corresp
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November 22, 2006
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Alan L. Talesnick |
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303-894-6378 |
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atalesnick@pattonboggs.com |
VIA EDGAR AND OVERNIGHT COURIER
Mr. Jeffrey P. Riedler
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0405
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Re:
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Chembio Diagnostics, Inc. |
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Registration Statement on Form SB-2 |
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Filed on October 27, 2006 |
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File Number 333-138266 |
Dear Mr. Riedler:
On behalf of Chembio Diagnostics, Inc. (the “Company”), this letter provides the Company’s
response to the Staff’s comment in its letter dated November 2, 2006 concerning the Company’s
Registration Statement on Form SB-2 (the “Registration Statement”) filed with the Commission on
October 27, 2006. All information in this response was provided to us by the Company.
1. We note that the securities you are registering on your Form SB-2 are being made on a shelf
basis under Rule 415. Given the nature and size of the transaction being registered, please advise
the staff of the company’s basis for determining that the transaction is appropriately
characterized as a transaction that is eligible to be made on a shelf basis under Rule
415(a)(1)(i).
Response to Comment 1:
The Registration Statement intends to register 26,024,217 shares of the Company’s common
stock. (As indicated below, other previously registered shares are included in the
November 22, 2006
Page 2
prospectus under Rule 429). Unless otherwise indicated, references in this letter to the
shares being registered, and references to the selling shareholders, will be made only with respect
to the 26,024,217 shares not previously registered. The remainder of the shares shown as covered
by the Registration Statement were registered by the Company on prior registration statements
(333-116219, 333-123600 and 333-125942). Pursuant to Rule 429 of the Securities Act of 1933, as
amended, the prospectus included in the Registration Statement is a joint prospectus that updates
and replaces the prospectuses included in the previously filed registration statements.
Rule 415(a)(1)(i) provides in relevant part that securities may be registered for an offering
to be made on a continuous or delayed basis in the future, provided that the registration statement
pertains only to securities which are to be offered or sold solely by or on behalf of persons other
than the registrant. The Company respectfully submits that all the shares registered for resale
under the Registration Statement are covered by Rule 415(a)(1)(i) because (i) all the securities
will be offered or sold solely by security holders of the Company and not by the Company; and (ii)
none of the security holders is acting on behalf of the Company.
Each of the selling stockholders is acting on its own behalf and not on behalf of the Company.
Each of the selling stockholders has the full economic and market risk at least for the period
from the date of purchase to the effective date of the Registration Statement, which has not yet
occurred. The selling stockholders purchased the shares for investment purposes and not with a
view to distribution. There are no indicia that any of the selling stockholders is engaged in a
“distribution.” A distribution is defined under Regulation M as an offering of securities that
differs from normal trading activities for reasons that include special selling efforts and selling
methods. To the knowledge of the Company, none of the selling stockholders is making any special
selling efforts, utilizing any special selling methods, or entering into any agreements,
understandings or arrangements with any underwriter, broker-dealer, or other person or entity with
respect to the sale of the shares covered by the Registration Statement. To the contrary, as
discussed below, only two of the selling stockholders own previously registered shares that were
acquired 22 months ago in a prior private placement. The previously owned shares could have been
sold during the past 16 months (after the applicable registration statement became effective), but
neither of those selling shareholders has made any selling efforts, and neither of them has entered
into any other arrangement with respect to the sale of those shares.
Even if a selling stockholder desired to sell its shares immediately upon registration, it
would not be feasible because the average daily trading volume is approximately 23,000 shares per
day (for three month period ended November 17, 2006).
November 22, 2006
Page 3
Because none of the selling stockholders is acting on behalf of the Company, and because the
Registration Statement pertains only to securities being offered or sold by persons other than the
Company, the transaction is appropriately characterized as a transaction that is eligible to be
made on a shelf basis under Rule 415(a)(1)(i).
Item D.29 of the SEC’s Manual of Publicly Available Telephone Interpretations sets forth six
factors which an issuer should analyze to determine the application of Rule 415. The Company has
analyzed these factors, and believes this analysis provides further confirmation that the sales of
securities being registered are appropriately characterized as a transaction that is eligible to be
made on a shelf basis under Rule 415(a)(1)(i).
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A. |
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How long the selling shareholders have held the shares. |
The selling stockholders have held the shares for time periods that range from six weeks to
eight months. (As indicated under paragraph/section E below, some of the selling stockholders have
held previously registered shares for approximately 22 months without any sales). In each case,
during the entire period since the date of acquisition, the selling stockholder has been subject to
the full economic and market risks of ownership, with no assurance of the stockholder’s ability to
sell the shares, either in a liquid market — or at all. This situation is contrary to that of a
stockholder that undertakes the purchase of stock “with a view to distribution” or otherwise on
behalf of the Company.
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B. |
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The circumstances under which the selling shareholders acquired the shares. |
Substantially all the shares being registered are issuable to security holders pursuant to the
terms of three private placement offerings made by the Company to accredited investors within the
past eight months. In each of these private offerings, interests were purchased by security
holders for cash at a fixed price, and each investor represented to the Company that it was
acquiring the securities for its own account, not as nominee or agent, and not with a view toward
resale or distribution. From the date of purchase, each of the selling stockholders has borne, and
continues to bear, the full economic and market risk of ownership. In addition, since the date of
purchase, security holders have had no mechanism to redeem, put or otherwise require the Company to
repurchase the securities. All of these securities were issued to “accredited investors,” and were
exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.
November 22, 2006
Page 4
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C. |
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The selling shareholders’ relationship to the issuer. |
None of the investors in the private placements had any prior relationship with the Company
except for Crestview Capital Master LLC (“Crestview”) and Midtown Partners & Co., LLC (“Midtown”).
Crestview’s relationship, both prior and current, is not in an underwriting capacity or as a
conduit on behalf of the Company. As disclosed in the Registration Statement, one of the Company’s
outside directors, Dr. Gary Meller, is a limited partner and a member of the Advisory Board of
Crestview, which invested $3 million in the Company’s Series B Placement in January 2005 and $1
million in the Series B Follow-On in March 2006. In September 2006, Crestview invested $2 million
in the Series C Placement. Prior to its investment in the Company, Crestview had no relationship
with the Company, and its only current relationship with the Company, other than as described above
concerning Dr. Meller, is as a shareholder.
Although not an investor, Midtown, a registered member of the NASD, is registering 83,146
previously unregistered shares in the Registration Statement. Midtown also owns 116,639 previously
registered shares that it received as compensation for services in connection with a prior private
placement. Midtown did not participate in any of the Company’s private placements, but instead
received these shares as compensation for services rendered to the Company in connection with the
private placement.
On or about September 29, 2006, Inverness Medical Innovations, Inc. (“Inverness”) and the
Company entered into a marketing and license agreement, pursuant to which Inverness will
exclusively market the Company’s two FDA approved products in the U.S., and the Company’s SURE
CHECK HIV 1/2 product globally.
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D. |
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The amount of shares involved. |
Currently, there are 48,752,216 shares of the Company’s common stock registered with the SEC,
and if the Registration Statement were declared effective, there would be approximately 74,776,433
shares registered, and an additional 3,485,580 outstanding shares (excluding unregistered option
and warrants), for a total registered plus unregistered of 78,262,013. 26,024,217 shares, or
approximately 33.2 percent of this total, are being registered under this Registration Statement.
November 22, 2006
Page 5
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E. |
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Whether the selling shareholders are in the business of underwriting securities. |
Among the investors that purchased shares being registered, none is involved in the business
of underwriting securities. Crestview and Inverness invest in numerous other companies.
Although Midtown is a registered NASD member, it did not purchase any securities as an
investor, but rather received its shares as part of its compensation in connection with its
services regarding the private placements.
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F. |
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Whether, under all the circumstances, it appears that the selling shareholders are acting as a conduit for the issuer. |
None of the selling stockholders is acting as a conduit for the issuer. Not only do the
Company’s relationships — or lack of relationships — confirm this, but there is no indication of
any kind relevant to acting as a conduit. Crestview and Midtown originally acquired securities of
the Company in January 2005. Although those securities became registered more than 16 months ago
(in June 2005), neither Crestview nor Midtown has sold any of those shares.
As indicated above, even if a selling stockholder desired to act as a conduit for the issuer,
it would not be possible because of the low trading volume for the shares, which was an average of
23,000 shares per day for the three month period ended November 17, 2006.
Each selling stockholder is an investor and made an independent investment decision to acquire
the shares. The selling stockholders are not in the underwriting business. The private placements
were negotiated at arm’s length terms with immediate and continuing economic and market risk.
Based on all the facts, circumstances and other matters related to the Registration Statement,
including those set forth above, the Company believes and respectfully submits that the transaction
covered by the Registration Statement is appropriately characterized as a transaction that is
eligible to be made on a shelf basis under Rule 415(a)(1)(i).
November 22, 2006
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If you have any further questions, do not hesitate to contact me at (303) 830-1776 or Lawrence
Siebert at (631) 924-1135.
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Very truly yours,
PATTON BOGGS LLP
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By: |
/s/ Alan L. Talesnick
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Alan L. Talesnick |
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cc:
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Chembio Diagnostics, Inc. |
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c/o Lawrence A. Siebert, Chief Executive Officer |