“Product revenue growth is being driven by the largest purchase order in company history, received from Bio-Manguinhos in Brazil in July, for our DPP SARS-CoV-2 Antigen tests,” said Richard Eberly, Chembio’s President and Chief Executive Officer. “Operationally we continue to take steps to address the tight labor market and global supply chain issues for certain test components to ramp production. We are increasing our production and are delighted that our strong revenue growth was achieved in the face of these challenges. Notwithstanding the team’s hard work to increase capacity over the past few months, we currently anticipate that at least $11.5 million of the purchase order from Bio-Manguinhos will not be fulfilled by December 31, 2021, the end of the existing shipment schedule under the order. We continue to discuss with Bio-Manguinhos the possibility of fulfilling a portion of the order in early 2022, and in addition are doing everything we can to minimize the impact of the continuing market challenges on all of our customers.”

Mr. Eberly continued, “We continue to make progress on our other commercial and regulatory initiatives. In the United States, our commercial team is gaining traction with customers interested in the third-party COVID-19 tests we are distributing. Also, we are hopeful for a straightforward review of the EUA submission for our DPP Respiratory Antigen Panel.”

Third Quarter 2021 Financial Results

Total revenue for the third quarter of 2021 was $12.1 million, an increase of 17.4% compared to the prior year period. Net product sales for the third quarter of 2021 were $9.4 million, an increase of 11.5% compared to the prior year period, including $5.4 million and $1.2 million of product revenue under the purchase orders received from Bio-Manguinhos and the Partnership for Supply Chain Management, respectively. After reflecting the deferred recognition to the third quarter of 2020 of revenue associated with shipments from the second quarter of 2020, net product sales during the third quarter of  2021 increased by $4.5 million, or 59.2%, compared to the prior year period. Government grant, license and royalty, and R&D revenue for the third quarter of 2021 totaled $2.7 million, an increase of 44.0% compared to the prior year period.

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Net loss for the third quarter of 2021 was $6.4 million, or $0.24 per diluted share, compared to a net loss of $5.4 million, or $0.28 per diluted share, for the prior year period. The net losses reflected asset impairment, restructuring, severance, and related costs of $0.4 million, or $0.01 per share, for the third quarter of 2021, compared to $0 million, or $0 per diluted share, for the prior year period.

Cash and cash equivalents as of September 30, 2021 totaled $36.0 million. During the three months ended September 30, 2021, Chembio issued and sold in at-the-market offerings a total of 9,709,328 shares of common stock at a volume-weighted average price of $4.2011 per share for gross proceeds of $40.8 million and net proceeds, after giving effect to placement fees and other transaction costs, of $38.8 million.

Revenues during the three months ended September 30, 2021 did not meet the Company’s expectations. The Company’s increase in cash and cash equivalents over the first nine months of 2021 reflected its issuance of common stock in at-the-market offerings for net proceeds of $38.8 million. The Company continued to experience market, clinical trial and regulatory complications in seeking to develop and commercialize a portfolio of COVID-19 test systems during the continuing, but evolving, uncertainty of the COVID‑19 pandemic. In the three months ended September 30, 2021, the Company continued to incur significant expenses in connection with pending legal matters, delayed achievement of milestones associated with government grant income, investments in inventory, and the continuing automation of manufacturing.

The Company performed an assessment to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date on which its unaudited condensed consolidated financial statements will be issued (the “Issuance Date”). Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. Because, as described below, substantial doubt was determined to exist as the result of this initial assessment, management then assessed the mitigating effect of its plans to determine if it is probable that the plans (1) would be effectively implemented within one year after the Issuance Date and (2) when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

During the three months ended September 30, 2021, the Company undertook measures to increase its total revenues and improve its liquidity position. The Company received significant purchase orders from two customers (the “July Purchase Orders”). The Company had pursued the July Purchase Orders for an extended period of time. The July Purchase Orders consist of the following:

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These measures and other plans and initiatives have been designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the Issuance Date. The Company’s execution of those measures and its other plans and initiatives continue to depend, however, on factors that are beyond the Company’s control, or that may not be addressable on terms acceptable to the Company or at all. The Company considered in particular how:

The Company further considered how these factors and uncertainties could impact its ability over the next year to meet the obligations specified in the Company’s existing credit agreement. Those obligations include a covenant requiring minimum total revenue amounts for the twelve months preceding each quarter end. For the next year, the minimum total revenue requirements range from $40.3 million for the twelve months ending December 31, 2021 to $ 45.6 million for the twelve months ending September 30, 2022. Upon an event of default under the credit agreement, the lender could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In such an event, there can be no assurance that the Company would have sufficient liquidity to fund payment of the amounts that would be due under the credit  agreement or that, if such liquidity were not available, the Company would be successful in raising additional capital on acceptable terms, or at all, or in completing any other endeavor to continue to be financially viable and continue as a going concern. The Company’s inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the credit agreement or providing additional liquidity needed for its operations, could have a material adverse effect on its business, prospects, results of operations, liquidity and financial condition.

Accordingly, management determined the Company could not be certain that its plans and initiatives would be effectively implemented within one year after the Issuance Date. Without giving effect to the prospect of raising additional capital in at-the-market offerings, increasing product revenue in the near future or executing other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent, debt service and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the Issuance Date.

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The Company’s third quarter financial statements are being prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the Issuance Date.

Forward-Looking Statements