☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|
☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
88-0425691
|
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(State or other jurisdiction of incorporation)
|
(IRS Employer Identification Number)
|
Large accelerated filer ☐
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Accelerated filer
☒
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Non-accelerated filer ☐ (Do not check if a smaller reporting company)
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Smaller reporting company ☐
|
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Emerging growth company ☐
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Page
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||
Part I. FINANCIAL INFORMATION:
|
||
Item 1. Financial Statements:
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||
2
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||
3
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4
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5
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6
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15
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | 24 | |
24
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Part II. OTHER INFORMATION:
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25
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25
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26
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28
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EXHIBITS
|
|
March 31, 2018
|
March 31, 2017
|
|||||||
REVENUES:
|
||||||||
Net product sales
|
$
|
6,398,227
|
$
|
5,427,427
|
||||
License and royalty revenue
|
201,931
|
100,000
|
||||||
R&D, milestone and grant revenue
|
1,116,974
|
797,740
|
||||||
TOTAL REVENUES
|
7,717,132
|
6,325,167
|
||||||
COSTS AND EXPENSES:
|
||||||||
Cost of product sales
|
4,117,779
|
3,219,215
|
||||||
Research and development expenses
|
1,847,102
|
2,246,572
|
||||||
Selling, general and administrative expenses
|
2,406,569
|
2,488,337
|
||||||
8,371,450
|
7,954,124
|
|||||||
LOSS FROM OPERATIONS
|
(654,318
|
)
|
(1,628,957
|
)
|
||||
OTHER INCOME (EXPENSE):
|
||||||||
Interest income
|
5,044
|
13,382
|
||||||
Interest expense
|
(3,069
|
)
|
-
|
|||||
1,975
|
13,382
|
|||||||
LOSS BEFORE INCOME TAXES
|
(652,343
|
)
|
(1,615,575
|
)
|
||||
Income tax provision
|
-
|
-
|
||||||
NET LOSS
|
$
|
(652,343
|
)
|
$
|
(1,615,575
|
)
|
||
Basic loss per share
|
$
|
(0.05
|
)
|
$
|
(0.13
|
)
|
||
Diluted loss per share
|
$
|
(0.05
|
)
|
$
|
(0.13
|
)
|
||
Weighted average number of shares outstanding, basic
|
13,267,246
|
12,270,679
|
||||||
Weighted average number of shares outstanding, diluted
|
13,267,246
|
12,270,679
|
March 31, 2018
|
March 31, 2017
|
|||||||
Net loss
|
$
|
(652,343
|
)
|
$
|
(1,615,575
|
)
|
||
Other comprehensive income:
|
||||||||
Foreign currency translation adjustments
|
252,298
|
-
|
||||||
Comprehensive Loss
|
$
|
(400,045
|
)
|
$
|
(1,615,575
|
)
|
Amount
|
||||
Property, plant and equipment
|
$
|
235,141
|
||
Goodwill
|
1,651,361
|
|||
Deferred tax liability
|
(307,636
|
)
|
||
Contingent consideration
|
(148,000
|
)
|
||
Other intangible assets (estimated useful life):
|
||||
Intellectual property (approximate 10 year weighted average)
|
800,000
|
|||
Customer contracts / relationships (approximate 10 year weighted average)
|
700,000
|
|||
Order backlog (3 months)
|
200,134
|
|||
Trade names (approximate 11 year weighted average)
|
100,000
|
|||
Total consideration
|
$
|
3,231,000
|
a) |
Basis of Presentation:
|
b) |
Revenue Recognition:
|
Exchange
Transactions
|
Non-Exchange
Transactions
|
Total
|
||||||||||
Net product sales
|
$
|
6,398,227
|
$
|
-
|
$
|
6,398,227
|
||||||
License and royalty revenue
|
201,931
|
-
|
201,931
|
|||||||||
R&D, milestone and grant revenue
|
611,805
|
505,169
|
$
|
1,116,974
|
||||||||
|
$
|
7,211,963
|
$
|
505,169
|
$
|
7,717,132
|
c) |
Inventories
|
March 31, 2018
|
December 31, 2017
|
|||||||
Raw materials
|
$
|
2,550,515
|
$
|
1,767,684
|
||||
Work in process
|
866,420
|
286,413
|
||||||
Finished goods
|
2,385,415
|
2,369,521
|
||||||
$
|
5,802,350
|
$
|
4,423,618
|
d) |
Loss Per Share:
|
e) |
Employee Stock Option Plan:
|
For the three months ended
|
||||||||
March 31, 2018
|
March 31, 2017
|
|||||||
Expected term (in years)
|
N/A
|
5.0
|
||||||
Expected volatility
|
44.18
|
%
|
||||||
Expected dividend yield
|
0
|
%
|
||||||
Risk-free interest rate
|
1.58
|
%
|
Stock Options
|
Number of
Shares
|
Weighted
Average
Exercise Price
per Share
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding at December 31, 2017
|
810,670
|
$
|
5.18
|
3.69 years
|
$
|
2,477,853
|
|||||||
Granted
|
-
|
-
|
-
|
||||||||||
Exercised
|
119,947
|
4.71
|
$
|
418,655
|
|||||||||
Forfeited/expired/cancelled
|
630
|
5.56
|
-
|
||||||||||
Outstanding at March 31, 2018
|
690,093
|
$
|
5.26
|
3.80 years
|
$
|
1,929,082
|
|||||||
Exercisable at March 31, 2018
|
344,363
|
$
|
4.31
|
2.85 years
|
$
|
1,287,437
|
Stock Options Outstanding
|
Stock Options Exercisable
|
|||||||||||||||||||||||||||
Range of
Exercise
Prices
|
Shares
|
Average
Remaining
Contract Life
(Year)
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Shares
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||
1 to 2.79999
|
-
|
-
|
$
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||||
2.8 to 4.59999
|
309,343
|
2.61
|
3.47
|
1,402,558
|
249,968
|
3.48
|
1,130,998
|
|||||||||||||||||||||
4.6 to 6.39999
|
172,875
|
4.04
|
5.83
|
375,674
|
63,645
|
5.70
|
146,239
|
|||||||||||||||||||||
6.4 to 8.19999
|
161,000
|
6.01
|
7.06
|
150,850
|
12,000
|
7.15
|
10,200
|
|||||||||||||||||||||
8.2 to 10
|
46,875
|
3.19
|
8.86
|
-
|
18,750
|
8.86
|
-
|
|||||||||||||||||||||
Total
|
690,093
|
3.80
|
$
|
5.26
|
$
|
1,929,082
|
344,363
|
$
|
4.31
|
$
|
1,287,437
|
f) |
Geographic Information and Economic Dependency
|
For the three months ended
|
||||||||
March 31, 2018
|
March 31, 2017
|
|||||||
Africa
|
$
|
1,638,530
|
$
|
368,827
|
||||
Asia
|
967,574
|
1,418,102
|
||||||
Europe & Middle East
|
392,070
|
443,045
|
||||||
Latin America
|
2,689,893
|
2,112,779
|
||||||
United States
|
710,160
|
1,084,674
|
||||||
$
|
6,398,227
|
$
|
5,427,427
|
g) |
Fair Value of Financial Instruments:
|
h) |
Accounts Payable and Accrued Liabilities:
|
March 31, 2018
|
December 31, 2017
|
|||||||
Accounts payable – suppliers
|
$
|
2,577,968
|
$
|
1,494,759
|
||||
Accrued commissions
|
214,672
|
126,827
|
||||||
Accrued royalties / license fees
|
421,800
|
429,297
|
||||||
Accrued payroll
|
343,785
|
187,305
|
||||||
Accrued vacation
|
301,139
|
309,767
|
||||||
Accrued bonuses
|
276,488
|
282,500
|
||||||
Accrued expenses – other
|
196,257
|
215,848
|
||||||
TOTAL
|
$
|
4,332,109
|
$
|
3,406,303
|
i)
|
Goodwill and Assets:
|
Beginning balance December 31, 2017
|
$
|
1,666,610
|
||
Change in foreign currency exchange rate
|
80,421
|
|||
Balance at March 31, 2018
|
$
|
1,747,031
|
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
Cost
|
Accumulated
Amortization
|
Net Book
Value
|
Cost
|
Accumulated
Amortization
|
Net Book
Value
|
||||||||||||||||||
Intellectual property
|
$
|
929,668
|
$
|
116,208
|
$
|
813,460
|
$
|
886,872
|
$ | 88,687 | $ | 798,185 | |||||||||||
Customer contracts/relationships
|
813,459
|
101,682
|
711,777
|
776,013 | 77,601 | 698,412 | |||||||||||||||||
Order backlog
|
232,573
|
232,573
|
-
|
221,867 | 221,867 | - | |||||||||||||||||
Trade names
|
116,208
|
13,206
|
103,002
|
110,859
|
10,079 | 100,780 | |||||||||||||||||
$
|
2,091,908
|
$
|
463,669
|
$
|
1,628,239
|
$ |
1,995,611
|
$ | 398,234 | $ | 1,597,377 |
j) | Taxes: |
k) |
Recent Accounting Pronouncements Affecting the Company:
|
a) |
Economic Dependency:
|
For the three months ended
|
Accounts Receivable as of
|
|||||||||||||||||||||||
March 31, 2018
|
March 31, 2017
|
March 31, 2018
|
March 31, 2017
|
|||||||||||||||||||||
Sales
|
% of Sales
|
Sales
|
% of Sales
|
|||||||||||||||||||||
Customer 1
|
$
|
2,409,758
|
38
|
%
|
$
|
1,939,587
|
36
|
%
|
$
|
1,189,232
|
$
|
2,781,266
|
||||||||||||
Customer 2
|
839,399
|
13
|
1,326,171
|
24
|
|
438,869
|
914,526
|
|||||||||||||||||
Customer 3
|
801,625
|
13
|
*
|
*
|
-
|
*
|
For the three months ended
|
Accounts Payable as of
|
|||||||||||||||||||||||
March 31, 2018
|
March 31, 2017
|
March 31, 2018
|
March 31, 2017
|
|||||||||||||||||||||
Purchases
|
% of Purch.
|
Purchases
|
% of Purch.
|
|||||||||||||||||||||
Vendor 1
|
$
|
469,357
|
16
|
%
|
$
|
*
|
*
|
$
|
163,538
|
$
|
*
|
|||||||||||||
Vendor 2
|
335,105
|
11
|
|
$
|
698,838
|
32
|
%
|
-
|
375,164
|
b) |
Governmental Regulation:
|
c) |
Employment Contracts:
|
2018
|
$
|
577,500
|
||
2019
|
485,500
|
|||
2020
|
85,000
|
d)
|
Pension Plan:
|
● |
Executive Overview
|
● |
Consolidated Results of Operations
|
● |
Liquidity and Capital Resources
|
● |
Recent Developments
|
● |
Significant Accounting Policies and Critical Accounting Estimates
|
● |
Recently Issued Accounting Pronouncements
|
· |
Achieved total revenue of $7.7 million for the first quarter 2018, including net product sales of $6.4 million, representing increases over prior year of 22% and 18% respectively;
|
· |
Increased production to initiate supply of HIV STAT-PAK
®
Assays to the Ethiopian Pharmaceuticals Fund and Supply Agency in the second quarter, under the previously announced three-year, $15.8 million total contract award;
|
· |
Completed Phase 1 of the DPP
®
Assay to be developed through the AstraZeneca collaboration to identify an “undisclosed” biomarker; and,
|
· |
Entered collaboration with LumiraDx to develop a portfolio of new POC diagnostic tests for infectious diseases, which includes development funding, reagent purchases, and royalty payments from LumiraDx.
|
March 31, 2018
|
March 31, 2017
|
|||||||||||||||
TOTAL REVENUE
|
$
|
7,717,132
|
100
|
%
|
$
|
6,325,167
|
100
|
%
|
||||||||
OPERATING COSTS AND EXPENSES:
|
||||||||||||||||
Cost of product sales
|
4,117,779
|
53
|
%
|
3,219,215
|
51
|
%
|
||||||||||
Research and development expenses
|
1,847,102
|
24
|
%
|
2,246,572
|
36
|
%
|
||||||||||
Selling, general and administrative expenses
|
2,406,569
|
31
|
%
|
2,488,337
|
39
|
%
|
||||||||||
8,371,450
|
7,954,124
|
|||||||||||||||
LOSS FROM OPERATIONS
|
(654,318
|
)
|
(1,628,957
|
)
|
||||||||||||
OTHER INCOME
|
1,975
|
13,382
|
||||||||||||||
LOSS BEFORE INCOME TAXES
|
(652,343
|
)
|
(8
|
)%
|
(1,615,575
|
)
|
(26
|
)%
|
||||||||
Income tax (benefit) provision
|
-
|
-
|
||||||||||||||
NET LOSS
|
$
|
(652,343
|
)
|
$
|
(1,615,575
|
)
|
● |
$1.0 million, or 17.9% increase in net product sales compared to the three months ended March 31, 2017, reflecting strong gains in Africa, in particular, as well as Latin America.
|
● |
$0.4 million, or 46.9% increase in R&D, milestone and grant, and license and royalty revenues compared to the three months ended March 31, 2017, reflecting the benefit of increased technology and scientific collaborations associated with our DPP
®
technology platform.
|
For the three months ended
|
||||||||||||||||
March 31,
2018
|
March 31,
2017
|
Favorable/
(unfavorable)
|
% Change
|
|||||||||||||
Net product sales
|
$
|
6,398,227
|
$
|
5,427,427
|
$
|
970,800
|
17.9
|
%
|
||||||||
Less: Cost of product sales
|
(4,117,779
|
)
|
(3,219,215
|
)
|
(898,564
|
)
|
27.9
|
%
|
||||||||
Gross Product Margin
|
$
|
2,280,448
|
$
|
2,208,212
|
$
|
72,236
|
3.3
|
%
|
||||||||
Product Gross Margin %
|
35.64
|
%
|
40.69
|
%
|
● |
$0.4 million from favorable product sales volume as described above, and
|
● |
$0.3 million from lower product margins, principally related to a higher percentage of sales in markets with lower average selling prices.
|
For the three months ended
|
||||||||||||||||
March 31,
2018
|
March 31,
2017
|
Favorable/
(unfavorable)
|
% Change
|
|||||||||||||
Clinical & regulatory affairs
|
$
|
484,235
|
$
|
625,368
|
$
|
(141,133
|
)
|
(22.57
|
)%
|
|||||||
Other research & development
|
1,362,867
|
1,621,204
|
(258,337
|
)
|
(15.93
|
)%
|
||||||||||
Total Research and Development
|
$
|
1,847,102
|
$
|
2,246,572
|
$
|
(399,470
|
)
|
(17.78
|
)%
|
For the three months ended
|
||||||||||||||||
March 31,
2018
|
March 31,
2017
|
Favorable/
(unfavorable)
|
%
Change
|
|||||||||||||
Net cash used in operating activities
|
$
|
(2,317,271
|
)
|
$
|
(3,871,811
|
)
|
$
|
1,554,540
|
40.15
|
%
|
||||||
Net cash used in investing activities
|
(41,530
|
)
|
(1,100,171
|
)
|
1,058,641
|
96.23
|
%
|
|||||||||
Net cash provided by financing activities
|
11,006,266
|
-
|
11,006,266 |
100.00
|
%
|
|||||||||||
Effect of exchange rate changes on cash
|
19,771
|
-
|
19,771
|
100.00
|
%
|
|||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
$
|
8,667,236
|
$
|
(4,971,982
|
)
|
$
|
13,639,218
|
274.32
|
%
|
● |
It requires us to make assumptions about matters that were uncertain at the time we were making the estimate, and
|
● |
Changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.
|
(a) |
Disclosure Controls and Procedures
. Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of March 31, 2018 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our Exchange Act reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
|
(b) |
Changes in Internal Control over Financial Reporting
. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the three months ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
Number
|
Description
|
|
Articles of Incorporation, as amended.
(1)
|
||
3.2
|
Bylaws and Bylaw Amendments. (2)
|
|
Certificate of Designation of Series D Preferred Stock
(13)
|
||
2008 Stock Incentive Plan, as amended
. (3)
|
||
Form of Option, for 2008 Stock Incentive Plan
(4)
|
||
2014 Stock Incentive Plan
(5)
|
||
Form of Option, for 2014 Stock Incentive Plan
(6)
|
||
Rights Agreement, dated as of March 8, 2016
(7)
|
||
4.6
|
Form of Warrant under Rights Agreement (to be filed by amendment)
|
|
Employment Agreement dated effective as of March 13, 2017 with John J. Sperzel III
(15)
|
||
Employment Agreement dated March 5, 2016 with Javan Esfandiari
(8)
|
||
Employment Agreement effective May 22, 2017 with Sharon Klugewicz
(16)
|
||
Employment Agreement dated December 18, 2017 with Neil Goldman
(18)
|
||
H
IV Barrel License, Marketing and Distribution Agreement, dated as of September 29, 2006, by and among the
Registrant, Alere and StatSure.
(10)
|
||
HIV Cassette License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant
and Alere.
(10)
|
||
Non-Exclusive License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the
Registrant and Alere
. (10)
|
||
Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, between the Registrant and
StatSure
. (10)
|
||
2015 Omnibus Agreement
(11)
|
||
Amended And Restated Stock Purchase Agreement, dated as of December 7, 2016, by and among Chembio
Diagnostics, Inc., RVR Diagnostics Sdn Bhd, Avijit Roy and Magentiren Vajuram
(14)
|
||
Underwriting Agreement, dated February 9, 2018, by and between the Registrant and Craig-Hallum Capital Group LLC
(17)
|
||
Ethics Policy
(12)
|
||
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
.
|
||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
.
|
||
Certification of Chief Executive Officer and 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.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Definition Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document
|
1
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2010.
|
2
|
Incorporated by reference to the Registrant’s registration statement on
Form SB-2 (File No. 333-85787) filed with the Commission on August 23, 1999
and the Registrant’s Forms 8-K filed on
May 14, 2004
,
December 20, 2007
and
April 18, 2008
.
|
3
|
Incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed with the Commission on
August 3, 2012.
|
4
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2014.
|
5
|
Incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed with the Commission on April 29, 2014.
|
6
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 7, 2014.
|
7
|
Incorporated by reference to the Registrant’s registration statement on Form 8-A filed with the Commission on April 7, 2016.
|
8
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 14, 2016.
|
9
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2017.
|
10
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on October 5, 2006.
|
11
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 5, 2015.
|
12
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB filed with the Commission on March 30, 2006.
|
13
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on April 7, 2016.
|
14
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on January 10, 2017.
|
15
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 9, 2017.
|
16
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 8, 2017.
|
17
|
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2018.
|
18
|
Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 8, 2018.
|
(*)
|
An asterisk (*) beside an exhibit number indicates the exhibit contains a management contract, compensatory plan or arrangement which is required to be identified in this report.
|
Chembio Diagnostics, Inc.
|
||
Date:
|
May 9, 2018
|
By:
/s/ John J. Sperzel III
|
John J. Sperzel III
|
||
Chief Executive Officer
(Principal Executive Officer)
|
||
Date:
|
May 9, 2018
|
By:
/s / Neil A. Goldman
|
Neil A. Goldman
|
||
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Date: May 9, 2018
|
/s/ John J. Sperzel III
|
John J. Sperzel III, Chief Executive Officer
|
Date: May 9, 2018
|
/s/ Neil A. Goldman
|
Neil A. Goldman, Executive Vice President and Chief Financial Officer
|
Dated: May 9, 2018
|
/s/ John J. Sperzel III
|
John J. Sperzel III
|
|
Chief Executive Officer
|
|
Dated: May 9, 2018
|
/s/ Neil A. Goldman
|
Neil A. Goldman
|
|
Executive Vice President and Chief Financial Officer
|