Page
|
|
PROSPECTUS
SUMMARY
|
1
|
RISK
FACTORS
|
2
|
USE
OF PROCEEDS
|
9
|
DILUTION
|
9
|
SELLING
SECURITY HOLDERS
|
9
|
PLAN
OF DISTRIBUTION
|
14
|
LEGAL
PROCEEDINGS
|
15
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|
15
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
17
|
DESCRIPTION
OF SECURITIES
|
18
|
INTEREST OF
NAMED EXPERTS AND COUNSEL
|
23
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
23
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
23
|
DESCRIPTION
OF BUSINESS
|
26
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
38
|
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 AS COMPARED WITH
THE YEAR ENDED DECEMBER 31, 2005
|
39
|
LIQUIDITY
AND CAPITAL RESOURCES
|
41
|
RECENT
DEVELOPMENTS AND CHEMBIO’S PLAN OF OPERATIONS FOR THE NEXT TWELVE
MONTHS
|
41
|
DESCRIPTION
OF PROPERTY
|
45
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
45
|
LEGAL
MATTERS
|
45
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
45
|
EXECUTIVE
COMPENSATION
|
47
|
FINANCIAL
STATEMENTS
|
50
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
50
|
ADDITIONAL
INFORMATION
|
50
|
CONSENT
OF LAZAR, LEVINE & FELIX LLP
|
|
CONSENT
OF PATTON BOGGS LLP
|
· |
HIV
Rapid Tests: HIV 1/2 STAT-PAK® Cassette, HIV 1/2 SURE CHECK® and HIV 1/2
STAT-PAK® Dipstick;
|
· |
Chagas
Rapid Test: Chagas STAT-PAK; and
|
· |
Tuberculosis
(TB): Prima TB STAT-PAK and Veterinary
products.
|
|
|
Year
Ended December 31, 2006
|
|
Year
Ended December 31, 2005
|
|
||
Revenue
|
|
$
|
6,502,480
|
|
$
|
3,940,730
|
|
Operating
Expenses
|
|
|
6,596,761
|
|
|
4,630,133
|
|
Net
Loss
|
|
|
(4,995,020
|
)
|
|
(3,252,000
|
)
|
Current
Assets
|
|
|
6,953,668
|
|
|
2,468,193
|
|
Total
Assets
|
|
|
7,906,577
|
|
|
3,016,406
|
|
Current
Liabilities
|
|
|
1,840,435
|
|
|
1,818,474
|
|
Total
Liabilities
|
|
|
2,297,193
|
|
|
1,963,703
|
|
Convertible
Redeemable Preferred
|
|
|
6,549,191
|
|
|
n/a
|
|
Stockholders’
Equity (Deficit)
|
|
|
(939,807
|
)
|
|
(1,052,703
|
)
|
· |
control
the composition of our board of
directors;
|
· |
control
our management and policies;
|
· |
determine
the outcome of significant corporate transactions, including changes
in
control that may be beneficial to stockholders;
and
|
· |
act
in each of their own interests, which may conflict with, or be
different
from, the interests of each other or the interests of the other
stockholders.
|
•
|
the
number of shares of common stock beneficially owned as of March
31, 2007
and prior to the offering contemplated hereby;
|
•
|
the
number of shares of common stock eligible for resale and to be
offered by
each selling security holder pursuant to this
prospectus;
|
•
|
the
number of shares owned by each selling security holder after
the offering
contemplated hereby assuming that all shares eligible for resale
pursuant
to this prospectus actually are sold;
|
•
|
the
percentage of shares of common stock beneficially owned by each
selling
security holder after the offering contemplated hereby;
and
|
•
|
in
notes to the table, additional information concerning the selling
security
holders including any NASD affiliations and any relationships,
excluding
non-executive employee and other non-material relationships,
that a
selling security holder had during the past three years with
the
registrant or any of its predecessors or
affiliates.
|
Selling
security holders (C)
|
Number
of Shares of Common Stock Owned Before Offering
(A)
|
Number
of Shares to be Offered (B)
|
Number
of Shares Owned After Offering
|
Percentage
of Shares of Common Stock Owned After Offering
|
|||||||||
Alpha
Capital AG 2,3
|
2,057,539
|
660,000
|
1,397,539
|
10.73
|
%
|
||||||||
Bassett,
Truman 1
|
42,526
|
3,866
|
38,660
|
0.33
|
%
|
||||||||
Baum,
Mark L. 2
|
1,646,930
|
980,000
|
666,930
|
5.19
|
%
|
||||||||
Bell,
Lon E. 2
|
302,233
|
151,178
|
151,055
|
1.26
|
%
|
||||||||
Beller,
Claudio 2
|
155,597
|
75,997
|
79,600
|
0.67
|
%
|
||||||||
BioEquity
Partners, Inc. 1,4
|
109,375
|
84,375
|
25,000
|
0.21
|
%
|
||||||||
Breitbart,
Ted 1,5
|
18,208
|
14,208
|
4,000
|
0.03
|
%
|
||||||||
Bruce,
Richard 1
|
125,500
|
500
|
125,000
|
1.05
|
%
|
||||||||
Calamaro,
Jean-Paul 2
|
329,616
|
153,667
|
175,949
|
1.46
|
%
|
||||||||
Chrust,
Steve 1
|
107,656
|
11,605
|
96,051
|
0.82
|
%
|
||||||||
Clarke,
John R.1,6
|
158,400
|
158,400
|
-
|
0.00
|
%
|
||||||||
Crestview
Capital Master, LLC 7
|
16,572,249
|
4,672,130
|
11,900,119
|
46.93
|
%
|
||||||||
Dabush,
Ami 2
|
578,663
|
303,906
|
274,757
|
2.24
|
%
|
||||||||
Daedalus
Consulting, Inc.8
|
35,963
|
35,963
|
-
|
0.00
|
%
|
||||||||
Diamond
Deecembra 8
|
143,853
|
143,853
|
-
|
0.00
|
%
|
||||||||
DKR
Soundshore Oasis Holding Fund, Ltd.9
|
600,750
|
584,016
|
16,734
|
0.14
|
%
|
||||||||
Eckert,
Christopher & Lynn 2,10
|
199,917
|
100,000
|
99,917
|
0.84
|
%
|
||||||||
Engel,
Sam 1
|
4,118
|
374
|
3,744
|
0.03
|
%
|
||||||||
Esfandiari,
Javan 1
|
254,580
|
2,007
|
252,573
|
2.11
|
%
|
||||||||
FAMALOM,
LLC 8
|
179,817
|
179,817
|
-
|
0.00
|
%
|
||||||||
Feldman,
Stephen 1
|
2,055
|
187
|
1,868
|
0.02
|
%
|
||||||||
Fuchs,
Ari 2,6
|
49,058
|
44,000
|
5,058
|
0.04
|
%
|
||||||||
Ginsberg,
Mike 1
|
2,375
|
216
|
2,159
|
0.02
|
%
|
||||||||
Glass,
Marc 1
|
20,708
|
1,883
|
18,825
|
0.16
|
%
|
||||||||
Goldberg,
Jeffrey 1,11
|
52,875
|
27,875
|
25,000
|
0.21
|
%
|
||||||||
Greenblatt,
Phil 1
|
10,347
|
941
|
9,406
|
0.08
|
%
|
||||||||
Gregoretti,
Gordan
|
81,220
|
38,933
|
42,287
|
0.36
|
%
|
||||||||
Gressel,
Daniel 1,12
|
462,501
|
42,046
|
420,455
|
3.56
|
%
|
||||||||
Guzikowski,
Frank J.1
|
178,114
|
16,192
|
161,922
|
1.38
|
%
|
||||||||
H.C.
Wainwright & Co. 1,13
|
390,867
|
355,867
|
35,000
|
0.29
|
%
|
||||||||
Haendler,
Kurt 1
|
434,665
|
130,904
|
303,761
|
2.54
|
%
|
||||||||
Haendler,
Renata 1
|
139,419
|
59,133
|
80,286
|
0.68
|
%
|
||||||||
Haendler,
Tomas 2,14
|
541,157
|
86,257
|
454,900
|
3.83
|
%
|
||||||||
Haim,
Eduardo 1
|
7,115
|
647
|
6,468
|
0.06
|
%
|
||||||||
Hamblett,
Michael 15
|
522,096
|
247,691
|
274,405
|
2.28
|
%
|
||||||||
Hanson,
Andrew Merz 2,16
|
127,558
|
60,471
|
67,087
|
0.57
|
%
|
||||||||
Ide,
Bruce J.2,17
|
504,597
|
160,961
|
343,636
|
2.86
|
%
|
||||||||
Jacob,
Sam 1
|
10,000
|
10,000
|
-
|
0.00
|
%
|
||||||||
Jacoby,
Richard A.2
|
492,013
|
213,811
|
278,202
|
2.29
|
%
|
||||||||
Joffe,
Wendy 2
|
37,599
|
13,635
|
23,964
|
0.20
|
%
|
||||||||
Jordan,
Bruce 18
|
107,006
|
51,426
|
55,580
|
0.47
|
%
|
||||||||
JP
Turner 1,5
|
41,250
|
41,250
|
-
|
0.00
|
%
|
||||||||
Keskinen,
Karen 1
|
1,579
|
144
|
1,435
|
0.01
|
%
|
||||||||
Klaus,
Elaine 1
|
2,242
|
204
|
2,038
|
0.02
|
%
|
||||||||
Knasin,
Paul and Ellen 2
|
162,322
|
76,608
|
85,714
|
0.72
|
%
|
||||||||
Koch,
Scott F.1,6
|
158,400
|
158,400
|
-
|
0.00
|
%
|
||||||||
Kreger,
Richard 18
|
650,821
|
303,897
|
346,924
|
2.80
|
%
|
||||||||
Kurzman
Partners, LP 19
|
70,479
|
31,146
|
39,333
|
0.33
|
%
|
||||||||
Lankenau,
Robert 1
|
228,190
|
82,310
|
145,880
|
1.23
|
%
|
||||||||
Lanouette,
Kevin P.
|
35,141
|
15,573
|
19,568
|
0.17
|
%
|
||||||||
Larkin,
Richard 2
|
200,693
|
30,486
|
170,207
|
1.42
|
%
|
||||||||
Lawrence,
Colin 1
|
7,115
|
647
|
6,468
|
0.06
|
%
|
||||||||
Ledowitz,
Bill 1
|
7,118
|
647
|
6,471
|
0.06
|
%
|
||||||||
Lifshitz,
Joshua 20
|
102,634
|
84,246
|
18,388
|
0.16
|
%
|
||||||||
Little
Gem Life Sciences Fund LLC 21
|
184,312
|
88,933
|
95,379
|
0.81
|
%
|
||||||||
Lyashchenko,
Konstantin 1
|
35,500
|
500
|
35,000
|
0.30
|
%
|
||||||||
Maloney
& Company, LLC
|
52,228
|
38,933
|
13,295
|
0.11
|
%
|
||||||||
Mayer-Wolf,
Mike 1
|
18,379
|
1,671
|
16,708
|
0.14
|
%
|
||||||||
McCarthy,
Michael 1
|
4,145
|
377
|
3,768
|
0.03
|
%
|
||||||||
Metasequoia,
LLC 2
|
39,980
|
20,000
|
19,980
|
0.17
|
%
|
||||||||
Midtown
Partners & Co., LLC 22
|
203,402
|
56,824
|
146,578
|
1.23
|
%
|
||||||||
Millennium
3 Opportunity Fund, LLC 23
|
3,464,187
|
1,557,376
|
1,906,811
|
12.93
|
%
|
||||||||
Moran,
Sean
|
24,243
|
23,360
|
883
|
0.01
|
%
|
||||||||
MSAS
Trust 2
|
779,775
|
300,000
|
479,775
|
3.90
|
%
|
||||||||
Nite
Capital, LP
|
762,441
|
350,409
|
412,032
|
3.36
|
%
|
||||||||
Pelossof,
Avi 2
|
672,286
|
34,650
|
637,636
|
5.29
|
%
|
||||||||
Pelossof,
Elior 2
|
90,667
|
45,354
|
45,313
|
0.38
|
%
|
||||||||
Phillips,
Chris 8
|
91,271
|
22,421
|
68,850
|
0.58
|
%
|
||||||||
Poole,
Colin 2
|
142,461
|
75,589
|
66,872
|
0.57
|
%
|
||||||||
Poole,
John G.1
|
68,365
|
6,215
|
62,150
|
0.53
|
%
|
||||||||
Raker,
Gilbert 2
|
86,515
|
45,354
|
41,161
|
0.35
|
%
|
||||||||
Reibman,
Spencer 1
|
1,707
|
1,707
|
-
|
0.00
|
%
|
||||||||
Rohan,
J. Rory 18
|
580,643
|
303,897
|
276,746
|
2.25
|
%
|
||||||||
Rojas,
Zilma 1
|
15,500
|
500
|
15,000
|
0.13
|
%
|
||||||||
Sandler,
J & S 1
|
8,287
|
753
|
7,534
|
0.06
|
%
|
||||||||
Sandler,
Mark and Lori 2
|
197,415
|
100,000
|
97,415
|
0.82
|
%
|
||||||||
Schnipper,
Steve 24
|
167,109
|
132,208
|
34,901
|
0.29
|
%
|
||||||||
Schwartz,
Eric 1
|
5,496
|
500
|
4,996
|
0.04
|
%
|
||||||||
Seren,
Stanley 1
|
8,287
|
753
|
7,534
|
0.06
|
%
|
||||||||
Shapiro,
Alex 1
|
112,412
|
10,219
|
102,193
|
0.87
|
%
|
||||||||
Siderowf,
Richard 2,25
|
86,805
|
28,377
|
58,428
|
0.50
|
%
|
||||||||
Siebert
Best, Ellen 2
|
43,688
|
14,188
|
29,500
|
0.25
|
%
|
||||||||
Siebert,
Lawrence 26
|
6,570,644
|
-
|
6,570,644
|
39.72
|
%
|
||||||||
Sive
Paget & Reisel 1
|
2,055
|
187
|
1,868
|
0.02
|
%
|
||||||||
Smith,
Robin 1,27
|
119,883
|
34,000
|
85,883
|
0.73
|
%
|
||||||||
Spatacco,
Jr., Anthony J. 28
|
52,542
|
45,976
|
6,566
|
0.06
|
%
|
||||||||
Speer,
Sandy 1
|
95,468
|
2,315
|
93,153
|
0.79
|
%
|
||||||||
Spilka,
R. Edward 2,29
|
326,389
|
100,000
|
226,389
|
1.90
|
%
|
||||||||
Starboard
Capital Markets, LLC 30
|
9,979
|
7,043
|
2,936
|
0.02
|
%
|
||||||||
Starobin
Partners 1,5
|
110,000
|
90,000
|
20,000
|
0.17
|
%
|
||||||||
Straightline
Capital Opportunities Fund I, LLC 2
|
793,297
|
401,255
|
392,042
|
3.14
|
%
|
||||||||
Talesnick,
Alan L. 2,31
|
251,482
|
94,930
|
156,552
|
1.31
|
%
|
||||||||
TCMP3
Partners
|
350,869
|
155,737
|
195,132
|
1.62
|
%
|
||||||||
Thunderbird
Global Corporation 2,32
|
1,061,822
|
302,356
|
759,466
|
6.17
|
%
|
||||||||
Total
M.I.S., Inc. 2
|
599,760
|
300,000
|
299,760
|
2.44
|
%
|
||||||||
Tyson,
John 2,33
|
16,250
|
16,250
|
-
|
0.00
|
%
|
||||||||
Vicis
Capital Master Fund 2,34
|
5,925,533
|
3,000,000
|
2,925,533
|
16.96
|
%
|
||||||||
Wachs,
Mark 2
|
15,676
|
15,118
|
558
|
0.00
|
%
|
||||||||
Weiss,
Gunther 1
|
28,334
|
2,576
|
25,758
|
0.22
|
%
|
||||||||
Westbury
Diagnostics, Inc. 2
|
154,741
|
77,403
|
77,338
|
0.65
|
%
|
||||||||
TOTALS
|
53,897,049
|
18,610,710
|
35,286,339
|
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
· |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
· |
privately
negotiated transactions;
|
· |
settlement
of short sales entered into after the date of this
Prospectus;
|
· |
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
· |
a
combination of any such methods of sale;
|
· |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
· |
any
other method permitted pursuant to applicable
law.
|
Name
and Address of Beneficial Owner
|
Number
of Shares Beneficially Owned
|
Percent
of Class
|
Lawrence
Siebert (1)
3661
Horseblock Road
Medford,
NY 11763
|
2,141,919
|
17.55%
|
Javan
Esfandiari (2)
3661
Horseblock Road
Medford,
NY 11763
|
454,580
|
3.73%
|
Richard
J. Larkin (3)
3661
Horseblock Road
Medford,
NY 11763
|
145,261
|
1.21%
|
Alan
Carus (4)
3661
Horseblock Road
Medford,
NY 11763
|
92,000
|
0.77%
|
Gary
Meller (5)
3661
Horseblock Road
Medford,
NY 11763
|
87,000
|
0.73%
|
All
officers and directors as a group(6)
|
2,920,760
|
22.73%
|
Mark
Baum (7)
580
Second Street, Suite 102
Encinitas,
CA 92024
|
1,408,597
|
11.10%
|
Crestview
Capital Partners, LLC
95
Revere Drive, Suite A
Northbrook,
Illinois 60062
|
1,328,393
|
11.22%
|
Avi
Pelossof (8)
3661
Horseblock Road
Medford,
NY 11763
|
650,113
|
5.37%
|
(1)
|
Includes
220,000 shares issuable upon exercise of options exercisable
within 60
days and 140,697 warrants. Does not include 1,937,220 shares
issuable upon
conversion of series A preferred stock, 2,324,666 shares issuable
upon
exercise of warrants, 88,971 shares issuable upon conversion
of series B
preferred stock and 77,868 shares issuable upon exercise of
warrants
because they can be exercised only upon 61 days prior notice
and therefore
are not exercisable within 60 days.
|
(2)
|
Includes
332,500 shares issuable upon exercise of options exercisable
within 60
days and 2,007 shares issuable upon exercise of warrants. Does
not include
100,000 common share that are not vested within the next 60 days and
200,000 shares issuable upon exercise of options that are not
exercisable within the next 60 days
|
(3)
|
Includes
137,500 shares issuable upon exercise of options exercisable
within 60
days and 260 shares issuable upon exercise of warrants. Does
not include
30,236 shares issuable upon conversion of series A preferred
stock and
25,196 shares issuable upon exercise of warrants because they
can be
exercised only upon 61 days prior notice and therefore are
not exercisable
within 60 days.
|
(4)
|
Includes
87,000 shares issuable upon exercise of options exercisable
within 60
days. Does not include 10,000 common share that are not vested
within the next 60 days and 36,000 shares issuable upon exercise of
options that are not exercisable within the next 60
days.
|
(5)
|
Includes
87,000 shares issuable upon exercise of options exercisable
within 60
days. Does not include 36,000 shares issuable upon exercise
of options
that are not exercisable within the next 60
days.
|
(6)
|
Includes
footnotes (1)-(6)
|
(7)
|
Includes
850,000 shares issuable upon exercise of warrants. Does not
include
108,333 shares issuable upon conversion of series A preferred
stock and
130,000 shares issuable upon exercise of warrants because they
can be
exercised only upon 61 days prior notice and therefore are
not exercisable
within 60 days.
|
(8)
|
Includes
300,000 shares issuable upon exercise of options exercisable
within 60
days and 22,555 shares issuable upon exercise of warrants.
Does not
include 10,078 shares issuable upon conversion of series A
preferred stock
and 12,095 shares issuable upon exercise of warrants because
they can be
exercised only upon 61 days prior notice and therefore are
not exercisable
within 60 days. Mr. Pelossof voluntarily resigned from the
Company on
December 6, 2006, effective January 31,
2007.
|
|
•
|
|
amend,
alter or repeal the provisions of the series A preferred stock
so as to
adversely affect any right, preference, privilege or voting power
of the
series A preferred stock;
|
|
•
|
|
repurchase,
redeem or pay dividends on shares of common stock or any other
shares of
our equity securities that by their terms do not rank senior
to the series
A preferred stock, other than de minimus repurchases from our
employees in
certain circumstances;
|
|
•
|
|
amend
our articles of incorporation or bylaws so as to affect materially
and
adversely any right, preference, privilege or voting power of
the series A
preferred stock;
|
|
•
|
|
effect
any distribution with respect to any equity securities that by
their terms
do not rank senior to the series A preferred stock;
|
|
•
|
|
reclassify
our outstanding securities;
|
|
•
|
|
voluntarily
file for bankruptcy, liquidate our assets or make an assignment
for the
benefit of our creditors; or
|
|
•
|
|
change
the nature of our business.
|
|
•
|
|
such
date is at least one hundred eighty (180) days following the
effective date of this registration statement; and
|
|
•
|
|
this
registration statement has been effective, without lapse or suspension
of
any kind, for a period of sixty (60) days (or the common stock into
which the series A preferred stock is convertible can be freely
traded
pursuant to Rule 144(k) under the Securities
Act).
|
|
•
|
|
a
consolidation, merger, or other business combination involving
Chembio
Diagnostics, Inc.;
|
|
•
|
|
the
sale of more than 50% of our assets; or
|
|
•
|
|
the
closing of a purchase, tender or exchange offer made to and accepted
by
holders of more than 50% of our outstanding shares of common
stock;
|
|
•
|
|
the
lapse or unavailability of this registration statement;
|
|
•
|
|
the
suspension from listing of the common stock for a period of seven
(7) consecutive days;
|
|
•
|
|
our
failure or inability to comply with a conversion request from
a holder of
series A preferred stock; or
|
|
•
|
|
our
material breach of any of our representations or warranties contained
in
the series A preferred stock documentation that continues uncured
for a
period of ten (10) days;
|
|
•
|
|
amend,
alter or repeal the provisions of the series B preferred stock
so as to
adversely affect any right, preference, privilege or voting power
of the
series B preferred stock;
|
|
•
|
|
authorize
or create any class of stock ranking as to dividends, redemption
or
distribution of assets upon a liquidation event, senior to or
otherwise
pari passu with the series B preferred stock;
|
|
•
|
|
amend
our articles of incorporation or by-laws so as to adversely affect
any
rights of the series B preferred stock;
|
|
•
|
|
increase
the authorized number of shares of series B preferred stock;
or
|
|
•
|
|
enter
into any agreement with respect to the foregoing.
|
|
•
|
|
Notwithstanding
the foregoing, so long as any shares of series B preferred stock
are
outstanding, the Company shall not, without the affirmative vote
of the
holders of 75% of the shares of series B preferred stock then
outstanding,
(a) decrease the dividend rate of 9% per annum; (b) amend the
anti-dilution adjustment for subsequent equity sales; or (c) amend
the terms for a forced conversion.
|
|
•
|
|
a
consolidation, merger, or other business combination involving
Chembio
Diagnostics, Inc.;
|
|
•
|
|
the
sale of all or substantially all of our assets;
|
|
•
|
|
the
acquisition by another person of in excess of 50% of our voting
securities; or
|
|
•
|
|
certain
specified triggering events (involving (A) the lapse or
unavailability of a registration statement, (B) the suspension from
listing of our common stock for a period of seven consecutive
days,
(C) our failure or inability to comply with a conversion request
from
a holder of series B preferred stock, (D) our breach of any of our
representations or warranties contained in the series B preferred
stock
documentation that continues uncured for a period of 30 days, or
(E) our becoming subject to certain bankruptcy
events),
|
|
•
|
|
amend,
alter or repeal the provisions of the series C preferred stock
so as to
adversely affect any right, preference, privilege or voting power
of the
series C preferred stock;
|
|
•
|
|
authorize
or create any class of stock ranking as to dividends, redemption
or
distribution of assets upon a liquidation event, senior to or
otherwise
pari passu with the series C preferred stock;
|
|
•
|
|
amend
our articles of incorporation or by-laws so as to adversely affect
any
rights of the series B preferred stock;
|
|
•
|
|
increase
the authorized number of shares of series C preferred stock;
or
|
|
•
|
|
enter
into any agreement with respect to the
foregoing.
|
|
•
|
|
a
consolidation, merger, or other business combination involving
Chembio
Diagnostics, Inc.,
|
|
•
|
|
the
sale of all or substantially all of our assets;
|
|
•
|
|
the
acquisition by another person of in excess of 50% of our voting
securities; or
|
|
•
|
|
certain
specified triggering events (involving (A) the lapse or
unavailability of a registration statement, (B) the suspension from
listing of our common stock for a period of seven consecutive
days,
(C) our failure or inability to comply with a conversion request
from
a holder of series C preferred stock, (D) our breach of any of our
representations or warranties contained in the series C preferred
stock
documentation that continues uncured for a period of 30 days, or
(E) our becoming subject to certain bankruptcy
events),
|
· |
Support,
review and assess the marketing and distribution efforts of our rapid
HIV
tests by Inverness Medical Innovations, Inc. Inverness and Chembio’s
marketing and regulatory teams have been working together since October
2006 after we signed the agreements and we are very encouraged by
the
commitment they are making to maximize the success of these products
in
the United States market. We believe that their highly professional
cadre
of technical field support staff together with the strong distribution
partners they support in the hospital, public health and physician
office
markets will combine to provide a marketing organization that will
be a
key asset.
|
· |
Expand
our international sales effort and strategic partnerships in the
developed
and developing world for our global health rapid test products,
particularly our HIV and Chagas disease tests. We are actively engaged
in
expanding HIV test sales and marketing through our East and West
African
offices. These offices are headed by seasoned professionals that
have
extensive marketing and/or public health experience in Africa and
are
establishing distributor relationships throughout the continent.
We also
have new collaborations and sales opportunities that we are pursuing
in
several other markets. These efforts will most likely include obtaining
CE
Marks for our rapid HIV tests. In order to achieve this we will need
to
become ISO 13.485 certified, which we expect to complete during the
second
quarter of 2007.
|
· |
Pursue
potential over-the-counter marketing opportunities in the United
States
and internationally for our HIV tests. We will analyze whether to
focus
our efforts for this market on an oral fluid HIV test product, which
we
are currently developing with our DPP™
technology.
|
· |
Launch
our initial veterinary TB product, PrimaTB STAT PAK™, within our growing
line of veterinary TB tests. We anticipate USDA approval of our initial
product, a nonhuman primate TB test, in the second quarter of 2007.
During
2007 we expect to obtain revenues from certain other veterinary TB
products, at very favorable
margins.
|
· |
Scientific
and technological capability;
|
· |
Proprietary
know-how;
|
· |
The
ability to develop and market products and
processes;
|
· |
The
ability to obtain FDA or other required regulatory
approvals;
|
· |
The
ability to manufacture products that meet applicable FDA requirements,
(i.e. FDA’s Quality System Regulations) (see Governmental Regulation
section);
|
· |
Access
to adequate capital;
|
· |
The
ability to attract and retain qualified personnel;
and
|
· |
The
availability of patent protection.
|
AIDS
|
Acquired
Immunodeficiency Syndrome. AIDS is caused by the Human Immunodeficiency
Virus, HIV.
|
ANTIBODY
|
A
protein which is a natural part of the human immune system produced
by
specialized cells to neutralize antigens, including viruses and bacteria
that invade the body. Each antibody producing cell manufactures a
unique
antibody that is directed against, binds to and eliminates one, and
only
one, specific type of antigen.
|
ANTIGEN
|
Any
substance which, upon entering the body, stimulates the immune system
leading to the formation of antibodies. Among the more common antigens
are
bacteria, pollens, toxins, and viruses.
|
ARVs
|
Anti-Retroviral
Treatments for AIDS
|
CD-4
|
The
CD4+ T-lymphocyte is the primary target for HIV infection because
of the
affinity of the virus for the CD4 surface marker. Measures of CD4+
T-lymphocytes are used to guide clinical and therapeutic management
of
HIV-infected persons.
|
CDC
|
United
States Centers for Disease Control and Prevention
|
CHAGAS
DISEASE
|
Chagas
disease is an infection caused by the parasite Trypanosoma
cruzi.
Worldwide, it is estimated that 16 to 18 million people are infected
with
Chagas disease; of those infected, 50,000 will die each
year.
|
CHAI
|
Clinton
HIV/AIDS Initiative
|
CLIA
|
Clinical
Laboratory Improvement Act
|
DIAGNOSTIC
|
Pertaining
to the determination of the nature or cause of a disease or condition.
Also refers to reagents or procedures used in diagnosis to measure
proteins in a clinical sample.
|
EITF
|
Emerging
Issues Task Force
|
FASB
|
Financial
Accounting Standards Board
|
FDA
|
United
States Food and Drug Administration
|
FDIC
|
Federal
Deposit Insurance Corporation
|
HIV
|
Human
Immunodeficiency Virus. HIV (also called HIV-1), a retrovirus, causes
AIDS. A similar retrovirus, HIV-2, causes a variant disease, sometimes
referred to as West African AIDS. HIV infection leads to the destruction
of the immune system.
|
IgG
|
IgG
or Immunoglobulin are proteins found in human blood. This protein
is
called an “antibody” and is an important part of the body’s defense
against disease. When the body is attacked by harmful bacteria or
viruses,
antibodies help fight these invaders.
|
MOH
|
Ministry
of Health
|
MOU
|
Memoranda
of Understanding
|
NGO
|
Non-Governmental
Organization
|
OTC
|
Over-the-Counter
|
PEPFAR
|
The
President’s Emergency Plan for AIDS Relief
|
PMA
|
Pre-Marketing
Approval
|
PROTOCOL
|
A
procedure pursuant to which an immunodiagnostic test is performed
on a
particular specimen in order to obtain the desired
reaction.
|
REAGENT
|
A
chemical added to a sample under investigation in order to cause
a
chemical or biological reaction which will enable measurement or
identification of a target substance.
|
RETROVIRUS
|
A
type of virus which contains the enzyme Reverse Transcriptase and
is
capable of transforming infected cells to produce diseases in the
host
such as AIDS.
|
Ryan
White CARE Act
|
The
Ryan White Comprehensive AIDS Resources Emergency (CARE) Act is Federal
legislation that addresses the unmet health needs of persons living
with
HIV disease by funding primary health care and support services.
The CARE
Act was named after Ryan White, an Indiana teenager whose courageous
struggle with HIV/AIDS and against AIDS-related discrimination helped
educate the nation.
|
SAB
|
Staff
Accounting Bulletin
|
SENSITIVITY
|
Refers
to the ability of an assay to detect and measure small quantities
of a
substance of interest. The greater the sensitivity, the smaller the
quantity of the substance of interest the assay can detect. Also
refers to
the likelihood of detecting the antigen when present.
|
SFAS
|
Statement
of Financial Accounting Standards
|
SPECIFICITY
|
The
ability of an assay to distinguish between similar materials. The
greater
the specificity, the better an assay is at identifying a substance
in the
presence of substances of similar makeup.
|
SPUTUM
|
Expectorated
matter; saliva mixed with discharges from the respiratory
passages
|
TB
|
Tuberculosis
(TB) is a disease caused by bacteria called Mycobacterium tuberculosis.
The bacteria usually attack the lungs. But, TB bacteria can attack
any
part of the body such as the kidney, spine, and brain. If not treated
properly, TB disease can be fatal. TB is spread through the air from
one
person to another. The bacteria are put into the air when a person
with
active TB disease of the lungs or throat coughs or sneezes. People
nearby
may breathe in these bacteria and become infected.
|
ALGORITHM
|
For
rapid HIV testing this refers both to method or protocol for using
rapid
tests from different manufacturers in combination to screen and confirm
patients at the point of care, and may also refer to the specific
tests
that have been selected by an agency or ministry of health to be
used in
this way.
|
UNAIDS
|
Joint
United Nations Program on HIV/AIDS
|
USAID
|
United
States Agency for International Development
|
USDA
|
U.S
Department of Agriculture
|
WHO
|
World
Health Organization
|
OBLIGATIONS
|
Total
|
Less
than 1 Year
|
1-3
Years
|
4-5
Years
|
Greater
than 5 Years
|
|||||||||||
Long
Term Debt(1)
|
$
|
93,160
|
$
|
93,160
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Capital
Leases (2)
|
51,498
|
44,417
|
7,081
|
-
|
-
|
|||||||||||
Operating
Leases
|
38,683
|
38,683
|
-
|
-
|
-
|
|||||||||||
Other
Long Term Obligations(3)
|
707,500
|
442,500
|
177,500
|
25,000
|
62,500
|
|||||||||||
Total
Obligations
|
$
|
890,841
|
$
|
618,760
|
$
|
184,581
|
$
|
25,000
|
$
|
62,500
|
(1)
|
This
includes the balance of accrued
interest.
|
(2)
|
This
represents capital leases used to purchase capital
equipment.
|
(3)
|
This
represents contractual obligations for fixed cost licenses and employment
contracts.
|
· |
Inverness
will market the SURE CHECK product under Inverness brands globally
[subject only to certain existing international agreements that each
of
the Company and StatSure may keep in place for up to one year];
|
· |
Inverness
will exclusively market SURE CHECK as well as any new HIV products
in the
“barrel field” that are developed, and may not compete with any products
in the “barrel field” as defined in the agreement worldwide
;
|
· |
The
Company and StatSure have each granted Inverness exclusive rights
to their
intellectual property in the HIV barrel field;
|
· |
Inverness
has a first right to negotiate agreements to market and distribute
any of
our new HIV antibody detection tests, including products that may
incorporate our patent-pending Dual Path Platform (DPP(TM));
and
|
· |
As
described above, the SURE CHECK HIV 1/2 product has been re-labeled
Clearview Complete HIV 1/2 and Inverness has commenced marketing
of this
product. CLIA waiver for this product is still
pending.
|
· |
Inverness
will market this product in the United States market only, and we
have a
non-exclusive license under the Inverness lateral flow patents to
continue
to market the product under our brand in the rest of the world;
|
· |
Inverness
may bring a competitive HIV cassette product to the United States
market,
but in that event we can expand our lateral flow license for this
product
to the United States and have other options under the
agreement;
|
· |
We
received a non-exclusive license under the Inverness lateral flow
patents
for our HIV 1/2 STAT-PAK cassette for marketing outside the United
States; and
|
· |
As
described above, the HIV 1/2 STAT-PAK product has been re-labeled
Clearview HIV 1/2 STAT-PAK and Inverness has commenced marketing
of this
product. CLIA waiver for this product has been
granted.
|
· |
We
received a non-exclusive license under the Inverness lateral flow
patents
for our HIV 1/2 STAT-PAK Dipstick for marketing outside the United
States;
|
· |
We
received a worldwide non-exclusive license to manufacture and market
a
number of other Company-branded products under the Inverness lateral
flow
patents, including all of our rapid tests for human and veterinary
and
tuberculosis, Chagas disease, and tests for other defined emerging
and
neglected diseases;
|
· |
Inverness
has the right to market each of these products (except the HIV 1/2
STAT
PAK Dipstick) under an Inverness brand pursuant to an agreed-upon
pricing
and margin sharing formula similar to the other agreements;
and
|
· |
The
Company and StatSure also entered into a Settlement Agreement pursuant
to
which all matters in their litigation regarding StatSure’s barrel patent
and other matters were settled. Under the terms of this agreement,
the
parties will equally share in the profits relating to HIV barrel
products
after reimbursement to the Company of our manufacturing and related
costs,
as defined, and the parties will act jointly in the HIV barrel field.
The
settlement combines each company’s HIV barrel intellectual property,
including an exclusive manufacturing license from StatSure to the
Company
of its barrel patent for all HIV applications, thereby ensuring our
exclusive right to manufacture, as well as Inverness’ right to market
though the marketing license that StatSure granted Inverness under
the
three way agreement. In addition, pursuant to this Agreement, StatSure
and
the Company will share equally the net sales to Inverness of HIV
barrel
products after these deductions.
|
Fiscal
Year 2006
|
High
Bid
|
Low
Bid
|
First
Quarter
|
$0.75
|
$0.33
|
Second
Quarter
|
$1.15
|
$0.65
|
Third
Quarter
|
$0.85
|
$0.68
|
Fourth
Quarter
|
$0.92
|
$0.63
|
|
||
Fiscal
Year 2005
|
High
Bid
|
Low
Bid
|
First
Quarter
|
$0.90
|
$0.50
|
Second
Quarter
|
$0.87
|
$0.54
|
Third
Quarter
|
$0.66
|
$0.52
|
Fourth
Quarter
|
$0.62
|
$0.30
|
· |
the
corporation would not be able to pay its debts as they become due
in the
usual course of business; or
|
· |
except
as otherwise specifically allowed by the corporation’s articles of
incorporation, the corporation’s total assets would be less than the sum
of its total liabilities plus the amount that would be needed,
if the
corporation were to be dissolved at the time of distribution, to
satisfy
the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the
distribution.
|
Equity
Compensation Plan Information as of March 31,
2007
|
|||
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders
|
1,515,750
|
$0.698
|
1,319,250
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
Total
|
1,515,750
|
$0.698
|
1,319,250
|
Name
and Principal
Position
|
Year
|
Salary
($)1
|
Bonus
($)2
|
Option
Awards ($)3
|
All
Other Compensation
|
Total
($)
|
|||||||||||||
Lawrence
A. Siebert, CEO and Director4
|
2006
|
$
|
207,115
|
$
|
20,000
|
$
|
21,017
|
$
|
7,200
|
$
|
255,332
|
||||||||
Richard
J. Larkin, CFO
|
2006
|
$
|
140,385
|
$
|
15,000
|
$
|
27,300
|
-
|
$
|
182,685
|
|||||||||
Avi
Pelossof, Vice President of Sales and Marketing5
|
2006
|
$
|
156,538
|
$
|
12,000
|
$
|
51,081
|
$
|
6,120
|
$
|
225,739
|
||||||||
Javan
Esfandiari, Director of Research and Development
|
2006
|
$
|
150,385
|
$
|
12,000
|
$
|
41,390
|
$
|
4,800
|
$
|
208,575
|
Name
|
Number
of Securities Underlying Unexercised Options Exercisable
(#)
|
Number
of Securities Underlying Unexercised Options Unexercisable
(#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
Lawrence
A. Siebert
|
50,0002
|
0.75
|
11/19/2007
|
4/17/2006
|
|
|
10,0002
|
0.75
|
12/31/2008
|
4/17/2006
|
|
|
10,0002
|
0.75
|
5/4/2011
|
4/17/2006
|
|
|
50,0002
|
0.75
|
5/28/2011
|
4/17/2006
|
|
|
50,0002
|
0.75
|
5/28/2011
|
1/1/2007
|
|
|
50,0003
|
0.75
|
5/4/2011
|
5/5/2004
|
|
Richard
J. Larkin
|
25,0002
|
0.75
|
5/17/2010
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/17/2010
|
4/17/2006
|
|
|
18,7501
|
0.62
|
3/24/2011
|
3/24/2006
|
|
|
18,7501
|
0.62
|
3/24/2011
|
1/1/2007
|
|
|
50,0003
|
0.45
|
9/15/2010
|
5/5/2004
|
|
Avi
Pelossof
|
40,0002
|
0.75
|
11/19/2007
|
4/17/2006
|
|
|
10,0002
|
0.75
|
12/31/2008
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/17/2010
|
4/17/2006
|
|
|
|
25,0002
|
0.75
|
5/17/2010
|
1/1/2007
|
|
25,0001
|
0.62
|
3/24/2011
|
3/24/2006
|
|
|
25,0001
|
0.62
|
3/24/2011
|
1/1/2007
|
|
|
10,0002
|
0.75
|
5/4/2011
|
4/17/2006
|
|
|
27,5002
|
0.75
|
5/27/2011
|
4/17/2006
|
|
|
50,0002
|
0.75
|
5/27/2011
|
1/1/2007
|
|
|
22,5002
|
0.75
|
5/27/2011
|
1/1/2007
|
|
|
40,0003
|
0.75
|
5/4/2011
|
5/5/2004
|
|
Javan
Esfandiari
|
30,0002
|
0.75
|
3/31/2008
|
4/17/2006
|
|
|
5,0002
|
0.75
|
12/31/2008
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/17/2010
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/17/2010
|
1/1/2007
|
|
|
18,7501
|
0.62
|
3/24/2011
|
3/24/2006
|
|
|
18,7501
|
0.62
|
3/24/2011
|
1/1/2007
|
|
|
5,0002
|
0.75
|
5/4/2011
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/28/2011
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/28/2011
|
4/17/2006
|
|
|
25,0002
|
0.75
|
5/28/2011
|
5/28/2007
|
|
|
30,0003
|
0.75
|
5/4/2011
|
5/5/2004
|
Name
|
Fees
Earned or Paid in Cash
($)
1
|
Stock
Awards
($)
2
|
Option
Awards
($)
3
|
Total
($)
|
|||||||||
Alan
Carus
|
$
|
40,000
|
$
|
10,650
|
$
|
14,663
|
$
|
65,313
|
|||||
Gerald
Eppner4
|
37,500
|
-
|
16,504
|
54,004
|
|||||||||
Gary
Meller
|
34,750
|
-
|
16,504
|
51,254
|
|
Page(s)
|
Report
of Registered Independent Public Accounting Firm
|
F-2
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Balance
Sheets
December
31, 2006 and 2005
|
F-3
|
|
|
Statements
of Operations
Years
ended December 31, 2006 and 2005
|
F-4
|
|
|
Statements
of Changes in Stockholders’ Equity (Deficit)
|
|
Year
ended December 31, 2005
|
F-5
|
Statements
Of Changes in Stockholders’ Equity (Deficit)
|
F-6
|
Year
ended December 31, 2006
|
|
|
|
Statements
of Cash Flows
Years
ended December 31, 2006 and 2005
|
F-7
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
- F-23
|
CHEMBIO
DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
AS
OF DECEMBER 31,
|
|||||||
|
|
|
|||||
-
ASSETS -
|
|||||||
|
2006
|
2005
|
|||||
CURRENT
ASSETS:
|
|
|
|||||
Cash
|
$
|
4,290,386
|
$
|
232,148
|
|||
Accounts
receivable, net of allowance for doubtful accounts of $42,967 and
$20,488
for 2006 and 2005, respectively
|
1,350,240
|
1,255,073
|
|||||
Inventories
|
1,108,950
|
687,983
|
|||||
Prepaid
expenses and other current assets
|
204,092
|
292,989
|
|||||
TOTAL
CURRENT ASSETS
|
6,953,668
|
2,468,193
|
|||||
|
|||||||
FIXED
ASSETS, net of accumulated depreciation
|
603,603
|
438,632
|
|||||
|
|||||||
OTHER
ASSETS
|
349,306
|
109,581
|
|||||
|
|||||||
$
|
7,906,577
|
$
|
3,016,406
|
||||
|
|||||||
-
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
-
|
|||||||
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable and accrued liabilities
|
$
|
1,709,939
|
$
|
1,477,925
|
|||
Current
portion of accrued interest payable
|
93,160
|
120,000
|
|||||
Current
portion of obligations under capital leases
|
37,336
|
38,368
|
|||||
Payable
to related party
|
-
|
182,181
|
|||||
TOTAL
CURRENT LIABILITIES
|
1,840,435
|
1,818,474
|
|||||
|
|||||||
OTHER
LIABILITIES:
|
|||||||
Obligations
under capital leases, net of current portion
|
7,081
|
44,417
|
|||||
Accrued
interest, net of current portion
|
-
|
100,812
|
|||||
Series
C redemption put
|
449,677
|
-
|
|||||
TOTAL
LIABILITIES
|
2,297,193
|
1,963,703
|
|||||
|
|||||||
COMMITMENTS
AND CONTINGENCIES
|
|||||||
|
|||||||
PREFERRED
STOCK
|
|||||||
Series
C 7% Convertible - $.01 par value: 165 shares issued and outstanding.
Liquidation preference-$8,397,583
|
6,549,191
|
-
|
|||||
|
|||||||
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|||||||
Preferred
Stock - 10,000,000 shares authorized:
|
|||||||
Series
A 8% Convertible - $.01 par value: 149.92119 and 158.68099 shares
issued
and outstanding for 2006 and 2005, respectively. Liquidation preference
$4,557,604 and $4,822,957 for 2006 and 2005, respectively.
|
2,504,313
|
2,628,879
|
|||||
Series
B 9% Convertible - $.01 par value: 113.93591 and 102.19760 shares
issued
and outstanding for 2006 and 2005, respectively. Liquidation
preference-$5,958,848 and $5,341,896 for 2006 and 2005,
respectively
|
3,555,786
|
3,173,239
|
|||||
Common
stock - $.01 par value; 100,000,000 shares authorized 11,296,961
and
8,491,429 shares issued and outstanding for 2006 and 2005,
respectively.
|
112,970
|
84,914
|
|||||
Additional
paid-in capital
|
19,960,618
|
14,034,099
|
|||||
Accumulated
deficit
|
(27,073,494
|
)
|
(18,868,428
|
)
|
|||
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
(939,807
|
)
|
1,052,703
|
||||
|
|||||||
$
|
7,906,577
|
$
|
3,016,406
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||||
FOR
THE YEARS ENDED
|
|||||||
December
31, 2006
|
December
31, 2005
|
||||||
REVENUES:
|
|||||||
Net
sales
|
$ |
6,294,012
|
$ |
3,359,532
|
|||
License
revenue
|
-
|
250,000
|
|||||
Research
grants and development income
|
208,468
|
331,198
|
|||||
TOTAL
REVENUES
|
6,502,480
|
3,940,730
|
|||||
Cost
of sales
|
4,485,912
|
2,608,584
|
|||||
GROSS
PROFIT
|
2,016,568
|
1,332,146
|
|||||
OVERHEAD
COSTS:
|
|||||||
Selling,
general and administrative expenses
|
5,195,289
|
3,265,235
|
|||||
Research
and development expenses
|
1,401,472
|
1,364,898
|
|||||
6,596,761
|
4,630,133
|
||||||
LOSS
FROM OPERATIONS
|
(4,580,193
|
)
|
(3,297,987
|
)
|
|||
OTHER
INCOME (EXPENSES):
|
|||||||
Settlement
of accounts payable
|
-
|
21,867
|
|||||
Other
income
|
25,000
|
-
|
|||||
Interest
income
|
29,532
|
39,803
|
|||||
Interest
expense
|
(386,895
|
) |
(15,683
|
)
|
|||
Loss
on extinguishment of debt
|
(87,464
|
) |
-
|
||||
Gain
on disposal of fixed assets
|
5,000
|
-
|
|||||
LOSS
BEFORE INCOME TAXES
|
(4,995,020
|
)
|
(3,252,000
|
)
|
|||
Income
taxes
|
-
|
-
|
|||||
NET
LOSS
|
(4,995,020
|
)
|
(3,252,000
|
)
|
|||
Dividends
payable in stock to preferred stockholders
|
1,022,897
|
818,321
|
|||||
Dividend
accreted to preferred stock for associated costs and a beneficial
conversion feature
|
2,187,149
|
2,698,701
|
|||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ |
(8,205,066
|
) | $ |
(6,769,022
|
)
|
|
Basic
and diluted loss per share
|
$ |
(0.80
|
)
|
$ |
(0.88
|
)
|
|
Weighted
number of shares outstanding, basic and
diluted
|
10,293,168
|
7,705,782
|
|||||
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||||||||||||||||||||||
FOR
THE YEAR ENDED DECEMBER 31, 2005
|
||||||||||||||||||||||||||||
|
|
Series
A Preferred Stock
|
Series
B Preferred Stock
|
Common
Stock
|
|
Additional
paid in capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|||||||||||||||
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
6,907,143
|
|
$
|
69,071
|
|
$
|
9,079,341
|
|
$
|
(12,099,406
|
)
|
$
|
(2,950,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Adjustment
to reflect reclassification of Series A Preferred to permanent
equity
|
|
|
162.37241
|
|
|
2,427,030
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,427,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
cash
|
|
|
-
|
|
|
-
|
|
|
100.95000
|
|
|
5,047,500
|
|
|
-
|
|
|
-
|
|
|
(321,639
|
)
|
|
-
|
|
|
4,725,861
|
|
For
fees
|
|
|
-
|
|
|
-
|
|
|
4.98000
|
|
|
249,000
|
|
|
-
|
|
|
-
|
|
|
(249,000
|
)
|
|
-
|
|
|
-
|
|
Exchanged
from Series A Preferred to Series B Preferred
|
|
|
(0.66666
|
)
|
|
(11,600
|
)
|
|
0.40000
|
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
(8,400
|
)
|
|
-
|
|
|
-
|
|
Allocation
of fair value to warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,349,893
|
)
|
|
-
|
|
|
-
|
|
|
2,349,893
|
|
|
-
|
|
|
-
|
|
Allocation
of value of beneficial conversion
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,437,035
|
)
|
|
-
|
|
|
-
|
|
|
2,437,035
|
|
|
-
|
|
|
-
|
|
Series
B Preferred dividend
|
|
|
-
|
|
|
-
|
|
|
4.06988
|
|
|
435,509
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(435,509
|
)
|
|
-
|
|
Accretion
of beneficial conversion
|
|
|
-
|
|
|
261,666
|
|
|
-
|
|
|
2,437,035
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,698,701
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon
conversion of Preferred
|
|
|
(3.02476
|
)
|
|
(52,631
|
)
|
|
(8.20228
|
)
|
|
(228,877
|
)
|
|
823,654
|
|
|
8,237
|
|
|
273,271
|
|
|
-
|
|
|
-
|
|
Series
A Preferred dividend
|
|
|
|
|
|
4,414
|
|
|
|
|
|
|
|
|
630,632
|
|
|
6,306
|
|
|
372,092
|
|
|
(382,812
|
)
|
|
-
|
|
For
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
95,000
|
|
|
950
|
|
|
52,300
|
|
|
-
|
|
|
53,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
90,288
|
|
|
-
|
|
|
90,288
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
35,000
|
|
|
350
|
|
|
24,850
|
|
|
-
|
|
|
25,200
|
|
Cancelled
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(65,932
|
)
|
|
-
|
|
|
(65,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,252,000
|
)
|
|
(3,252,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
158.68099
|
|
$
|
2,628,879
|
|
|
102.19760
|
|
$
|
3,173,239
|
|
|
8,491,429
|
|
$
|
84,914
|
|
$
|
14,034,099
|
|
$
|
(18,868,428
|
)
|
$
|
1,052,703
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||||||||||||||||||||||
FOR
THE YEAR ENDED DECEMBER 31, 2006
|
||||||||||||||||||||||||||||
|
|
Series
A Preferred Stock
|
Series
B Preferred Stock
|
Common
Stock
|
|
Additional
paid in capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|||||||||||||||
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
Balance
at December 31, 2005
|
|
|
158.68099
|
|
$
|
2,628,879
|
|
|
102.19760
|
|
$
|
3,173,239
|
|
|
8,491,429
|
|
$
|
84,914
|
|
$
|
14,034,099
|
|
$
|
(18,868,428
|
)
|
$
|
1,052,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
cash
|
|
|
-
|
|
|
-
|
|
|
20.0000
|
|
|
1,000,000
|
|
|
-
|
|
|
-
|
|
|
(112,750
|
)
|
|
-
|
|
|
887,250
|
|
For
fees
|
|
|
-
|
|
|
-
|
|
|
2.0000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
(100,000
|
)
|
|
-
|
|
|
-
|
|
For
dividends
|
|
|
-
|
|
|
-
|
|
|
1.79797
|
|
|
89,899
|
|
|
-
|
|
|
-
|
|
|
(89,899
|
)
|
|
-
|
|
|
-
|
|
Allocation
of fair value to warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(481,470
|
)
|
|
-
|
|
|
-
|
|
|
1,880,185
|
|
|
-
|
|
|
1,398,715
|
|
Allocation
of value of beneficial conversion
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(463,434
|
)
|
|
-
|
|
|
-
|
|
|
2,187,149
|
|
|
-
|
|
|
1,723,715
|
|
Accretion
of preferred dividend
|
|
|
-
|
|
|
366,563
|
|
|
-
|
|
|
508,751
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,022,897
|
)
|
|
(147,583
|
)
|
Accretion
of beneficial conversion
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
463,434
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,187,149
|
)
|
|
(1,723,715
|
)
|
Payment
of dividends
|
|
|
-
|
|
|
(369,123
|
)
|
|
-
|
|
|
(473,982
|
)
|
|
959,608
|
|
|
9,596
|
|
|
633,284
|
|
|
-
|
|
|
(200,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
converted from preferred
|
|
|
(8.75980
|
)
|
|
(122,006
|
)
|
|
(12.05966
|
)
|
|
(360,651
|
)
|
|
1,426,483
|
|
|
14,265
|
|
|
468,392
|
|
|
-
|
|
|
|
|
For
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
178,750
|
|
|
1,788
|
|
|
137,890
|
|
|
-
|
|
|
139,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consultants/Advisory
Board
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
137,022
|
|
|
-
|
|
|
137,022
|
|
Prior
CEO warrant
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34,000
|
|
|
-
|
|
|
34,000
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
240,691
|
|
|
2,407
|
|
|
143,914
|
|
|
-
|
|
|
146,321
|
|
Issued
for bridge
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
328,341
|
|
|
-
|
|
|
328,341
|
|
Option
valuation per 123R
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
278,991
|
|
|
-
|
|
|
278,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,995,020
|
)
|
|
(4,995,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
149.92119
|
|
$
|
2,504,313
|
|
|
113.93591
|
|
$
|
3,555,786
|
|
|
11,296,961
|
|
$
|
112,970
|
|
$
|
19,960,618
|
|
$
|
(27,073,494
|
)
|
$
|
(939,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
CHEMBIO
DIAGNOSTICS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
|
|
FOR
THE YEARS ENDED:
|
|||||
|
|
December
31, 2006
|
|
December
31, 2005
|
|
||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
||
Net
loss
|
|
$
|
(4,995,020
|
)
|
$
|
(3,252,000
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
209,541
|
|
|
98,508
|
|
Provision
for doubtful accounts
|
|
|
22,479
|
|
|
4,120
|
|
Expenses
related to shares, options and warrants issued for
services
|
|
|
565,668
|
|
|
77,606
|
|
Expenses
related to warrants issued with bridge financing
|
|
|
328,341
|
|
|
-
|
|
Expenses
related to conversion of bridge into Series C Preferred Stock
|
|
|
99,469
|
|
|
-
|
|
Changes
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(117,645
|
)
|
|
(1,094,137
|
)
|
Restricted
cash
|
|
|
-
|
|
|
250,000
|
|
Inventory
|
|
|
(420,967
|
)
|
|
(149,336
|
)
|
Accounts
payable and accrued expenses
|
|
|
256,039
|
|
|
212,939
|
|
Other
|
|
|
(150,828
|
)
|
|
(153,060
|
)
|
Net
cash used in operating activities
|
|
|
(4,202,923
|
)
|
|
(4,005,360
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Acquisition
of fixed assets
|
|
|
(374,513
|
)
|
|
(348,741
|
)
|
Net
cash used in investing activities
|
|
|
(374,513
|
)
|
|
(348,741
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Sale
of Series C Preferred Stock and associated warrants, net of cash
cost of
financing of $110,000
|
|
|
7,440,285
|
|
|
-
|
|
Sale
of Series B Preferred Stock and associated warrants, net of cash
cost of
financing for the periods ended 2006 and 2005 of $2,750 and $321,639,
respectively
|
|
|
997,250
|
|
|
4,725,861
|
|
Payment
of obligations to related party
|
|
|
(182,181
|
)
|
|
-
|
|
Payment
of capital lease obligation
|
|
|
(38,368
|
)
|
|
(42,511
|
)
|
Payment
of accrued interest
|
|
|
(127,652
|
)
|
|
(112,138
|
)
|
Proceeds
from bridge/working capital loan
|
|
|
1,300,000
|
|
|
161,917
|
|
Payment
of bridge/working capital loan
|
|
|
(699,755
|
)
|
|
(206,917
|
)
|
Payment
of dividends
|
|
|
(200,226
|
)
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
146,321
|
|
|
25,200
|
|
Net
cash provided by financing activities
|
|
|
8,635,674
|
|
|
4,551,412
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH
|
|
|
4,058,238
|
|
|
197,311
|
|
Cash
- beginning of the period
|
|
|
232,148
|
|
|
34,837
|
|
|
|
|
|
|
|
|
|
CASH
- end of the period
|
|
$
|
4,290,386
|
|
$
|
232,148
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
173,438
|
|
$
|
124,805
|
|
Cash
paid during the period for corporate taxes
|
|
|
2,269
|
|
|
3,763
|
|
Supplemental
disclosures for non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
Warrants
issued as payment for fees
|
|
$
|
-
|
|
$
|
388,631
|
|
Value
of warrants issued allocated to additional paid in capital
|
|
|
1,880,185
|
|
|
|
|
Accreted
beneficial conversion to preferred stock
|
|
|
2,187,149
|
|
|
2,698,701
|
|
Bridge
debt and associated interest converted to Series C Preferred
Stock
|
|
|
699,714
|
|
|
-
|
|
Series
B Preferred issued as payment for financing fees
|
|
|
100,000
|
|
|
249,000
|
|
Preferred
stock converted to common stock
|
|
|
482,657
|
|
|
|
|
Series
A Preferred and associated warrants exchanged for Series B Preferred
and
associated warrants
|
|
|
-
|
|
|
20,000
|
|
Accreted
Dividend to Preferred Stock
|
|
|
1,022,897
|
|
|
818,321
|
|
Preferred
B issued as payment of dividend
|
|
|
89,899
|
|
|
203,493
|
|
Common
Stock issued as payment of dividend
|
|
|
642,879
|
|
|
378,398
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
NOTE
|
1
|
—
|
Description
of Business:
|
NOTE
|
2
|
—
|
SIGNIFICANT
ACCOUNTING POLICIES:
|
(a) |
Principles
of Consolidation:
|
(b) |
Inventories:
|
(c) |
Fixed
Assets:
|
(d) |
Use
of Estimates:
|
(e) |
Income
Taxes:
|
(f) |
Research
and Development:
|
(g) |
Stock
Based Compensation:
|
(h) |
Statements
of Cash Flows:
|
(i) |
Revenue
Recognition:
|
(j) |
Concentrations
of Credit Risk:
|
(k) |
Fair
Value of Financial
Instruments:
|
(l) |
Recent
Accounting Pronouncements Affecting the Company:
|
(m) |
Preferred
Stock:
|
(n) |
Earnings
Per Share
|
|
|
For
the years ended
|
|
||||
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
|
Basic
|
|
|
10,293,168
|
|
|
7,705,782
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
10,293,168
|
|
|
7,705,782
|
|
|
For
the years ended
|
||||||
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
|
Stock
Options
|
|
|
1,674,375
|
|
|
1,430,375
|
|
Warrants
|
|
|
26,162,704
|
|
|
21,327,972
|
|
Preferred
Stock
|
|
|
27,147,535
|
|
|
16,311,602
|
|
NOTE
|
3
|
—
|
Geographic
Information:
|
|
For
the years ended
|
||||||
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
|
Africa
|
|
$
|
1,552,043
|
|
$
|
802,925
|
|
Asia
|
|
|
245,838
|
|
|
124,467
|
|
Australia
|
|
|
4,405
|
|
|
10,585
|
|
Europe
|
|
|
92,248
|
|
|
125,135
|
|
Middle
East
|
|
|
194,767
|
|
|
55,652
|
|
North
America
|
|
|
1,384,933
|
|
|
503,456
|
|
South
America
|
|
|
2,819,778
|
|
|
1,737,312
|
|
|
|
$
|
6,294,012
|
|
$
|
3,359,532
|
|
NOTE
|
4
|
—
|
Accounts
payable and accrued
liabilities:
|
|
|
|
2006
|
|
|
2005
|
|
Accounts
payable - suppliers
|
|
$
|
679,990
|
|
$
|
550,247
|
|
Accrued
commissions
|
|
|
91,920
|
|
|
171,587
|
|
Accrued
royalties
|
|
|
461,048
|
|
|
381,510
|
|
Accrued
payroll and other taxes
|
|
|
87,637
|
|
|
63,146
|
|
Accrued
vacation
|
|
|
214,858
|
|
|
145,566
|
|
Accrued
legal and accounting
|
|
|
7,000
|
|
|
50,024
|
|
Accrued
expenses - other
|
|
|
167,486
|
|
|
115,845
|
|
TOTAL
|
|
$
|
1,709,939
|
|
$
|
1,477,925
|
|
NOTE
|
5
|
—
|
EMPLOYEE
STOCK OPTION PLAN:
|
|
|
Years
Ended
|
|||||
|
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
Expected
term (in years)
|
|
|
4
to 5
|
|
|
5
|
|
Expected
volatility
|
|
|
116.20%
to 118.16%
|
|
|
95.56%
to 114.94%
|
|
Expected
dividend yield
|
|
|
0%
|
|
0%
|
|
|
Risk-free
interest rate
|
|
|
4.39%
to 4.92%
|
|
|
3.72%
to 4.36%
|
|
|
|
|
For
the year ended
|
|
|
|
|
December
31, 2005
|
|
Net
loss attributable to common stockholders, as reported
|
|
$
|
(6,769,022
|
)
|
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)
|
|
|
(180,195
|
)
|
Pro
forma net loss attributable to common stockholders
|
|
$
|
(6,949,217
|
)
|
Net
loss per share:
|
|
|
|
|
Basic
and diluted loss per share - as reported
|
|
$
|
(0.88
|
)
|
Basic
and diluted loss per share - pro forma
|
|
$
|
(0.90
|
)
|
Stock
Options
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price per Share
|
|
|
Weighted
Average Remaining Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at January 1, 2005
|
|
|
1,105,000
|
|
$
|
1.55
|
|
|
|
|
|
|
|
Granted
|
|
|
481,500
|
|
$
|
0.74
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(300,750
|
)
|
$
|
1.75
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
1,285,750
|
|
$
|
1.20
|
|
|
4.49
years
|
|
|
-
|
|
Granted
|
|
|
1,147,250
|
|
$
|
0.71
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(795,250
|
)
|
$
|
1.56
|
|
|
|
|
|
|
|
Exercised
|
|
|
(100,000
|
)
|
$
|
0.60
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(8,000
|
)
|
$
|
0.75
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
1,529,750
|
|
$
|
0.70
|
|
|
3.60
years
|
|
|
204,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2006
|
|
|
1,099,250
|
|
$
|
0.64
|
|
|
3.44
years
|
|
|
150,956
|
|
NOTE
|
6
|
—
|
RELATED
PARTIES:
|
NOTE
|
7
|
—
|
INVENTORIES:
|
|
|
|
2006
|
|
|
2005
|
|
Raw
Materials
|
|
$
|
629,967
|
|
$
|
425,758
|
|
Work
in Process
|
|
|
257,208
|
|
|
86,001
|
|
Finished
Goods
|
|
|
221,775
|
|
|
176,224
|
|
|
|
$
|
1,108,950
|
|
$
|
687,983
|
|
NOTE
|
8
|
—
|
FIXED
ASSETS:
|
|
|
|
2006
|
|
|
2005
|
|
Machinery
and equipment
|
|
$
|
604,668
|
|
$
|
604,243
|
|
Furniture
and fixtures
|
|
|
139,624
|
|
|
126,277
|
|
Computer
and telephone equipment
|
|
|
259,078
|
|
|
94,283
|
|
Leasehold
improvements
|
|
|
226,415
|
|
|
131,157
|
|
Tooling
|
|
|
41,900
|
|
|
41,900
|
|
|
|
|
1,271,685
|
|
|
997,860
|
|
Less
accumulated depreciation and amortization
|
|
|
(668,082
|
)
|
|
(559,228
|
)
|
|
|
$
|
603,603
|
|
$
|
438,632
|
|
NOTE
|
9
|
—
|
LONG-TERM
DEBT:
|
NOTE
|
10
|
—
|
OBLIGATIONS
UNDER CAPITAL LEASES:
|
2007
|
$
|
40,113
|
||
2008
|
7,260
|
|||
|
47,373
|
|||
Less:
imputed interest
|
(2,956
|
)
|
||
Present
value of future minimum lease payments
|
44,417
|
|||
Less:
current maturities
|
(37,336
|
)
|
||
|
$
|
7,081
|
NOTE
|
11
|
—
|
RESEARCH
GRANTS AND DEVELOPMENT
CONTRACTS:
|
NOTE
|
12
|
—
|
INCOME
TAXES:
|
|
|
December
31, 2006
|
|
December
31, 2005
|
|
||
Net
operating loss carry-forwards
|
|
$
|
6,800,000
|
|
$
|
5,800,000
|
|
Research
and development credit
|
|
|
350,000
|
|
|
288,000
|
|
Other
|
|
|
33,000
|
|
|
40,000
|
|
Gross
deferred tax assets
|
|
|
7,183,000
|
|
|
6,128,000
|
|
Valuation
allowances
|
|
|
(7,183,000
|
)
|
|
(6,128,000
|
)
|
Net
deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
NOTE
|
14
|
—
|
COMMITMENTS
AND CONTINGENCIES:
|
2007
|
47,823
|
$47,823
|
NOTE
|
15
|
—
|
LITIGATION:
|