Long-term portion, net of current portion
$0
$1,125,000

LOAN AND SECURITY AGREEMENT WITH CHEROKEE FINANCIAL, LLC

(“CHEROKEE”)

On March 26, 2015, the Company entered into a LSA with Cherokee ~~Financial, LLC~~ (the “Cherokee LSA”). The ~~purpose of the~~debt with Cherokee LSA was to refinance, at a better interest rate, the Company’s Series A Debentures and Cantone Asset Management Bridge Loan (both of which matured on February 1, 2015), as well as the Company’s Mortgage Consolidation Loan with First Niagara Bank (“First Niagara”). The loan 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 ana fixed annual interest rate of 8%. The Company ~~is making~~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 ~~only payments quarterly~~expense) are being deducted from the balance on the Cherokee ~~Note,~~LSA and are being amortized over the term of the debt (in accordance with ~~the first interest payment paid on May 15, 2015.~~ASU No. 2015-03). The Company ~~is also~~was required to make an annual principal reduction ~~payment~~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 ~~most recent~~last principal reduction payment being made on February ~~16, 2017. A final balloon~~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 ~~is due~~penalty of $100,000 to the outstanding principal.

The Company will continue to make interest only payments quarterly on ~~March 26, 2020.~~the Cherokee LSA. In addition to the 8% interest, the Company pays Cherokee ~~Financial, LLC (“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 ~~Note~~loan at ~~anytime~~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 issued 1.8 million restricted shares of the Company’s common stock to Cherokee for payment of fees. In addition, because the loan was not repaid in full as of March 19, 2016, the Company issued another 600,000 restricted shares of common stock to Cherokee in March 2016.

As placement agent for the transaction, Cantone Research, Inc. (“CRI”) received a 5% cash fee on the $1.2 million, or $60,000, and 200,000 restricted shares of the Company’s common stock. In addition, because the loan was not repaid in full as of March 19, 2016, the Company issued another 196,000 restricted shares of common stock to CRI in March 2016.

The Company received net proceeds of $80,000 after $1,015,000 of debt payments, $60,000 in placement agent fees, $19,000 in legal fees, $19,000 in expenses, $3,000 in state filing fees and $4,000 in interest expense (for 8% interest on $511,000 in new participations received from February 24, 2015 through March 25, 2015). With the adoption of ASU No. 2015-03 in the First Quarter 2016, these transaction costs (with the exception of the interest expense) are now being deducted from the balance on the Cherokee LSA and are being amortized over the term of the debt.

From these net proceeds, in April 2015, the Company also paid $15,000 in interest expense related to 15% interest on $689,000 in Series A Debentures and CAM Bridge Loan for the period of February 1, 2015 through March 25, 2015.

The Company recognized ~~$128,000~~$53,000 in interest expense related to the Cherokee LSA in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 (of which ~~$70,000~~$17,000 is debt issuance cost amortization recorded as interest ~~expense as a result of the adoption of new accounting standards in the first quarter of 2016,~~expense), and ~~$137,000~~$83,000 in interest expense related to the Cherokee LSA in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 (of which ~~$64,000 was~~$47,000 is debt issuance cost amortization recorded as interest ~~expense as a result of the adoption of new accounting standards in the first quarter of 2016)~~expense). The Company recognized ~~$45,000~~$18,000 in interest expense related to the Cherokee LSA in the three months ended ~~September~~June 30, ~~2017~~2020 (of which $0 is debt issuance cost amortization recorded as interest expense), and $42,000 in interest expense related to the Cherokee LSA in the three months ended June 30, 2019 (of which $23,000 is debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards in the first quarter of 2016) and $47,000 in interest expense in the three months ended September 30, 2016 (of which $23,000 was debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards in the first quarter of 2016)expense).

The Company had ~~$11,000~~$14,000 in accrued interest expense at ~~September~~June 30, ~~2017, and $18,000 at December 31, 2016.~~

~~As of September 30, 2017, the balance on~~2020 related to the Cherokee LSA ~~is $1,050,000; however the discounted balance is $823,000.~~ and $15,000 in accrued interest expense at June 30, 2019.

As of ~~December 31, 2016,~~June 30, 2020, the balance on the Cherokee LSA was ~~$1,125,000;~~$900,000. As of December 31, 2019, the balance on the Cherokee LSA was $900,000; however, the discounted balance ~~net of debt discount and debt issuance costs~~ was ~~$828,000.~~

$884,000.

LINE OF CREDIT WITH CRESTMARK BANK (“CRESTMARK”)

On June 29, 2015 (the “Closing Date”), the Company entered into a ~~three-year~~ Loan and Security Agreement (“LSA”) with Crestmark related to a ~~new Senior Lender, to refinance the Company’s Line~~revolving line of ~~Credit with Imperium Commercial Finance, LLC (“Imperium”~~credit (the “Crestmark LOC”). The Crestmark ~~Line of Credit~~LOC is used for working capital and general corporate purposes. ~~On May 1, 2017, the~~The Company entered into term loan with Crestmark in the amount of $38,000 related to the purchase of manufacturing equipment (See “Equipment Loan with Crestmark”), and in connection with this equipment loan, the Company executed an amendment to its LSA and Promissory Note with Crestmark. The amendments addressed the inclusion of the equipment loan intoamended the Crestmark LSA and an extension of the Company’s line of credit with Crestmark. Apart from the extension of the LSA, no terms of the line of credit were changed in the amendment. The termination date of the Crestmark line of credit was changed from June 22, 2018 toLOC on June 22, 2020 ~~under~~and as a result of this amendment, the ~~amendments.~~

~~Under~~Crestmark LOC expires on June 22, 2021.

Until the ~~LSA,~~amendment on June 22, 2020, the Crestmark ~~is providing~~LOC provided the Company with a ~~Line~~revolving line of ~~Credit of~~credit up to $1,500,000 (“Maximum Amount”) with a minimum loan balance requirement of $500,000. The Line of Credit is secured by a first security interest in the Company’s inventory, and receivables and security interest in all other assets of the Company (in accordance with permitted prior encumbrances).

The Maximum Amount iswas 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 ~~the~~ Eligible Accounts Receivable.

~~So long~~ In addition, the Inventory Sub-Cap Limit was reduced by $10,000 per month as ~~any obligations are due~~of July 1, 2018 and thereafter on the first day of the month until the Inventory Sub-Cap Limit is reduced to $0, (making the Crestmark LOC an accounts-receivable based line only). This means that as of June 30, 2020, the Inventory Sub-Cap Limit is only $10,000. Upon execution of the amendment, the Maximum Amount was reduced to $1,000,000 and with the Inventory Sub-Cap Limit gone effective 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 June 30, 2020, the Company ~~must comply~~did not meet the minimum loan balance requirement as our balance was $226,000. 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. Under~~covenant (previously defined in other periodic reports). With the ~~LSA, as amended,~~exception of the quarter ended June 30, 2019, the Company ~~must maintain a TNW of at least $650,000. Additionally, if a quarterly net income is reported,~~did not historically comply with the TNW covenant ~~will increase by 50%~~and Crestmark previously provided a number of waivers (for which the ~~reported net income. If a quarterly net loss is reported, the~~Company was charged $5,000 each). The TNW covenant ~~will remain~~was removed effective with the same as the prior quarter’s covenant amount. TNW is defined as: Total Assets less Total Liabilities less the sum of (i) the aggregate amount of non-trade accounts receivables, including accounts receivables from affiliated or related persons, (ii) prepaid expenses, (iii) deposits, (iv) net lease hold improvements, (v) goodwill and (vi) any other asset that would be treated as an intangible asset under GAAP; plus Subordinated Debt. Subordinated Debt means any and all indebtedness presently or in the future incurred by the Company to any creditor of the Company entering into a written subordination agreement with Crestmark. The Company is in compliance with this covenant at Septemberquarter ended June 30, ~~2017.~~

~~If the Company terminates the LSA prior to June 22, 2020, an early exit fee of 2% of the Maximum Amount (plus any additional amounts owed to Crestmark at the time of termination) would be due.~~

2020.

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

~~Under the LSA, interest~~

Interest on the Crestmark ~~Line of Credit~~LOC is at a variable rate based on the ~~Wall Street Journal~~ Prime Rate plus 2%3% with a floor of 5.25%. As of the date of this report, the interest only rate on the Crestmark ~~Line of Credit~~LOC is 6.25%. ~~In addition to~~As of the date of this report, with all fees considered (the interest rate ~~on the Closing Date and on each one-year anniversary date thereafter, the Company will pay Crestmark a~~+ an Annual Loan Fee of ~~0.50%, or~~ $7,500 ~~and~~+ a ~~Monthly Maintenance Fee~~monthly maintenance fee of 0.30% of the actual average monthly ~~loan~~ balance from the prior ~~month will be paid to Crestmark. As of the date of this report,~~month), the interest rate ~~in effect is 10.93% (with all fees; including the weighted annual fee, which is charged~~ on the ~~closing date anniversary and is $7,500 regardless of our balance on the line of credit)~~Crestmark LOC was 12.65%.

In addition to the Loan Fee paid to Crestmark on the Closing Date, the Company had to pay a success fee (i.e. early termination fee) to Imperium in the amount of $50,000 on the Closing Date, and a Broker’s Fee of 5%, or $75,000, to Landmark Pegasus Inc. Prior to the Closing, the Company paid $12,000 in due diligence fees to Crestmark. The Company also incurred $3,000 of its own legal costs related to the Crestmark Line of Credit. With the exception of the early term fee ($50,000) paid to Imperium (which was fully expensed in the year ended December 31, 2015), these expenses are all being amortized over the initial term of the Crestmark Line of Credit, or three years.

The Company recognized ~~$24,000 of this expense~~$17,000 in the nine months ended September 30, 2017 and in the nine months ended September 30, 2016. The Company recognized $8,000 of this expense in the three months ended September 30, 2017 and in the three months ended September 30, 2016.

~~The Company recognized $76,000 of~~ interest expense related to the Crestmark ~~Line of Credit~~LOC in the ~~nine~~six months ended ~~September~~June 30, ~~2017 (of which $24,000 is debt issuance cost amortization recorded as interest expense as a result of the adoption of new accounting standards)~~2020 and ~~$73,000~~$25,000 in interest expense related to the Crestmark LOC in the ~~nine~~six months ended ~~September~~June 30, ~~2016 (of which $26,000 is debt issuance cost amortization recorded as interest expense).~~2019. The Company recognized ~~$25,000 of interest expense in the three months ended September 30, 2017 (of which $8,000 is debt issuance cost amortization recorded as interest expense) and $24,000~~$9,000 in interest expense in the three months ended ~~September~~June 30, ~~2016 (of which $8,000 is debt issuance cost amortization recorded as~~2020 and $12,000 in interest ~~expense).~~

expense in the three months ended June 30, 2019.

Given the nature of the administration of the Crestmark ~~Line of Credit,~~LOC, at ~~September~~June 30, ~~2017,~~2020, the Company had $0 in accrued interest expense related to the Crestmark ~~Line of Credit,~~LOC, and there is $0 in additional availability under the Crestmark ~~Line of Credit.~~

~~As of September~~LOC.

At June 30, ~~2017,~~2020, the balance on the Crestmark ~~Line of Credit~~LOC was ~~$580,000,~~$226,000 and as of December 31, ~~2016,~~2019, the balance on the Crestmark ~~Line of Credit~~LOC was ~~$639,000.~~

$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 ~~Company’s line of credit with Crestmark.~~Crestmark LOC. No terms of the ~~line of credit~~Crestmark LOC were changed in the amendment. The interest rate on the term loan is the WSJ Prime Rate plus 3%; or ~~7.25%~~6.25% as of the date of this report.

The ~~termination date of~~Company incurred minimal interest expense in the ~~Crestmark line of credit was changed from~~six months ended June ~~22, 2018~~30, 2020 related to the Equipment Loan and less than $1,000 in interest expense in the six months ended June ~~22,~~30, 2019. The Company incurred minimal interest expense in the three months ended June 30, 2020 ~~under~~and less than $1,000 in interest expense in the ~~amendments.~~three months ended June 30, 2019. The balance on the ~~equipment~~Equipment Loan is $1,000 at June 30, 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 May 2020. The loan was ~~$34,000~~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 was 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 $21,000 in interest expense related to the 2019 Cherokee Term Loan in the six months ended June 30, 2020 (of which $1,000 is debt issuance cost amortization recorded as interest expense) and $22,000 in interest expense (of which $7,000 was debt issuance costs recorded as interest expense) in the six months ended June 30, 2019. The Company recognized $10,000 in interest expense related to the 2019 Cherokee Term Loan in the three months ended June 30, 2020 (of which $0 is debt issuance cost amortization recorded as interest expense) and $13,000 in interest expense in the three months ended June 30, 2019, (of which $4,000 was debt issuance cost amortization recorded as interest expense). The Company had $14,000 in accrued interest expense related to the 2019 Cherokee Term Loan at June 30, 2020.

The balance on the 2019 Term Loan is $220,000 at June 30, 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.

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 under PPP guidelines after 24 weeks, or in October 2020.

OTHER DEBT INFORMATION

In addition to the debt indicated previously, previous debt facilities (paid in full via refinance or conversion into equity) had financial impact on the six months ended June 30, 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 the three and six months ended June 30, 2019 (of which $2,000 was debt issuance costs recorded as interest expense). As of June 30, 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 is due on October 1, 2020. The annual interest rate of the July 2019 Term Loan is fixed at 7.5% (which represented the WSJ Prime Rate +2.0%).

All amounts loaned under the July 2019 Term Loan were converted into equity as part of a private placement closed in February 2020. 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 June 30, ~~2017.~~

2020 and $10,000 at December 31, 2019.

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 June 30, 2020 and $25,000 at December 31, 2019.

NOTE F – Stock Options and Warrants

The Company currently has two non-statutory stock option plans, the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) and the 2013 Equity Compensation Plan (the “2013 Plan”). Both plans have been adopted by our Board of Directors and approved by our shareholders. Both the 2001 Plan and the 2013 Plan have options available for future issuance. Any common shares issued as a result of the exercise of stock options would be new common shares issued from our authorized issued shares.

During the three months ended ~~September~~June 30, ~~2017 and September 30, 2016,~~2020, the Company issued 0 options to purchase shares of common stock. During the three months ended June 30, 2019, the Company issued options to purchase 20,000 shares of stock ~~options.~~

to each of its non-employee board members as an annual stock option grant (for a total of 80,000 options) under the 2001 Plan.

Stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~the six months ended June 30, ~~2016~~2019 is summarized as follows (the figures contained within the tables below have been rounded to the nearest thousand):

Nine months ended September 30, 2017 Nine months ended September 30, 2016

Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value as of
September 30,
2017

Shares

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value as of
September 30,
2016

Options outstanding at beginning of period 2,107,000 $ 0.13 1,435,000 $ 0.13
Granted 40,000 $ 0.13 830,000 $ 0.11
Exercised 0 NA 0 NA
Cancelled/expired 0 NA (83,000 ) $ 0.19
Options outstanding at end of period 2,147,000 $ 0.13 $ 15,000 2,182,000 0.13 $ 30,000
Options exercisable at end of period 1,647,000 $ 0.13 1,184,000 $ 0.14

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued during the nine months ended September 30, 2017 and September 30, 2016:

Nine months ended
2017 2016
Volatility 81 % 62% - 66 %
Expected term (years) 10 years 10 years
Risk-free interest rate 2.16 % 1.57% - 1.94 %
Dividend yield 0 % 0 %

	Six months ended June 30, 2020			Six months ended June 30, 2019
	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of June 30, 2020	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of June 30, 2019
Options outstanding at beginning of year	2,252,000	$0.14		2,222,000	$0.13
Granted	0	NA		80,000	$0.07
Exercised	0	NA		0	NA
Cancelled/expired	(60,000)	$0.13		0	NA
Options outstanding at end of year	2,192,000	$0.12	$177,000	2,302,000	$0.13	$1,000
Options exercisable at end of year	2,192,000	$0.12		2,142,000	$0.13

The Company recognized ~~$33,000~~$2,000 in share based payment expense in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~$49,000~~$4,000 in share based payment expense in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The Company recognized ~~$10,000~~$1,000 in share based payment expense in the three months ended ~~September~~June 30, ~~2017~~2020 and ~~$13,000~~$1,000 in share based payment expense in the three months ended ~~September~~June 30, ~~2016. As of September~~2019. At June 30, ~~2017,~~2020, there was ~~approximately $16,000~~$0 of total unrecognized ~~compensation cost~~share based payment expense related to ~~non-vested~~ stock ~~options, which vest over time. The cost is expected to be recognized over a period ranging from 3-8 months.~~

options.

Warrants

Warrant activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~the six months ended June 30, ~~2016~~2019 is summarized as follows:

Nine months ended September 30, 2017 Nine months ended September 30, 2016

Shares
Weighted
Average
Exercise
Price
Aggregate
Intrinsic Value
as of
September 30,
2017

Shares
Weighted
Average
Exercise
Price Aggregate
Intrinsic Value
as of
September 30,
2016
Warrants outstanding at beginning of period 2,060,000 $ 0.18 2,385,000 $ 0.17
Granted 0 NA 0 NA
Exercised 0 NA 0 NA
Cancelled/expired 0 NA (325,000 ) $ 0.14
Warrants outstanding at end of period 2,060,000 $ 0.18 $ 0 2,060,000 $ 0.18 $ 0
Warrants exercisable at end of period 2,060,000 $ 0.18 2,060,000 $ 0.18

	Six months ended June 30, 2020			Six months ended June 30, 2019
	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of June 30, 2020	Shares	Weighted Average Exercise Price	Aggregate Intrinsic Value as of June 30, 2019
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)	$0.18		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

In the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016,~~2019, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants outstanding. In the three months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016,~~2019, the Company recognized $0 in debt issuance and deferred finance costs related to the issuance of the above warrants. As of ~~September~~June 30, ~~2017,~~2020, there was $0 of total unrecognized expense.

NOTE G – ~~SUBSEQUENT EVENT~~

Changes in Stockholders’ Deficit

The following table summarizes the changes in stockholders’ deficit for the six month periods ending June 30, 2020 and June 30, 2019:

	Common Stock
	Shares	Amount	Additional Paid in Capital	Accumulated Deficit	Total
Balance – December 31, 2019	32,680,984	$327,000	$21,437,000	(22,554,000)	$(790,000)
Shares issued in connection with private placement*	2,842,856	28,000	171,000		199,000
Shares issued to Cherokee in connection with loan	300,000	3,000	18,000		21,000
Share based payment expense			2,000		2,000
Shares issued for board meeting attendance in lieu of cash	129,636	1,000	30,000		31,000
Net loss				(346,000)	(346,000)
Balance – June 30, 2020	35,953,476	$359,000	$21,658,000	$(22,900,000)	$(883,000)

Balance – December 31, 2018	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	66,408		5,000		5,000
Share based payment expense			4,000		4,000
Net loss				(296,000)	(296,000)
Balance-June 30, 2019	32,545,776	$325,000	$21,425,000	$(22,169,000)	$(419,000)

PRIVATE PLACEMENT

On ~~October~~February 20, ~~2017, the Company received notice that Todd Bailey (“Bailey”~~2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Chaim Davis (the Chairman of our Board of Directors) and certain other accredited investors (the “Investors”), ~~its former Vice President~~pursuant to which we agreed to issue and sell to the Investors in a private placement (the “Private Placement”), 2,842,857 Units (the “Units”).

Each Unit consists of ~~Sales & Marketing~~one (1) share of our common stock, par value $0.01 per share (“Common Share”), at a price per Unit of $0.07 (the “Purchase Price”) for aggregate gross proceeds of approximately $199,000. We received net proceeds of $199,000 from the Private Placement as expenses related to the Private Placement were minimal. We did not utilize a placement agent for the Private Placement. We used the net proceeds for working capital and ~~sales consultant filed~~general corporate purposes.

The July 2019 Term Loan with Chaim Davis, Et Al and the December 2019 Convertible Note (See Note E); totaling $39,000, were both converted into equity as part of a ~~complaint against~~private placement closed in February 2020. Any interest that was incurred under the ~~Company~~July 2019 Term Loan with Chaim Davis, Et in 2019 and up to the conversion in February 2020 was forgiven by the holders and the December 2019 Convertible Note did not bear any interest.

We do not intend to register the Units issued under the Private Placement; rather the Units issued will be subject to the holding period requirements and other conditions of Rule 144.

The Purchase Agreement contains customary representations, warranties and covenants made solely for the benefit of the parties to the Purchase Agreement. Although our Chairman of the Board was an investor in the ~~State~~Private Placement, the pricing of ~~Minnesota seeking deferred commissions of $164,000 that Bailey alleges is owed to him~~the Units was determined by the Company. Bailey is one of the defendants in the litigation discussed previously in Note D. On November 2, 2017, we filed a Notice of Removal in this action to move the matter from state to federal court. On November 9, 2017, we filed a motion to dismiss or, in the alternative to transfer venue and consolidate, the Bailey complaint with our litigation filed previously against Bailey and others (see Note D).

non-affiliate investors.

Item2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis provides information, which we believe is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the Interim Condensed Financial Statements contained herein and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “estimates”, “expects”, “intends”, “projects”, and words of similar import, are forward-looking as that term is defined by the Private Securities Litigation Reform Act of 1995 (“1995 Act”), and in releases issued by the United State Securities and Exchange Commission (the “Commission”). These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the “Safe Harbor” provisions of the 1995 Act. We caution that any forward-looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward-looking statements as a result of various factors, including, but not limited to, any risks detailed herein, in our “Risk Factors” section of our Form 10-K for the year ended December 31, ~~2016,~~2019, 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

~~Our ability~~

Sales in the six months ended June 30, 2020 were positively impacted by the sales and marketing of a Rapid Test to ~~maintain and/~~detect Covid-19 antibodies in whole blood, serum or ~~increase~~plasma (that we are selling via a distribution agreement with Healgen Scientific, LLC; hereinafter referred to as the Covid-19 rapid antibody test) while sales ~~continues~~of our drugs of abuse testing products continued to be negatively impacted by ~~a very cost-competitive market currently dominated~~the price competitiveness in our core markets (government, employment and clinical) and by ~~products made outside of~~the Covid-19 pandemic. In late March 2020, we began marketing the Covid-19 rapid antibody test, manufactured by Healgen Scientific, LLC, in full compliance with the March 16, 2020 Emergency Use Authorization (“EUA”) policy set forth by the United States. Evidenced by the fact that sales in the nine months ended September 30, 2017 decreased again when compared to the same period last year. In addition, our sales have been impacted by actions taken by a former Vice President Sales & Marketing/Sales Consultant. We have initiated litigation against this former employee/consultant related to these actions (see Note D – Litigation/Legal Matters).

During the nine months ended September 30, 2017, we recorded an operating loss of $83,000. This compares to an operating loss of $118,000 in the same period last year. Decreased operating expenses were the primary cause of the improvement in operating loss (relative to sales). Net loss in the nine months ended September 30, 2017 was $252,000, compared to a net loss of $130,000 in the same period last year. This is primarily due to other income of $200,000 (of which $150,000 was related to a tech transfer with a contract manufacturing customer) in the nine months ended September 30, 2016 that did not reoccur in the nine months ended September 30, 2017.

We had cash provided by operating activities of $158,000 in the nine months ended September 30, 2017. This compares to cash provided by operating activities of $185,000 in the nine months ended September 30, 2016.

We continuously examine all expenses in efforts to achieve profitability (when/if sales levels improve) or to minimize losses going forward (if sales continue to decline). Over the course of the last two fiscal years (Fiscal 2016 and Fiscal 2015), we refinanced substantially all of our existing debt at lower interest rates, manufactured our products in a partially consolidated operating environment, and maintained a salary and commission deferral program; all as part of our efforts to decrease expenses and improve cash flow.

The salary and commission deferral program previously referenced continued throughout the nine months ended September 30, 2017. The deferral program currently consists of a 20% salary deferral for our executive officer and our non-executive VP Operations (and previously included the former Vice President Sales & Marketing/Sales Consultant referred to earlier in this report; until his termination in December 2016). As of September 30, 2017, we had total deferred compensation owed of $253,000. Over the course of the program, we repaid portions of the deferred compensation (with $29,000 in payments in the nine months ended September 30, 2017 and $70,000 in payments in the nine months ended September 30, 2016.). As cash flow from operations allows, we intend to continue to make paybacks, however the deferral program is continuing and we expect it will continue for up to another 12 months.

~~We continue to believe that new products and our ability to sell those products in new markets will be a future growth driver. In August 2017, the U.S.~~States Food and Drug Administration ~~granted over-the-counter marketing clearance~~(FDA) and in accordance with an EUA issued by FDA on May 29, 2020. Due to specific regulatory events that occurred from March 2020 until May 2020, we did not record any sales of Covid-19 tests until later in May 2020, although we did take pre-orders (with payments) for ~~our Rapid TOX Cup II (an all-inclusive, urine based drug testing cup). We are hopeful that this marketing clearance will enable us~~Covid-19 tests prior to ~~further penetrate clinical markets as to increase our business with our laboratory alliance.~~

Although our primary markets continue to be extremely price-competitive, this marketing clearance should enable us to garner new sales in clinical markets (such as pain management and drug treatment) because although price is always a factor, quality and accuracy are equally important in these clinical markets.

New assays and product platform developments are also in our future research and development plans. We remain focused on selling our point of collection drugs of abuse tests, and growing our business through direct sales and select distributors.

~~Over the course of the last 12 months, we have reorganized and restructured our sales and marketing department.~~ shipping product.

In addition ~~we brought on new~~to the Covid-19 rapid antibody tests, additional products and ~~service offerings~~services are being offered to diversify our revenue stream through third party relationships. ~~These new products and services include products for the detection of alcohol,~~We currently offer a lower-cost alternative ~~sample options for drug testing (such as lab based oral fluid testing and hair testing) as well as toxicology management services. In addition, we are now offering customers lower-cost alternatives~~ for onsite drug ~~testing. And finally,~~testing, point of care products for certain infectious diseases and alternative drug testing sample methods. With the exception of the lower-cost drug test alternative and Covid-19 rapid antibody tests, these offerings have yet to materially positively impact sales. In the year ended December 31, 2019, we ~~are reviewing~~expanded our contract manufacturing operations with two (2) new customers. Beginning in mid-2019, we can sell oral fluid drugs tests in the employment and insurance markets under a limited exemption set forth by the FDA. Prior to this point, we could only sell our oral fluid drug tests in the forensic market in the United States and to markets outside the United States. We are hopeful that gaining access to this market again will enable us to see revenue growth for our oral fluid drug tests in the future; however, we are uncertain when in the year ended December 31, 2020 we could start seeing significant sales in the employment market given the current global health crises and Covid-19.

We are focusing our efforts on further penetration of markets with new products, including, but not limited to, ~~capitalize on offerings in that area. We have not derived any significant revenue from these new additions; however,~~ the ~~majority of the relationships were only finalized in March/April 2017.~~

~~In September 2016,~~Covid-19 rapid antibody test we are distributing along with other infectious disease products we are offering, and further expanding our contract manufacturing ~~sales began to decrease on an annual basis~~business.

Operating expenses increased $87,000 in the six months ended June 30, 2020 versus the six months ended June 30, 2019 due to ~~a manufacturing shift~~commissions paid on sales of the Covid-19 rapid antibody tests. We continuously make efforts to control operational expenses to ensure they are in line with ~~one~~sales. We have consolidated job responsibilities in certain areas of ~~our contract customers. More specifically,~~the Company as a result of employee retirement and other departures and this has enabled us to implement personnel reductions. Throughout most of the six months ended June 30, 2020, we also maintained a ~~tech transfer with~~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 ~~customer, they are now their own primary supplier with~~length of time the ~~Company moving into a position~~deferral was in place for Waterhouse (almost 7 years) and the balance owed. Until his departure in November 2019, another member of ~~back up~~senior management participated in the program. As of June 30, 2020, we had total deferred compensation owed to these two individuals in the amount of $169,000. We did not make any payments on deferred compensation to Melissa Waterhouse in the six months ended June 30, 2020 or ~~secondary supplier. Although contract manufacturing is not considered a material portion~~in the six months ended June 30, 2019. After the member of ~~our net sales, given this expected change,~~senior management retired in November 2019, we ~~are making efforts~~agreed to ~~identify and secure new contract work and possible diversification alternatives. In connection with~~make payments for the ~~tech transfer, we received a $300,000 tech transfer fee from this customer. We recognized $150,000 related~~deferred comp owed to this ~~tech transfer fee as other income~~individual. In the six months ended June 30, 2020 we made payments totaling $29,000 to this individual; we did not make any payment to this individual in the ~~nine months~~six month ended ~~September~~June 30, ~~2016.~~

2019. We will continue to make payments to the former member of senior management throughout the year ending December 31, 2020 and when/if cash flow from operations allows, we intend to repay/make payments on the deferred compensation owed to Melissa Waterhouse.

Our continued existence is dependent upon several factors, including our ability to: 1) raise revenue levels even though we have ~~suffered~~lost significant accounts and the ~~loss~~market continues to be infiltrated by product manufactured outside of ~~a material~~the United States, 2) further penetrate the markets (in and outside of the United States) for Covid-19 rapid antibody tests, 3) secure new contract ~~that will impact sales starting October 1, 2017, 2)~~manufacturing customers, 4) control operational costs to generate positive cash flows, 3)5) maintain our current credit facilities or refinance our current credit facilities if necessary, and 4)6) if needed, ~~our ability to~~ obtain working capital by selling additional shares of our common stock.

Results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~

2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~

2019

NET SALES:Net sales for ~~the nine~~six months ended ~~September~~June 30, ~~2017 decreased 9.5%~~2020 increased 32.2% when compared to net sales in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. Sales of the Covid-19 rapid antibody tests in the amount of $1,105,000 offset declines in drug test product sales and contract manufacturing sales; both of which were negatively impacted by the Covid-19 pandemic.

We began selling the Covid-19 rapid antibody test in late March 2020; however there were a number of regulatory events that resulted in an inability to get supply of the product from the manufacturing plant in China until May 2020. Once those events were addressed, we were able to receive product and ship orders to customers. The ~~decrease~~Covid-19 rapid antibody test is not a diagnostic test. Recently there have been infection surges in ~~sales~~and outside the United States. As these infection surges occur, there is a ~~result~~higher demand for diagnostic tests (i.e. PCR’s or antigen tests); although the CDC has indicated that antibody testing can help establish a clinical picture when patients have late complications of COVID-19 illness, such as multisystem inflammatory syndrome in children. We believe that the demand for Covid-19 rapid antibody tests will increase over time as the need for data increases; that is, when testing is used as a means to determine the full impact/extent of the ~~anticipated decrease~~virus, its mortality rate, the length of time antibodies remain in ~~contract~~the body and the impact of the antibodies on the virus, as well as a means to monitor the efficacy of vaccines as they are released.

Our core markets for drug test sales are clinical, government and workplace; all of which require a lower amount of testing due to stay at home orders, reduced workforce and reduced budgets. Contract sales were impacted due to strained economic conditions in the territories where the products are sold. In the latter part of the six months ended June 30, 2020, we have started to see some rebound in our drug testing markets, however, given the uncertainty of the markets (as they related to the pandemic), we are unsure at this time whether this rebound will continue.

In addition to the negative sales impact from the customer side, we also experienced delays in materials from vendors due to decreased production levels resulting from stay at home orders and reduced workforce numbers. While our staff continues to work due to the essential nature of our manufacturing, delays in materials resulted in customer backorders for specific products that required the materials in question.

We do expect the marketing of the Covid-19 test to further positively impact our revenues in the year ending December 31, 2020, however we do not yet know the full extent of the impact of COVID-19 test sales on our business, our financial condition and/or results of operations. The extent to which sales of the COVID-19 test may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments which are evolving and uncertain including the duration of the outbreak and the need for antibody testing in the future.

As the market for Covid-19 testing develops over time, we are also reviewing alternative products to offer our customers; products such as PCR tests, antigen tests and tests that use new (alternative) samples (such as saliva or breath).

GROSS PROFIT: Gross profit decreased to 31.0% of sales in the ~~nine~~six months ended ~~September~~June 30, ~~2017 when~~2020 compared to the nine months ended September 30, 2016. More specifically, contract manufacturing sales declined by approximately $222,000 (of which $197,000 was to the customer involved with the tech transfer). The remaining $195,000 in decreased sales resulted primarily from a decrease in government sales (most of which is due to the loss of an account in the fourth quarter of the year ended December 31, 2016). These declines were partially offset by an increase in national accounts and international sales to Latin and South America.

~~GROSS PROFIT:~~~~Gross profit in the nine months ended September 30, 2017 decreased to 42.7% of net sales compared to 44.2%~~32.5% of net sales in the ~~nine~~six months ended ~~September~~June 30, ~~2016. While~~2019. Although net sales increased, we continued to experience inefficiencies in our drug test manufacturing. Manufacturing inefficiencies typically occur when revenues decline because certain overhead costs are ~~still maintaining manufacturing efficiencies, there~~fixed and cannot be reduced; if fewer testing strips are produced and fewer products are assembled this results in higher costs being expensed through cost of goods. Lower product pricing to customers also negatively impacts gross profit. We are continually taking actions to adjust our production schedules to try to mitigate future inefficiencies and we closely examine our gross profit margins on our manufactured products.

Lower gross margins from drug test sales were ~~certain periods within~~partially offset by higher margins related to Covid-19 rapid antibody tests. It is uncertain whether the ~~nine~~current profit margins of Covid-19 test sales will continue at the present rate. Various factors can affect market pricing (such as an increased number of EUA issued products and their availability to customers, and costs of materials to manufacture the Covid-19 tests).

Operating expenses increased 9.3% in the six months ended ~~September~~June 30, ~~2017 that we produced less testing strips due to the product sales mix.~~

~~OPERATING EXPENSES:~~ ~~Operating expenses decreased 14.0% in the nine months ended September 30, 2017~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. Expenses in research~~2019. Research & Development and ~~development~~Selling and ~~selling~~Marketing expenses increased while General and ~~marketing decreased while general and administrative expense increased.~~Administrative expenses decreased. More specifically:

Research and development (“R&D”)

R&D expense ~~decreased 30.9%~~increased 33.3% when comparing the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 with the ~~same period last year. Decreased~~six months ended June 30, 2019. Increased FDA compliance costs ~~associated~~(associated with ~~the~~ timing of ~~actions taken~~facility registration fees) and increased costs related to ~~our FDA marketing clearance~~supplies and materials were the primary reasons for ~~Rapid TOX Cup II were partially offset by an~~the increase in ~~supplies and materials. Our~~expenses. All other expenses remained relatively consistent when comparing the two six-month periods. In the six months ended June 30, 2020,our R&D department ~~continues to focus~~primarily focused their efforts on the enhancement of our current products and the ~~development~~validation of new materials for our drug testing ~~assays, new product platforms and the evaluation of contract manufacturing opportunities.~~

products.

Selling and marketing

Selling and marketing expense in the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased 35.7%~~2020 increased 45.7% when compared to the ~~same period last year. One~~six months ended June 30, 2019. The primary reason for the increase in selling and marketing expense is commissions paid related to sales of the primary reasons for the decline in expenses is decreased commission expense. In the latter part of December 2016, we terminated our relationship with a sales consultant due to competitive issues that arose during our relationship; we subsequently filed a complaint against this consultant in the early part of 2017 (See Note D – Litigation/Legal Matters).Covid-19 rapid antibody test. In addition to commissions, employee benefits costs and increase shipping/freight costs contributed to the ~~decline in commissions,~~increase. These increases were partially offset by decreased sales ~~salaries~~travel (as a result of the Covid-19 pandemic) and ~~benefits, customer relations expense, postage~~lower auto allowance costs.

In the six months ended June 30, 2020, we continued selling and marketing ~~consulting expenses decreased. These declines were minimally offset by an increase in costs associated with trade show attendance. Our direct sales force continues to focus their~~ efforts ~~in our target markets, which include, but are not limited to, Workplace, Government, and Clinical (i.e. pain management and drug treatment) and in the forensic and international markets~~ for our ~~oral fluid product. Our sales force has also started~~own drug tests and we continued to ~~promote~~take actions to secure new contract manufacturing customers. In addition, we promoted lower cost alternatives for onsite drug testing and point of care products ~~and service offerings to diversify our revenue stream. These new products and services~~for infectious disease (through relationships with third parties) ~~include products for~~. The addition of these offerings did not result in increased selling and marketing expenses. In late March 2020, we also started selling a Covid-19 rapid antibody test from Healgen Scientific, LLC via a distribution relationship. As of result of this new product offering, we recorded increased sales commission rates. We are also taking efforts to increase the ~~detection~~size of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) as well as toxicology management services, and lower-cost alternatives for onsite drug testing. And finally, with the FDA marketing clearance granted in August 2017, our sales ~~force is also promoting~~team to further penetrate the ~~new~~Covid-19 market ~~application of the product~~and drug test markets. We will continue to take all steps necessary to ensure selling and marketing expenditures are in ~~the clinical market.~~

line with sales.

General and administrative (“G&A”)

G&A expense ~~increased 4.3%~~decreased 3.8% in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 when compared to G&A expense in the ~~same period last year. Increases in~~six months ended June 30, 2019. Decreased costs associated with administrative and quality assurance employees (due to fewer employees and/or the consolidation of job responsibilities), insurance costs, legal fees (due to settlement of the ~~initiation of litigation in the early part of 2017; see Note D – Litigation/Legal Matters), and accounting fees~~ABMC v. Bailey litigation) were ~~partially~~almost entirely offset by ~~reduced expenses~~increased costs related to ~~investor relations~~meetings of the Board of Directors and bank service fees (due to ~~decreased travel), telephone and non-cash compensation (I.e. share based payment expense; due~~increased costs related to ~~less options outstanding subject to amortization)~~extension of credit facilities). Share based payment expense ~~was $33,000~~also declined to $2,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $49,000~~2020 from $3,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

2019 due to less stock option amortization.

Other income and expense: Other expense of $91,000 in the six months ended June 30, 2020 consisted of interest expense associated with our credit facilities (our line of credit, equipment loan with Crestmark Bank and our two loans with Cherokee Financial, LLC). Other income of $35,000 in the six months ended June 30, 2019 consisted of interest expense associated with our credit facilities (our line of credit, equipment loan with Crestmark Bank, and our two loans with Cherokee Financial, LLC), offset by other income related to gains on certain liabilities.

Results of operations for the three months ended ~~September~~June 30, ~~2017~~

2020 compared to the three months ended ~~September~~June 30, ~~2016~~

2019

NET SALES:Net sales for the three months ended ~~September~~June 30, ~~2017 declined 4.4%~~2020 increased 83.5%, when compared to net sales in the three months ended ~~September~~June 30, ~~2016. The decrease~~2019. Sales of the Covid-19 rapid antibody tests in the amount of $1,105,000 offset declines in drug test product sales ~~results from a decrease in government sales (most~~and contract manufacturing sales; both of which were negatively impacted by the Covid-19 pandemic.

We began selling the Covid-19 rapid antibody test in late March 2020; however there were a number of regulatory events that resulted in an inability to get supply of the product from the manufacturing plant in China until May 2020. Once those events were addressed, we were able to receive product and ship orders to customers. The Covid-19 rapid antibody test is not a diagnostic test. Recently there have been infection surges in and outside the United States. As these infection surges occur, there is a higher demand for diagnostic tests (i.e. PCR’s or antigen tests); although the CDC has indicated that antibody testing can help establish a clinical picture when patients have late complications of COVID-19 illness, such as multisystem inflammatory syndrome in children. We believe that the demand for Covid-19 rapid antibody tests will increase over time as the need for data increases; that is, when testing is used as a means to determine the full impact/extent of the virus, its mortality rate, the length of time antibodies remain in the body and the impact of the antibodies on the virus, as well as a means to monitor the efficacy of vaccines as they are released.

Our core markets for drug test sales are clinical, government and workplace; all of which require a lower amount of testing due to stay at home orders, reduced workforce and reduced budgets. Contract sales were impacted due to strained economic conditions in the territories where the products are sold. In the latter part of the three months ended June 30, 2020, we have started to see some rebound in our drug testing markets, however, given the uncertainty of the markets (as they related to the pandemic), we are unsure at this time whether this rebound will continue.

In addition to the negative sales impact from the customer side, we also experienced delays in materials from vendors due to decreased production levels resulting from stay at home orders and reduced workforce numbers. While our staff continues to work due to the ~~loss~~essential nature of ~~an account~~our manufacturing, delays in materials resulted in customer backorders for specific products that required the materials in question.

We do expect the marketing of the Covid-19 test to further positively impact our revenues in the ~~fourth quarter~~year ending December 31, 2020, however we do not yet know the full extent of ~~2016),~~the impact of COVID-19 test sales on our business, our financial condition and/or results of operations. The extent to which sales of the COVID-19 test may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments which are evolving and ~~a decline~~uncertain including the duration of the outbreak and the need for antibody testing in ~~contract manufacturing sales. These declines were partially offset by increased sales~~the future.

As the market for Covid-19 testing develops over time, we are also reviewing alternative products to ~~Latin America~~offer our customers; products such as PCR tests, antigen tests and ~~South America and to national accounts.~~

tests that use new (alternative) samples (such as saliva or breath).

GROSS PROFIT:Gross profit ~~decreased~~increased to ~~41.8%~~33.1% of net sales in the three months ended ~~September~~June 30, ~~2017 compared to gross profit of 43.1%~~2020 from 32.0% of net sales in the three months ended ~~September~~June 30, ~~2016. While~~2019. As a result of decreased sales, we continued to experience manufacturing inefficiencies. Manufacturing inefficiencies typically occur when revenues decline because certain overhead costs are ~~still maintaining manufacturing efficiencies, there were certain periods within the three months ended September 30, 2017 that we produced less~~fixed and cannot be reduced; if fewer testing strips ~~due~~are produced and fewer products are assembled this results in higher costs being expensed through cost of goods. Lower product pricing to customers also negatively impacts gross profit. We are continually taking actions to adjust our production schedules to try to mitigate future inefficiencies and we closely examine our gross profit margins on our manufactured products.

Lower gross margins from drug test sales were partially offset by higher margins related to Covid-19 rapid antibody tests. It is uncertain whether the ~~product~~current profit margins of Covid-19 test sales ~~mix.~~

will continue at the present rate. Various factors can affect market pricing (such as an increased number of EUA issued products and their availability to customers, and costs of materials to manufacture the Covid-19 tests).

OPERATING EXPENSES: Operating expenses ~~decreased 16.4%~~increased $105,000 in the three months ended ~~September~~June 30, ~~2017,~~2020 compared to the three months ended ~~September~~June 30, ~~2016. Expenses in~~2019. Selling and Marketing expense increased while research and development remained relatively unchanged and ~~selling and marketing decreased while~~ general and administrative expense ~~increased.~~decreased. More specifically:

Research and development (“R&D”)

R&D expense ~~decreased 7.1%~~was relatively unchanged when comparing the three months ended ~~September~~June 30, ~~2017~~2020 with the three months ended ~~September~~June 30, ~~2016. Decreased supplies and materials costs were partially offset by increased employee benefit costs. Our~~2019 as all expenses remained consistent with the prior year. In the three months ended June 30, 2020, our R&D department ~~continues to focus~~primarily focused their efforts on the enhancement of our current products and the ~~development~~validation of new materials for our drug testing ~~assays, new product platforms and the evaluation of contract manufacturing opportunities.~~

products.

Selling and marketing

Selling and marketing expense in the three months ended ~~September~~June 30, ~~2017 decreased 42.2%~~2020 increased 115.0% when compared to the three months ended ~~September~~June 30, ~~2016. One~~2019. . The primary reason for the increase in selling and marketing expense is commissions paid related to sales of the primary reasons for the decline in expenses is related to decreased commission expense. In the latter part of December 2016, we terminated our relationship with a sales consultant due to competitive issues that arose during our relationship; we subsequently filed a complaint against this consultant in the early part of 2017 (See Note D – Litigation/Legal Matters).Covid-19 rapid antibody test. In addition to commissions, shipping/freight costs contributed to the ~~decline in commissions, sales salaries~~increase. These increases were partially offset by decreased attendance at trade shows (as a result of the Covid-19 pandemic) and ~~benefits, customer relations expense,~~lower auto allowance costs.

In the three months ended June 30, 2020, we continued selling and marketing ~~consulting expenses decreased. These declines were minimally offset by an increase sales travel expense. Our direct sales force continues to focus their~~ efforts ~~in our target markets, which include, but are not limited to, Workplace, Government, and Clinical (i.e. pain management and drug treatment) and in the forensic and international markets~~ for our ~~oral fluid product. Our sales force has also started~~own drug tests and we continued to ~~promote~~take actions to secure new contract manufacturing customers. In addition, we promoted lower cost alternatives for onsite drug testing and point of care products ~~and service offerings to diversify our revenue stream. These new products and services~~for infectious disease (through relationships with third parties) ~~include products for~~. The addition of these offerings did not result in increased selling and marketing expenses. In late March 2020, we also started selling a Covid-19 rapid antibody test from Healgen Scientific, LLC via a distribution relationship. As of result of this new product offering, we recorded increased sales commission rates. We are also taking efforts to increase the ~~detection~~size of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) as well as toxicology management services, and lower-cost alternatives for onsite drug testing. And finally, with the FDA marketing clearance granted in August 2017, our sales ~~force is also promoting~~team to further penetrate the ~~new~~COvid-19 market ~~application of the product~~and drug test markets. We will continue to take all steps necessary to ensure selling and marketing expenditures are in ~~the clinical market.~~

line with sales.

General and administrative (“G&A”)

G&A expense ~~increased 2.2%~~decreased 5.1% in the three months ended ~~September~~June 30, ~~2017~~2020 when compared to G&A expense in the three months ended ~~September~~June 30, ~~2016. Increased~~2019. Decreased annual meeting costs (as we have not yet had out annual meeting of shareholders due to the pandemic), decreased costs related to administrative employees, insurance costs, fees associated with our ISO audit (due to timing of audit) and lower legal fees ~~(due to~~(as a result of the ~~initiation~~settlement of ~~litigation in~~ the ~~early part of 2017; see Note D – Litigation/Legal Matters)~~ABMC v. Bailey litigation) were partially offset by ~~reduced expenses~~increased bank service fees (due to increased costs related to ~~telephone, consulting fees, brokers fees and non-cash compensation (i.e. share based payment expense; due to less options outstanding subject to amortization)~~extension of credit facilities). Share based payment expense was ~~$10,000~~relatively unchanged in the three months ended ~~September~~June 30, ~~2017~~2020 when compared to ~~$13,000~~the three months ended June 30, 2019.

Other income and expense:

Other expense of $37,000 in the three months ended ~~September~~June 30, ~~2016.~~

2020 consisted of interest expense associated with our credit facilities (our line of credit, equipment loan with Crestmark Bank and our two loans with Cherokee Financial, LLC). Other income of $101,000 in the three months ended June 30, 2019 consisted of interest expense associated with our credit facilities (our line of credit, equipment loan with Crestmark Bank, and our two loans with Cherokee Financial, LLC), offset by other income related to gains on certain liabilities.

Liquidity and Capital Resources as of ~~September~~June 30, ~~2017~~

2020

Our cash requirements depend on numerous factors, including but not limited to manufacturing costs (such as raw materials, equipment, etc.), selling and marketing initiatives, product development activities, regulatory costs, legal costs, ~~associated with current litigation,~~ and effective management of inventory levels and production levels in response to sales history and forecasts. We expect to devote capital resources related to ~~continue~~ selling and marketing ~~initiatives and product development/research and development activities.~~initiatives. We are examining other growth opportunities including strategic alliances. Given our current and historical cash position, ~~we expect~~ such activities would need to be funded from the issuance of additional equity or additional credit borrowings, subject to market and other conditions.

On February 20, 2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Chaim Davis (the Chairman of our Board of Directors) and certain other accredited investors (the “Investors”), pursuant to which we agreed to issue and sell to the Investors in a private placement (the “Private Placement”), 2,842,856 Units (the “Units”). Each Unit consisted of one (1) share of our common stock, par value $0.01 per share (“Common Share”), at a price per Unit of $0.07 (the “Purchase Price”) for aggregate gross proceeds of approximately $199,000. We received net proceeds of $199,000 from the Private Placement as expenses related to the Private Placement were minimal. We did not utilize a placement agent for the Private Placement. We used the net proceeds for working capital and general corporate purposes. The Company does not intend to register the Units issued under the Private Placement; rather the Units issued will be subject to the holding period requirements and other conditions of Rule 144.

Our financial statements for the year ended December 31, ~~2016~~2019 were prepared assuming we will continue as a going ~~concern.~~

concern, which assumes the realization of assets and the satisfaction of liabilities in the normal course of business. Our current cash balances, together with cash generated from future operations and amounts available under our credit facilities may not be sufficient to fund operations through ~~November 2018.~~ September 2021. At June 30, 2020, we have negative Stockholders’ Equity of $883,000.

Our ~~current~~loan and security agreement and 2019 Term Note with Cherokee for $900,000 and $200,000, respectively, expired on February 15, 2020; however, the credit facilities were extended for another 12 months, or until February 15, 2021 (which is less than 12 months from the date of this report). Our total debt at June 30, 2020 with Cherokee Financial, LLC is $1,120,000. We do not expect cash from operations within the next 12 months to be sufficient to pay the amounts due under these credit facilities, which is due in full on February 15, 2021. We are currently looking at alternatives to further extend or refinance these facilities.

Through the six months ended June 30, 2020, we had a line of credit ~~expires~~with Crestmark Bank. The maximum availability on the line of credit through most of the six months ended June 30, 2020 was $1,500,000 but, it was reduced on June 22, 2020 to $1,000,000 under the amendment and ~~has a maximum availability~~extension of ~~$1,500,000.~~the line of credit. 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 ~~is based upon~~(historically) have been significantly less than the balance of our accounts receivable and inventory. As of September 30, 2017, based on our availability calculation, there were no additional amounts available under our line of credit because we draw any balance available on a daily basis.maximum availability. If sales levels continue to decline, ~~further,~~ we will have further reduced availability on our line of credit due to decreased accounts receivable balances. ~~In addition, we would expect our inventory levels to decrease if sales levels decline further, which would result in further reduced availability~~As of June 30, 2020, based on our availability calculation, there were no additional amounts available under the line of ~~credit.~~ credit because we draw any balance available on a daily basis.

If availability under our line of credit and cash received from prepaid Covid-19 rapid antibody test sales is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to obtain additional credit facilities or sell additional equity securities, or delay capital ~~expenditures.~~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 ~~September~~June 30, ~~2017,~~2020, we had the following debt/credit facilities:

Facility Debtor Balance as of September 30, 2017
Loan and Security Agreement Cherokee Financial, LLC $ 1,050,000
Revolving Line of Credit Crestmark Bank $ 580,000
Capital Equipment Loan Crestmark Bank $ 34,000

Facility	Debtor	Balance as of June 30, 2020
Loan and Security Agreement	Cherokee Financial, LLC	$900,000
Revolving Line of Credit	Crestmark Bank	$226,000
Equipment Loan	Crestmark Bank	$1,000
Term Loan	Cherokee Financial, LLC	$220,000
PPP Loan	Crestmark Bank, SBA	$332,000
Total Debt		$1,679,000

Working Capital

~~Our~~ Deficit

At June 30, 2020, we were operating at a working capital ~~was $664,000 at September 30, 2017; this is~~deficit of $1,623,000. This compares to a ~~decrease of $129,000 when compared to~~ working capital deficit of ~~$793,000~~$1,239,000 at ~~December 31, 2016.~~June 30, 2019. This ~~decrease~~increase in our working capital isdeficit was primarily ~~the~~a result of ~~decreased sales.~~additional financing, including the $332,000 PPP Loan. We have historically satisfied working capital requirements through cash from operations and bank debt.

Dividends

We have never paid any dividends on our common shares and anticipate that all future earnings, if any, will be retained for use in our business, and therefore, we do not anticipate paying any cash dividends.

Cash Flow, Outlook/Risk

In the six months ended June 30, 2020, we had a net loss of $346,000 and net cash used by operating activities of $158,000. Our cash position increased from $99,000 at June 30, 2019 to $225,000 at June 30, 2020 as a result of prepayments received from presales of Covid-19 rapid antibody tests, the private placement in the amount of $199,000 closed in February 2020 and proceeds from the PPP loan.

In other efforts to reduce cash requirements, we have issued shares of restricted stock in lieu of cash. More specifically, we issued 300,000 restricted shares of common stock to Cherokee in connection with a February 2020 debt extension and 129,636 restricted shares of common stock to board members in connection with their attendance at a meeting of our Board of Directors in the six months ended June 30, 2020. We doexpect to issue additional restricted shares of common stock for attendance at meetings of the Board of Directors.

Our ability to repay our current debt may also be affected by general economic, financial, competitive, regulatory, legal, business and other factors beyond our control, including those discussed herein. If we are unable to meet our credit facility obligations, we would be required to raise money through new equity and/or debt financing(s) and, there is no assurance that we would be able to find new financing, or that any new financing would be at favorable terms.

On June 22, 2020, we extended the Crestmark LOC until June 22, 2021. All terms and conditions of the Crestmark LOC remain unchanged under the extension period with the exception of the following, 1) the maximum availability under the Crestmark LOC was reduced from $1,500,000 to $1,000,000, 2) availability under the Crestmark LOC 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.

In March 2020, the World Health Organization declared Covid-19 to be a pandemic. Covid-19 has spread throughout the globe, including in the State of New York where our headquarters are located, and in the State of New Jersey where our strip manufacturing facility is located. In response to the outbreak, we have followed the guidelines of the U.S. Centers for Disease Control and Prevention (“CDC”) and applicable state government authorities to protect the health and safety of our employees, families, suppliers, customers and communities. While these existing measures and, Covid-19 generally, have not ~~expect significant increases~~materially disrupted our business operations to date, any future actions necessitated by the Covid-19 pandemic may result in ~~expenses during~~disruption to our business. While we have not seen a disruption in our business operations to date, our drug testing sales have been negatively impacted by the ~~year ending December 31, 2017~~pandemic.

While the Covid-19 pandemic continues to rapidly evolve and as ~~evidenced by~~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 ~~operating expenses for~~business. The extent to which the ~~year ended December 31, 2016 (“Fiscal 2016”),~~outbreak impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity or longevity of the Covid-19 pandemic and actions that may be taken to contain it or treat its impact, among others. If we, ~~have taken steps (and~~our customers or suppliers experience (or in some cases continue to experience) prolonged shutdowns or other business disruptions, our business, liquidity, results of operations and financial condition are likely to be materially adversely affected, and our ability to access the capital markets may be limited.

We will continue to take ~~steps)~~steps to ensure that operating expenses and manufacturing costs remain in line with sales levels. ~~In 2017, we will continue~~We have consolidated job responsibilities in certain areas of the Company and this enabled us to ~~focus~~implement personnel reductions. Sales declines result in lower cash balances and lower availability on our efforts on improving sales. Such steps include, but are not limited to, further penetrating the Clinical markets such as pain management and drug treatment now that our Rapid TOX Cup II received OTC marketing clearance from FDA in August 2017 and entering into strategic relationships with third parties to offer additional products and services to our customers. This includes products for the detectionline of alcohol, alternative sample options for drug testing (such as lab based oral fluid testing and hair testing) as well as toxicology management services, and lower-cost alternatives for onsite drug testing.credit at times. We are ~~hopeful that these additional product~~promoting new products and service offerings ~~will have~~to diversify our revenue stream, including a ~~positive impact on sales~~Covid-19 rapid antibody test. We also secured the business of two (2) new contract manufacturing customers in the future. In the nine months ended September 30, 2017, we utilized cash resources to complete our FDA marketing application process (which resulted in a marketing clearance in August 2017) and to take other steps that could result in increased sales. In addition, cash resources have been utilized to initiate litigation against Premier Biotech Inc., and its President, Todd Bailey (a former Vice President and sales consultant of the Company), and Peckham Vocational Industries, Inc., among others. While we expect additional cash resources to be used related to the ligation, we do not expect additional expenditures related to marketing clearances in the year ending December 31, 2017.

None of these efforts related to sales, or any other efforts being taken related to other operational activities, resulted in a substantial increase in cash requirements in the nine months ended September 30, 2017. In the second quarter of the year ended December 31, ~~2016, we received our final payment of $150,000 related~~2019. As the market for Covid-19 testing continues to ~~a tech transfer with one of our contract-manufacturing customers. The loss of a state agency contract starting October 1, 2017 is expected to have a material impact on our sales. If~~develop over time, we are ~~unable~~also reviewing alternative products to ~~recoup this loss (which has historically been 10-15% of~~offer our ~~annual sales), it is possible~~customers; products such as PCR tests, antigen tests and tests that our current line of credit (and advance rates) would not be adequate for our cash requirements in the year ending December 31, 2017, especially if expense levels do not decline in line with the sales decline and especially considering the costs related to litigation. In addition, extraordinary events could occur that would result in unexpected, increased expenditures.

~~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~~use new (alternative) samples (such as saliva or debt financing, or 3) 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.

Our ability to repay our current debt will depend primarily upon our future operating performance, which may be affected by the loss of a material contract in October 2017, general economic, financial, competitive, regulatory, business and other factors beyond our control, including those discussed herein. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment of any indebtedness we may have.

Our failure to comply with the covenant under our revolving credit facility could result in an event of default, which, if not cured or waived, could result in the Company being required to pay higher costs associated with the indebtedness. breath).

If we are forced to refinance our debt on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. There is also no assurance that we could obtain alternative debt facilities. We may also be forced to pursue one or more alternative strategies, such as restructuring, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be implemented on satisfactory terms, if at all.

If events and circumstances occur such that 1) we do not meet our current operating plans to increase sales, 2) we are unable to raise sufficient additional equity or debt financing, 3), we are unable to utilize equity as a form of payment in lieu of cash, or 4) our credit facilities are insufficient or not available, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance.

Item 3. ~~Quantitative~~Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this item.

Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

~~(a)~~

~~Evaluation of Disclosure Controls and Procedures~~

Our Chief Executive Officer (Principal Executive Officer)/Chief Financial Officer (Principal Financial Officer), together with other members of management, has reviewed and evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this review and evaluation, our Principal Executive Officer/Principal Financial Officer concluded that our disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

~~(b)~~

~~Changes in Internal Control Over Financial Reporting~~

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. ~~Legal~~Legal Proceedings

See Part I, Item 1, Note D in the Notes to ~~the~~ interim condensed Financial Statements included in this report for a description of pending legal proceedings in which we may be a party.

Item 1A. ~~Risk~~Risk Factors

There have been no material changes to our risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, ~~2016, except for those disclosures made in our Form 10-Q for the three and six months ended June 30, 2017 filed with the Commission on August 14, 2017.~~

2019.

Item 2. ~~Unregistered~~Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~

In the three months ended June 30, 2020, we issued 106,383 restricted shares of common stock to three (3) of our board members in connection with their attendance at three (3) meetings of the Board of Directors. Each member was issued 35,461 restricted common shares as compensation for their attendance at the meetings of the Board of Directors held in the three months ended June 30, 2020. The issuance of stock is in accordance with the director compensation structure approved by the Board of Directors on March 22, 2018 (as indicated in the Company’s Proxy Statement filed with the Commission on April 18, 2018).

Item 3. ~~Defaults~~Defaults Upon Senior Securities

None.

Item 4. ~~Mine~~Mine Safety Disclosures

Not applicable.

Item 5. ~~Other~~Other Information

None.

Item 6. ~~Exhibits~~

Exhibits

	31.1/31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief Financial Officer

	32.1/32.2	Certification of the Chief Executive Officer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	101	The following materials from our Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2020, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheet, (ii) Condensed Statements of Income (iii) Condensed Statements of Cash Flows, and (iv) Notes to Condensed Financial Statements.

S~~SIGNATURES~~

IGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN BIO MEDICA CORPORATION (Registrant)
	~~(Registrant)~~

	By:	/s/ Melissa A. Waterhouse
		Melissa A. Waterhouse
		Chief Executive Officer (Principal Executive Officer)
	Principal Financial Officer
	Principal Accounting Officer

~~Dated: November 14, 2017~~

Dated: September 15, 2020

	New York		14-1702188
	(State or other jurisdiction of		~~(I.R.S. Employer~~
	incorporation or organization)		(I.R.S. Employer Identification No.)

	~~AMERICAN BIO MEDICA CORPORATION~~
	~~(Exact name of registrant as specified in its charter)~~

	September 30,			December 31,
	2017			2016
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	150,000		$	156,000
Accounts receivable, net of allowance for doubtful accounts of $51,000 at September 30, 2017 and $49,000 at December 31, 2016		521,000			556,000
Inventory, net of allowance of $453,000 at September 30, 2017 and $449,000 at December 31, 2016		1,462,000			1,582,000
Prepaid expenses and other current assets		49,000			92,000
Total current assets		2,182,000			2,386,000

Property, plant and equipment, net		810,000			824,000
Patents, net		107,000			93,000
Other assets		21,000			21,000
Deferred finance costs – line of credit, net		23,000			47,000
Total assets	$	3,143,000		$	3,371,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	306,000		$	304,000
Accrued expenses and other current liabilities		287,000			276,000
Wages payable		257,000			299,000
Line of credit		580,000			639,000
Current portion of long-term debt		87,000			75,000
Total current liabilities		1,517,000			1,593,000

Long-term debt, net of current portion and deferred finance costs		748,000			753,000
Other long-term liabilities		22,000			0
Total liabilities		2,287,000			2,346,000

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at September 30, 2017 and December 31, 2016		0			0
Common stock; par value $.01 per share; 50,000,000 shares authorized; 29,297,333 issued and outstanding at September 30, 2017 and 28,842,788 issued and outstanding at December 31, 2016		293,000			288,000
Additional paid-in capital		21,115,000			21,037,000
Accumulated deficit		(20,552,000	)		(20,300,000	)
Total stockholders’ equity		856,000			1,025,000
Total liabilities and stockholders’ equity	$	3,143,000		$	3,371,000

	For The Nine Months Ended
	September 30,
	2017			2016

Net sales	$	3,975,000		$	4,392,000

Cost of goods sold		2,279,000			2,441,000

Gross profit		1,696,000			1,951,000

Operating expenses:
Research and development		94,000			136,000
Selling and marketing		531,000			827,000
General and administrative		1,154,000			1,106,000
		1,779,000			2,069,000

Operating loss		(83,000	)		(118,000	)

Other income / (expense):
Interest expense		(204,000	)		(210,000	)
Other income, net		34,000			200,000
		(170,000	)		(10,000	)

Net loss before tax		(253,000	)		(128,000	)

Income tax benefit / (expense)		1,000			(2,000	)

Net loss	$	(252,000	)	$	(130,000	)

Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)

Weighted average number of shares outstanding – basic & diluted		29,129,168			27,056,216

	September 30, 2017			December 31, 2016

Raw Materials	$	1,053,000		$	1,028,000
Work In Process		438,000			385,000
Finished Goods		424,000			618,000
Allowance for slow moving and obsolete inventory		(453,000	)		(449,000	)
	$	1,462,000		$	1,582,000

	September 30, 2017		September 30, 2016

Warrants		2,060,000		2,060,000
Options		2,147,000		2,182,000
		4,207,000		4,242,000

	June 30, 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 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 June 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 12.65%.	226,000	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% as of the date of this report.	1,000	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 year (or 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.	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.	0	10,000
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.	0	25,000
April 2020 PPP Loan with Crestmark: 2 year SBA loan at 1% interest with first payment due October 2020. Company intends to apply for forgiveness of loan under PPP guidelines after 24 weeks, or in October 2020.	332,000	0
	$1,679,000	$1,479,000
Less debt discount & issuance costs (Cherokee Financial, LLC loans)	0	(17,000)
Total debt, net	$1,679,000	$1,462,000

Current portion	$1,679,000	$354,000
Long-term portion, net of current portion	$0	$1,125,000

	Nine months ended September 30, 2017						Nine months ended September 30, 2016
	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value as of September 30, 2017		Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value as of September 30, 2016
Options outstanding at beginning of period		2,107,000	$	0.13				1,435,000		$	0.13
Granted		40,000	$	0.13				830,000		$	0.11
Exercised		0		NA				0			NA
Cancelled/expired		0		NA				(83,000	)	$	0.19
Options outstanding at end of period		2,147,000	$	0.13	$	15,000		2,182,000			0.13	$	30,000
Options exercisable at end of period		1,647,000	$	0.13				1,184,000		$	0.14

	Nine months ended
	2017			2016
Volatility		81	%		62% - 66	%
Expected term (years)		10 years			10 years
Risk-free interest rate		2.16	%		1.57% - 1.94	%
Dividend yield		0	%		0	%

Facility	Debtor	Balance as of September 30, 2017
Loan and Security Agreement	Cherokee Financial, LLC	$	1,050,000
Revolving Line of Credit	Crestmark Bank	$	580,000
Capital Equipment Loan	Crestmark Bank	$	34,000