Company Quick10K Filing
Quick10K
Chembio Diagnostics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$7.64 17 $131
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-07 Regulation FD, Exhibits
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-07-18 Other Events, Exhibits
8-K 2019-06-18 Shareholder Vote
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-02 Other Events, Exhibits
8-K 2019-03-20 Enter Agreement, Officers, Exhibits
8-K 2019-03-07 Earnings, Exhibits
8-K 2019-02-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-05 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2019-01-21 Enter Agreement, Officers, Exhibits
8-K 2019-01-21 Enter Agreement, Officers, Exhibits
8-K 2018-12-19 Other Events, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-11-06 M&A, Exhibits
8-K 2018-11-05 Enter Agreement, Other Events, Exhibits
8-K 2018-10-17 Enter Agreement, Earnings, Other Events, Exhibits
8-K 2018-09-17 Amend Bylaw, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-07 Officers, Other Events, Exhibits
8-K 2018-07-25 Other Events, Exhibits
8-K 2018-07-19 Regulation FD, Other Events, Exhibits
8-K 2018-05-30 Regulation FD, Exhibits
8-K 2018-05-24 Regulation FD, Exhibits
8-K 2018-05-10 Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-26 Regulation FD, Exhibits
8-K 2018-04-25 Regulation FD, Exhibits
8-K 2018-03-14 Regulation FD, Exhibits
8-K 2018-02-27 Officers
8-K 2018-02-09 Other Events, Exhibits
8-K 2018-02-08 Other Events, Exhibits
8-K 2018-01-08 Regulation FD, Exhibits
OKE Oneok 27,260
IRM Iron Mountain 8,880
NNI Nelnet 2,520
HTLF Heartland Financial 1,550
AROC Archrock Partners 1,270
ARCB Arcbest 736
LXRX Lexicon Pharmaceuticals 731
JKS Jinkosolar Holding 722
HNGR Hanger 709
OPRX Optimizerx 160
CEMI 2019-06-30
Part I
Item 1. Financial Statements
Note 1 - Description of Business:
Note 2 - Acquisition:
Note 3 - Summary of Significant Accounting Policies:
Note 4 - Stockholders' Equity:
Note 5 - Commitments, Contingencies, and Concentrations:
Note 6 - Note Payable:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 exhibit31_1.htm
EX-31.2 exhibit31_2.htm
EX-32 exhibit32.htm

Chembio Diagnostics Earnings 2019-06-30

CEMI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended June 30, 2019
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from: ______ to ________

000-30379
(Commission File Number)

Chembio Diagnostics, Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
88-0425691
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification Number)

555 Wireless Blvd.
Hauppauge, NY 11788
(Address of principal executive offices including zip code)
(631) 924-1135
(Registrant’s telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer ☐
Accelerated filer
 
Non-accelerated filer ☐ 
Smaller reporting company
 
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
CEMI
 
The NASDAQ Stock Market LLC

As of July 30, 2019, the registrant had 17,565,534 shares outstanding of its common stock, $.01 par value.


1

Quarterly Report on Form 10-Q
For The Quarterly Period Ended
June 30, 2019

Table of Contents

Chembio Diagnostics, Inc.
 
 
Page
     
Part I. FINANCIAL INFORMATION:
 
   

Item 1. Financial Statements:

     
 
4
     
 
5
     
 
6
     
  7
     
  8
     
 
9
     
 
21
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
     
 
25
     
Part II. OTHER INFORMATION:
 
     
 
31
     
 
31
     
 
32
     
33
     
EXHIBITS 
 
 
Unless the context requires otherwise, the words ‘‘we,’’ ‘‘our,’’ ‘‘our company,’’ ‘‘us,’’ ‘‘Chembio,’’ and similar terms refer to Chembio Diagnostics, Inc. and its consolidated subsidiaries.

STAT-PAK, STAT-VIEW, SURE CHECK and DPP are our registered trademarks, and our logo design is our trademark. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q supplement without ® and symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks.

2


NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including those described or incorporated by reference in “Item 1A. Risk Factors” of Part II of this report, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we assume no obligation to update these statements publicly or to update the reasons actual results could differ materially from those anticipated in these statements, even if new information becomes available in the future.

You should read this report, and the documents that we reference in this report, including exhibits that are being filed as part of this report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

3

PART I
Item 1.
FINANCIAL STATEMENTS

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF

   
June 30, 2019
   
December 31, 2018
 
   
(Unaudited)
       
- ASSETS -
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
4,504,075
   
$
12,524,551
 
Accounts receivable, net of allowance for doubtful accounts of $ 42,000 at June 30, 2019 and December 31, 2018
    7,734,006
     
7,373,971
 
Inventories, net
    9,070,676
     
7,851,222
 
Prepaid expenses and other current assets
    570,258
     
702,010
 
TOTAL CURRENT ASSETS
    21,879,015
     
28,451,754
 
                 
FIXED ASSETS:
   

     
 
Property, plant and equipment, net
    3,517,701
      2,873,920
 
Finance lease right-of-use asset      233,722        -  

    3,751,423
      2,873,920
 
                 
OTHER ASSETS:
               
Operating lease right-of-use asset
     6,949,611        -  
Intangible assets, net
    3,684,144
     
3,884,831
 
Goodwill
    4,822,413
     
4,983,127
 
Deposits and other assets
    972,675
     
717,551
 
      16,428,843
      9,585,509  
                 
TOTAL ASSETS
 
$
42,059,281
   
$
40,911,183
 
                 
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
               
CURRENT LIABILITIES:
               
Accounts payable and accrued liabilities
 
$
5,317,809
   
$
5,888,681
 
Deferred revenue
    518,410
     
422,905
 
Current portion of note payable     207,694
      207,694  
Current portion of finance lease liability
     43,931        -  
Current portion of operating lease liability     389,051
      -  
TOTAL CURRENT LIABILITIES
    6,476,895
     
6,519,280
 
                 
OTHER LIABILITIES:
               
Operating lease liability
    6,582,446
      -
 
Finance lease liability
     189,791        -  
Note payable
     79,662        171,821  
Deferred tax liability
    792,587
     
892,308
 
                 
TOTAL LIABILITIES
    14,121,381
     
7,583,409
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ EQUITY:
               
Preferred stock - 10,000,000 shares authorized; none outstanding
   
-
     
-
 
Common stock - $.01 par value; 100,000,000 shares authorized; 17,565,534 and 17,166,459 shares issued and outstanding at June 30, 2019 and December 31, 2018
    175,655
     
171,664
 
Additional paid-in capital
    91,674,175
     
90,953,788
 
Accumulated deficit
    (63,913,087
)
   
(57,909,874
)
Accumulated other comprehensive income
    1,157
 
   
112,196
 
TOTAL STOCKHOLDERS’ EQUITY
    27,937,900
     
33,327,774
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
42,059,281
   
$
40,911,183
 

See accompanying notes to condensed consolidated financial statements
 
4

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
For the three months ended
   
For the six months ended
 
   
June 30, 2019
   
June 30, 2018
   
June 30, 2019
   
June 30, 2018
 
REVENUES:
                       
Net product sales
 
$
8,488,291
   
$
6,857,861
   
$
14,871,277
   
$
13,256,088
 
License and royalty revenue
   
248,831
     
276,526
      465,022
     
478,457
 
R&D and grant revenue
   
854,264
     
1,585,939
      2,556,053
     
2,702,913
 
TOTAL REVENUES
   
9,591,386
     
8,720,326
      17,892,352
     
16,437,458
 
                                 
COSTS AND EXPENSES:
                               
Cost of product sales
    6,693,225
     
5,935,428
      11,463,562
     
10,053,207
 
Research and development expenses
    2,101,020
     
1,991,412
      4,318,652
     
3,838,514
 
Selling, general and administrative expenses
    4,096,942
     
2,547,216
     
8,110,013
     
4,953,785
 
Acquisition costs
     -        -        395,612        -  
      12,891,187
     
10,474,056
      24,287,839
     
18,845,506
 
LOSS FROM OPERATIONS
    (3,299,801
)
   
(1,753,730
)
    (6,395,487
)
   
(2,408,048
)
                                 
OTHER INCOME:
                               
Interest income, net
    5,918
     
25,355
      12,602
     
27,330
 
                     
         
LOSS BEFORE INCOME TAXES
    (3,293,883
)
   
(1,728,375
)
    (6,382,885
)
   
(2,380,718
)
     
                         
Income tax provision (benefit)
    (107,203
)
   
-
      (379,672
)
   
-
 
                                 
NET LOSS
 
$
(3,186,680
)
 
$
(1,728,375
)
 
$
(6,003,213
)
 
$
(2,380,718
)
                                 
Basic loss per share
 
$
(0.19
)
 
$
(0.12
)
 
$
(0.36
)
 
$
(0.17
)
                                 
Diluted loss per share
 
$
(0.19
)
 
$
(0.12
)
 
$
(0.36
)
 
$
(0.17
)
                     
         
Weighted average number of shares outstanding, basic
    16,914,171
     
14,165,343
      16,906,936
     
13,718,776
 
                     
         
Weighted average number of shares outstanding, diluted
    16,914,171
     
14,165,343
      16,906,936
     
13,718,776
 

See accompanying notes to condensed consolidated financial statements
 
5

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
   
For the three months ended
   
For the six months ended
 
   
June 30, 2019
   
June 30, 2018
   
June 30, 2019
   
June 30, 2018
 
Net loss
  $ (3,186,680
)
 
$
(1,728,375
)
  $ (6,003,213
)
  (2,380,718 )
Other comprehensive income (loss):
                               
Foreign currency translation adjustments
    (313,225
)
   
(173,828
)
    (111,039
)
    78,470
Comprehensive loss
  $ (3,499,905
)
 
$
(1,902,203
)
  $ (6,114,252
)
  $ (2,302,248

See accompanying notes to condensed consolidated financial statements
 
6

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

    For the six months ended June 30, 2019
 
 
 
Common Stock
   
Additional
Paid-in-Capital
   
Accumulated
Deficit
   
AOCI
   
Total
 
 
 
Shares
   
Amount
   
Amount
   
Amount
   
Amount
   
Amount
 
Balance at December 31, 2018
   
17,166,459
   
$
171,664
   
$
90,953,788
   
$
(57,909,874
)
 
$
112,196
   
$
33,327,774
 
                                                 
Common Stock:
                                               
Restricted stock compensation
   
-
     
-
     
281,248
     
-
     
-
     
281,248
 
                                                 
Options:
     
     
     
     
     
     
 
Stock option compensation
   
-
     
-
     
66,259
     
-
     
-
     
66,259
 
 
                                               
Foreign currency translation adjustments
     -        -        -        -       202,186       202,186  
                                                 
Net loss
   
-
     
-
     
-
     
(2,816,533
)
   
-
     
(2,816,533
)
 
                                               
Balance at March 31, 2019
   
17,166,459
   
$
171,664
   
$
91,301,295
   
$
(60,726,407
)
 
$
314,382    
$
31,060,934  
                                                 
Common Stock:
                                               
Restricted stock issued
     375,000        3,750        (3,750 )
     -        -        -  
Restricted stock compensation
   
-
     
-
     
307,774
     
-
     
-
     
307,774
 
                                                 
Options:
     
     
     
     
     
     
 
Exercised
     24,075        241        (241 )
     -        -        -  
Stock option compensation
   
-
     
-
     
69,097
     
-
     
-
     
69,097
 
 
                                               
Foreign currency translation adjustments
     -        -        -        -       (313,225 )
    (313,225 )
                                                 
Net loss
   
-
     
-
     
-
     
(3,186,680
)
   
-
     
(3,186,680
)
 
                                               
Balance at June 30, 2019
   
17,565,534
   
$
175,655
   
$
91,674,175
   
$
(63,913,087
)
 
$
1,157
 
 
$
27,937,900
 


    For the six months ended June 30, 2018
 
 
 
Common Stock
   
Additional
Paid-in-Capital
   
Accumulated
Deficit
   
AOCI
   
Total
 
 
 
Shares
   
Amount
   
Amount
   
Amount
   
Amount
   
Amount
 
Balance at December 31, 2017
   
12,318,570
   
$
123,185
   
$
62,821,288
   
$
(50,044,225
)
 
$
178,948
   
$
13,079,196
 
                                                 
Common Stock:
                                               
New stock from offering
   
1,783,760
     
17,838
     
10,916,514
     
-
     
-
     
10,934,352
 
                                                 
Options:
     
     
     
     
     
     
 
Exercised
    60,372
      604
      71,309
      -
      -
      71,913
 
Stock option compensation
   
-
     
-
     
97,250
     
-
     
-
     
97,250
 
 
                                               
Foreign currency translation adjustments
     -        -        -       -       252,298       252,298  
                                                 
Net loss
   
-
     
-
     
-
     
(652,343
)
   
-
     
(652,343
)
 
                                               
Balance at March 31, 2018
   
14,162,702
   
$
141,627
   
$
73,906,361
   
$
(50,696,568
)
 
$
431,246    
$
23,782,666  
Options:
     
     
     
     
     
     
 
Exercised
    10,918
      109
      (109
)
    -
      -
      -
 
Stock option compensation
   
-
     
-
     
127,035
     
-
     
-
     
127,035
 
 
                                               
Foreign currency translation adjustments
     -        -        -       -       (173,828 )
    (173,828 )
                                                 
Net loss
   
-
     
-
     
-
     
(1,728,375
)
   
-
     
(1,728,375
)
 
                                               
Balance at June 30, 2018
   
14,173,620
   
$
141,736
   
$
74,033,287
   
$
(52,424,943
)
 
$
257,418    
$
22,007,498  

See accompanying notes to condensed consolidated financial statements

7

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(Unaudited)

 
 
June 30, 2019
   
June 30, 2018
 
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Cash received from customers and grants
 
$
17,627,823
   
$
12,247,228
 
Cash paid to suppliers and employees
    (24,421,683
)
   
(17,352,226
)
Cash paid for operating leases
 

(305,157
)
   
-
 
Interest received, net
    12,602
     
27,330
 
Net cash used in operating activities
    (7,086,415
)
   
(5,077,668
)
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Patent application costs
    (72,295
)
    -  
Acquisition of and deposits on fixed assets
    (1,077,203
)
   
(250,147
)
Working capital adjustment related to business combination
     145,760        -  
Net cash used in investing activities
    (1,003,738
)
   
(250,147
)
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from option exercises
    -
     
71,914
 
Payments on note payable
    (92,158
)
   
-
 
Proceeds from sale of common stock, net
    -
     
10,934,352
 
Net cash (used in) provided by financing activities
   
(92,158
)
   
11,006,266
 
 
               
Effect of exchange rate changes on cash
    161,835
 
   
37,029
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (8,020,476
)
   
5,715,480
 
Cash and cash equivalents - beginning of the period
   
12,524,551
     
3,790,302
 
 
               
Cash and cash equivalents - end of the period
 
$
4,504,075
   
$
9,505,782
 
 
               
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
               
 
               
Net loss
 
$
(6,003,213
)
 
$
(2,380,718
)
Adjustments:
   
         
Depreciation and amortization
    750,322
     
446,625
 
Share based compensation
    724,378
     
224,283
 
Provision for (benefit from) deferred tax liability
    (379,672
)
    -  
Changes in assets and liabilities:
               
Accounts receivable
    (360,037
)
   
(4,800,979
)
Inventories
    (1,219,454
)
   
(1,926,022
)
Prepaid expenses and other current assets
    131,752

   
(215,758
)
Deposits and other assets
    (255,124
)
   
-
 
Accounts payable and accrued liabilities
    (570,872
)
   
2,964,151
 
Deferred revenue
    95,505
 
   
610,750
 
Net cash used in operating activities
 
$
(7,086,415
)
 
$
(5,077,668
)
 
               
Supplemental disclosures for non-cash investing and financing activities:
               
Deposits on manufacturing equipment transferred to fixed assets
 
$
-
   
$
257,455
 
Seller-financed equipment purchases
    -
       327,070  

See accompanying notes to condensed consolidated financial statements
 
8

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS:

Chembio Diagnostics, Inc. and its subsidiaries (collectively, the “Company” or “Chembio”) develop, manufacture, and commercialize point-of-care (“POC”) diagnostic tests that are used to detect or monitor diseases. The Company’s product development efforts are focused on its patented DPP technology, a novel POC diagnostic platform that offers certain customer advantages as compared to traditional lateral flow technology. POC tests, by providing prompt and early diagnosis, can reduce patient stays, lower overall costs, improve therapeutic interventions and improve patient outcomes.  POC tests can also prevent needless hospital admissions, simplify testing procedures, avoid delays from central lab batching, and eliminate the need for return visits.

Our product commercialization and product development efforts are focused in two areas: infectious disease, which includes both sexually transmitted and tropical & fever disease; and strategic collaborations with leading global healthcare companies, which leverage the DPP platform to provide us with additional revenue streams. In infectious disease, we are commercializing tests for HIV, Syphilis, Zika virus, dengue virus, chikungunya virus, , and ebola, and developing tests for hepatitis C, malaria, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi. Certain of these are also being developed as part of fever panel tests. Through strategic collaborations, we are developing tests for a specific form of cancer, concussions, bovine tuberculosis, and for eosinophilic respiratory disease, the latter in collaboration with global biopharmaceutical company AstraZeneca. As noted above, we are also developing a point-of-care test for an undisclosed biomarker for Takeda, also a global pharmaceutical company.

Large and growing markets have been established for these kinds of tests, initially in high prevalence regions where they are critical for large scale prevention and treatment programs. The Company’s product development is focused on areas where the availability of rapid, POC screening, diagnostic, or confirmatory results can improve health outcomes.  More generally, the Company believes there is and will continue to be a growing demand for diagnostic products that can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the point of care.

The Company’s products are sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionals and retail establishments, both domestically and internationally, under its STAT-PAK, SURE CHECK, STAT-VIEW and DPP registered trademarks, or under the private labels of its marketing partners.

The Company routinely enters into arrangements with governmental and non-governmental organizations for the funding of certain research and development efforts.

NOTE 2 — ACQUISITION:

On November 6, 2018, pursuant to a share purchase agreement, the Company acquired all of the outstanding shares of opTricon GmbH (“opTricon”), a privately-held Germany based developer and manufacturer of handheld analyzers for rapid diagnostic tests, for $5.5 million in cash, subject to routine post-closing adjustments. Since 2015, the Company and opTricon have been parties to an agreement under which the Company has collaborated in developing its DPP Micro Reader, a handheld, battery-operated analyzer that uses an innovative image sensor to provide, when combined with the Company’s DPP tests, a quantitative interpretation of diagnostic results. The Company purchased opTricon because it believes it will enable it to promote DPP tests and DPP Micro Reader more actively across global markets. The results of opTricon operations have been reflected in the consolidated financial statements since November 6, 2018.

As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $3,337,000 was recorded in connection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $2,260,000 in intangible assets associated with the addition of opTricon’s developed technology and customer base. During the six months ended June 30, 2019, the Company reduced Goodwill by $145,760 related to routine post-closing adjustments. The Consolidated Statements of Operations for the three and six months ended June 30, 2019 include $0 and $395,612 of transaction costs related to the opTricon acquisition.

The acquisition was accounted for using the purchase method of accounting. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 6, 2018:

   
Amount
 
Net current assets
 
$
404,204
 
Property, plant and equipment
   
125,000
 
Goodwill
   
3,337,000
 
Deferred tax liability
   
(635,000
)
Other intangible assets (estimated useful life):
       
Developed technology (7 years)
   
1,900,000
 
Customer contracts / relationships (10 years)
   
360,000
 
Total consideration
 
$
5,491,204
 

The Company calculated the fair value of the fixed assets based on the net book value of opTricon as that approximates fair value. The developed technology and customer contracts/relationships were based on discounted cash flows using management estimates.

As indicated, the allocation of the purchase price shown above is preliminary, pending completion of an analysis of the deferred tax liability. Therefore, an adjustment may be required.
 
9

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


a)
Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the three and six-month period ended June 30, 2019 and 2018 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which 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 interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 18, 2019.

Our future working capital needs will depend on many factors, including the rate of our business and revenue growth, the timing of our continuing automation of U.S. manufacturing, and the timing of investment in our research and development as well as sales and marketing. If we are unable to increase our revenues and manage our expenses in accordance with our operating plan, we may need to reduce the level or slow the timing of the growth plans contemplated by our operating plan, which would likely curtail or delay the growth in our business contemplated by our operating plan and could impair or defer our ability to achieve profitability and generate cash flow, or to seek to raise additional funds through debt or equity financings, strategic relationships, or other arrangements.
 
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of June 30, 2019 and, its condensed consolidated results of operations for the three and six-month period ended June 30, 2019 and 2018 have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.


b)
Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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 new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to its product revenue, license and royalty revenue, and research and development (“R&D”) and grant revenues, no adjustment to retained earnings was required upon adoption.

The Company adopted the standards for contracts that were not completed at the date of initial application (January 1, 2018).
10


Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligations.

Product Revenues

Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales.

The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation.

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.

Royalty Revenues

The Company receives royalty revenues on sales by its licensees of products covered under patents that it owns. The Company does not have future performance obligations under these license arrangements. The Company records these revenues based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.

R&D and Grant Revenue

All R&D and grant contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned in accordance with ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized as expenses are incurred as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies.

11

Disaggregation of Revenue

The following tables disaggregate Total Revenues.
 
    For the three months ended June 30, 2019     For the three months ended June 30, 2018
 
   
Exchange
Transactions
   
Non-Exchange
Transactions
    Total
   
Exchange
Transactions
   
Non-Exchange
Transactions
   
Total
 
Net product sales   $
8,488,291
    $
-
    $
8,488,291
    $ 6,857,861    
$
-
    $ 6,857,861  
License and royalty revenue     248,831
     
-
      248,831
      276,526      
-
      276,526  
R&D and grant revenue     619,139
     
235,125
      854,264
      755,570       830,369       1,585,939  
    $
9,356,261
    $
235,125
    $
9,591,386
    $ 7,888,957     $ 830,369     $ 8,720,326  
                                                 
                    Total                     Total
 
Africa                   $
2,342,740
                    $
2,226,540
 
Asia                    
119,548
                      22,348
 
Europe & Middle East
                   
1,107,558
                      1,213,548
 
Latin America
                   
4,612,904
                      3,266,290
 
United States
                   
1,408,636
                     
1,991,600
 
                    $ 9,591,386
                    $
8,720,326
 

    For the six months ended June 30, 2019     For the six months ended June 30, 2018
 
   
Exchange
Transactions
   
Non-Exchange
Transactions
    Total
    Exchange 
Transactions
   
Non-Exchange
Transactions
   
Total
 
Net product sales   $
14,871,277
    $
-
    $
14,871,277
    $ 13,256,088    
$
-
    $ 13,256,088  
License and royalty revenue     465,022
     
-
      465,022
      478,457      
-
      478,457  
R&D and grant revenue     1,392,204
     
1,163,849
      2,556,053
      1,367,375       1,335,538       2,702,913  
    $
16,728,503
    $
1,163,849
    $
17,892,352
    $ 15,101,920     $ 1,335,538     $ 16,437,458  
                                                 
                    Total                     Total
 
Africa                   $
4,759,040
                    $
3,865,070
 
Asia                    
240,646
                      989,922
 
Europe & Middle East
                   
3,250,779
                      2,197,424
 
Latin America
                   
5,684,970
                      5,956,183
 
United States
                   
3,956,917
                     
3,428,859
 
                    $ 17,892,352
                    $
16,437,458
 

Exchange transactions are recognized in accordance with ASU No. 2014.09, and non-exchange transactions are recognized in accordance with ASU No. 2018.08.

Contract Liabilities

Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract.  At December 31, 2018, the Company reported $422,905 in deferred revenue of which $422,905 was earned and recognized as R&D and grant revenue during the six months ended June 30, 2019. At June 30, 2019, the Company reported $518,410 in deferred revenue that is expected to be recognized during the second half of 2019.
 

c)
Inventories
 
Inventories consist of the following at:

   
June 30, 2019
   
December 31, 2018
 
Raw materials
  $ 2,834,559
   
$
2,803,677
 
Work in process
    1,556,944
     
263,043
 
Finished goods
    4,679,173
     
4,784,502
 
    $ 9,070,676
   
$
7,851,222
 
 
Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a write-down for any inventory considered slow moving or obsolete. There were reserves against inventory of approximately $67,000 and $78,000 as of June 30, 2019 and December 31, 2018, respectively.
 

d)
Loss Per Share:

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period excluding unvested restricted stock. Diluted loss per share for the three and six-month periods ended June 30, 2019 and 2018 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

There were 688,122 and 683,829 weighted-average number of options outstanding as of June 30, 2019 and 2018, respectively, that were not included in the calculation of diluted per common share equivalents for the three months ended June 30, 2019 and 2018, respectively, because the effect would have been anti-dilutive. There were 686,609 and 707,880 weighted-average number of options outstanding as of June 30, 2019 and 2018, respectively, that were not included in the calculation of diluted per common share equivalent for the six months ended June 30, 2019 and 2018, respectively, because the effect would have been anti-dilutive.

12


e)
Stock Incentive Plan:

Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 625,000 shares of common stock available to be issued.  At the Annual Stockholder Meeting on September 22, 2011 the Company’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 125,000 to 750,000.  Under the terms of the SIP, which expired during 2018, the Board of Directors or its Compensation Committee had the discretion to select the persons to whom awards were to be granted. Awards could be stock options, restricted stock and/or restricted stock units (“Equity Award Units”).  The Equity Award Units became vested at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through June 30, 2019, there were 508,889 options exercised, and at June 30, 2019, 99,132 options were outstanding and no Equity Award Units were available to be issued under the SIP.

Effective June 19, 2014, the Company’s stockholders voted to approve the 2014 Stock Incentive Plan (“SIP14”), with 800,000 shares of common stock available to be issued.  Under the terms of the SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom Equity Award Units were to be granted.  Awards can be in the form of Equity Award Units.  The Equity Award Units vest at such times and under such conditions as determined by the Board or its Compensation Committee.  Cumulatively through June 30, 2019, there were 132,282 options exercised, and at June 30, 2019, 344,093 options were outstanding.  Upon approval of the 2019 Plan (defined below), no additional Equity Award Units could be issued under the SIP14.  During 2018, 266,839 shares of restricted stock and 20,725 restricted stock units were awarded under SIP14.

Effective June 18, 2019, the Company’s stockholders voted to approve the 2019 Omnibus Incentive Plan (“2019 Plan”), with 2,400,000 shares of Common Stock available to be issued. Under the terms of the 2019 Plan, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of Equity Award Units. The awards vest at such times and under such conditions as determined by the Compensation Committee. As of June 30, 2019, 375,000 shares of restricted stock had been awarded under the 2019 Plan, no options had been issued under the 2019 Plan.  2,025,000 Equity Award Units were available to be issued.


f)
Stock-Based Compensation:

The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, together with the fair value of restricted stock and restricted stock unit awards, are reduced for actual forfeitures and expensed on a straight-line basis over the requisite service period of the grant. 

Stock option compensation expense in each of the periods presented represents the estimated fair value of unvested, outstanding options, amortized on a straight-line basis over the requisite vesting periods of the entire awards.

Stock-based compensation expense recognized in the condensed consolidated statements of operations was classified as follows:
 
 
 
For the three months ended
   
For the six months ended
 

  June 30, 2019     June 30, 2018     June 30, 2019     June 30, 2018  
Cost of product sales
 
$
 2,300    
$
5,800
   
$
5,800
   
$
14,000
 
Research and development expenses
    56,300
     
3,600
      116,100
     
15,500
 
Selling, general and administrative expenses
     318,300      
117,700
       602,500      
194,800
 
 
 
$
 376,900    
$
127,100
   
$
 724,400    
$
224,300
 

13

The weighted-average assumptions made in calculating the fair values of options are as follows:

   
For the three months ended
   
For the six months ended
 
   
June 30, 2019
   
June 30, 2018
   
June 30, 2019
   
June 30, 2018
 
Expected term (in years)
    N/A
      5.4       N/A
     
5.4
 
Expected volatility
     N/A     40.12 %
     N/A    
40.12
%
Expected dividend yield
    N/A
    0 %
    N/A
   
0
%
Risk-free interest rate
     N/A     2.70 %
    N/A
   
2.70
%

The following table provides stock option activity for the six months ended June 30, 2019:

Stock Options
 
Number of
Shares
   
Weighted
Average
Exercise Price
per Share
 
Weighted
Average
Remaining
Contract
Term
 
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2018
   
711,968
   
$
5.62
 
3.33 years
 
$
687,364
 
                           
Granted
   
-
     
-
       
-
 
Exercised
   
46,875
     
3.48
     

172,242
 
Forfeited/expired/cancelled
    15,000       5.68         30,286  
Outstanding at June 30, 2019
    650,093    
$
5.77  
3.04 years
 
$
719,362  
Exercisable at June 30, 2019
    429,009    
$
4.82  
2.37 years
 
$
703,769
 

The following table summarizes information about stock options outstanding at June 30, 2019:

   
Stock Options Outstanding
   
Stock Options Exercisable
 
Range of
Exercise
Prices
  Number of Shares
   
Average
Remaining
Contract Term
(Year)
   
Weighted
Average
Exercise
Price
   
Aggregate
Intrinsic
Value
   
Number of Shares
   
Weighted
Average
Exercise
Price
   
Aggregate
Intrinsic
Value
 
1 to 2.79999
   
-
     
-
   
$
-
   
$
-
     
-
   
$
-
   
$
-
 
2.8 to 4.59999
    257,468
      1.67
      3.44
      681,419
      257,468
      3.44
      681,419
 
4.6 to 6.39999
    137,875
      2.95
      5.87
      37,943
      77,750
      5.87
     
22,350
 
6.4 to 8.19999
    207,875
      4.56
      7.31
     
-
      84,416
      7.32
     
-
 
8.2 to 12
    46,875
      4.11
      11.45
     
-
      9,375
      11.45
     
-
 
 Total
    650,093
      3.04
   
$
5.77
   
$
719,362
      429,009
   
$
4.82
   
$
703,769
 

As of June 30, 2019, there was $562,488 of net unrecognized compensation cost related to stock options that had not vested, which is expected to be recognized over a weighted average period of approximately 2.0 years. The total fair value of shares vested during the six-month periods ended June 30, 2019 and 2018 was $235,578 and $319,549, respectively.

The following table summarizes information about restricted stock and restricted stock units outstanding as of June 30, 2019:

   
Number of
Shares & Units
   
Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2018
   
287,564
   
$
9.65
 
                 
Granted
    375,000       5.80  
Earned/released
     -        -  
Forfeited/expired/cancelled
     -        -  
Outstanding at June 30, 2019
   
662,564
    $
7.47
 

As of June 30, 2019, there was $4,079,720 of net unrecognized compensation cost related to restricted stock and restricted stock units that had not vested, which is expected to be recognized over a weighted average period of approximately 2.42 years.

14


g)
Geographic Information and Economic Dependency
 
The Company produces only one group of similar products known collectively as “rapid medical tests”, and it operates in a single business segment. Net product sales by geographic area were as follows:

   
For the three months ended
   
For the six months ended
 
   
June 30, 2019
   
June 30, 2018
   
June 30, 2019
   
June 30, 2018
 
Africa
 
$
2,342,740
   
$
2,226,540
    $ 4,759,040
    $ 3,865,070  
Asia
   
119,548
     
22,348
       240,646        989,922  
Europe & Middle East
   
741,641
     
635,579
       1,919,666       1,027,649  
Latin America
   
4,612,904
     
3,266,290
      5,684,970
        5,956,183  
United States
   
671,458
     
707,104
       2,266,955       1,417,264  
   
$
8,488,291
   
$
6,857,861
    $ 14,871,277
    $ 13,256,088  

Long-lived assets by geographic area were as follows at:

   
June 30, 2019
   
December 31, 2018
 
Asia
    459,978       466,185  
Europe & Middle East
    169,147       123,752  
United States
    2,888,576       2,283,983  
    $ 3,517,701     $ 2,873,920  


h)
Fair Value of Financial Instruments:

The carrying values for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents were $3.3 million and $4.7 million as of June 30, 2019 and December 31, 2018, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s note payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

  Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

  Level 2:
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and,

  Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).


i)
Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consisted of:

   
June 30, 2019
   
December 31, 2018
 
Accounts payable – suppliers
 
$
3,292,605
   
$
3,622,765
 
Accrued commissions and royalties
   
715,177
     
867,344
 
Accrued payroll
   
352,689
     
48,867
 
Accrued vacation
   
606,110
     
264,789
 
Accrued bonuses
   
314,565
     
494,318
 
Accrued expenses – other
   
36,663
     
590,598
 
TOTAL
 
$
5,317,809
   
$
5,888,681
 

15


j)
Goodwill Long-Lived Assets and Intangible Assets:

Goodwill represents the excess of the purchase price the Company paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s acquisition of opTricon in November 2018 and Chembio Diagnostics Malaysia Sdn Bhd in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter for impairment or more frequently if the Company believes that indicators of impairment exist. The Company makes a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If the Company concludes that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then the Company recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.
 
Following is a table that reflects changes in goodwill:

Beginning balance December 31, 2018
 
$
4,983,127
 
opTricon measurement period adjustment     (145,760 )
Change in foreign currency exchange rate
    (14,954 )
Balance at June 30, 2019
 
$
4,822,413  

Intangible assets consisted of the following at:

  June 30, 2019
    December 31, 2018  

Weighted
Average
Useful Life
 
Cost
   
Accumulated
Amortization
   
Net Book
Value
   
Cost
   
Accumulated
Amortization
   
Net Book
Value
 
Intellectual property
10   $ 1,161,984     $ 232,157     $ 929,827    
$
1,089,688
    $ 173,633     $ 916,055  
Developed technology
7     1,890,261       154,128       1,736,133        1,910,315        -        1,910,315  
Customer contracts/relationships
8
    1,174,664       240,159
      934,505
      1,121,600       151,929       969,671  
Trade names
9
    108,521       24,842
      83,679
     
108,521
      19,731       88,790  
      $ 4,335,430     $ 651,286
    $ 3,684,144    
$
4,230,124
    $ 345,293     $ 3,884,831  

Intellectual property, developed technology, customer contracts/relationships, and trade names are amortized over 10, 7, 10, and 11 years, respectively. Amortization expense for the six months ended June 30, 2019 and 2018 was approximately $306,700 and $45,000, respectively. Amortization expense, subject to changes in currency exchange rates, is expected to be $497,761 per year from 2019 through 2023, and total $1,406,081 for all of the years thereafter.
 
Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable.  In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. 

No impairment of goodwill, long-lived tangible, and intangible assets was recorded for the six months ended June 30, 2019 and 2018.

16


k) Taxes:

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax benefit for the three and six-month periods ended June 30, 2019 were 3.3% and 6.0%, compared to the effective tax rate of 0.0% and 0.0%, respectively, for the three and six-month periods ended June 30, 2018. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic net deferred tax assets and the benefit from foreign net operating losses.


l)
Research and Development:

R&D costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.


m)
Allowance for Doubtful Accounts:
 
The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.


n)
Acquisition Costs:

Acquisition costs include period expenses, primarily professional services, related to acquisition activities.


o)
Foreign Currency Translation:

The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in Other Comprehensive Income. Foreign transaction gains are immaterial.
 

p)
Recent Accounting Pronouncements Affecting the Company:

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases are to be classified as either finance or operating, with classification affecting expense recognition in the income statement. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provide supplemental adoption guidance and clarification to ASU No. 2016-02, which must be adopted concurrently with the adoption of ASU No. 2016-02 and which are cumulatively referred to as “Topic 842”. Topic 842 was effective for the Company in the first quarter of 2019, and is to be applied using either a modified retrospective approach or an optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
As further discussed at Footnote 5(e) - Leases, the Company adopted Topic 842 on January 1, 2019 under the optional transition method and elected the short-term lease exception and available practical expedients. Under the transition method, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date.

17

NOTE 4 — STOCKHOLDERS’ EQUITY:

During the first six months of 2019 options to purchase 46,875 shares of the Company’s common stock were exercised on a cashless basis into 24,075 shares of common stock. During the first six months of 2018, options to purchase 114,947 shares of the Company’s common stock were exercised on a cashless basis into 71,650 shares of common stock.

On February 13, 2018, the Company closed on an underwritten registered public offering of 1,783,760 shares of its common stock at a public offering price of $6.75 per share for gross proceeds of approximately $12.0 million. The net proceeds, after underwriting discounts and commissions, were $10.9 million. The net proceeds were intended for business expansion and working capital, including product development; operational expansion or improvements, such as new automated equipment and a facilities update; clinical trials and other related activities; and, sales and marketing.
 
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