Nevada
|
|
88-0425691
|
(State
or other jurisdiction of incorporation)
|
|
(IRS
Employer Identification
Number)
|
|
|
Page
|
|
|
|
Part
I. FINANCIAL INFORMATION:
|
||
|
Item
1. Financial Statements:
|
|
|
Consolidated
Balance Sheets as of June 30, 2006 (unaudited) and December
31,
2005.
|
F-2
|
|
|
|
|
Consolidated
Statements of Operations (unaudited) for the Three and Six
Months ended
June 30, 2006 and 2005.
|
F-3
|
|
Consolidated
Statements of Cash Flows (unaudited) for the Six Months ended
June 30,
2006 and 2005.
|
F-4
|
|
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
F-5
to F-12
|
|
|
|
|
Item
2. Management's Discussion and Analysis and Plan of
Operation
|
1
|
|
|
|
|
Item
3. Controls and Procedures
|
6
|
|
|
|
Part
II. OTHER INFORMATION:
|
||
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
7
|
Item
4. Submission Of Matters To A Vote Of Security Holders
|
8
|
|
|
|
|
|
Item
6. Exhibits
|
8
|
|
|
|
SIGNATURES
|
|
9
|
|
|
|
EXHIBITS
|
|
CHEMBIO
DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
-
ASSETS -
|
|||||||
|
June
30, 2006
|
December
31, 2005
|
|||||
|
(Unaudited)
|
|
|||||
CURRENT
ASSETS:
|
|
|
|||||
Cash
|
$
|
1,289,298
|
$
|
232,148
|
|||
Accounts
receivable, net of allowance for doubtful accounts of $27,366
and $20,488
for 2006 and 2005, respectively
|
918,239
|
1,255,073
|
|||||
Inventories
|
918,657
|
687,983
|
|||||
Deferred
financing cost
|
328,341
|
-
|
|||||
Prepaid
expenses and other current assets
|
210,934
|
292,989
|
|||||
TOTAL
CURRENT ASSETS
|
3,665,469
|
2,468,193
|
|||||
FIXED
ASSETS,
net of accumulated depreciation of $543,330 and $559,228
for 2006 and
2005, respectively
|
621,395
|
438,632
|
|||||
OTHER
ASSETS:
|
|||||||
Deposits
and other assets
|
376,319
|
109,581
|
|||||
|
$
|
4,663,183
|
$
|
3,016,406
|
|||
|
|||||||
-
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIENCY)-
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable and accrued liabilities
|
$
|
2,637,009
|
$
|
1,477,925
|
|||
Accrued
interest payable
|
120,000
|
120,000
|
|||||
Loan
payable
|
1,300,000
|
-
|
|||||
Current
portion of obligations under capital leases
|
40,532
|
38,368
|
|||||
Payable
to related party
|
182,181
|
182,181
|
|||||
TOTAL
CURRENT LIABILITIES
|
4,279,722
|
1,818,474
|
|||||
OTHER
LIABILITIES:
|
|||||||
Obligations
under capital leases - net of current portion
|
23,594
|
44,417
|
|||||
Liabilities
in respect to warrants
|
328,341
|
-
|
|||||
Accrued
interest, net of current portion
|
33,160
|
100,812
|
|||||
TOTAL
LIABILITIES
|
4,664,817
|
1,963,703
|
|||||
COMMITMENTS
AND CONTINGENCIES
|
|||||||
STOCKHOLDERS’
EQUITY (DEFICIENCY)
|
|||||||
Preferred
Stock - 10,000,000 shares authorized:
|
|||||||
Series
A 8% Convertible - $.01 par value: 149.92119 and 158.68099
shares issued
and outstanding as of 2006 and 2005 , respectively. Liquidation
preference
of $4,553,204
|
2,499,913
|
2,628,879
|
|||||
Series
B 9% Convertible - $.01 par value: 113.93591 and 102.19760
shares issued
and outstanding as of 2006 and 2005, respectively. Liquidation
preference
of $5,937,289
|
3,529,493
|
3,173,239
|
|||||
Common
stock - $.01 par value; 100,000,000 shares authorized 10,669,185
and
8,491,429 shares issued and outstanding as of 2006 and 2005,
respectively
|
106,692
|
84,914
|
|||||
Additional
paid-in capital
|
16,006,080
|
14,034,099
|
|||||
Accumulated
deficit
|
(22,143,812
|
)
|
(18,868,428
|
)
|
|||
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
(1,634
|
)
|
1,052,703
|
||||
|
$
|
4,663,183
|
$
|
3,016,406
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
|||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||||||||||
(UNAUDITED)
|
|||||||||||||
Three
months ended
|
Six
months ended
|
||||||||||||
June
30, 2006
|
June
30, 2005
|
June
30, 2006
|
June
30, 2005
|
||||||||||
REVENUES:
|
|
|
|
|
|||||||||
Net
sales
|
$
|
1,572,442
|
$
|
814,307
|
$
|
2,741,511
|
$
|
1,160,432
|
|||||
License
revenue
|
-
|
-
|
-
|
250,000
|
|||||||||
Research
grants and development income
|
64,794
|
91,382
|
133,392
|
227,142
|
|||||||||
TOTAL
REVENUES
|
1,637,236
|
905,689
|
2,874,903
|
1,637,574
|
|||||||||
|
|||||||||||||
Cost
of sales
|
1,072,802
|
636,380
|
1,874,930
|
1,100,930
|
|||||||||
|
|||||||||||||
GROSS
PROFIT
|
564,434
|
269,309
|
999,973
|
536,644
|
|||||||||
|
|||||||||||||
OVERHEAD
COSTS:
|
|||||||||||||
Research
and development expenses
|
351,465
|
426,782
|
744,271
|
761,532
|
|||||||||
Selling,
general and administrative expenses
|
1,333,321
|
729,435
|
2,630,968
|
1,285,495
|
|||||||||
|
1,684,786
|
1,156,217
|
3,375,239
|
2,047,027
|
|||||||||
LOSS
FROM OPERATIONS
|
(1,120,352
|
)
|
(886,908
|
)
|
(2,375,266
|
)
|
(1,510,383
|
)
|
|||||
|
|||||||||||||
OTHER
INCOME (EXPENSES):
|
|||||||||||||
Sale
of fixed asset
|
5,000
|
400
|
5,000
|
400
|
|||||||||
Interest
income
|
289
|
15,613
|
886
|
25,081
|
|||||||||
Interest
(expense)
|
(12,312
|
)
|
(4,247
|
)
|
(21,710
|
)
|
(10,225
|
)
|
|||||
|
|||||||||||||
LOSS
BEFORE INCOME TAXES
|
(1,127,375
|
)
|
(875,142
|
)
|
(2,391,090
|
)
|
(1,495,127
|
)
|
|||||
|
|||||||||||||
Income
taxes
|
-
|
-
|
-
|
-
|
|||||||||
|
|||||||||||||
NET
LOSS
|
(1,127,375
|
)
|
(875,142
|
)
|
(2,391,090
|
)
|
(1,495,127
|
)
|
|||||
|
|||||||||||||
Dividends
payable in stock to preferred stockholders
|
207,937
|
212,061
|
420,860
|
394,239
|
|||||||||
Dividend
accreted to preferred stock for associated costs and a beneficial
conversion feature
|
-
|
-
|
463,434
|
2,698,701
|
|||||||||
|
|||||||||||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
|
(1,335,312
|
)
|
$
|
(1,087,203
|
)
|
$
|
(3,275,384
|
)
|
$
|
(4,588,067
|
)
|
|
|
|||||||||||||
Basic
and diluted loss per share
|
$
|
(.13
|
)
|
$
|
(.15
|
)
|
$
|
(.34
|
)
|
$
|
(.64
|
)
|
|
|
|||||||||||||
Weighted
number of shares outstanding, basic and
diluted
|
10,024,545
|
7,413,129
|
9,517,323
|
7,180,780
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
(UNAUDITED)
|
|||||||
|
Six
months ended
|
||||||
|
June
30, 2006
|
June
30, 2005
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|||||
Net
loss
|
$
|
(2,391,090
|
)
|
$
|
(1,495,127
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
84,790
|
38,865
|
|||||
Provision
for doubtful accounts
|
6,878
|
(2,321
|
)
|
||||
Common
stock, options and warrants issued as compensation
|
281,470
|
-
|
|||||
Changes
in:
|
|||||||
Accounts
receivable
|
329,956
|
(117,650
|
)
|
||||
Restricted
cash
|
-
|
250,000
|
|||||
Inventories
|
(230,674
|
)
|
(25,536
|
)
|
|||
Prepaid
expenses and other current assets
|
82,055
|
16,532
|
|||||
Other
assets and deposits
|
-
|
(84,543
|
)
|
||||
Accounts
payable and accrued expenses
|
1,004,284
|
(336,572
|
)
|
||||
Net
cash used in operating activities
|
(832,331
|
)
|
(1,756,352
|
)
|
|||
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Acquisition
of fixed assets
|
(267,553
|
)
|
(239,648
|
)
|
|||
Net
cash used in investing activities
|
(267,553
|
)
|
(239,648
|
)
|
|||
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Sale
of Series B Preferred Stock and associated warrants, net
of cash cost of
financing for the periods ended in 2006 and 2005 of $2,750
and $321,639,
respectively
|
997,250
|
4,725,861
|
|||||
Proceeds
from bridge loan
|
1,300,000
|
-
|
|||||
Proceeds
from exercise of warrants
|
86,321
|
25,196
|
|||||
Payment
of capital lease obligation
|
(18,659
|
)
|
(28,097
|
)
|
|||
Proceeds
from working capital loan
|
-
|
161,917
|
|||||
Payment
of working capital loan
|
-
|
(206,917
|
)
|
||||
Payment
of accrued interest
|
(67,652
|
)
|
(59,790
|
)
|
|||
Payment
of dividends
|
(140,226
|
)
|
-
|
||||
Net
cash provided by financing activities
|
2,157,034
|
4,618,170
|
|||||
|
|||||||
NET
INCREASE IN CASH
|
1,057,150
|
2,622,170
|
|||||
Cash
- beginning of the period
|
232,148
|
34,837
|
|||||
|
|||||||
CASH
- end of the period
|
$
|
1,289,298
|
$
|
2,657,007
|
|||
|
|||||||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid during the period for interest
|
$
|
12,312
|
$
|
68,465
|
|||
Supplemental
disclosures for non-cash investing and financing
activities:
|
|||||||
Stock
issued as payment for financing fees
|
$
|
-
|
$
|
15,000
|
|||
Warrants
issued as payment for financing fees
|
-
|
364,268
|
|||||
Preferred
B issued as payment for financing fees
|
100,000
|
249,000
|
|||||
Preferred
A and associated warrants exchanged for Preferred B and associated
warrants
|
-
|
20,000
|
|||||
Warrants
issued with bridge loan
|
328,341
|
-
|
|||||
Cost
of royalty rate reduction accrued and included in other
assets
|
200,000
|
-
|
|||||
Value
of warrants issued allocated to additional paid in capital
|
481,470
|
2,349,893
|
|||||
Accreted
beneficial conversion to preferred stock
|
463,434
|
2,698,701
|
|||||
Accreted
dividend to preferred stock
|
420,860
|
394,239
|
|||||
Common
stock issued as payment of dividend
|
189,218
|
187,679
|
|||||
Preferred
B issued as payment of dividend
|
89,899
|
-
|
|||||
Preferred
A converted to common stock
|
122,006
|
42,088
|
|||||
Preferred
B converted to common stock
|
360,651
|
197,566
|
NOTE
|
1
|
—
|
Description
of Business:
|
NOTE
|
2
|
—
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES:
|
(a)
|
Basis
of Presentation:
|
(b)
|
Inventories:
|
JUNE
30, 2006
|
December
31, 2005
|
||||||
Raw
Materials
|
$ |
561,281
|
$ |
425,758
|
|||
Work
in Process
|
143,183
|
86,001
|
|||||
Finished
Goods
|
214,193
|
176,224
|
|||||
$ |
918,657
|
$ |
687,983
|
(c)
|
Fixed
Assets
|
(d)
|
Earnings
Per Share
|
For
the three months ended
|
For
the six months ended
|
|||
June
30, 2006
|
June
30, 2005
|
June
30, 2006
|
June
30, 2005
|
|
Basic
|
10,024,545
|
7,413,129
|
9,517,323
|
7,180,780
|
Diluted
|
10,024,545
|
7,413,129
|
9,517,323
|
7,180,780
|
|
For
the three months ended
|
For
the six months ended
|
||
|
June
30, 2006
|
June
30, 2005
|
June
30, 2006
|
June
30, 2005
|
1999
Plan Stock Options
|
1,619,500
|
1,256,500
|
1,461,500
|
1,256,500
|
Other
Stock Options
|
144,625
|
144,625
|
144,625
|
144,625
|
Warrants
|
23,351,159
|
21,363,966
|
22,457,650
|
21,363,966
|
Convertible
Preferred Stock
|
17,204,644
|
16,100,290
|
16,572,985
|
16,100,290
|
(e)
|
Employee
Stock Option Plan:
|
|
June
30, 2006
|
June
30, 2005
|
|
Expected
term (in years)
|
4
|
5
|
|
Expected
volatility
|
116.20%
|
95.56%
|
|
Expected
dividend yield
|
0%
|
0%
|
|
Risk-free
interest rate
|
4.92%
|
3.72%
|
|
For
the three months ended
|
For
the six months ended
|
|||||
|
|
|
June
30, 2005
|
|
|
June
30, 2005
|
|
Net
loss attributable to common stockholders, as reported
|
|
$
|
(1,087,203
|
)
|
$
|
(4,588,607
|
)
|
Add:
Stock-based compensation included in reported net loss
|
|
|
-
|
|
|
-
|
|
Deduct:
Total stock based compensation expense determined under the
fair value
based method for all awards (no tax effect)
|
|
|
(53,008
|
)
|
|
(86,549
|
)
|
Pro
forma net loss attributable to common stockholders
|
|
$
|
(1,140,211
|
)
|
$
|
(4,675,156
|
)
|
Net
loss per share:
|
|
|
|
|
|
|
|
Basic
and diluted loss per share - as reported
|
|
$
|
(0.15
|
)
|
$
|
(0.64
|
)
|
Basic
and diluted loss per share - pro forma
|
|
$
|
(0.15
|
)
|
$
|
(0.65
|
)
|
Stock
Options
|
Number
of Shares
|
Weighted
Average Exercise Price per Share
|
Weighted
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||
Outstanding
at January 1, 2006
|
1,285,750
|
$
|
1.20
|
||||||||||
Granted
|
1,147,250
|
$
|
0.71
|
||||||||||
Cancelled
|
(795,250
|
)
|
$
|
1.56
|
|||||||||
Exercised
|
-
|
-
|
|||||||||||
Forfeited/expired
|
(500
|
)
|
$
|
0.75
|
|||||||||
Outstanding
at June 30, 2006
|
1,637,250
|
$
|
0.69
|
4.15
years
|
$
|
117,824
|
|||||||
|
|||||||||||||
Exercisable
at June 30, 2006
|
1,164,250
|
$
|
0.68
|
4.00
years
|
$
|
90,499
|
(f)
|
Geographic
Information:
|
|
For
the three months ended
|
For
the six months ended
|
||||||||||||||
|
June
30, 2006
|
June
30, 2005
|
June
30, 2006
|
June
30, 2005
|
||||||||||||
Africa
|
$
|
524,697
|
$
|
176,641
|
$
|
735,161
|
$
|
217,711
|
||||||||
Asia
|
108,478
|
48,688
|
151,289
|
76,088
|
||||||||||||
Australia
|
-
|
1,455
|
-
|
13,078
|
||||||||||||
Europe
|
7,630
|
20,385
|
46,328
|
54,843
|
||||||||||||
Middle
East
|
7,065
|
12,510
|
7,740
|
97,316
|
||||||||||||
North
America
|
89,310
|
160,467
|
149,271
|
235,680
|
||||||||||||
South
America
|
835,262
|
394,161
|
1,651,722
|
465,716
|
||||||||||||
$
|
1,572,442
|
$
|
814,307
|
$
|
2,741,511
|
$
|
1,160,432
|
(g)
|
Accounts
payable and accrued
liabilities
|
June
30, 2006
|
December
31, 2005
|
||||||
Accounts
payable - suppliers
|
$
|
1,221,377
|
$
|
550,247
|
|||
Accrued
commissions
|
186,046
|
171,587
|
|||||
Accrued
royalties / licenses
|
499,389
|
381,510
|
|||||
Accrued
payroll and other taxes
|
95,326
|
63,146
|
|||||
Accrued
vacation
|
171,309
|
145,566
|
|||||
Accrued
legal and accounting
|
101,205
|
50,024
|
|||||
Accrued
expenses - other
|
362,357
|
115,845
|
|||||
TOTAL
|
$
|
2,637,009
|
$
|
1,477,925
|
NOTE
|
3
|
—
|
LONG-TERM
DEBT:
|
(a)
|
Common
Stock
|
(b)
|
Warrants
|
(c)
|
Series
A 8% Convertible Preferred Stock:
|
(d)
|
Series
B 9% Convertible Preferred Stock:
|
NOTE
|
5
|
—
|
COMMITMENTS
AND CONTINGENCIES:
|
(a)
|
Economic
Dependency:
|
(b)
|
Governmental
Regulation:
|
(c)
|
Litigation:
|
OBLIGATIONS
|
|
Total
|
|
Less
than
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
Greater
than
5
Years
|
||||||
Long
Term Debt(1)
|
$
|
1,453,160
|
$
|
1,420,000
|
$
|
33,160
|
$
|
-
|
$
|
-
|
||||||
Capital
Leases (2)
|
$
|
64,126
|
$
|
40,532
|
$
|
23,594
|
$
|
-
|
$
|
-
|
||||||
Operating
Leases
|
$
|
75,337
|
$
|
75,337
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Other
Long Term Obligations(3)
|
$
|
1,185,717
|
$
|
838,442
|
$
|
259,775
|
$
|
25,000
|
$
|
62,500
|
||||||
Total
Obligations
|
$
|
2,778,340
|
$
|
2,374,311
|
$
|
316,529
|
$
|
25,000
|
$
|
62,500
|
(1)
|
This
includes the $1,300,000 borrowed on June 29, 2006 (see Note
1) and accrued
interest (see Note 3).
|
(2)
|
This
represents capital leases used to purchase capital
equipment.
|
(3)
|
This
represents contractual obligations for fixed cost licenses
and employment
contracts.
|
#1
proposal - Directors
|
Alan
Carus
|
Gerald
A. Eppner
|
Dr.
Gary Meller
|
Lawrence
A. Siebert
|
For
|
6,440,584
|
6,440,184
|
6,440,584
|
6,440,184
|
Against
|
-
|
-
|
-
|
-
|
withheld
|
83,950
|
84,350
|
83,950
|
84,350
|
Abstain/no-vote
|
3,045,329
|
3,045,329
|
3,045,329
|
3,045,329
|
Proposal
|
#2
- accounting firm
|
#3
- adjournment
|
#4
- other business
|
For
|
6,522,084
|
4,641,401
|
4,563,825
|
Against
|
500
|
218,391
|
164,240
|
withheld
|
950
|
38,450
|
84,501
|
Abstain/no-vote
|
3,046,329
|
4,671,621
|
4,757,297
|
Date:
|
August
11, 2006
|
By:
/s/ Lawrence A. Siebert
|
|
|
Lawrence
A. Siebert
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
Date:
|
August
11, 2006
|
By:_/s
/ Richard J. Larkin
|
|
|
Richard
J. Larkin
|
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
1.
|
I
have reviewed this Form 10-QSB of Chembio Diagnostics,
Inc.
|
2.
|
Based
on my knowledge, this report does not contain any untrue
statement of a
material fact or omit to state a material fact necessary
to make the
statements made, in light of the circumstances under which
such statements
were made, not misleading with respect to the period covered
by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows
of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant
and have:
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial
reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
1.
|
I
have reviewed this Form 10-QSB of Chembio Diagnostics,
Inc.
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to
make the
statements made, in light of the circumstances under which
such statements
were made, not misleading with respect to the period covered
by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant
and have:
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
|