The Company Board, with the assistance of the Company’s senior management and the Company’s advisors, regularly reviews the Company’s business, operations, financial performance and strategic direction for the purpose of increasing stockholder value. As part of this on-going review, the Company Board considers the Company’s long-term strategies and plans, changes in the industry and markets in which the Company operates, economic and other market conditions, execution opportunities and risks, potential strategic alternatives, including business combination, acquisition, divestiture, partnership and collaboration opportunities, and financial alternatives in light of developments in the Company’s business. Over the past several years and in particular since the onset of the COVID-19 pandemic, the Company Board’s review has focused on the Company’s shifts in its strategic focus, its significant losses from operations, its liquidity and financing needs, the pending maturity of its indebtedness, and the lack of meaningful debt or equity financing alternatives.
On September 3, 2019, the Company entered into a Credit Agreement and Guaranty (the “Credit Agreement”) with Perceptive Credit Holdings II, LP (“Perceptive”). The Credit Agreement provided for a $20.0 million senior secured term loan credit facility which was fully drawn on September 4, 2019.
Prior to February 2020, the Company’s business focus was manufacturing and selling point-of-care diagnostic products for the detection and diagnosis of a variety of infectious diseases, including HIV, syphilis and Zika. In February 2020, the Company began the process of shifting substantially all of its resources to address the acute and escalating need for diagnostic testing for COVID-19. By March 2020, the Company had developed, and begun to manufacture for commercialization, the DPP COVID-19 System, which consisted of the Company’s new serological test for COVID-19 and its Micro Reader analyzer.
On March 16, 2020, the Company announced the hiring of Richard L. Eberly as the Company’s new chief executive officer. John M. Sperzel III, the Company’s prior chief executive officer, had resigned from this position on January 9, 2020.
On April 15, 2020, the Company received an Emergency Use Authorization (“EUA”) from the U.S. Food and Drug Administration (the “FDA”) for its DPP COVID-19 System. The Company began to sell the DPP COVID-19 System in the United States pursuant to the EUA.
On May 4, 2020, the Company issued a press release in which it reported revenues of approximately $6.9 million and a net loss of approximately $5.0 million for the three months ended March 31, 2020.
On May 11, 2020, the Company announced the closing of a public offering of 2,619,593 shares of its common stock for total proceeds of approximately $30.8 million (the “2020 Public Offering”). The Company used such proceeds to support the refocus of its business strategy, including the manufacturing and further commercialization of its DPP COVID-19 System, expanding its sales force to support growth, increasing its manufacturing capacity and for other general corporate purposes.
On June 16, 2020, the FDA revoked the EUA for the Company’s DPP COVID-19 System (the “FDA Revocation”). Beginning with the FDA Revocation, the Company has experienced market, clinical trial and regulatory complications and has also incurred significant expenses in connection with legal matters.
On June 26, 2020, the Company received a waiver from Perceptive of the minimum total revenue covenant contained in the Credit Agreement with respect to the four fiscal quarters ended June 30, 2020.
From June to August 2020, four purported securities class-action lawsuits were filed in the United States District Court for the Eastern District of New York by alleged stockholders of the Company: (i) Sergey Chernysh v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 18, 2020; (ii) James Gowen v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 22, 2020; (iii) Anthony Bailey v. Chembio Diagnostics, Inc. Richard J. Eberly, Gail S. Page, and Neil A. Goldman, filed on July 3, 2020; and (iv) Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., and Special Situations Private Equity Fund, L.P. v. Chembio Diagnostics, Inc., Richard Eberly, Gail S. Page, Robert W. Baird & Co. Inc. and Dougherty & Company LLC, filed August 17, 2020.
The plaintiffs in each of the above cases alleged claims under Section 10(b) of the Exchange Act, Rule 10b-5 thereunder and Section 20(a) of the Exchange Act. Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, the “Special Situations Funds”) also asserted claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the “Securities Act”) relating to the 2020 Public Offering.