Attached files
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EX-99.03 - EXHIBIT 99.03 - CHEMBIO DIAGNOSTICS, INC. | ex99_03.htm |
EX-99.01 - EXHIBIT 99.01 - CHEMBIO DIAGNOSTICS, INC. | ex99_01.htm |
EX-23.01 - EXHIBIT 23.01 - CHEMBIO DIAGNOSTICS, INC. | ex23_01.htm |
8-K/A - 8-K/A - CHEMBIO DIAGNOSTICS, INC. | form8ka.htm |
Exhibit 99.02
OPTRICON ENTWICKLUNGSGESELLSCHAFT FUER OPTISCHE TECHNOLOGIEN MBH
Index to Condensed Interim Financial Statements
Page(s)
|
|
Financial Statements:
|
|
Condensed Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017
|
1 |
Condensed Statements of Operations (unaudited) for the nine months ended September 30, 2018 and 2017
|
2 |
Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017
|
3 |
Notes to the Condensed Interim Financial Statements
|
4 |
OPTRICON ENTWICKLUNGSGESELLSCHAFT FUER OPTISCHE TECHNOLOGIEN MBH
CONDENSED BALANCE SHEETS
– ASSETS –
|
||||||||
Unaudited
September 30, 2018
|
December 31, 2017
|
|||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
€
|
75,781
|
€
|
87,674
|
||||
Accounts receivable, net
|
140,704
|
354,887
|
||||||
Inventories, net
|
306,697
|
224,548
|
||||||
Prepaid expenses and other current assets
|
60,883
|
46,216
|
||||||
TOTAL CURRENT ASSETS
|
584,065
|
713,325
|
||||||
FIXED ASSETS, net of accumulated depreciation
|
113,619
|
135,722
|
||||||
Deposits and other assets
|
8,570
|
10,309
|
||||||
TOTAL ASSETS
|
€
|
706,254
|
€
|
859,356
|
||||
– LIABILITIES AND STOCKHOLDERS’ EQUITY –
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
€
|
126,784
|
€
|
96,226
|
||||
Related party debt
|
492,175
|
492,175
|
||||||
Bank overdrafts
|
22,367
|
–
|
||||||
Deferred revenue
|
34,125
|
79,800
|
||||||
Other accrued liabilities
|
80,118
|
117,494
|
||||||
TOTAL CURRENT LIABILITIES
|
755,569
|
785,695
|
||||||
Other non-current liabilities
|
15,299
|
15,299
|
||||||
TOTAL LIABILITIES
|
770,868
|
800,994
|
||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Subscribed capital
|
69,765
|
69,765
|
||||||
Additional paid-in capital
|
1,636,527
|
1,636,527
|
||||||
Accumulated deficit
|
(1,770,906
|
)
|
(1,647,930
|
)
|
||||
TOTAL STOCKHOLDERS’ EQUITY
|
(64,614
|
)
|
58,362
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
€
|
706,254
|
€
|
859,356
|
See accompanying notes to unaudited condensed interim financial statements
1
OPTRICON ENTWICKLUNGSGESELLSCHAFT FUER OPTISCHE TECHNOLOGIEN MBH
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
(Unaudited)
September 30, 2018
|
September 30, 2017
|
|||||||
REVENUES:
|
||||||||
Net product sales
|
€
|
1,245,256
|
€
|
1,241,800
|
||||
R&D, milestone and grant revenue
|
442,441
|
232,188
|
||||||
Total revenues
|
1,687,697
|
1,473,988
|
||||||
COSTS AND EXPENSES:
|
||||||||
Cost of product sales
|
657,764
|
555,087
|
||||||
Research and development expenses
|
592,898
|
385,064
|
||||||
Selling, general and administrative expenses
|
454,982
|
325,290
|
||||||
Acquisition transaction expenses
|
100,014
|
–
|
||||||
1,805,658
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1,265,441
|
|||||||
(LOSS) / PROFIT FROM OPERATIONS
|
(117,961
|
)
|
208,547
|
|||||
OTHER INCOME (EXPENSE):
|
||||||||
Other income
|
11,822
|
11,822
|
||||||
Interest expense
|
(16,837
|
)
|
(20,678
|
)
|
||||
(5,015
|
)
|
(8,856
|
)
|
|||||
(LOSS) / PROFIT BEFORE INCOME TAXES
|
(122,976
|
)
|
199,691
|
|||||
Income tax provision
|
–
|
36,013
|
||||||
NET (LOSS) / PROFIT
|
€
|
(122,976
|
)
|
€
|
163,678
|
See accompanying notes to unaudited condensed interim financial statements
2
OPTRICON ENTWICKLUNGSGESELLSCHAFT FUER OPTISCHE TECHNOLOGIEN MBH
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(Unaudited)
September 30, 2018
|
September 30, 2017
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net (loss) profit
|
€
|
(122,976
|
)
|
€
|
163,678
|
|||
Adjustments:
|
||||||||
Depreciation
|
31,237
|
27,177
|
||||||
Deferred income taxes
|
–
|
36,013
|
||||||
Other
|
1,739
|
(1,976
|
)
|
|||||
Changes in current assets and current liabilities:
|
||||||||
Accounts receivable
|
214,183
|
(179,193
|
)
|
|||||
Inventories
|
(82,149
|
)
|
(2,199
|
)
|
||||
Prepaid expenses and other current assets
|
(14,667
|
)
|
(644
|
)
|
||||
Accounts payable and other accrued liabilities
|
(6,818
|
)
|
21,372
|
|||||
Deferred revenue
|
(45,675
|
)
|
91,300
|
|||||
Net cash (used in) provided by operating activities
|
(25,126
|
)
|
155,528
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital expenditures
|
(9,134
|
)
|
(14,653
|
)
|
||||
Net cash used in investing activities
|
(9,134
|
)
|
(14,653
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Bank overdraft
|
22,367
|
(28,253
|
)
|
|||||
Net cash provided by (used in) financing activities
|
22,367
|
(28,253
|
)
|
|||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(11,893
|
)
|
112,622
|
|||||
Cash and cash equivalents - beginning of the period
|
87,674
|
241
|
||||||
Cash and cash equivalents - end of the period
|
€
|
75,781
|
€
|
112,863
|
||||
Supplemental Schedule of Cash Flow Information
|
||||||||
Cash paid during the period for interest
|
92,015
|
20,678
|
See accompanying notes to unaudited condensed interim financial statements
3
OPTRICON ENTWICKLUNGSGESELLSCHAFT FUER OPTISCHE TECHNOLOGIEN MBH
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
September 30, 2018
(UNAUDITED)
NOTE 1 — COMPANY AND DESCRIPTION OF BUSINESS:
Established in 2005, opTricon Entwicklungsgesellschaft fuer Optische Technologien mbH, Berlin, Germany, (the “Company” or “opTricon”) is an Original
Equipment Manufacturer (OEM), which develops diagnostic devices used to detect and monitor diseases and controlled substances. The Company earns the majority of its revenue
from its Cube Reader devices, which are small, cost effective devices used by medical laboratories and hospitals, government and public health entities, and medical professionals. The Company also receives grants from the German government to
support research and development activities.
As of December 31, 2017, the Company was jointly owned by members of its management, along with outside investors.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) |
Basis of Presentation:
|
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) as issued by the Financial Accounting Standards Board (“FASB”). Certain information and footnote
disclosures, that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to provide for fair presentation. The accompanying financial statements and notes should be read in conjunction with the Company’s audited financial statements for the year ended
December 31, 2017.
These financial statements are presented in Euro, which is the Company’s functional currency.
(b) |
Use of Estimates:
|
The preparation of the financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates that affect the amounts
reported in the financial statements and accompanying 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, useful lives of intangible and fixed assets, 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.
(c) |
Fair Value of Financial Instruments:
|
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of
which the first two are considered observable and the last is considered unobservable:
· |
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
· |
Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for
similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
|
· |
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant
to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
|
The carrying values of the Company’s cash and cash equivalents, accounts receivable, related party debt, and accounts payable, approximate fair value due
to the immediate or short-term maturity of these financial instruments.
(d) |
Cash and Cash Equivalents:
|
Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
4
(e) |
Concentrations of Credit Risk:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts
receivable. Cash and cash equivalents are maintained at accredited financial institutions. The Company has never experienced any losses related to these
balances and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with financial institutions.
(f) |
Inventories:
|
The Company’s inventory balances primarily consist of raw materials to be used in the production and fulfillment of customer orders. The Company does
maintain immaterial amounts of work-in-process and finished goods inventory for unfulfilled customer orders. Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out method.
(g) |
Prepaid Expenses and Other Current Assets:
|
Prepaid expenses and other current assets consisted primarily of value-added tax receivables of €55,150 and €28,005 as of September 30, 2018 and December
31, 2017, respectively.
(h) |
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 one to 11 years. Fixed assets are analyzed for impairment whenever events or changes in circumstances indicate that the related
carrying amounts may not be 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 fixed assets was recorded
for the nine months ended September 30, 2018, and for the year ended December 31, 2017.
(i) |
Revenue Recognition:
|
The Company recognizes revenue for product sales in accordance with ASC 605, whereby revenue is recognized when there is persuasive evidence of an
arrangement, delivery has occurred, the sales price is fixed and determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment.
Sales are recorded net of discounts, rebates and returns.
R&D, milestone and grant revenue primarily consists of services performed, including third-party product development contracts. The Company follows
recognizes revenue under the milestone method for certain product development projects defining milestones at the inception of the agreement.
(j) |
Sales Concentration:
|
The Company’s 10 largest customers accounted for approximately 76% and 81% of Net sales for the nine months ended September 30, 2018 and 2017,
respectively. Three customers and two customers accounted for more than 10% of Net sales for the nine months ended September 30, 2018 and 2017, respectively. Three customers accounted for greater than 10% of the Company’s net accounts receivable
balance as of September 30, 2018, and December 31, 2017.
To manage risk, the Company performs ongoing credit evaluations
of its customers’ financial condition. The Company generally does not require collateral on accounts receivable. The Company regularly reviews its receivable balances for collectability and maintains an allowance for doubtful accounts based on
its assessment of the collectability of accounts receivable. As of September 30, 2018, the Company had an allowance for doubtful accounts of €56,802 related to one customer. As of December 31, 2017, the Company had a €0 allowance for doubtful
accounts.
(k) |
Research and Development:
|
Research and development (R&D) costs are expensed as incurred.
(l) |
Income Taxes:
|
The Company recorded an income tax provision in the amount of €0 and €36,013 for the nine months ended September 30, 2018, and 2017, resulting in an
effective tax rate of 0% and 18.0%. The absence of a tax provision for the nine months ended September 30, 2018 reflects a valuation allowance on all deferred tax assets. The
valuation allowance reflects the Company’s evaluation of the positive and negative evidence concerning the Company’s future profitability within the relevant tax jurisdictions. The 18.0% effective tax rate for the nine months ended September 30,
2017 reflects the Company’s statutory tax rate of 30.2%, combined with movement in the existing valuation allowance on net operating loss carryforwards.
5
(n) |
Deferred Revenue:
|
The Company performs maintenance and technical support services. The Company generally invoices customers for these services in advance, on a quarterly
basis. The Company classifies unearned amounts under these arrangements as deferred revenue.
(o) |
Recent Accounting Pronouncements Affecting the Company:
|
In May 2014, the FASB issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. The intent of the new standard is to
improve financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the
consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization
of certain contract costs, consideration of the time value of money in the transaction price, and in certain circumstances, allowing estimates of variable consideration to be recognized before contingencies are resolved. The guidance also
requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard is effective for nonpublic business entities for annual reporting periods
beginning after December 15, 2018. The Company is currently evaluating the provisions of this standard to determine the impact on the Company’s financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Assets. This ASU is intended to simplify
the presentation of deferred taxes on the balance sheet and will require an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required to
separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be required under the new guidance. The Company early adopted this ASU and presents its deferred tax balances as non-current on the balance sheet.
In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases. Topic 842 will require lessees to recognize lease
assets and lease liabilities for those leases classified as operating leases under previous U.S. GAAP on the balance sheet. This guidance is effective for nonpublic business entities for fiscal years beginning after December 15, 2019 and early
adoption is permitted. The Company is in the initial stages of evaluating the effect of the standard on its financial statements and will continue to evaluate. While not yet
in a position to assess the full impact of the application of the new standard, the Company expects that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impact on its total assets
and liabilities with a minimal impact on equity.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which provides guidance related to cash flows presentation and is effective for annual reporting periods beginning
after December 15, 2018. The guidance in ASU 2016-15 is generally consistent with the Company’s current cash flow classifications, and adoption of
this standard is not expected to have a material impact on its financial statements.
NOTE 3 — INVENTORIES:
Inventories consist of the following at:
September 30,
2018
|
December 31,
2017
|
|||||||
Raw materials
|
€
|
253,665
|
€
|
200,540
|
||||
Work in process
|
46,444
|
2,460
|
||||||
Finished goods
|
18,025
|
34,610
|
||||||
Less allowance for inventory obsolescence
|
(11,437
|
)
|
(13,062
|
)
|
||||
Inventory carrying value
|
€
|
306,697
|
€
|
224,548
|
NOTE 4 — FIXED ASSETS:
Fixed assets consist of the following at:
September 30,
2018
|
December 31,
2017
|
|||||||
Machinery and equipment
|
€
|
324,061
|
€
|
324,061
|
||||
Furniture and fixtures
|
108,175
|
99,041
|
||||||
Less accumulated depreciation and amortization
|
(318,617
|
)
|
(287,380
|
)
|
||||
Fixed assets, net of accumulated depreciation
|
€
|
113,619
|
€
|
135,722
|
6
Depreciation expense related to property and equipment was €31,237 and €27,177 for the nine months ended September 30, 2018 and 2017, respectively.
There were no capital leases as of September 30, 2018, and December 31, 2017.
NOTE 5 — OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following at:
September 30,
2018
|
December 31,
2017
|
|||||||
Accrued interest
|
€
|
–
|
€
|
75,178
|
||||
Employee benefits
|
52,009
|
19,280
|
||||||
Accrued sales and other taxes
|
12,791
|
10,222
|
||||||
Other liabilities
|
15,318
|
12,814
|
||||||
Total
|
€
|
80,118
|
€
|
117,494
|
NOTE 6 — EMPLOYEE BENEFITS:
Employee Participation Plan
The Company has an employee participation plan with key
employees. In the event of a sale of the Company to a third party, the terms of the plan award grant recipients a share of the sale proceeds. As of September 30, 2018, plan participants were entitled to a total of 4.5% of any future sale
proceeds.
Per the terms of the employee awards, the sale of opTricon
represents a performance condition under ASC 718. Consistent with ASC 718, the Company recognizes compensation cost for awards with performance conditions when achievement of the performance condition is probable. As of September 30, 2018, the
Company had not recognized any cost under the employee participation plan, because achievement of the performance condition was outside the Company’s control and the probability of achievement could not be assessed.
Defined Contribution Plan:
The employer’s contribution to the statutory pension scheme in Germany is based on 9.3% of employee salary in accordance with Article 20
section 2 of the Fourth Book of the German Code of Social Law (“SGB IV”) for both the nine months ended September 30, 2018 and 2017, respectively. Defined contribution expenses totaled €50,852 and €43,650 for the nine months ended September 30,
2018 and 2017, respectively.
NOTE 7 — RELATED PARTY TRANSACTIONS:
The Company entered into certain loan agreements with its shareholders that are classified as related party debt. The Company repaid such loans in
November 2018, as part of the sale to a wholly-owned subsidiary of Chembio Diagnostics, Inc. (“Chembio”) (see Note 8). The table below summarizes the Company’s related party debt as of:
September 30,
2018
|
December 31,
2017
|
|||||||
Shareholder loans (issued September 24, 2010)
|
€
|
246,825
|
€
|
246,825
|
||||
Convertible shareholder loans (issued October 14, 2013)
|
245,350
|
245,350
|
||||||
Total related party debt
|
€
|
492,175
|
€
|
492,175
|
Shareholder loans
Prior to 2017, the Company entered into a series of loan agreements with five of its shareholders. These shareholder loans had an aggregate principal
amount of €246,825, to be repaid over various repayment terms. The loans had a fixed interest rate of 5%. For a number of periods, the Company and its shareholders agreed to defer principal and interest repayments.
7
As of September 30, 2018 and December 31, 2017, the Company had accrued interest of €0 and €12,477, respectively.
Convertible shareholder loans
On October 14, 2013, the Company entered into a subordinate
convertible loan agreement with its current shareholders with an original principal amount of €245,300, bearing nominal non-compounding interest of 8%. The loan is convertible into shares of the Company's common shares at the discretion of the
lenders.
The Company amended the convertible loan agreement on February 14, 2018. Under the terms of the amendment, the Company paid all accrued interest incurred
since the loan’s origination.
NOTE 8 — SUBSEQUENT EVENT:
The Company has evaluated subsequent events through January 21, 2019, the date the financial statements were available to be issued. No subsequent events
have been identified that require recognition or disclosure, other than the event described below.
On November 6, 2018, through a wholly-owned subsidiary, Chembio acquired 100% of the outstanding shares of the Company, pursuant to a share purchase
agreement dated October 17, 2018 for a purchase price of US$5.5 million. In connection with the sale of the Company, employee participation plan participants received a share of the sale proceeds.
8