QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation) |
(IRS Employer Identification Number) |
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
||
Large accelerated filer ☐ |
||
Non-accelerated filer ☐ |
Smaller reporting company |
|
Emerging growth company |
||
Page |
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3 |
||
Part I. FINANCIAL INFORMATION: |
||
Item 1. Financial Statements: |
||
4 |
||
5 |
||
6 |
||
7 |
||
9 |
||
10 |
||
27 |
||
43 |
||
Part II. OTHER INFORMATION: |
||
44 |
||
45 |
||
52 |
||
53 |
||
| Item 1. | FINANCIAL STATEMENTS |
(Unaudited) June 30, 2020 |
December 31, 2019 |
|||||||
- ASSETS - |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ |
$ |
||||||
Accounts receivable, net of allowance for doubtful accounts of $ |
||||||||
Inventories, net |
||||||||
Prepaid expenses and other current assets |
||||||||
TOTAL CURRENT ASSETS |
||||||||
FIXED ASSETS: |
||||||||
Property, plant and equipment, net |
||||||||
Finance lease right-of-use asset, net |
||||||||
OTHER ASSETS: |
||||||||
Operating lease right-of-use assets, net |
||||||||
Intangible assets, net |
||||||||
Goodwill |
||||||||
Deposits and other assets |
||||||||
TOTAL ASSETS |
$ |
$ |
||||||
- LIABILITIES AND STOCKHOLDERS’ EQUITY - |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable and accrued liabilities |
$ |
$ |
||||||
Deferred revenue |
||||||||
Finance lease liabilities |
||||||||
Operating lease liabilities |
||||||||
Note payable |
||||||||
TOTAL CURRENT LIABILITIES |
||||||||
OTHER LIABILITIES: |
||||||||
Long-term operating lease liabilities |
||||||||
Long-term finance lease liabilities |
||||||||
Long-term debt, less current portion, net |
||||||||
Deferred tax liability |
||||||||
TOTAL LIABILITIES |
||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS’ EQUITY: |
||||||||
Preferred stock - |
||||||||
Common stock - $ |
||||||||
Additional paid-in capital |
||||||||
Accumulated deficit |
( |
) |
( |
) |
||||
Treasury stock - |
( |
) |
||||||
Accumulated other comprehensive (loss) income |
( |
) |
||||||
TOTAL STOCKHOLDERS’ EQUITY |
||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
$ |
||||||
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||||||||||
REVENUES: |
||||||||||||||||
Net product sales |
$ |
$ |
$ |
$ |
||||||||||||
R&D and grant revenue |
||||||||||||||||
License and royalty revenue |
||||||||||||||||
TOTAL REVENUES |
||||||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||
Cost of product sales |
||||||||||||||||
Research and development expenses |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Severance, restructuring and other related costs |
||||||||||||||||
Acquisition costs |
||||||||||||||||
LOSS FROM OPERATIONS |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
OTHER INCOME: |
||||||||||||||||
Interest (expense) income |
( |
) |
( |
) |
||||||||||||
LOSS BEFORE INCOME TAXES |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Income tax benefit |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
NET LOSS |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Basic loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Diluted loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Weighted average number of shares outstanding, basic |
||||||||||||||||
Weighted average number of shares outstanding, diluted |
||||||||||||||||
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||||||||||
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
Other comprehensive loss: |
||||||||||||||||
Foreign currency translation adjustments |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
||||
For The Six Months Ended June 30, 2020 |
||||||||||||||||||||||||||||||||
Common Stock |
Additional Paid-in-Capital |
Treasury Stock |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance at December 31, 2019 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||||||||||
Common Stock: |
||||||||||||||||||||||||||||||||
Restricted stock issued |
||||||||||||||||||||||||||||||||
Restricted stock compensation, net |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||
Shares tendered for withholding taxes |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Options: |
||||||||||||||||||||||||||||||||
Stock option compensation |
- |
- |
||||||||||||||||||||||||||||||
Comprehensive loss |
- |
- |
( |
) |
( |
) |
||||||||||||||||||||||||||
Net loss |
- |
- |
( |
) |
( |
) |
||||||||||||||||||||||||||
Balance at March 31, 2020 |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||
Common Stock: |
||||||||||||||||||||||||||||||||
Issuance of stock, net |
||||||||||||||||||||||||||||||||
Restricted stock issued |
( |
) |
||||||||||||||||||||||||||||||
Restricted stock compensation, net |
( |
) |
( |
) |
||||||||||||||||||||||||||||
Shares tendered for withholding taxes |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||
Options: |
||||||||||||||||||||||||||||||||
Exercised |
( |
) |
||||||||||||||||||||||||||||||
Stock option compensation |
- |
- |
||||||||||||||||||||||||||||||
Warrants exercised |
( |
) |
||||||||||||||||||||||||||||||
Comprehensive loss |
- |
- |
( |
) |
( |
) |
||||||||||||||||||||||||||
Net loss |
- |
- |
( |
) |
( |
) |
||||||||||||||||||||||||||
Balance at June 30, 2020 |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||||||||||||
For The Six Months Ended June 30, 2019 |
||||||||||||||||||||||||
Common Stock |
Additional Paid-in-Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total |
||||||||||||||||||||
Shares |
Amount |
Amount |
Amount |
Amount |
Amount |
|||||||||||||||||||
Balance at December 31, 2018 |
$ |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||
Common Stock: |
||||||||||||||||||||||||
Restricted stock compensation |
- |
|||||||||||||||||||||||
Options: |
||||||||||||||||||||||||
Stock option compensation |
- |
|||||||||||||||||||||||
Comprehensive loss |
- |
|||||||||||||||||||||||
Net loss |
- |
( |
) |
( |
) |
|||||||||||||||||||
Balance at March 31, 2019 |
$ |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||
Common Stock: |
||||||||||||||||||||||||
Restricted stock issued |
( |
) |
||||||||||||||||||||||
Restricted stock compensation |
||||||||||||||||||||||||
Options: |
||||||||||||||||||||||||
Exercised |
( |
) |
||||||||||||||||||||||
Stock option compensation |
- |
|||||||||||||||||||||||
Comprehensive loss |
- |
( |
) |
( |
) |
|||||||||||||||||||
Net loss |
- |
( |
) |
( |
) |
|||||||||||||||||||
Balance at June 30, 2019 |
$ |
$ |
$ |
( |
) |
$ |
$ |
|||||||||||||||||
June 30,2020 |
June 30, 2019 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Cash received from customers and grants |
$ |
$ |
||||||
Cash paid to suppliers and employees |
( |
) |
( |
) |
||||
Cash paid for operating leases |
( |
) |
( |
) |
||||
Cash paid for finance leases |
( |
) |
||||||
Interest and taxes, net |
( |
) |
||||||
Net cash used in operating activities |
( |
) |
( |
) |
||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Patent application costs |
( |
) |
( |
) |
||||
Acquisition of and deposits on fixed assets |
( |
) |
( |
) |
||||
Acquisitions |
||||||||
Net cash used in investing activities |
( |
) |
( |
) |
||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Issuance of stock, net |
||||||||
Stimulus package loan |
||||||||
Payment of stimulus package loan |
( |
) |
||||||
Payments of tax withholding on stock award |
( |
) |
||||||
Payments on note payable |
( |
) |
( |
) |
||||
Payments on finance leases |
( |
) |
||||||
Net cash (used in) provided by financing activities |
( |
) |
||||||
Effect of exchange rate changes on cash |
( |
) |
||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
( |
) |
||||||
Cash and cash equivalents - beginning of the period |
||||||||
Cash and cash equivalents - end of the period |
$ |
|||||||
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: |
||||||||
Net loss |
$ |
( |
) |
$ |
( |
) |
||
Adjustments: |
||||||||
Depreciation and amortization |
||||||||
Benefit from deferred tax liability |
( |
) |
( |
) |
||||
Provision of doubtful accounts |
||||||||
Share based compensation |
||||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
( |
) |
||||||
Inventories |
( |
) |
( |
) |
||||
Prepaid expenses and other current assets |
( |
) |
||||||
Deposits and other assets |
( |
) |
||||||
Accounts payable and accrued liabilities |
( |
) |
||||||
Deferred revenue |
||||||||
Net cash used in operating activities |
$ |
( |
) |
$ |
( |
) |
||
Supplemental disclosures for non-cash investing and financing activities: |
||||||||
Deposits on manufacturing equipment transferred to fixed assets |
$ |
$ |
||||||
| (a) | Basis of Presentation: |
| (b) | Use of Estimates: |
| (c) | Fair Value of Financial Instruments: |
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and, |
| Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). |
| (d) | Cash and Cash Equivalents: |
| (e) | Concentrations of Credit Risk: |
| (f) | Fixed Assets: |
| (g) | License Agreements: |
| (h) | Valuation of Long-Lived Assets and Intangible Assets: |
| (i) | Revenue Recognition: |
For the Three Months Ended |
||||||||||||||||||||||||
June 30, 2020 |
June 30, 2019 |
|||||||||||||||||||||||
Exchange Transactions |
Non-Exchange Transactions |
Total |
Exchange Transactions |
Non-Exchange Transactions |
Total |
|||||||||||||||||||
Net product sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
R&D and grant revenue |
||||||||||||||||||||||||
License and royalty revenue |
||||||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||
For the Six Months Ended |
||||||||||||||||||||||||
June 30, 2020 |
June 30, 2019 |
|||||||||||||||||||||||
Exchange Transactions |
Non-Exchange Transactions |
Total |
Exchange Transactions |
Non-Exchange Transactions |
Total |
|||||||||||||||||||
Net product sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
R&D and grant revenue |
||||||||||||||||||||||||
License and royalty revenue |
||||||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||||||||||
Africa |
$ |
$ |
$ |
$ |
||||||||||||
Asia |
||||||||||||||||
Europe & Middle East |
||||||||||||||||
Latin America |
||||||||||||||||
United States |
||||||||||||||||
$ |
$ |
$ |
$ |
|||||||||||||
| (j) | Inventories: |
June 30, 2020 |
December 31, 2019 |
|||||||
Raw materials |
$ |
$ |
||||||
Work in process |
||||||||
Finished goods |
||||||||
$ |
$ |
|||||||
| (k) | Loss Per Share: |
| (l) | Research and Development: |
| (m) | Equity Plans: |
| (n) | Stock-Based Compensation: |
For The Three Months Ended June 30, |
For The Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Cost of product sales |
$ |
$ |
$ |
$ |
||||||||||||
Research and development expenses |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Severance and related costs |
( |
) |
||||||||||||||
$ |
$ |
$ |
$ |
|||||||||||||
For the Three and Six Months Ended June 30, 2020 |
||||
Expected term (in years) |
||||
Expected volatility |
% |
|||
Expected dividend yield |
% |
|||
Risk-free interest rate |
% |
|||
Stock Options |
Number of Shares |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contract Term |
Aggregate Intrinsic Value |
||||||
Outstanding at December 31, 2019 |
$ |
$ |
||||||||
Granted |
||||||||||
Exercised |
( |
|||||||||
Forfeited/expired/cancelled |
( |
|||||||||
Outstanding at June 30, 2020 |
$ |
$ |
||||||||
Exercisable at June 30, 2020 |
$ |
$ |
||||||||
Stock Options Outstanding |
Stock Options Exercisable |
|||||||||||||||||
Range of Exercise Prices |
Number of Shares |
Average Remaining Contract Term (Years) |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
Number of Shares |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
|||||||||||
$ |
$ |
$ |
$ |
$ |
||||||||||||||
$ |
||||||||||||||||||
$ |
||||||||||||||||||
$ |
||||||||||||||||||
$ |
||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||||
Number of Shares & Units |
Weighted- Average Grant Date Fair Value |
|||||||
Outstanding at December 31, 2019 |
$ |
|||||||
Granted |
||||||||
Vested |
( |
) |
||||||
Forfeited/expired/cancelled |
( |
) |
||||||
Outstanding at June 30, 2020 |
$ |
|||||||
| (o) | Geographic Information and Economic Dependency |
For The Three Months Ended June 30, |
For The Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Africa |
$ |
$ |
$ |
$ |
||||||||||||
Asia |
||||||||||||||||
Europe & Middle East |
||||||||||||||||
Latin America |
||||||||||||||||
United States |
||||||||||||||||
$ |
$ |
$ |
$ |
|||||||||||||
June 30, 2020 |
December 31, 2019 |
|||||||
Asia |
$ |
$ |
||||||
Europe & Middle East |
||||||||
Latin America |
||||||||
United States |
||||||||
$ |
$ |
|||||||
| (p) | Accounts Payable and Accrued Liabilities: |
June 30, 2020 |
December 31, 2019 |
|||||||
Accounts payable – suppliers |
$ |
$ |
||||||
Accrued commissions and royalties |
||||||||
Accrued payroll |
||||||||
Accrued vacation |
||||||||
Accrued bonuses |
||||||||
Accrued severance |
||||||||
Accrued expenses – other |
||||||||
TOTAL |
$ |
$ |
||||||
| (q) | Goodwill, Long-Lived Assets and Intangible Assets: |
Beginning balance at December 31, 2019 |
$ |
|||
Change in foreign currency exchange rate |
( |
) |
||
Balance at June 30, 2020 |
$ |
June 30, 2020 |
December 31, 2019 |
|||||||||||||||||||
Weighted Average Remaining Useful Life |
Cost |
Accumulated Amortization |
Net Book Value |
Cost |
Accumulated Amortization |
Net Book Value |
||||||||||||||
Intellectual property |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||
Developed technology |
||||||||||||||||||||
Customer contracts/relationships |
||||||||||||||||||||
Trade names |
||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
| (r) | Taxes: |
| (s) | Allowance for Doubtful Accounts: |
| (t) | Foreign Currency Translation: |
| (u) | Acquisition Costs: |
| (v) | Recently Issued Accounting Standards: |
| (w) | Severance, restructuring and other related costs: |
| ● | $ |
| ● | Issuance of |
Amount |
||||
Net current assets |
$ |
|||
Property, plant and equipment and other assets |
||||
Inventory |
||||
Goodwill |
||||
Deferred tax liability |
( |
) |
||
Other intangible assets (estimated useful life): |
||||
Trade name ( |
||||
Customer contracts / relationships ( |
||||
Total consideration |
$ |
|||
Unaudited Pro Forma December 31, 2019 |
||||
Total revenues |
$ |
|||
Net loss |
$ |
( |
) |
|
Net loss per common share |
$ |
( |
) |
|
Diluted net loss per common share |
$ |
( |
) |
|
| (a) | Common Stock |
| (b) | Preferred Stock |
| (c) | Treasury Stock |
| (d) | Options, Restricted Stock and Restricted Stock Units |
| (a) | Concentrations: |
For The Three Months Ended |
For The Six Months Ended |
Accounts Receivable as of |
||||||||||||||||||||||||||||||||||||||
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
Dec. 31, 2019 |
|||||||||||||||||||||||||||||||||||
Sales |
% of Sales |
Sales |
% of Sales |
Sales |
% of Sales |
Sales |
% of Sales |
|||||||||||||||||||||||||||||||||
Customer 1 |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
$ |
||||||||||||||||||||||||||||||
Customer 2 |
$ |
% |
$ |
% |
$ |
% |
$ |
% |
$ |
$ |
||||||||||||||||||||||||||||||
| (b) | Governmental Regulation: |
| (c) | Employment Contracts: |
2020 |
$ |
|||
2021 |
||||
2022 |
| (d) | Pension Plan: |
| (e) | Leases: |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Operating lease expense |
$ |
$ |
$ |
$ |
||||||||||||
Finance lease cost |
||||||||||||||||
Amortization of right-of-use assets |
$ |
$ |
$ |
$ |
||||||||||||
Interest on lease liabilities |
||||||||||||||||
Total finance lease expense |
$ |
$ |
$ |
$ |
||||||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||||||||||
Operating cash flows for operating leases |
$ |
$ |
$ |
$ |
||||||||||||
Operating cash flows for finance leases |
||||||||||||||||
Financing cash flows for finance leases |
||||||||||||||||
Right-of-use assets obtained in exchange for lease obligations: |
||||||||||||||||
Operating leases |
||||||||||||||||
Finance leases |
$ |
$ |
$ |
$ |
||||||||||||
June 30, 2020 |
June 30, 2019 |
|||||||
Finance Leases |
||||||||
Finance lease right of use asset |
$ |
$ |
||||||
Accumulated depreciation |
( |
) |
||||||
Finance lease right of use asset, net |
$ |
|||||||
Weighted-Average Remaining Lease Term |
||||||||
Operating leases |
||||||||
Finance leases |
||||||||
Weighted-Average Discount Rate |
||||||||
Operating leases |
% |
% |
||||||
Finance leases |
% |
% |
||||||
June 30, 2020 |
June 30, 2019 |
|||||||||||||||
Operating Leases |
Finance Leases |
Operating Leases |
Finance Leases |
|||||||||||||
2019 and 2020 |
$ |
$ |
$ |
$ |
||||||||||||
2021 |
||||||||||||||||
2022 |
||||||||||||||||
2023 |
||||||||||||||||
2024 |
||||||||||||||||
Thereafter |
||||||||||||||||
Total lease payments |
$ |
$ |
$ |
$ |
||||||||||||
Less: imputed interest |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||
| (f) | Litigation: |
Stock price on issuance date |
$ |
|||
Strike Price |
$ |
|||
Risk-free interest rate |
% |
|||
Volatility |
% |
|||
Expected life |
||||
| • | We acquired three regulatory approvals of the DPP COVID-19 System in our targeted global testing market: an Emergency Use Authorization, or EUA, granted by the U.S. Food and Drug Administration, or FDA, in April 2020; an approval for emergency use issued by Brazil’s Agência Nacional de Vigilância Sanitária, or ANVISA, in April 2020, and a CE Marking for the European Union obtained in early May 2020. |
| • | Stony Brook Medicine selected the DPP COVID-19 System to help identify persons who have recovered from COVID-19 for use in an FDA-approved investigation to determine if those persons’ convalescent blood plasma can help treat patients with an active COVID-19 infection. |
| • | We began shipping the DPP COVID-19 System to fulfill a $4 million purchase order from Bio-Manguinhos, a long-standing customer that is a subsidiary of the foundation responsible for the development and production of vaccines, diagnostics and biopharmaceuticals for Brazil’s national public health system. |
| • | We initiated commercial shipments of the DPP COVID-19 System to customers in the United States. |
| • | We strengthened our balance sheet by raising $28.4 million in a secondary public offering in May 2020. |
| • | We stablished a non-exclusive distribution relationship with Thermo Fisher Scientific’s healthcare channel for the distribution of Chembio’s DPP COVID-19 System in the U.S. |
| • | We stand behind the real-world clinical data, including that which we submitted to the FDA, in connection with the DPP COVID-19 IgM/IgG System EUA, and |
| • | The FDA’s recent identification of the performance criteria for COVID-19 serology tests clarified our path forward in working to revise the DPP COVID-19 IgM/IgG System to meet or exceed current FDA requirements. |
| • | We acknowledge the policy change that led the FDA to create performance criteria and rely on the NCI study for those purposes. |
| • | On April 15, 2020, the DPP COVID-19 IgM/IgG System was granted an EUA. Subsequently, the FDA announced the adoption of a performance review process based in part on a NCI methodology for the evaluation of COVID 19 serology tests. The NCI report acknowledges that this process, which evaluates COVID-19 serology test sensitivity and specificity using a panel of pre-selected samples, may not be indicative of either performance in the real-world or performance of finger stick blood as used in the Chembio system. |
| • | In addition, the NCI study does not invalidate the real-world clinical data that we submitted to the FDA, including that compiled by Chembio as well as independent evaluators at two university medical centers. |
| • | The importance of our system’s real-world performance has been highlighted by a number of customers. |
| • | enhanced sensitivity and specificity; |
| • | advanced multiplexing; and |
| • | when used with our Micro Reader, accurate results processed in approximately 15 seconds. |
Product |
U.S. |
International |
DPP COVID-19 IgM/IgG System |
✓ |
|
DPP HIV 1/2 Assay |
✓ |
✓ |
DPP HIV-Syphilis System |
Pending FDA Approval |
✓ |
DPP Syphilis Screen & Confirm Assay |
✓ |
|
DPP ZCD IgM/IgG System |
✓ |
|
DPP Dengue NS1 Antigen System |
✓ |
|
DPP Dengue IgM/IgG System |
✓ |
|
DPP Zika IgM System |
✓ |
✓ |
DPP Zika IgM/IgG System |
✓ |
|
DPP Chikungunya System |
✓ |
|
DPP Ebola Antigen System |
✓ EUA |
|
DPP Leishmaniasis Assay |
✓ |
|
HIV 1/2 STAT-PAK Assay |
✓ |
✓ |
Chagas STAT-PAK Assay |
✓ |
|
SURE CHECK HIV 1/2 Assay |
✓ |
✓ |
SURE CHECK HIV Self-Test |
✓ |
| • | our registration of existing and new products in unchartered countries and regions, such as selected countries in Latin America and Southeast Asia; |
| • | our entry into new market segments, such as international HIV self-testing; and |
| • | advances in our product pipeline in infectious disease with key products, including a multiplex test for HIV and Syphilis targeted for sale in the United States and tests for Chikungunya, Dengue and Zika for sale internationally. |
| • | HIV has claimed more than 35 million lives, including 770,000 in 2018. Approximately 37.9 million people were living with HIV at the end of 2018, and 1.7 million were newly infected during 2018. |
| • | There were 18.0 million prevalent cases of Syphilis as of 2012, and 5.6 million new infections were estimated to occur annually. |
| • | Elimination of mother-to-child transmission, or MTCT, of both HIV and Syphilis is a global health priority. In 2013, 1.9 million pregnant women were infected with Syphilis worldwide. Congenital syphilis contributes significantly to infant mortality, accounting for 305,000 annual perinatal deaths worldwide in 2013. Globally, more than 1.4 million pregnant women were infected with HIV as of 2015, and MTCT of HIV is estimated to have resulted in over 150,000 infant cases in 2015. |
Product |
Collaborator |
Phase I Feasibility |
Phase II Development |
Phase III Verification & Validation |
Phase IV Clinical & Regulatory |
Phase V Commercial Launch |
DPP HIV-Syphilis System (US) |
Self-funded |
✓ |
✓ |
✓ |
✓ |
PMA pending |
DPP Dengue IgM/IgG System |
Self-funded |
✓ |
✓ |
✓ |
✓ |
CE and ANVISA |
DPP Dengue NS1 Antigen System |
Self-funded |
✓ |
✓ |
✓ |
✓ |
CE and ANVISA pending |
DPP Chikungunya IgM/IgG System |
Self-funded |
✓ |
✓ |
✓ |
✓ |
CE and ANVISA |
DPP Zika Chikungunya Dengue IgM/IgG System |
Self-funded |
✓ |
✓ |
✓ |
✓ |
CE and ANVISA |
DPP Ebola Antigen System |
CDC |
✓ |
✓ |
✓ |
✓ |
FDA-EUA |
DPP Fever Assay Asia |
FIND |
✓ |
✓ |
✓ |
✓ |
|
DPP Fever Assay Africa |
Paul Allen Foundation |
✓ |
✓ |
✓ |
||
DPP Fever Assay Malaysia |
Self-funded |
✓ |
✓ |
✓ |
✓ |
| • | In January 2015 we entered into an agreement with the Concussion Science Group Division of Perseus Science Group LLC, or Perseus, to develop a rapid diagnostic test for traumatic brain injury utilizing both our DPP and optical analyzer technologies. |
| • | In October 2017 we signed a biomarker development project agreement with AstraZeneca plc, or AstraZeneca, utilizing both our DPP and optical analyzer technologies. |
| • | In April 2018, we entered into a collaboration agreement with LumiraDx to develop new rapid diagnostic tests for infectious diseases. Under terms of the agreement, we receive funding from LumiraDx, subject to satisfying certain milestones, to develop certain neibiw rapid infectious disease tests. Following the regulatory approval and commercialization of tests in accordance with the agreement, we will both sell reagents to, and receive royalty payments from, LumiraDx on sales of all products developed through this collaboration. |
| • | In July 2019 we entered into a collaboration agreement with Shire, a subsidiary of Takeda Pharmaceutical to develop a novel rapid diagnostic test to detect an undisclosed biomarker. |
| • | In March 2020 we completed the technical feasibility phase for a potential companion/compatible diagnostic test being developed in collaboration with Shire. The program is focused within Takeda’s Rare Diseases Therapeutic Area Unit, which aspires to transform the treatment of rare diseases in immunology, hematology, metabolic and lysosomal storage disorders. Based on the progress, in March 2020 Takeda provided the next tranche of funding for the next phase of the program. |
| • | We entered into agreements with LumiraDx in March 2020 (as amended in April 2020) to, among other things, develop a diagnostic test for the detection of the COVID-19 virus and IgM and IgG antibodies on the LumiraDx platform. |
| • | In July 2020, we were selected to conduct a second research and development services program for Takeda utilizing our DPP technology and Micro Reader analyzers. |
Product |
Collaborator |
Phase I Feasibility |
Phase II Development |
Phase III Verification &Validation |
Phase IV Clinical/ Regulatory |
Phase V Commercial Launch |
DPP Rare Disease (undisclosed biomarker) |
Takeda |
✓ |
✓ |
|||
DPP (undisclosed biomarker) |
Takeda |
✓ |
||||
DPP COVID-19 Antigen System |
BARDA |
✓ |
||||
COVID-19 Test |
LumiraDx |
✓ |
✓ |
✓ |
||
Infectious Disease Portfolio |
LumiraDx |
✓ |
✓ |
|||
DPP Biomarker Development Project (undisclosed biomarker) |
AstraZeneca |
✓ |
✓ |
✓ |
CE Mark* |
|
DPP TBI |
Perseus |
✓ |
✓ |
| • | patent protection; |
| • | scientific expertise; |
| • | ability to develop and market products and processes; |
| • | ability to obtain required regulatory approvals; |
| • | ability to manufacture cost-effective products that meet applicable regulatory requirements; |
| • | access to adequate capital; and, |
| • | ability to attract and retain qualified personnel. |
June 30, 2020 |
June 30, 2019 |
|||||||||||||||
TOTAL REVENUES |
$ |
5,111 |
100 |
% |
$ |
9,888 |
100 |
% |
||||||||
OPERATING COSTS AND EXPENSES: |
||||||||||||||||
Cost of product sales |
5,671 |
111 |
% |
6,990 |
71 |
% |
||||||||||
Research and development expenses |
1,922 |
38 |
% |
2,101 |
22 |
% |
||||||||||
Selling, general and administrative expenses |
4,397 |
41 |
% |
4,097 |
43 |
% |
||||||||||
Severance and restructuring costs |
388 |
0 |
% |
- |
0 |
% |
||||||||||
12,378 |
13,188 |
|||||||||||||||
LOSS FROM OPERATIONS |
(7,267 |
) |
(3,300 |
) |
||||||||||||
OTHER (EXPENSE) INCOME, NET |
(712 |
) |
6 |
|||||||||||||
LOSS BEFORE INCOME TAXES |
(7,979 |
) |
(156 |
)% |
(3,294 |
) |
(36 |
)% |
||||||||
Income tax benefit |
(135 |
) |
(107 |
) |
||||||||||||
NET LOSS |
$ |
(7,844 |
) |
$ |
(3,187 |
) |
||||||||||
For the Three Months Ended June 30 |
Favorable/(Unfavorable) |
|||||||||||||||
2020 |
2019 |
$ Change |
% Change |
|||||||||||||
Net product sales |
$ |
3,792 |
$ |
8,785 |
$ |
(4,993 |
) |
56.8 |
% |
|||||||
Less: Cost of product sales |
(5,671 |
) |
(6,990 |
) |
1,319 |
18.9 |
% |
|||||||||
Gross product margin |
$ |
(1,879 |
) |
$ |
1,795 |
$ |
(3,674 |
) |
204.7 |
% |
||||||
Gross product margin percentage |
(49.6 |
)% |
20.4 |
% |
||||||||||||
| • | $1 million unfavorable product sales volume as described above, together with |
| • | $2.6 million unfavorable product margins related to the cost of returned product and product shipped outside the U.S. |
For the Three Months Ended June 30 |
Favorable/(Unfavorable) |
|||||||||||||||
2020 |
2019 |
$ Change |
% Change |
|||||||||||||
Clinical and regulatory affairs |
$ |
178 |
$ |
323 |
$ |
145 |
44.9 |
% |
||||||||
Other research and development |
1,744 |
1,778 |
34 |
1.9 |
% |
|||||||||||
Total research and development |
$ |
1,922 |
$ |
2,101 |
$ |
179 |
8.5 |
% |
||||||||
June 30, 2020 |
June 30, 2019 |
|||||||||||||||
TOTAL REVENUES |
$ |
11,971 |
100 |
% |
$ |
18,430 |
100 |
% |
||||||||
OPERATING COSTS AND EXPENSES: |
||||||||||||||||
Cost of product sales |
10,045 |
84 |
% |
12,002 |
65 |
% |
||||||||||
Research and development expenses |
3,881 |
32 |
% |
4,318 |
23 |
% |
||||||||||
Selling, general and administrative expenses |
8,554 |
71 |
% |
8,110 |
44 |
% |
||||||||||
Severance and restructuring costs |
1,111 |
9 |
% |
- |
0 |
% |
||||||||||
Acquisition costs |
64 |
1 |
% |
396 |
2 |
% |
||||||||||
23,655 |
24,827 |
|||||||||||||||
LOSS FROM OPERATIONS |
(11,684 |
) |
(6,396 |
) |
||||||||||||
OTHER (EXPENSE) INCOME, NET |
(1,374 |
) |
13 |
|||||||||||||
LOSS BEFORE INCOME TAXES |
(13,058 |
) |
(109 |
)% |
(6,383 |
) |
(35 |
)% |
||||||||
Income tax benefit |
(215 |
) |
(380 |
) |
||||||||||||
NET LOSS |
$ |
(12,843 |
) |
$ |
(6,003 |
) |
||||||||||
For the Six Months Ended |
Favorable/(Unfavorable) |
|||||||||||||||
June 30, 2020 |
June 30, 2019 |
$ Change |
% Change |
|||||||||||||
Net product sales |
$ |
9,508 |
$ |
15,409 |
$ |
(5,901 |
) |
38.3 |
% |
|||||||
Less: Cost of product sales |
10,045 |
(12,002 |
) |
1,957 |
16.3 |
% |
||||||||||
Gross product margin |
$ |
(537 |
) |
$ |
3,407 |
$ |
(3,944 |
) |
115.8 |
% |
||||||
Gross product margin percentage |
(5.6 |
)% |
22.1 |
% |
||||||||||||
| • | $1.3 million unfavorable product sales volume as described above, together with |
| • | $2.6 million unfavorable product margins related to the cost of returned product and product shipped outside the U.S. |
For the Six Months Ended |
Favorable/(Unfavorable) |
|||||||||||||||
June 30, 2020 |
June 30, 2019 |
$ Change |
% Change |
|||||||||||||
Clinical and regulatory affairs |
$ |
500 |
$ |
763 |
$ |
263 |
34.5 |
% |
||||||||
Other research and development |
3,381 |
3,555 |
174 |
4.9 |
% |
|||||||||||
Total Research and Development |
$ |
3,881 |
$ |
4,318 |
$ |
437 |
10.1 |
% |
||||||||
June 30, 2020 |
||||
(in thousands) |
||||
Cash and cash equivalents |
$ |
36,427,468 |
||
Accounts receivable, net of allowance for doubtful amounts |
2,610,587 |
|||
Inventories, net |
14,131,540 |
|||
Prepaid expenses and other current assets |
742,908 |
|||
Total current assets |
53,912,503 |
|||
Less: Total current liabilities |
14,296,153 |
|||
Working capital |
$ |
39,616,350 |
||
| ITEM 4. | CONTROLS AND PROCEDURES |
| (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 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 June 30, 2020 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 principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. |
| (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 June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
| ITEM 1A. | RISK FACTORS |
| • | our ability to compete with companies that are currently in, or may in the future enter, the market for our products; |
| • | our ability to control costs, including our operating expenses; |
| • | our ability to successfully expand our business; |
| • | our ability to meet customer demand; |
| • | the amount and timing of operating expenses, particularly sales and manufacturing expenses, related to the maintenance and expansion of our business, operations and infrastructure; and |
| • | general economic and political conditions in our markets. |
| • | perceptions by members of the health care community, including physicians, about the safety and effectiveness of our products; |
| • | limitation on use or warnings required by FDA in our product labeling; |
| • | cost-effectiveness of our products relative to competing products; |
| • | convenience and ease of administration; |
| • | potential advantages of alternative treatment methods; |
| • | availability of reimbursement for our products from government or other healthcare payers; and |
| • | effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any. |
| • | patent protection; |
| • | scientific expertise; |
| • | ability to develop and market products and processes; |
| • | ability to obtain required regulatory approvals; |
| • | ability to manufacture cost-effective products that meet applicable regulatory requirements; |
| • | access to adequate capital; and |
| • | ability to attract and retain qualified personnel. |
| • | incur, assume or guarantee additional Indebtedness (as defined in the Credit Agreement); |
| • | repurchase capital stock; |
| • | make other restricted payments including, without limitation, paying dividends and making investments; |
| • | create liens; |
| • | sell or otherwise dispose of assets, including capital stock of subsidiaries; |
| • | enter into agreements that restrict dividends from subsidiaries; |
| • | enter into mergers or consolidations; and |
| • | enter into transactions with affiliates |
| ITEM 6. | EXHIBITS |
Number |
Description |
|
Underwriting Agreement dated May 7, 2020 between Chembio Diagnostics, Inc. and Robert W. Baird & Co. Incorporated, as representative of the several underwriters named therein |
||
Amendment No. 1, dated June 16, 2020, to the letter agreement dated January 17, 2020 between Chembio Diagnostics, Inc. and Gail S. Page |
||
Letter agreement dated June 15, 2020 between Chembio Diagnostics, Inc. and Gail S. Page |
||
Amendment No. 1, dated June 30, 2020, to the letter agreement dated June 15, 2020 between Chembio Diagnostics, Inc. and Gail S. Page |
||
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 |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Definition Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Label Linkbase Document |
|
101.PRE |
Inline XBRL Taxonomy Presentation Linkbase Document |
|
104 |
Cover page formatted as Inline XBRL and contained in Exhibit 101 |
| † | Indicates management contract or compensatory plan or arrangement. |
| * | The certifications attached as Exhibit 32.1 accompany the Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
| ‡ | Certain sensitive personally identifiable information in this exhibit was omitted by means of redacting a portion of the text and replacing it with [***]. |
Chembio Diagnostics, Inc. |
||
Date: August 7, 2020 |
By: /s/ Richard L. Eberly |
|
Richard L. Eberly |
||
Chief Executive Officer and President |
||
Date: August 7, 2020 |
By: /s / Neil A. Goldman |
|
Neil A. Goldman |
||
Chief Financial Officer and Executive Vice President |
|
Gail S. Page
|
Chembio Diagnostics, Inc.
|
||
|
/s/ Gail S. Page
|
By:
|
/s/ Richard L. Eberly |
|
|
Richard L. Eberly
|
|||
|
Chief Executive Officer and President
|
|||
| 1. |
Duties. You agree to serve the Company faithfully, diligently and competently and, except as determined in accordance with Section 1(b), to devote approximately one-half of your full
working time to the performance of the duties and responsibilities set forth in this Section 1.
|
| (a) |
Basic Chair Duties. During the Term, you will have all of the duties, responsibilities and authority commensurate with the position of Chair of the Board during the Term, including:
|
| (i) |
to chair meetings of the Board, and otherwise administer affairs of the Board, in a manner that will foster a collective decision-making process for the Board’s actions and responsibilities;
|
| (ii) |
to serve as the primary liaison between the Board and members of management of the Company, including to ensure an effective communication flow from management to the Board and its committees;
|
| (iii) |
as otherwise set forth from time to time in the charter and bylaws of the Company or in the corporate law of the jurisdiction in which the Company has been incorporated; and
|
| (iv) |
as otherwise may be requested of you by the Board from time to time consistent with the position of Chair of the Board.
|
| (b) |
Supplemental Executive Chair Duties. As Executive Chair you will have the following additional duties, responsibilities and authority through at least December 31, 2020:
|
| (i) |
to the extent specifically requested by the Chief Executive Officer and President of the Company (the “CEO”), advise the CEO on a strategic level with respect to operations and finance and advise
other members of the Company’s management as the CEO specifies; and
|
| (ii) |
serve as mentor to the CEO by providing advice, counseling and supervision to the CEO when and as specifically requested by the CEO and seeking to motivate and support the CEO in the execution of his duties and responsibilities.
|
|
|
In December 2020, you, the Compensation Committee of the Board (the “Committee”) and the CEO will discuss and mutually evaluate the nature and extent of the duties,
responsibilities and authority that you will have under this Section 1(b) during the remainder of the Term, commencing on January 1, 2021, in light of then-existing conditions and circumstances. The Committee reserves the right, based on
such discussion and evaluation, to modify the duties, responsibilities and authority set forth in the first sentence of this Section 1(b) for such remainder of the Term, except that no such modification may, without your prior consent,
increase the hours required for the performance of your duties and responsibilities as Executive Chair in 2021 to exceed one-half of your full working time.
|
| (c) |
Clarification of Scope of Duties. Your duties and responsibilities as Executive Chair shall consist exclusively of actions taken to help the Board to fulfill its duties and responsibilities. As
Executive Chair, you shall provide leadership to the Board and not to the Company, which is the responsibility of the CEO. Your duties, responsibilities and authority as Executive Chair shall not include any duties, responsibilities and
authority associated with the position of CEO or of any other management position, and the provisions of Section 1(b) shall not be interpreted in a manner that, whether at the request of the CEO or otherwise, would result in your performing
any duties or responsibilities, or exercising any authority, associated with the position of CEO or of any other management position. For purposes of clarity, it is understood that your duties, responsibilities and authority as Executive
Chair during the Term will be more limited than those you have been fulfilling during the transition period following your service as the Company’s interim chief executive officer, including the portion of such transition period during
which you served as Executive Chair prior to the date hereof. As examples (but not an exclusive list) of actions and activities that you will no longer be required or authorized to perform as of the commencement of the Term, you shall not
participate in (i) executive leadership team or other management meetings, except as may be requested by the CEO for a specific, limited issue or purpose or (ii) investor or public relations activities, except as contemplated by the
Company’s written communications policies and procedures for director interaction with stockholders and other market participants (for which purpose the Company confirms that an updated statement of such policies and programs will be
implemented on or before June 30, 2020). The Committee shall, after consulting with the Executive Chair and the CEO, have full power and authority to rule on any question or uncertainty that arises with respect to the interpretation of the
subject matter of this Section 1(c).
|
| (d) |
Other Board Duties. It is expected that you will continue as a member of the Board throughout the Term, subject to your re-election to the Board at the Company’s 2020 Annual Meeting of
Stockholders. During the Term, you will not serve as a member of any of the standing committees of the Board (that is, the Audit Committee, the Compensation Committee, or the Nominating and Corporate Governance Committee). You may, at the
invitation of the appropriate Chairs of those standing committees, elect to attend meetings of any or all of those committees to the extent you determine that it will help you to fulfill your duties and responsibilities as Executive Chair.
|
| (e) |
Unrelated Activities. You may serve in any capacity with one or more other public or private organizations during the Term, provided that any such
activities do not, at the time the activities commence or thereafter, (i) create an actual or potential business or fiduciary conflict of interest with your services as Executive Chair, (ii) individually or in the aggregate, interfere
materially with the performance of your duties to the Company in your capacity as Executive Chair, or (iii) violate or breach any written policy or program of the Company applicable in your capacity as a member of the Board.
|
| 2. |
Term. Notwithstanding any other provision of this Agreement, the Term will terminate immediately upon the expiration or termination of your service as a member of the Board for any reason prior to the Company’s 2021 Annual Meeting
of Stockholders.
|
| 3. |
Compensation.
|
| (a) |
Retainer. The Company will pay you a cash retainer at an annualized rate of $175,000 for your time commitment of one-half of your full time during the Term, less applicable withholdings for
taxes, payable in accordance with the Company’s historical practice for Board-related retainers or with such other mutual agreement as may be agreed upon by the parties.
|
| (b) |
Equity Awards. You will not be entitled to receive any equity award from the Company during the Term solely in connection with your service as Executive Chair. For purposes of clarity, your
currently outstanding equity awards will continue to vest during the Term in accordance with their terms, without any change as the result of this Agreement.
|
| (c) |
Reimbursements. The Company will reimburse you for reasonable out‑of-pocket business, entertainment and travel expenses in connection with the performance of your duties under this Agreement that
are incurred and submitted in accordance with the Company’s expense reimbursement policy from time to time in effect with respect to directors generally.
|
| (d) |
Bonuses. Cash or equity bonuses, if any, for your services as Executive Chair will be at the sole discretion of the Committee and shall be agreed upon by you and the Committee in advance when and
if determined by the Committee to be appropriate.
|
| 4. |
Independent Contractor. You shall be an independent contractor, and not an employee, of the Company.
|
| 5. |
Confidential Information and Company Records.
|
| (a) |
Confidentiality. During the Term and continuing thereafter, you agree that you will not, whether alone or in association with any other person, directly or indirectly, knowingly divulge, furnish
or make accessible to any third person or organization other than in the regular course of the Company’s business any confidential information concerning the Company or its subsidiaries or its or their business, including confidential
methods of operation and organization, confidential sources of supply and customer or other mailing lists.
|
| (b) |
Records. All records, files, documents and the like, or abstracts, summaries or copies thereof, relating to the business of the Company or the business of any subsidiary or affiliated companies,
which the Company or you prepare or use or come into contact with, will remain the sole property of the Company or the affiliated or subsidiary company, as the case may be, and will be promptly returned upon termination of the Transition
Period or at such earlier time as may be requested by the Board.
|
| (c) |
Enforcement. The provisions of this Section 5 shall survive the end of the Term and the end of the Transition Period. You acknowledge that any remedy at law for a breach or threatened breach of
any of the provisions of this Section 5 may be inadequate and that accordingly the Company shall be entitled to an injunction or specific performance or any other mode of equitable relief without the necessity of showing any actual damage,
posting a bond or furnishing other security.
|
| 6. |
Company Policies. You will be bound by and comply fully with the Company’s standard confidentiality agreement (a form of which was been provided to you), insider trading policy, code of business conduct and ethics, and any other
policies and programs adopted by the Company regulating the behavior of its employees, as such policies and programs may be amended from time to time to the extent the same are not inconsistent with this Agreement.
|
| 7. |
Indemnification. To the maximum extent permitted by law, you will be indemnified under the Company’s charter and bylaws while serving as Executive Chair, and you will continue to be named as an insured on the director and officer
liability insurance policy currently maintained by the Company, or as may be maintained by the Company from time to time.
|
| 8. |
Miscellaneous.
|
| (a) |
Notices. Notices under this Agreement must be in writing and will be deemed to have been given when personally delivered or two days after mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to you will be addressed to you at the home address that you have most recently communicated to the Company in writing. Notices to the Company will be addressed to the CEO at the
Company’s corporate headquarters. Either party hereto may change its address for the purpose of this Section 8(a) by written notice similarly given.
|
| (b) |
Successors. This Agreement is binding on and may be enforced by the Company and its successors and permitted assigns and is binding on and may be enforced by you and your heirs and legal
representatives.
|
| (c) |
Waiver. No provision of this Agreement may be modified or waived except in writing signed by you and a duly authorized officer of the Company.
|
| (d) |
Severability. The invalidity, illegality or unenforceability of any provision or provisions of this Agreement shall not affect any other provision of this Agreement, which shall remain in full
force and effect, nor shall the invalidity, illegality or unenforceability of a portion of any provision of this Agreement affect the balance of such provision. In the event that any one or more of the provisions contained in this Agreement
or any portion thereof shall for any reason be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be reformed, construed and enforced as if such invalid, illegal or unenforceable provision had never been
contained in this Agreement.
|
| (e) |
Survival. The provisions of this Agreement shall survive the expiration or termination of the Term for any reason to the extent necessary to enable the parties to enforce their respective rights
under this Agreement.
|
| (f) |
Entire Agreement. This Agreement constitutes the entire understanding and agreement you and between the Company regarding your service as Executive Chair. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and agreements between you and the Company relating to such service.
|
| (g) |
Modifications. This Agreement may not be modified or amended, nor may any rights under it be waived, except in a writing signed and agreed to by both you and the Committee.
|
| (h) |
Interpretation. For purposes of this Agreement:
|
| (i) |
headings used in this Agreement are for convenience of reference only and shall not, for any purpose, be deemed a part of this Agreement;
|
| (ii) |
the word “including” as used in this Agreement shall not be construed so as to exclude any other thing not referred to or described; and
|
| (iii) |
this Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
|
| (i) |
Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
|
|
Chembio Diagnostics Inc.
|
||
|
By:
|
/s/ Richard L. Eberly
|
|
|
Chief Executive Officer and President
|
||
|
Accepted and agreed:
|
||
|
Gail S. Page
|
||
|
/s/ Gail S. Page
|
||
| 1. |
Term. Notwithstanding any provision of the Agreement, the Term shall terminate as of 5:00 p.m., Eastern daylight saving
time, on June 30, 2020, and Page’s performance of, and compensation for, services as Executive Chair shall terminate as of such time.
|
| 2. |
Board Service and Compensation. Page shall serve as a member of the Board until her term expires at the Annual Meeting.
During the period from the end of the Term until the Annual Meeting: (a) Page shall be entitled to receive a retainer fee for service as a member of the Board, in accordance with the policy in effect as of the date of the Amendment with
respect to non-employee members of the Board generally; (b) Page’s currently outstanding equity awards shall continue to vest in accordance with their terms, without any change as the result of this Agreement, and she shall be entitled to
elect to net exercise some or all of her outstanding vested options, consistent with the terms of the options and the Company’s past practices; and (c) the Company shall reimburse Page for her reasonable out of-pocket expenses that are
incurred and submitted in accordance with the Company’s expense reimbursement policy from time to time in effect with respect to non-employee members of the Board generally.
|
| 3. |
Covenants. Section 5 of the Agreement is deleted in its entirety and is amended and restated as set forth below:
|
|
(a)
|
Confidentiality.
|
| (i) |
Page acknowledges that, in the course of her services (her “Services”) as interim Chief Executive Officer of the Company, as a consultant to the Company during the
Transition Period and as a member of the Board (including certain of the committees of the Board), Page has and will come to know general and specific information (collectively, “Confidential Information”)
that is confidential and proprietary to the Company and/or its subsidiaries (collectively, the “Company Entities”). Confidential Information includes oral and written information about, relating to or
concerning the Company Entities that the Company has, by its policies or otherwise, indicated (A) should be kept confidential, (B) should reasonably be deemed confidential by Page whether or not it was designated as confidential, or (C) if
disclosed could be injurious to any of the Company Entities. Confidential Information includes business plans, concepts, strategies, proposals, processes, methods, internal procedures, financial statements, projections, technical
specifications, data, supplier lists, marketing plans, sales strategies, product designs, customer information, and other confidential operational information of any of the Company Entities. Without limiting the generality of the foregoing,
Confidential Information specifically includes the Company Entities’: personnel lists and files, and related confidential information; hiring plans and strategies; compensation data and strategies; talent management plans and strategies; and
sales and marketing strategies.
|
| (ii) |
Page agrees that Confidential Information is the sole and exclusive property of the Company Entities, and Page agrees to hold, in a fiduciary capacity for the benefit of the Company Entities, all Confidential
Information acquired by Page during the period of her Services (including the time from the date of this Amendment to the date of the Annual Meeting). Page agrees and covenants that, other than as required by law, she shall not use to the
detriment of any Company Entity or divulge, publicly or privately, any specified or other Confidential Information regarding any aspect of the business and operations of the Company Entities acquired during or as a result of her Services.
Furthermore, to the extent that disclosure of any Confidential Information is controlled by statute, regulation or other law, Page agrees that she is bound by such laws and that the Agreement, as amended by this Amendment, shall not operate
as a waiver of any such non-disclosure requirement.
|
| (iii) |
Page agrees that, during the six‑month period following the Annual Meeting, she shall refrain from making any statements, whether privately or publicly and whether implied or expressed, concerning any of the
Company Entities, their respective businesses or operations, or any of their respective directors, officers, employees or service providers (including accountants, attorneys, financial advisers, and lenders and other creditors) other than as
required by law, except (A) with respect to communications, on a confidential basis, with her accountants, attorneys, financial advisers and credit providers or her immediate family members or (B) with prior written permission from the
Company and in cooperation with the Company’s internal personnel and investor relations firm. The requirements of this paragraph (iii) are in addition to the requirements of Section 5(c).
|
| (b) |
Records. All records, files, documents and the like, or abstracts, summaries or copies thereof relating to
the business of any Company Entity, which such Company Entity or Page prepares or uses or with which she has come into contact, shall remain the sole property of such Company Entity and shall be promptly returned upon termination of the
Page’s membership on the Board or at such earlier time as may be requested by the Board. The Company may issue to Page a list of items to be returned, detailing due dates and requesting she work with any assigned vendor to retrieve any
electronic files belonging to any Company Entity stored on any personal computers or any mobile or other devices such as tablets or telephones, and Page shall use her reasonable efforts to comply promptly with such requests. Additionally,
in order that the Company can implement a smooth and professional transition of all matters with which Page was involved during the period of her Services, Page agrees to cooperate by being reasonably responsive to any questions conveyed by
the CEO by email or telephone regarding any issues and commitments that she managed, oversaw or played a role in during the period of her Services.
|
| (c) |
Non-Disparagement. Page agrees that, at all times following her signing of this Amendment, Page shall not
engage in any vilification of any of the Company Entities or any of their respective directors, officers, employees or service providers (including accountants, attorneys, financial advisers, and lenders and other creditors) and shall
refrain from making any false, negative, critical. defamatory or disparaging statements, implied or expressed, concerning any of the Company Entities or any of their respective directors, officers, employees or service providers (including
as aforesaid), including with respect to management or communication style, methods of doing business, quality of products and services, or role in the community. Page further agrees to do nothing that would damage the business reputation
or goodwill of any of the Company Entities or any of their respective directors, officers, employees or service providers (including as aforesaid). The Company agrees that, promptly following the Annual Meeting, its Chair of the Board shall
instruct the members of the Board and the Company’s Executive Leadership Team that they shall refrain, and such individuals shall at all times thereafter refrain, from making any false, negative, critical, defamatory or disparaging
statements, implied or expressed, concerning Page that would damage her reputation.
|
| (d) |
Trading Restrictions. Page acknowledges and agrees that she (i) shall not buy or sell any securities of the
Company during the period from the date of this Amendment until the commencement of the second trading day on the NASDAQ Stock Market after the date on which the Company publicly issues its earnings release for the quarter ending June 30,
2020, other than any shares of common stock acquired from the Company pursuant to exercises of options for cash, and (ii) shall comply in all respects with applicable federal securities laws pertaining to “insider trading” with respect to
securities of the Company.
|
| (e) |
Enforcement. The provisions of this Section 5 shall survive the termination of Page’s service as a member of
the Board. Page acknowledges that any remedy at law for a breach or threatened breach of any of the provisions of this Section 5 may be inadequate and that accordingly the Company shall be entitled to an injunction or specific performance
or any other mode of equitable relief without the necessity of showing any actual damage, posting a bond or furnishing other security.”
|
| 4. |
Cooperation in Legal Matters. Upon reasonable notice by the Company, Page shall voluntarily
provide thorough and accurate information and truthful testimony to and on behalf of the Company regarding (a) any litigation, arbitration, or government or other administrative investigations or proceedings initiated by, or brought or
threatened against, any Company Entity or in which any Company Entity is an indemnifying party, including participating in meetings with counsel representing any Company Entity and testifying at depositions, trials or other proceedings or
(b) any dispute between any Company Entity and any other entity or person (other than Page) arising from or related to any act or omission by Page that actually or allegedly occurred during the period of her Services. In making any request
for cooperation or assistance under this Section 4, a Company Entity shall attempt to work with Page to arrange times that reasonably accommodate her, and in responding to any such request, Page shall reasonably accommodate her schedule to
the needs of such Company Entity. Except as may be required by law, Page shall not disclose to or to discuss with anyone who is not directing or assisting such Company Entity in any such litigation, arbitration or investigation, other than
Page’s own attorney, the fact of or subject matter of the litigation, arbitration or investigation. If the services described above are requested, Page will be
compensated at the rate of $218.75 per hour for such services as an independent contractor and will be reimbursed (consistent with the Company’s expense reimbursement policies and procedures) for reasonable out-of-pocket expenses,
including travel expenses but excluding legal fees and expenses, incurred by her in connection with her compliance with this Section 4), provided that (i) Page shall not be entitled to receive any compensation or expense reimbursement
pursuant to this Section 4 with respect to any litigation, arbitration, or government or other administrative proceeding (y) to which Page is a party or (z) for which, pursuant to the indemnification provisions of the Company’s charter
and bylaws or a director and officer liability insurance policy maintained by the Company, Page either is eligible to receive expense reimbursements or is disqualified, under such indemnification provisions or insurance policy, from
receiving expense reimbursements solely as the result of acts or omissions by her and (ii) in no event shall Page be entitled to any compensation for time spent testifying at depositions, trials or other proceedings.
|
| 5. |
Indemnification. Section
7 of the Agreement is deleted in its entirety and is amended and restated as set forth below:
|
| 6. |
Miscellaneous. Except to the extent set forth herein, the terms of the Agreement are unchanged and shall remain in full
force and effect. This Amendment, and its validity, interpretation and enforcement, shall be governed by the laws of the State of New York, excluding conflict of laws principles
|
|
Gail S. Page
|
Chembio Diagnostics, Inc.
|
||
| /s/ Gail S. Page |
By:
|
/s/ Richard L. Eberly | |
|
Richard L. Eberly
|
|||
|
Chief Page Officer and President
|
|||
|
Date: August 7, 2020
|
/s/ Richard L. Eberly
|
|
Richard L. Eberly
|
|
|
Chief Executive Officer and President
|
|
|
(Principal Executive Officer)
|
|
Date: August 7, 2020
|
/s/ Neil A. Goldman
|
|
Neil A. Goldman
|
|
|
Chief Financial Officer and Executive Vice President
|
|
|
(Principal Financial Officer)
|
|
Date: August 7, 2020
|
/s/ Richard L. Eberly
|
|
Richard L. Eberly
|
|
|
Chief Executive Officer and President
|
|
|
(Principal Executive Officer)
|
|
Date: August 7, 2020
|
/s/ Neil A. Goldman
|
|
Neil A. Goldman
|
|
|
Chief Financial Officer and Executive Vice President
|
|
|
(Principal Financial Officer)
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| CURRENT ASSETS: | ||
| Accounts receivable, allowance for doubtful accounts | $ 156,000 | $ 62,000 |
| STOCKHOLDERS' EQUITY: | ||
| Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
| Common stock, shares issued (in shares) | 20,194,832 | 17,733,617 |
| Treasury stock, shares (in shares) | 33,290 | 0 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| REVENUES: | ||||
| TOTAL REVENUES | $ 5,111,172 | $ 9,888,136 | $ 11,970,755 | $ 18,430,401 |
| COSTS AND EXPENSES: | ||||
| Cost of product revenue | 5,670,737 | 6,989,975 | 10,045,179 | 12,001,611 |
| Research and development expenses | 1,922,306 | 2,101,020 | 3,881,159 | 4,318,652 |
| Selling, general and administrative expenses | 4,397,593 | 4,096,942 | 8,554,234 | 8,110,013 |
| Severance, restructuring and other related costs | 387,540 | 0 | 1,110,658 | 0 |
| Acquisition costs | 0 | 0 | 63,497 | 395,612 |
| TOTAL COSTS AND EXPENSES | 12,378,176 | 13,187,937 | 23,654,727 | 24,825,888 |
| LOSS FROM OPERATIONS | (7,267,004) | (3,299,801) | (11,683,972) | (6,395,487) |
| OTHER INCOME: | ||||
| Interest (expense) income | (712,052) | 5,918 | (1,374,192) | 12,602 |
| LOSS BEFORE INCOME TAXES | (7,979,056) | (3,293,883) | (13,058,164) | (6,382,885) |
| Income tax (benefit) | (135,259) | (107,203) | (214,818) | (379,672) |
| NET LOSS | $ (7,843,797) | $ (3,186,680) | $ (12,843,346) | $ (6,003,213) |
| Basic loss per share (in dollars per share) | $ (0.42) | $ (0.19) | $ (0.71) | $ (0.36) |
| Diluted loss per share (in dollars per share) | $ (0.42) | $ (0.19) | $ (0.71) | $ (0.36) |
| Weighted average number of shares outstanding, basic (in shares) | 18,868,144 | 16,914,171 | 18,032,723 | 16,906,936 |
| Weighted average number of shares outstanding, diluted (in shares) | 18,868,144 | 16,914,171 | 18,032,723 | 16,906,936 |
| Net Product Sales [Member] | ||||
| REVENUES: | ||||
| TOTAL REVENUES | $ 3,791,574 | $ 8,785,041 | $ 9,508,166 | $ 15,409,326 |
| R&D and Grant Revenue [Member] | ||||
| REVENUES: | ||||
| TOTAL REVENUES | 1,193,973 | 854,264 | 2,101,660 | 2,556,053 |
| License and Royalty Revenue [Member] | ||||
| REVENUES: | ||||
| TOTAL REVENUES | $ 125,625 | $ 248,831 | $ 360,929 | $ 465,022 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) [Abstract] | ||||
| Net loss | $ (7,843,797) | $ (3,186,680) | $ (12,843,346) | $ (6,003,213) |
| Other comprehensive loss: | ||||
| Foreign currency translation adjustments | (175,447) | (313,225) | (1,038,741) | (111,039) |
| Comprehensive loss | $ (8,019,244) | $ (3,499,905) | $ (13,882,087) | $ (6,114,252) |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in-Capital [Member] |
Treasury Stock [Member] |
Accumulated Deficit [Member] |
Associated Other Comprehensive Income [Member] |
Total |
|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2018 | $ 171,664 | $ 90,953,788 | $ (57,909,874) | $ 112,196 | $ 33,327,774 | |
| Balance (in shares) at Dec. 31, 2018 | 17,166,459 | |||||
| Common Stock: | ||||||
| Restricted stock compensation, net | $ 0 | 281,248 | 0 | 0 | 281,248 | |
| Options: | ||||||
| Stock option compensation | 0 | 66,259 | 0 | 0 | 66,259 | |
| Comprehensive loss | 0 | 0 | 0 | 202,186 | 202,186 | |
| Net loss | 0 | 0 | (2,816,533) | 0 | (2,816,533) | |
| Balance at Mar. 31, 2019 | $ 171,664 | 91,301,295 | (60,726,407) | 314,382 | 31,060,934 | |
| Balance (in shares) at Mar. 31, 2019 | 17,166,459 | |||||
| Balance at Dec. 31, 2018 | $ 171,664 | 90,953,788 | (57,909,874) | 112,196 | $ 33,327,774 | |
| Balance (in shares) at Dec. 31, 2018 | 17,166,459 | |||||
| Common Stock: | ||||||
| Issuance of stock, net (in shares) | 0 | |||||
| Options: | ||||||
| Comprehensive loss | $ (111,039) | |||||
| Net loss | (6,003,213) | |||||
| Balance at Jun. 30, 2019 | $ 175,655 | 91,674,175 | (63,913,087) | 1,157 | 27,937,900 | |
| Balance (in shares) at Jun. 30, 2019 | 17,565,534 | |||||
| Balance at Mar. 31, 2019 | $ 171,664 | 91,301,295 | (60,726,407) | 314,382 | 31,060,934 | |
| Balance (in shares) at Mar. 31, 2019 | 17,166,459 | |||||
| Common Stock: | ||||||
| Restricted stock issued | $ 3,750 | (3,750) | 0 | 0 | 0 | |
| Restricted stock issued (in shares) | 375,000 | |||||
| Restricted stock compensation, net | $ 0 | 307,774 | 0 | 0 | 307,774 | |
| Restricted stock compensation, net (in shares) | 0 | |||||
| Options: | ||||||
| Exercised | $ 241 | (241) | 0 | 0 | 0 | |
| Exercised (in shares) | 24,075 | |||||
| Stock option compensation | $ 0 | 69,097 | 0 | 0 | 69,097 | |
| Comprehensive loss | 0 | 0 | 0 | (313,225) | (313,225) | |
| Net loss | 0 | 0 | (3,186,680) | 0 | (3,186,680) | |
| Balance at Jun. 30, 2019 | $ 175,655 | 91,674,175 | (63,913,087) | 1,157 | 27,937,900 | |
| Balance (in shares) at Jun. 30, 2019 | 17,565,534 | |||||
| Balance at Dec. 31, 2019 | $ 177,335 | 95,433,077 | $ 0 | (71,585,003) | 9,844 | 24,035,253 |
| Balance (in shares) at Dec. 31, 2019 | 17,733,617 | 0 | ||||
| Common Stock: | ||||||
| Restricted stock issued | $ 343 | 117,956 | $ 0 | 0 | 0 | 118,299 |
| Restricted stock issued (in shares) | 34,249 | 0 | ||||
| Restricted stock compensation, net | $ (4,406) | (292,495) | $ 0 | 0 | 0 | (296,901) |
| Restricted stock compensation, net (in shares) | (440,631) | 0 | ||||
| Shares tendered for withholding taxes | $ 0 | 145,056 | $ (145,056) | 0 | 0 | 0 |
| Shares tendered for withholding taxes (in shares) | 0 | (31,486) | ||||
| Options: | ||||||
| Stock option compensation | $ 0 | 139,449 | $ 0 | 0 | 0 | 139,449 |
| Comprehensive loss | 0 | 0 | 0 | 0 | (863,294) | (863,294) |
| Net loss | 0 | 0 | 0 | (4,999,549) | 0 | (4,999,549) |
| Balance at Mar. 31, 2020 | $ 173,272 | 95,543,043 | $ (145,056) | (76,584,552) | (853,450) | 18,133,257 |
| Balance (in shares) at Mar. 31, 2020 | 17,327,235 | (31,486) | ||||
| Balance at Dec. 31, 2019 | $ 177,335 | 95,433,077 | $ 0 | (71,585,003) | 9,844 | $ 24,035,253 |
| Balance (in shares) at Dec. 31, 2019 | 17,733,617 | 0 | ||||
| Common Stock: | ||||||
| Issuance of stock, net (in shares) | 2,619,593 | |||||
| Options: | ||||||
| Comprehensive loss | $ (1,038,741) | |||||
| Net loss | (12,843,346) | |||||
| Balance at Jun. 30, 2020 | $ 201,948 | 124,143,171 | $ (150,919) | (84,428,349) | (1,028,897) | 38,736,954 |
| Balance (in shares) at Jun. 30, 2020 | 20,194,832 | (33,290) | ||||
| Balance at Mar. 31, 2020 | $ 173,272 | 95,543,043 | $ (145,056) | (76,584,552) | (853,450) | 18,133,257 |
| Balance (in shares) at Mar. 31, 2020 | 17,327,235 | (31,486) | ||||
| Common Stock: | ||||||
| Issuance of stock, net | $ 26,196 | 28,410,545 | $ 0 | 0 | 0 | 28,436,741 |
| Issuance of stock, net (in shares) | 2,619,593 | 0 | ||||
| Restricted stock issued | $ 189 | (189) | $ 0 | 0 | 0 | 0 |
| Restricted stock issued (in shares) | 18,858 | 0 | ||||
| Restricted stock compensation, net | $ (296) | 262,405 | $ 0 | 0 | 0 | 262,109 |
| Restricted stock compensation, net (in shares) | (29,543) | 0 | ||||
| Shares tendered for withholding taxes | $ 0 | (192,161) | $ (5,863) | 0 | 0 | (198,024) |
| Shares tendered for withholding taxes (in shares) | 0 | (1,804) | ||||
| Options: | ||||||
| Exercised | $ 55 | (55) | $ 0 | 0 | 0 | 0 |
| Exercised (in shares) | 5,528 | 0 | ||||
| Stock option compensation | $ 0 | 122,115 | $ 0 | 0 | 0 | 122,115 |
| Warrants exercised | $ 2,532 | (2,532) | $ 0 | 0 | 0 | 0 |
| Warrants exercised (in shares) | 253,161 | 0 | ||||
| Comprehensive loss | $ 0 | 0 | $ 0 | 0 | (175,447) | (175,447) |
| Net loss | 0 | 0 | 0 | (7,843,797) | 0 | (7,843,797) |
| Balance at Jun. 30, 2020 | $ 201,948 | $ 124,143,171 | $ (150,919) | $ (84,428,349) | $ (1,028,897) | $ 38,736,954 |
| Balance (in shares) at Jun. 30, 2020 | 20,194,832 | (33,290) |
DESCRIPTION OF BUSINESS |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| DESCRIPTION OF BUSINESS [Abstract] | |
| DESCRIPTION OF BUSINESS |
NOTE 1 — DESCRIPTION OF BUSINESS:
Chembio Diagnostics, Inc. (“Chembio”) and its subsidiaries (collectively with Chembio, the “Company”) develop and commercialize rapid tests used for the detection and diagnosis of infectious diseases.
The Company has been expanding its product portfolio based upon its proprietary DPP technology, a novel, rapid diagnostic platform that uses a drop of blood from the fingertip to provide high-quality, cost-effective diagnostic results in approximately 15 minutes.
The Company’s product development and commercialization efforts are focused on infectious disease testing. During the six months ended June 30, 2020, the Company refocused its business strategy on the development and commercialization of the DPP COVID-19 System, which consists of a new serological test for COVID-19 and a Micro Reader analyzer. In the six months ended June 30, 2020, the Company developed, received regulatory approval in the US, Brazil and Europe for, and commercialized the DPP COVID-19 System, and began developing its strategy for a portfolio of products both related to and expanding beyond COVID-19. Near the end of that period, the U.S. FDA revoked the Company’s Emergency Use Authorization for the DPP COVID-19 System, and the Company immediately began developing a revised version.
In addition to the DPP COVID-19 System, the Company has a broad portfolio of infectious disease products, which it expects to generate a diminished amount of revenue for the foreseeable future while it focuses on the development, manufacture, and commercialization of the DPP COVID-19 System and related products. Through Research & Development (“R&D”) Services, the Company is developing tests for a rare disease in collaboration with Takeda Pharmaceutical Company Limited and a biomarker development project in collaboration with AstraZeneca plc.
Large and growing markets have been established for these types of tests, initially in high prevalence regions where they are indispensable for large-scale prevention and treatment programs. More generally, the Company believes there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.
The Company’s products are sold globally to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionals and retail establishments under the Company’s DPP, STAT PAK, SURE CHECK and STAT-VIEW registered trademarks or under the private labels of the Company’s marketing partners.
Through R&D Services, the Company develops tests for third parties using its DPP platform and, in limited cases, other platforms in projects that the Company believes have the potential to create value for the rest of its business. In addition, the Company routinely enters into arrangements with governmental and non-governmental organizations for the funding of certain R&D efforts.
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| SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited condensed consolidated financial statements include the accounts of Chembio and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Chembio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.
The Company’s future working capital needs will depend on many factors, including the rate of its business and revenue growth, the timing of its continuing automation of U.S. manufacturing, and the timing of its investment in research and development as well as sales and marketing. If the Company is unable to increase its revenues and manage its expenses in accordance with its operating plan, it may need to reduce the level or slow the timing of the growth plans contemplated by its operating plan, which would likely curtail or delay the growth in its business contemplated by its operating plan and could impair or defer its ability to achieve profitability and generate cash flow, or to seek to raise additional funds through debt or equity financings, strategic relationships, or other arrangements.
All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of June 30, 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
The preparation of the consolidated financial statements in conformity with GAAP requires management to make assumptions and estimates that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and these notes. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, asset impairments, recognition of revenue including variable consideration and pursuant to milestones, useful lives of intangible and fixed assets, stock-based compensation, business combinations, and deferred tax asset valuation allowances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
The carrying values for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents were $26.8 million and $16.0 million as of June 30, 2020 and December 31, 2019, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s total debt of $20.0 million (carrying value of $17.9 million) and $20.0 million (carrying value of $17.6 million) as of June 30, 2020 and December 31, 2019, respectively, is a Level 2 fair value measurement under the hierarchy, and the carrying value approximates fair value.
Fair value measurements of all financial assets and liabilities that are measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:
Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less, and include restricted cash of $3.3 million and $0 as of June 30, 2020 and December 31, 2019, respectively.
The Company is contractually obligated to maintain the restricted cash balance on deposit with a bank as security for the bank’s issuance of a guarantee on behalf of the Company for its performance under purchase orders from and related advance payments by a customer. The Company expects that the restriction will be released within the next twelve months.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the Federal Deposit Insurance Corporation insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the Company’s ability to obtain letters of credit from certain foreign customers and its diverse customer base, both in number of customers and geographic locations.
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service.
The Company records up-front payments related to license agreements as prepaids and amortizes them over their respective economic life. As of both June 30, 2020 and 2019, total prepaids related to license agreements were $100,000.
Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. No impairment of long-lived tangible and intangible assets was recorded for the six months ended June 30, 2020 or 2019.
The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under Accounting Standards Update (“ASU”) 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Product Revenue
Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering the product to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred, because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales. The Company excludes certain taxes from the transaction price (e.g., sales, value added and some excise taxes).
The Company’s contracts with customers often include promises to transfer products or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Typical products sold are diagnostic tests and typical services performed are R&D studies. Revenues from product sales are recognized at a point-in-time and revenues from R&D studies are recognized ratably over the period of the agreement, unless the related performance obligations indicate otherwise.
Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. SSP is directly observable and the Company can use a range of amounts to estimate SSP, as it sells products and services separately, and can determine whether there is a discount to be allocated based on the relative SSP of the various products and services, for the various geographies.
The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.
Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current, and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction, market events and trends, and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts, allowances and returns may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on revenue and earnings in the period of adjustment.
License and Royalty Revenue
The Company receives royalty revenue on sales by its licensee of products covered under patents that the Company owns. The Company does not have future performance obligations under this license arrangement. The Company records revenue based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenue. The relevant period estimates of sales are based on interim data provided by the licensee and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenue are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.
R&D and Grant Revenue
All contracts with customers are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with Accounting Standards Codification (“ASC”) Topic 958. Such contracts are further described under Disaggregation of Revenue below. Grants are invoiced and revenue is recognized ratably as that is the depiction of the timing of the transfer of services. The R&D study, which encompasses various phases of product development processes: design feasibility & planning, product development and design optimization, design verification, design validation and process validation, and pivotal studies, is also recognized ratably.
In June 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018‑08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU clarifies the guidance presented in ASC Topic 958, “Not-for-Profit Entities,” for evaluating whether a transaction is reciprocal (i.e., an exchange transaction) or nonreciprocal (i.e., a contribution) and for distinguishing between conditional and unconditional contributions. The ASU also clarified the guidance used by entities other than not-for-profits to identify and account for contributions made.
Disaggregation of Revenue
The following table disaggregates total revenues:
Exchange transactions are recognized in accordance with ASC Topic 606, while non-exchange transactions are recognized in accordance with ASU 2018-08.
The following table disaggregates revenues by geographic location of the customer:
Contract Liabilities
Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. At June 30, 2020, the Company reported $4,097,155 in deferred revenue, of which $1.4 million is expected to be recognized during the three months ending September 30, 2020, and the remainder over the next 12 months.
Inventories consisted of the following at:
Basic loss per share is computed by dividing net loss attributable to holders of Chembio’s common stock (“common stock”) by the weighted-average number of shares of common stock outstanding for the period excluding unvested restricted stock. Diluted loss per share for the six months ended June 30, 2020 and 2019 reflected the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.
There were 56,995 and 641,839 restricted shares awards outstanding as of June 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and six months ended June 30, 2020 and 2019, because their effect would have been anti-dilutive. There were 1,034,124 and 688,122 weighted-average options outstanding as of June 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and six months ended June 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.
R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Effective June 3, 2008, Chembio’s stockholders voted to approve the 2008 Stock Incentive Plan (the “SIP”), with 625,000 shares of common stock available to be issued. At the Annual Stockholder Meeting on September 22, 2011, Chembio’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000. Under the terms of the SIP, which expired during 2018, the Board of Directors of Chembio (the “Board”) or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (collectively, “Equity Award Units”). The awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, there were 694,000 options expired, forfeited or exercised, and at June 30, 2020, 56,000 options were outstanding. No Equity Award Units are available to be issued under the SIP.
Effective June 19, 2014, Chembio’s stockholders voted to approve the 2014 Stock Incentive Plan (the “SIP14”), with 800,000 shares of common stock available to be issued. Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of Equity Award Units. The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, there were 432,502 Equity Award Units expired, forfeited or exercised. At June 30, 2020, 346,437 Equity Award Units were outstanding, and 21,061 Equity Award Units remained available to be issued under the SIP14.
Effective June 18, 2019, Chembio’s stockholders voted to approve the 2019 Omnibus Incentive Plan (the “2019 Plan”), with 2,400,000 shares of common stock available to be issued. In addition, shares of common stock underlying any outstanding award granted under the 2019 Plan that, following the effective date of the 2019 Plan, expire, or are terminated, surrendered or forfeited for any reason without issuance of such shares, shall be available for the grant of new awards under the 2019 Plan. Under the terms of the 2019 Plan, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of options, stock appreciation rights, restricted stock, restricted stock units, or other stock-based awards under the 2019 Plan (collectively, “2019 Equity Units”). The 2019 Equity Units become vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, 436,728 2019 Equity Units has been exercised or forfeited. At June 30, 2020, 1,251,072 2019 Equity Units were outstanding, and 712,200 2019 Equity Units were available to be awarded under the 2019 Plan.
The fair value of restricted stock and performance/restricted stock unit awards are determined on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model. Stock based compensation is reduced for actual forfeitures in the period in which the forfeiture occurs and generally recognized on a straight-line basis over the service period of the grant. During the three and six months ended June 30, 2020, 29,543 and 470,174 shares of restricted stock were forfeited, respectively.
Stock-based compensation expense (net of recovery) recognized in the condensed consolidated statements of operations was classified as follows:
The weighted-average assumptions made in calculating the fair values of options are as follows:
The following table provides stock option activity for the six months ended June 30, 2020:
As described in Note 5(f) – Litigation, the information in the above table and elsewhere in these notes does not reflect certain options that were received by Chembio’s former chief executive officer and that had vested as of the time of his resignation on January 3, 2020 because the Board’s Compensation Committee has determined that the former chief executive officer failed to exercise such options in a timely manner prior to their expiration.
The following table summarizes information about stock options outstanding at June 30, 2020:
As of June 30, 2020, there was $932,799 of net unrecognized compensation cost related to stock options that had not vested, which is expected to be recognized over a weighted-average period of approximately 2.57 years. The total fair value of shares vested during the six months ended June 30, 2020 and 2019 was $112,311 and $235,578, respectively.
The following table summarizes information about restricted stock, restricted stock units and performance stock units outstanding as of June 30, 2020:
As of June 30, 2020, there was $1,551,837 of net unrecognized compensation cost related to restricted stock and restricted stock units that had not vested, which is expected to be recognized over a weighted-average period of approximately 2.29 years.
The Company produces only one group of similar products known collectively as “rapid medical tests”, and it operates in a single operating segment. Net product revenue by geographic area were as follows:
Property, plant and equipment by geographic area were as follows:
Accounts payable and accrued liabilities consisted of:
The following table reflects changes in goodwill:
Intangible assets consisted of the following:
Intellectual property, developed technology, customer contracts/relationships and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the six months ended June 30, 2020 and 2019 was approximately $287,253 and $306,700, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $572,383 per year from 2020 through 2024, and total $1,031,987 for all remaining years combined.
At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax rate for the three and six months ended June 30, 2020 was 1.7% and 1.7%, compared to the effective tax rate of 3.3% and 6.0% for the three and six months ended June 30, 2019. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and a benefit from foreign net operating losses.
The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.
The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in other comprehensive (loss) income. Foreign transaction gains and losses have been immaterial.
Acquisition costs include period expenses, primarily professional services, related to acquisition activities. For the six months ended June 30, 2020 and 2019, the Company recognized $63,497 and $395,612 in acquisition costs related to its acquisition of Orangelife and opTricon GmbH, respectively.
Recently Adopted
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides guidance on measurement of credit losses on financial instruments that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and that requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance became effective for annual periods beginning after December 15, 2019, including interim periods within those years. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) (“ASU 2018-13”)
In August 2018, the FASB issued ASU 2018-13. ASU 2018-13 improves the disclosure requirements on fair value measurements. The updated guidance became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
ASU 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-4”)
In January 2017, the FASB issued ASU 2017-4. ASU 2017-4 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. ASU 2017-4 is effective for annual and interim goodwill tests beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued ASC Topic 848. ASC Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC Topic 848 contains optional expedients and exceptions for applying GAAP to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective for upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.
ASU 2019-12, Simplifications to Accounting for Income Taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.
During the six months ended June 30, 2020, the Company recognized $0.7 million in net severance expenses related to the departure of Chembio’s former chief executive officer and the elimination of certain positions as part of its multi-faceted expense reduction program to reduce operating expenses. The Company undertook actions to adjust the size and composition of the organization, including by removing positions that were non-essential in light of its new business strategy, and to remove other expenses, all of which the Company expects expect will provide savings throughout, and after, 2020.
In light of market dynamics, the Company retrenched its Malaysian operations, including the termination of employment of its Malaysian workforce. The Company will maintain its Malaysian subsidiary and sustain the product registrations that were obtained throughout southeast Asia, with the benefit of having that entity and the WHO prequalification certified facility.
Based on these activities, the Company has taken restructuring actions totaling $0.4 million to realign and resize its production capacity and cost structure. All expenses have been paid as of June 30, 2020.
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ACQUISITION |
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| ACQUISITION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION |
NOTE 3 – ACQUISITION:
Orangelife
On November 25, 2019, pursuant to a quota purchase agreement, the Company acquired all of the outstanding equity securities of Orangelife Comercio e Industria Ltda. (“Orangelife”), a privately held Brazilian company, that is an original equipment manufacturer of point-of-care tests approved by the Brazilian Health Surveillance Agency (Agência Nacional de Vigilância Sanitária, or “ANVISA”) for infectious diseases that include human immunodeficiency virus (“HIV”), Hepatitis C, Zika, Chikungunya and Dengue Fever. Orangelife tests are manufactured in its Rio de Janeiro facility, which is ISO-certified and approved by ANVISA to produce Class II/III/IV medical devices. The purchase price includes the following consideration:
The acquisition of Orangelife allowed the Company to expand its commercial presence by offering its products to the state, private and pharmacy markets in Brazil, in addition to providing local support to its long-time customer Bio-Manguinhos, a subsidiary of the Oswaldo Cruz Foundation (Fiocruz), which oversees development and production of vaccines, diagnostics, and biopharmaceuticals to meet the demands of Brazil’s national public health system. The results of Orangelife’s operations have been reflected in the consolidated financial statements since November 25, 2019.
The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 25, 2019:
The Company calculated the estimated fair value of the fixed assets based on the net book value of Orangelife, which approximated fair value. The estimated fair value of the trade name, customer contracts/relationships and contingent earnouts were based on discounted cash flows using management estimates.
As a result of the consideration paid exceeding the fair value of the net assets acquired, goodwill in the amount of $986,058 was recorded in connection with this acquisition, none of which is deductible for tax purposes. In addition, the Company recorded $200,000 in intangible assets associated with the addition of Orangelife’s trade name and customer base.
The following represents pro forma operating results for the year ended December 31, 2019 as if the operations of Orangelife had been included in the Company’s consolidated statements of operations effective as of January 1, 2019. This pro forma financial information is unaudited and presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition of Orangelife and the other transactions contemplated by this acquisition had been completed as of January 1, 2019, nor is it necessarily indicative of the future operating results of the Company and Orangelife on a combined and consolidated basis.
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STOCKHOLDERS' EQUITY |
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| STOCKHOLDERS' EQUITY [Abstract] | |||||||||||||
| STOCKHOLDERS' EQUITY |
NOTE 4 – STOCKHOLDERS’ EQUITY:
During the first six months of 2020 and 2019, there were 36,000 and 46,875 options exercised, and 2,619,593 and 0 new shares issued in an underwritten secondary public offering, respectively.
Chembio has 10,000,000 shares of preferred stock authorized, none of which are outstanding. These shares can become issuable upon an approved resolution by the Board and the filing of a Certificate of Designation with the State of Nevada.
Chembio has 33,290 shares of treasury stock from restricted stock awards that were remitted to satisfy tax withholding requirements.
The Board or its Compensation Committee may grant options, restricted stock, and restricted stock units pursuant to equity incentive plans that have been approved by Chembio’s stockholders.
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COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS |
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| COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS |
NOTE 5 – COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS:
The following table discloses product sales the Company had to the only customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:
Revenue includes product sales only, while accounts receivable reflects the total due from the customer, including freight.
For the three and six months ended June 30, 2020 and 2019, there were no vendors that sold to the Company in excess of 10% of the Company’s total purchases.
The Company currently buys materials that are purchased under intellectual property rights agreements and are important components in its products. Management believes that other suppliers could provide similar materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing, either from the logistic and regulatory implications of changing suppliers or from product attributable changes to new components, any of which could result in a possible loss of sales and adversely affect operating results.
All of the Company’s existing and proposed diagnostic products are regulated by the U.S. Food and Drug Administration, the U.S. Department of Agriculture, certain U.S., state and local agencies, and/or comparable regulatory bodies in other countries. Most aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and record keeping, are subject to regulatory review. After marketing approval has been granted, the Company must continue to comply with governmental regulations. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil monetary penalties, injunctions, and criminal prosecution.
As of June 30, 2020, the Company had multi-year contracts with two key employees that include salaries presently aggregating $765,000 per year. The contracts expire in and . The following table is a schedule of future minimum salary commitments related to those contracts as of June 30, 2020:
Chembio has a 401(k) plan established for the Company's employees whereby the Company matches 40% of the first 5% of salary (or up to 2% of salary) that an employee contributes to the plan. For the six months ending June 30, 2020 and 2019, matching contribution expenses totaled $49,407, and $49,000, respectively.
The Company leases facilities in New York, Germany, Malaysia, and Brazil, and certain equipment.
The Company’s facility leases generally include optional renewal periods. Upon entering into a new facility lease, the Company evaluates the leasehold improvements and regulatory requirements related to its operations in that location. To the extent that the initial lease term of the related facility lease is less than the useful life of the leasehold improvements and potential regulatory costs associated with moving the facility, the Company concludes that it is reasonably certain that a renewal option will be exercised, and thus that renewal period is included in the lease term and the related payments are reflected in the right-of-use asset and lease liability.
The Company’s facility leases generally include fixed rental payments with defined annual increases. While certain of the Company’s facility leases are gross leases, the majority of the Company’s facility leases are net leases in which the Company makes separate payments to the lessor based on the lessor’s property and casualty insurance costs, the property taxes assessed on the property, and a portion of the common area maintenance where applicable. The Company has elected the practical expedient not to separate lease and non-lease components for all of the Company’s facility leases. The Company has also elected the practical expedient for short term lease exception for all of its facility leases.
The components of lease expense were as follows:
Supplemental cash flow information related to leases was as follows:
Supplemental balance sheet information related to leases was as follows:
During the three months ended March 31, 2019, the Company executed an operating sublease related to its former Holbrook, New York facility. The sublease ran conterminously with the base lease, for which the Company was primarily responsible until the end of the lease term in April 2020.
At the time of the initial assessment, the Company did not have an established incremental borrowing rate and the interest rates implicit in each of the leases were not readily determinable. Therefore, the Company used an interest rate based on the market place for the public debt. In September 2019, the Company entered into a credit agreement for a $20 million term loan as described on Note 6 - Long Term Debt.
Maturities of lease liabilities were as follows.
Employee Litigation
John J. Sperzel III, our former chief executive officer, has asserted a right to exercise certain options to purchase, for an aggregate exercise price of $943,126, a total of 266,666 shares of common stock that were vested when he resigned on January 3, 2020. Under their terms, those options were exercisable for a period of thirty days after his service to our company ended. The compensation committee of the board, acting in its discretion in accordance with the terms of the underlying equity incentive plans, has determined that Mr. Sperzel failed to exercise the options in a timely manner prior to their expiration. Chembio intends to vigorously defend against any claim by Mr. Sperzel that he continues to have a right to exercise any options.
Stockholder Litigation
As of July 31, 2020, four purported class action lawsuits had been filed by alleged stockholders of Chembio Diagnostics, Inc. (“Chembio”) in the United States District Court for the Eastern District of New York, including: (1) Sergey Chernysh v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, 20-cv-2706, filed on June 18, 2020, or Chernysh; (2) James Gowen v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, 2:20-cv-02758, filed on June 22, 2020, or Gowen; and (3) Anthony Bailey v. Chembio Diagnostics, Inc. Richard J. Eberly, Gail S. Page, and Neil A. Goldman, 2:20-cv-02961, filed on July 3, 2020, or Bailey; and (4) Ken Hayes v. Chembio Diagnostics, Inc., Richard L. Eberly, Gail S. Page, Katherine L. Davis, Mary Lake Polan, and John G. Potthoff, 1:20-cv-02918, filed on July 1, 2020, or Hayes.
The Chernysh, Gowen and Bailey complaints are brought by purported individual stockholders of Chembio on behalf of all persons and entities who purchased Chembio publicly traded stock during the alleged “class period” and purport to state claims for violations of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission. The Chernysh and Bailey complaints define the “class period” as April 1, 2020 through June 16, 2020, inclusive, whereas the Gowen complaint defines the “class period” as March 12, 2020, through June 16, 2020, inclusive. The plaintiffs in these actions generally purport to allege that the defendants named therein misrepresented and failed to disclose that Chembio’s DPP COVID-19 IgM/IgG System did not provide high-quality results and there were material performance concerns with the DPP COVID-19 IgM/IgG System’s accuracy, including that it generates false results at a rate higher than expected and higher than reflected in its authorized labeling and was not effective in detecting antibodies against COVID 19. The Chernysh, Gowen, and Bailey complaints seek an award of damages ostensibly sustained as a result of alleged wrongdoing in an amount to be proven at trial as well as an award of reasonable attorneys’ fees and expenses, including expert fees and pre- and post-judgment interest. Chembio and the plaintiffs in Chernysh, Gowen and Bailey have entered into a stipulation, approved by the Court on July 17, 2020, relieving the defendants from the obligation to respod to the complaints in the cases pending the designation of a lead plaintiff. Pursuant to the stipulation, within ten days following the entry of an order by the Court appointing a lead plaintiff and a lead plaintiff’s counsel, counsel for the defendants and the lead plaintiff are to confer and submit to the Court a proposed schedule for the filing of a consolidated amended complaint and the defendants’ response to that pleading.
The Hayes complaint purports to state claims for violations of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder by the Securities and Exchange Commission, declaratory relief, and state law claims for breach of fiduciary duty, brought by plaintiff on behalf of himself and all of Chembio’s other public stockholders against Chembio and members of our board of directors to remedy alleged misstatements of material information in the proxy statement disseminated by Chembio in advance of our Annual Meeting of Stockholders held on July 28, 2020 (the “Annual Meeting”). The Hayes plaintiff alleges that the Schedule 14A Proxy Statement filed by Chembio on June 16, 2020 with the Securities and Exchange Commission, or the Proxy Statement, in which Chembio is soliciting stockholder approval of, inter alia, a proposal to change Chembio’s state of incorporation from the State of Nevada to the State of Delaware (the “Reincorporation Proposal”), contains misstatements of Nevada and Delaware law. The Hayes plaintiff seeks a declaration that the Proxy Statement is false and misleading and entry of an order enjoining the stockholder vote on the Reincorporation Proposal until such time as the Proxy Statement has been corrected as well as an order finding our directors liable for breaching their fiduciary duties and awarding plaintiff the costs and disbursements of the action, including attorneys’ and expert fees. On July 8, 2020, Chembio filed an amended proxy statement correcting, among other things, the issues raised in the Hayes complaint. As a consequence of the supplementation, the plaintiff withdrew its motion for a preliminary injunction. On July 23, 2020, Chembio and the plaintiff entered into a stipulation to the dismissal of the action, with prejudice as to the claims of the named plaintiff. The stipulation was subject to plaintiff’s reservation of the right to apply for an award of attorneys’ fees and expenses from Chembio within 45 days after entry of an order approving the stipulation in the event the parties are unable to reach agreement on plaintiff’s claim for entitlement to fees. Also, on July 23, 2020, the plaintiff filed a notice dismissing the named plaintiff’s claims, with prejudice, as to the individual defendants. On July 27, 2020, the Court entered an order closing the case and providing that plaintiff shall have until September 28, 2020 to move to reopen the case if the attorneys’ fee issue has not been resolved.
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LONG-TERM DEBT |
6 Months Ended |
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Jun. 30, 2020 | |
| LONG-TERM DEBT [Abstract] | |
| LONG-TERM DEBT |
NOTE 6 – LONG-TERM DEBT:
In September 2017, Chembio entered into an agreement with an equipment vendor to purchase automated assembly equipment for approximately $660,000. The terms call for payments of 30% down, 60% at time of factory acceptance testing and 10% after delivery. The vendor agreed to lend Chembio 15%, 40% and 10% of each originally scheduled payment, respectively. The Company paid interest at an annual rate of 12% until delivery. Beginning in September 2018, Chembio began making monthly payments of principal and interest of approximately $20,150, at an annual rate of 12% over a 24-month period. The remaining balance was classified short-term as of December 31, 2019.
On September 3, 2019, Chembio entered into a Credit Agreement and Guaranty (the “Credit Agreement”) with Perceptive Credit Holdings II, LP (the “Lender”). The Credit Agreement provides for a $20,000,000 senior secured term loan credit facility, which was drawn in full on September 4, 2019. Under the terms of the Credit Agreement, Chembio may use the proceeds (i) for general working capital purposes and other permitted corporate purposes, (ii) to refinance certain of Chembio’s existing indebtedness and (iii) to pay fees, costs and expenses incurred in connection with the Credit Agreement, including the Lender’s closing cost amount of $550,000, which was netted from the proceeds, and a financing fee of $600,000 (3.0% of gross proceeds) payable to Chembio’s financial advisor for the financing.
Principal outstanding under the Credit Agreement bears interest at a rate per annum equal to the sum of (a) the greater of the one-month London Interbank Offered Rate and 2.5%plus (b) 8.75%. At any time at which an event of default has occurred and is continuing, the interest rate will increase by 4.0%. Accrued interest is payable on a monthly basis. On June 30, 2020 the interest rate was 11.25%.
No principal repayments are due under the Credit Agreement prior to September 30, 2022, unless Chembio elects to prepay principal or principal is accelerated pursuant to an event of default identified in the Credit Agreement. Principal installments in the amount of $300,000 are payable on the last day of each of the 11 months from September 2022 through July 2023, and all remaining principal is payable at maturity on September 3, 2023. Chembio may prepay outstanding principal from time to time, subject to payment of a premium on the prepaid principal amount equal to 10% through September 3, 2020, 8% from September 4, 2020 through September 3, 2021, and 4% from September 4, 2021 through September 3, 2022. No premium will be due with respect to any prepayment made on or after September 4, 2022.
Chembio’s obligations under the Credit Agreement are secured by a first priority, perfected lien on substantially all of its property and assets, including its equity interests in subsidiaries.
As of June 30, 2020, the loan balance, net of unamortized discounts and debt issuance costs, was $17.9 million, and Chembio was in compliance with its cash balance loan covenant, but not in compliance with its revenue loan covenant. Chembio obtained a written waiver from the Lender with respect to Chembio’s failure to meet the revenue loan covenant for the three months ended June 30, 2020. Chembio's obligations under the Credit Agreement are secured by a first priority, perfected lien on substantially all of its property and assets, including its equity interests in subsidiaries.
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WARRANTS |
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| WARRANTS [Abstract] | ||||||||||||||||||||||||||
| WARRANTS |
NOTE 7 – WARRANTS:
In connection with entering into the Credit Agreement, on September 3, 2019, Chembio issued to the Lender a seven-year warrant (the “Warrant”) to purchase up to 550,000 shares of common stock at a per-share exercise price of $5.22. The Warrant was exercisable for cash or on a net, or “cashless,” basis, and the exercise price of the Warrant was subject to price-based, weighted-average antidilution adjustments for one year after issuance.
The Warrant was evaluated by the Company and classified as stockholder’s equity. Its fair value was estimated using a Black-Scholes option-pricing model using the following assumptions:
On the date of grant, the fair value of the Warrant was determined to be approximately $1.4 million at $2.49 per share.
The balance recorded in the Company’s Stockholders’ Equity for the Warrant, net of allocated issuance costs, was $1.2 million.
During the three months ended June 30, 2020, the Warrant was exercised in full on a cashless basis and the Lender received a total of 253,161 shares of common stock from the net exercise.
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SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Chembio and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Chembio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.
The Company’s future working capital needs will depend on many factors, including the rate of its business and revenue growth, the timing of its continuing automation of U.S. manufacturing, and the timing of its investment in research and development as well as sales and marketing. If the Company is unable to increase its revenues and manage its expenses in accordance with its operating plan, it may need to reduce the level or slow the timing of the growth plans contemplated by its operating plan, which would likely curtail or delay the growth in its business contemplated by its operating plan and could impair or defer its ability to achieve profitability and generate cash flow, or to seek to raise additional funds through debt or equity financings, strategic relationships, or other arrangements.
All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of June 30, 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
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| Use of Estimates |
The preparation of the consolidated financial statements in conformity with GAAP requires management to make assumptions and estimates that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and these notes. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, asset impairments, recognition of revenue including variable consideration and pursuant to milestones, useful lives of intangible and fixed assets, stock-based compensation, business combinations, and deferred tax asset valuation allowances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
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| Fair Value of Financial Instruments |
The carrying values for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents were $26.8 million and $16.0 million as of June 30, 2020 and December 31, 2019, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s total debt of $20.0 million (carrying value of $17.9 million) and $20.0 million (carrying value of $17.6 million) as of June 30, 2020 and December 31, 2019, respectively, is a Level 2 fair value measurement under the hierarchy, and the carrying value approximates fair value.
Fair value measurements of all financial assets and liabilities that are measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:
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| Cash and Cash Equivalents |
Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less, and include restricted cash of $3.3 million and $0 as of June 30, 2020 and December 31, 2019, respectively.
The Company is contractually obligated to maintain the restricted cash balance on deposit with a bank as security for the bank’s issuance of a guarantee on behalf of the Company for its performance under purchase orders from and related advance payments by a customer. The Company expects that the restriction will be released within the next twelve months.
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| Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the Federal Deposit Insurance Corporation insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the Company’s ability to obtain letters of credit from certain foreign customers and its diverse customer base, both in number of customers and geographic locations.
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| Fixed Assets |
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service.
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| License Agreements |
The Company records up-front payments related to license agreements as prepaids and amortizes them over their respective economic life. As of both June 30, 2020 and 2019, total prepaids related to license agreements were $100,000.
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| Valuation of Long-Lived Assets and Intangible Assets |
Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. No impairment of long-lived tangible and intangible assets was recorded for the six months ended June 30, 2020 or 2019.
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| Revenue Recognition |
The Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under Accounting Standards Update (“ASU”) 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Product Revenue
Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering the product to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred, because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales. The Company excludes certain taxes from the transaction price (e.g., sales, value added and some excise taxes).
The Company’s contracts with customers often include promises to transfer products or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Typical products sold are diagnostic tests and typical services performed are R&D studies. Revenues from product sales are recognized at a point-in-time and revenues from R&D studies are recognized ratably over the period of the agreement, unless the related performance obligations indicate otherwise.
Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. SSP is directly observable and the Company can use a range of amounts to estimate SSP, as it sells products and services separately, and can determine whether there is a discount to be allocated based on the relative SSP of the various products and services, for the various geographies.
The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.
Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current, and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction, market events and trends, and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts, allowances and returns may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on revenue and earnings in the period of adjustment.
License and Royalty Revenue
The Company receives royalty revenue on sales by its licensee of products covered under patents that the Company owns. The Company does not have future performance obligations under this license arrangement. The Company records revenue based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenue. The relevant period estimates of sales are based on interim data provided by the licensee and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenue are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.
R&D and Grant Revenue
All contracts with customers are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with Accounting Standards Codification (“ASC”) Topic 958. Such contracts are further described under Disaggregation of Revenue below. Grants are invoiced and revenue is recognized ratably as that is the depiction of the timing of the transfer of services. The R&D study, which encompasses various phases of product development processes: design feasibility & planning, product development and design optimization, design verification, design validation and process validation, and pivotal studies, is also recognized ratably.
In June 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018‑08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU clarifies the guidance presented in ASC Topic 958, “Not-for-Profit Entities,” for evaluating whether a transaction is reciprocal (i.e., an exchange transaction) or nonreciprocal (i.e., a contribution) and for distinguishing between conditional and unconditional contributions. The ASU also clarified the guidance used by entities other than not-for-profits to identify and account for contributions made.
Disaggregation of Revenue
The following table disaggregates total revenues:
Exchange transactions are recognized in accordance with ASC Topic 606, while non-exchange transactions are recognized in accordance with ASU 2018-08.
The following table disaggregates revenues by geographic location of the customer:
Contract Liabilities
Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. At June 30, 2020, the Company reported $4,097,155 in deferred revenue, of which $1.4 million is expected to be recognized during the three months ending September 30, 2020, and the remainder over the next 12 months.
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| Inventories |
Inventories consisted of the following at:
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| Loss Per Share |
Basic loss per share is computed by dividing net loss attributable to holders of Chembio’s common stock (“common stock”) by the weighted-average number of shares of common stock outstanding for the period excluding unvested restricted stock. Diluted loss per share for the six months ended June 30, 2020 and 2019 reflected the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.
There were 56,995 and 641,839 restricted shares awards outstanding as of June 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and six months ended June 30, 2020 and 2019, because their effect would have been anti-dilutive. There were 1,034,124 and 688,122 weighted-average options outstanding as of June 30, 2020 and 2019, respectively, that were not included in the calculation of diluted income per share for the three and six months ended June 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.
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| Research and Development |
R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
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| Equity Plans |
Effective June 3, 2008, Chembio’s stockholders voted to approve the 2008 Stock Incentive Plan (the “SIP”), with 625,000 shares of common stock available to be issued. At the Annual Stockholder Meeting on September 22, 2011, Chembio’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000. Under the terms of the SIP, which expired during 2018, the Board of Directors of Chembio (the “Board”) or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (collectively, “Equity Award Units”). The awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, there were 694,000 options expired, forfeited or exercised, and at June 30, 2020, 56,000 options were outstanding. No Equity Award Units are available to be issued under the SIP.
Effective June 19, 2014, Chembio’s stockholders voted to approve the 2014 Stock Incentive Plan (the “SIP14”), with 800,000 shares of common stock available to be issued. Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of Equity Award Units. The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, there were 432,502 Equity Award Units expired, forfeited or exercised. At June 30, 2020, 346,437 Equity Award Units were outstanding, and 21,061 Equity Award Units remained available to be issued under the SIP14.
Effective June 18, 2019, Chembio’s stockholders voted to approve the 2019 Omnibus Incentive Plan (the “2019 Plan”), with 2,400,000 shares of common stock available to be issued. In addition, shares of common stock underlying any outstanding award granted under the 2019 Plan that, following the effective date of the 2019 Plan, expire, or are terminated, surrendered or forfeited for any reason without issuance of such shares, shall be available for the grant of new awards under the 2019 Plan. Under the terms of the 2019 Plan, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of options, stock appreciation rights, restricted stock, restricted stock units, or other stock-based awards under the 2019 Plan (collectively, “2019 Equity Units”). The 2019 Equity Units become vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through June 30, 2020, 436,728 2019 Equity Units has been exercised or forfeited. At June 30, 2020, 1,251,072 2019 Equity Units were outstanding, and 712,200 2019 Equity Units were available to be awarded under the 2019 Plan.
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| Stock-Based Compensation |
The fair value of restricted stock and performance/restricted stock unit awards are determined on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model. Stock based compensation is reduced for actual forfeitures in the period in which the forfeiture occurs and generally recognized on a straight-line basis over the service period of the grant. During the three and six months ended June 30, 2020, 29,543 and 470,174 shares of restricted stock were forfeited, respectively.
Stock-based compensation expense (net of recovery) recognized in the condensed consolidated statements of operations was classified as follows:
The weighted-average assumptions made in calculating the fair values of options are as follows:
The following table provides stock option activity for the six months ended June 30, 2020:
As described in Note 5(f) – Litigation, the information in the above table and elsewhere in these notes does not reflect certain options that were received by Chembio’s former chief executive officer and that had vested as of the time of his resignation on January 3, 2020 because the Board’s Compensation Committee has determined that the former chief executive officer failed to exercise such options in a timely manner prior to their expiration.
The following table summarizes information about stock options outstanding at June 30, 2020:
As of June 30, 2020, there was $932,799 of net unrecognized compensation cost related to stock options that had not vested, which is expected to be recognized over a weighted-average period of approximately 2.57 years. The total fair value of shares vested during the six months ended June 30, 2020 and 2019 was $112,311 and $235,578, respectively.
The following table summarizes information about restricted stock, restricted stock units and performance stock units outstanding as of June 30, 2020:
As of June 30, 2020, there was $1,551,837 of net unrecognized compensation cost related to restricted stock and restricted stock units that had not vested, which is expected to be recognized over a weighted-average period of approximately 2.29 years.
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| Geographic Information and Economic Dependency |
The Company produces only one group of similar products known collectively as “rapid medical tests”, and it operates in a single operating segment. Net product revenue by geographic area were as follows:
Property, plant and equipment by geographic area were as follows:
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| Accounts Payable and Accrued Liabilities |
Accounts payable and accrued liabilities consisted of:
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| Goodwill, Long-Lived Assets and Intangible Assets |
The following table reflects changes in goodwill:
Intangible assets consisted of the following:
Intellectual property, developed technology, customer contracts/relationships and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the six months ended June 30, 2020 and 2019 was approximately $287,253 and $306,700, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $572,383 per year from 2020 through 2024, and total $1,031,987 for all remaining years combined.
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| Taxes |
At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax rate for the three and six months ended June 30, 2020 was 1.7% and 1.7%, compared to the effective tax rate of 3.3% and 6.0% for the three and six months ended June 30, 2019. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and a benefit from foreign net operating losses.
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| Allowance for Doubtful Accounts |
The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.
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| Foreign Currency Translation |
The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in other comprehensive (loss) income. Foreign transaction gains and losses have been immaterial.
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| Acquisition Costs |
Acquisition costs include period expenses, primarily professional services, related to acquisition activities. For the six months ended June 30, 2020 and 2019, the Company recognized $63,497 and $395,612 in acquisition costs related to its acquisition of Orangelife and opTricon GmbH, respectively.
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| Recently Issued Accounting Standards |
Recently Adopted
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides guidance on measurement of credit losses on financial instruments that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and that requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance became effective for annual periods beginning after December 15, 2019, including interim periods within those years. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) (“ASU 2018-13”)
In August 2018, the FASB issued ASU 2018-13. ASU 2018-13 improves the disclosure requirements on fair value measurements. The updated guidance became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
ASU 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-4”)
In January 2017, the FASB issued ASU 2017-4. ASU 2017-4 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. ASU 2017-4 is effective for annual and interim goodwill tests beginning after December 15, 2019. The Company has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.
Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued ASC Topic 848. ASC Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC Topic 848 contains optional expedients and exceptions for applying GAAP to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective for upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.
ASU 2019-12, Simplifications to Accounting for Income Taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.
During the six months ended June 30, 2020, the Company recognized $0.7 million in net severance expenses related to the departure of Chembio’s former chief executive officer and the elimination of certain positions as part of its multi-faceted expense reduction program to reduce operating expenses. The Company undertook actions to adjust the size and composition of the organization, including by removing positions that were non-essential in light of its new business strategy, and to remove other expenses, all of which the Company expects expect will provide savings throughout, and after, 2020.
In light of market dynamics, the Company retrenched its Malaysian operations, including the termination of employment of its Malaysian workforce. The Company will maintain its Malaysian subsidiary and sustain the product registrations that were obtained throughout southeast Asia, with the benefit of having that entity and the WHO prequalification certified facility.
Based on these activities, the Company has taken restructuring actions totaling $0.4 million to realign and resize its production capacity and cost structure. All expenses have been paid as of June 30, 2020.
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SIGNIFICANT ACCOUNTING POLICIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of Revenue |
The following table disaggregates total revenues:
Exchange transactions are recognized in accordance with ASC Topic 606, while non-exchange transactions are recognized in accordance with ASU 2018-08.
The following table disaggregates revenues by geographic location of the customer:
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| Inventories |
Inventories consisted of the following at:
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| Stock-Based Compensation Expense |
Stock-based compensation expense (net of recovery) recognized in the condensed consolidated statements of operations was classified as follows:
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| Assumptions Made in Calculating Fair Values of Options |
The weighted-average assumptions made in calculating the fair values of options are as follows:
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| Stock Option Activity |
The following table provides stock option activity for the six months ended June 30, 2020:
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| Stock Options Outstanding |
The following table summarizes information about stock options outstanding at June 30, 2020:
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| Summary of Restricted Stock and Restricted Stock Units Outstanding |
The following table summarizes information about restricted stock, restricted stock units and performance stock units outstanding as of June 30, 2020:
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| Net Product Sales by Geographic Area |
The Company produces only one group of similar products known collectively as “rapid medical tests”, and it operates in a single operating segment. Net product revenue by geographic area were as follows:
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| Property, Plant and Equipment by Geographic Area |
Property, plant and equipment by geographic area were as follows:
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| Accounts Payable and Accrued Liabilities |
Accounts payable and accrued liabilities consisted of:
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| Changes in Goodwill |
The following table reflects changes in goodwill:
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| Intangible Assets |
Intangible assets consisted of the following:
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ACQUISITION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Values of Assets Acquired and Liabilities Assumed |
The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 25, 2019:
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| Unaudited Pro forma Operating Results |
The following represents pro forma operating results for the year ended December 31, 2019 as if the operations of Orangelife had been included in the Company’s consolidated statements of operations effective as of January 1, 2019. This pro forma financial information is unaudited and presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition of Orangelife and the other transactions contemplated by this acquisition had been completed as of January 1, 2019, nor is it necessarily indicative of the future operating results of the Company and Orangelife on a combined and consolidated basis.
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COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer and Purchase Concentration Risks |
The following table discloses product sales the Company had to the only customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:
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| Future Minimum Salary Commitment |
As of June 30, 2020, the Company had multi-year contracts with two key employees that include salaries presently aggregating $765,000 per year. The contracts expire in and . The following table is a schedule of future minimum salary commitments related to those contracts as of June 30, 2020:
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| Components of Lease Expense |
The components of lease expense were as follows:
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| Supplemental Cash Flow Information Related to Leases |
Supplemental cash flow information related to leases was as follows:
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| Supplemental Balance Sheet Information Related to Leases |
Supplemental balance sheet information related to leases was as follows:
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| Maturities of Lease Liabilities |
Maturities of lease liabilities were as follows.
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WARRANTS (Tables) |
6 Months Ended | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||
| WARRANTS [Abstract] | ||||||||||||||||||||||||||
| Warrants Fair Value Assumptions |
The Warrant was evaluated by the Company and classified as stockholder’s equity. Its fair value was estimated using a Black-Scholes option-pricing model using the following assumptions:
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STOCKHOLDERS' EQUITY (Details) - shares |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
| Common Stock [Abstract] | |||
| Number of stock options exercised (in shares) | 36,000 | 46,875 | |
| Shares issued in an underwritten secondary public offering (in shares) | 2,619,593 | 0 | |
| Preferred Stock [Abstract] | |||
| Preferred stock - shares authorized (in shares) | 10,000,000 | 10,000,000 | |
| Preferred stock - shares outstanding (in shares) | 0 | 0 | |
| Treasury Stock [Abstract] | |||
| Treasury stock, shares (in shares) | 33,290 | 0 | |
LONG-TERM DEBT (Details) - Note Payable - Equipment Vendor [Member] - USD ($) |
1 Months Ended | 6 Months Ended |
|---|---|---|
Sep. 30, 2017 |
Jun. 30, 2020 |
|
| Debt Instruments [Abstract] | ||
| Debt instrument, face amount | $ 660,000 | |
| Percentage of first payment of the term | 30.00% | |
| Percentage of second payment of the term | 60.00% | |
| Percentage of prepayment after delivery | 10.00% | |
| Percentage of first payment of the term by the vendor | 15.00% | |
| Percentage of second payment of the term by the vendor | 40.00% | |
| Percentage of payment after delivery by the vendor | 10.00% | |
| Annual interest rate | 12.00% | |
| Periodic payment debt instrument, principal and interest | $ 20,150 | |
| Term of debt instrument | 24 months |
WARRANTS (Details) $ / shares in Units, $ in Millions |
6 Months Ended | |
|---|---|---|
|
Jun. 30, 2020
USD ($)
$ / shares
shares
|
Sep. 03, 2019
shares
|
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| WARRANTS [Abstract] | ||
| Warrant term | 7 years | |
| Warrants to purchase of common stock (in shares) | shares | 550,000 | |
| Estimated Fair Value of Warrant Assumptions [Abstract] | ||
| Stock price on issuance date (in dollars per share) | $ 5.40 | |
| Strike Price (in dollars per share) | $ 5.22 | |
| Expected life | 7 years | |
| Fair value of warrants | $ | $ 1.4 | |
| Fair value of warrants (in dollars per share) | $ 2.49 | |
| Warrants outstanding | $ | $ 1.2 | |
| Shares received from exercise of warrant (in shares) | shares | 253,161 | |
| Risk-Free Interest Rate [Member] | ||
| Estimated Fair Value of Warrant Assumptions [Abstract] | ||
| Measurement input | 0.0145 | |
| Volatility [Member] | ||
| Estimated Fair Value of Warrant Assumptions [Abstract] | ||
| Measurement input | 0.4365 |