In November 2019, we acquired ~~RVR in January 2017.~~Orangelife Comercio e Industria Ltda. (Rio de Janeiro, Brazil), a privately held manufacturer of lateral flow test for infectious diseases, to expand our market penetration and support Bio-Manguinhos, a major customer.

~~Our Rapid Test Technologies~~

All of our commercially available current products employ either in-licensed lateral flow technology or our own patented Dual Path Platform (DPP®) technology. Both lateral flow technology and DPP® allow the development of accurate, low cost, easy-to-perform, single-use diagnostic tests for rapid, visual detection of specific antigen-antibody complexes on a test strip. These formats provide a test that is simple (requires neither electricity nor expensive equipment for test execution or reading, nor skilled personnel for test interpretation), rapid (turnaround time approximately 15 minutes), safe (minimizes handling of potentially infected specimens), non-invasive (requires 5-20 micro liters of whole blood easily obtained with a finger prick, or alternatively, serum or plasma), stable (24 months at room temperature storage in the case of our HIV tests), and highly reproducible.

We believe that products developed using DPP® technology can provide superior diagnostic performance as compared with products that use lateral flow technology. The reason for this is that one of the major differences between the two platforms is that in DPP® samples are allowed to incubate with the target analyte in the test zone before introduction of the labeling reagent/conjugate, whereas in lateral flow, samples are combined with the labeling reagent to form a complex before coming in contact with the target analyte. We believe that this complex can compromise test performance. Also, because of the usage in DPP® of a separately connected sample strip, the control and delivery of sample material is substantially improved. This feature is critical in the development of multiplex tests, as well as tests that involve viscous sample material (such as oral fluid) that can be impeded when forced to combine with labeling reagents before migration on the test strip to the test zone area.

Multiplexing is significantly improved as a result of the design of DPP® and this provides a significant advantage. For example, the HIV confirmatory test we developed for Bio-Rad that is described above employs six different markers related to various epitopes of the HIV antigen. We have a number of other products in development, including those being developed in sponsored development programs that involve the use of multiple (e.g. eight) test bands. Although all of these products could be visually read, we can also use handheld and desktop readers with our DPP® products to objectively measure, quantify, record and report DPP® test results. Certain of the products we have and/or are developing incorporate some of these readers, and we are developing other products that may be used with or will require use of a reader. Also, platforms can incorporate labeling reagents that cannot be visually read except by employing a reader, such as fluorescence, though no products are currently utilizing such reagents.

We are pursuing additional capabilities and technologies that will complement our current product portfolio and business strategy. This activity includes pursing development, license or acquisition of diagnostic technologies that complement our existing platforms, proprietary biomarkers that can result in new product applications of our existing platforms, and new platforms that would complement our commercial strategy.

~~Target Markets~~

~~Rapid HIV Tests~~

A large percentage of individuals that are HIV positive worldwide are unaware of their status. Part of the reason for this is that even those that do get tested in public health settings will often not return or call back for their test results when samples have to be sent out to a laboratory which can take up to several days to process. The increased availability, greater efficacy and reduced costs for anti-retroviral treatments (ARVs) for HIV has increased the demand for testing, as the stigma associated with the disease is lessened, and the ability to resume normal activities is substantially improved, providing a positive message to those potentially infected. The impact that rapid HIV testing has had on prevention efforts has in turn increased the demand for testing, particularly by public health programs worldwide, which have also become more effective in reducing the number of annual new infections in many, but by no means all, high prevalence regions.

Despite less attention to HIV by the media as compared with prior years, there are still approximately 50,000 new diagnoses of HIV infection in the United States each year, according to the CDC. CDC estimates that approximately 1.1 million individuals in the U.S. are living with HIV, with an estimated 1 of 8 of these U.S. individuals, or almost 13%, unaware that they are infected. It is transmissions from these infected people that are reported to account for the majority of all new infections per year. Part of the reason for this is that even those individuals that do get tested in public health settings will often not return or call back for their test results if their blood samples have to be sent out to and tested in a laboratory and then reported back, a process which can take up to several days to complete. Making more people aware of their HIV status at the point-of-care reduces the number of HIV transmissions.

In 2006, the outlook for HIV testing was given a big boost with the release by the CDC of new recommendations for HIV testing. These new CDC recommendations were/are that an HIV test should be given as a routine test like any other for all patients between 13 and 64 years of age, regardless of risk, with an opt-out screening option and focused testing procedural (pre- and post-test counseling) guidelines. Though not mandatory, gradual adoption in whole or in part of the 2006 CDC recommendations by a number of states continues to have an increasing impact. Finally, in 2013, the United States Preventive Services Task Force ("~~USPSTF~~") fully embraced these CDC routine HIV testing recommendations. This USPSTF recommendation, which was given an A grade under their recommendation grading system based on the benefits of this practice and the nearly 600,000 AIDS-related deaths in the United States, requires insurance coverage under the Affordable Care Act (the "~~ACA~~") as a preventive screening test without any co-payment required. Assuming that new legislation does not modify this requirement, of which there is no assurance, we expect this requirement to result in an increase in HIV testing in the United States in the coming years, which we believe will include point-of-care HIV testing utilizing our products. Although as stated above, currently most public health testing in the United States is funded by grants allocated to high prevalence areas by the CDC, we believe this will shift to an insurance-funded model under the ACA in the years to come, increasing the amount of testing done in doctor'~~s offices and community health centers.~~

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Competition

In the international market, we sell our products directly and through distributors to large screening programs overseen by ministries of health and NGOs, most but not all of which are funded by large bi-lateral and multi-lateral AIDS relief programs, the largest of which is the U.S. President's Emergency Plan for AIDS Relief (PEPFAR). Established by President George Bush as a 5-year $15 billion program in 2003, PEPFAR was reauthorized in 2008 and again in 2013. In 2012 PEPFAR directly supported HIV testing and counseling for more than 11 million pregnant women, and testing and counseling for more than 49 million people overall. The U.S. is also the first and largest donor to the Global Fund to Fight AIDS, Tuberculosis and Malaria. To date, the U.S. has provided more than $7 billion to the Fund.

In December 2013 President Obama signed into law the PEPFAR Stewardship and Oversight Act, which is the most recent reauthorization of PEPFAR. However, unlike the 2008 PEPFAR authorization, which authorized approximately $45 billion, the new law doesn't authorize a specific dollar amount for funding. Nevertheless, it is widely anticipated that PEPFAR will continue to enjoy strong funding; the FY14 budget had $6 billion for global HIV/AIDS assistance, including $4 billion for PEPFAR.

With our four U.S.-manufactured rapid HIV tests, all of which are FDA-approved, we are recognized as a reputable and dependable supplier of high quality products that are available at reasonably competitive prices. As a result, certainMany of our ~~products have been selected in the testing protocols in countries (national algorithms) that~~competitors are large beneficiaries of PEPFAR and the Global Fund. As mentioned above, these programs can and do often result in large orders, but also can result in periods of relatively lower demand, based on the variations associated with this kind of demand. Also, even though the United States taxpayer is funding the largest share of global AIDS relief, U.S. companies do not receive any preference for these procurements, and therefore must compete with foreign suppliers that manufacture competitive products with lower costs, including those related to quality, regulatory, intellectual property, and costs of manufacturing.

Oral fluid testing is an established alternative to blood testing for diagnostic tests, including HIV tests. It is also often patient preferred, providing a more comfortable, less invasive test. In certain public health clinics, staffs choose not to handle blood specimens; thus, oral sample collection provides a viable alternative. The most well-established market for oral fluid HIV testing is the United States. Given the premium price required for an oral fluid test as compared with blood tests, the higher volume programs will not specify an oral fluid test. However, segments of these programs may want to have an oral fluid testing option, and certain programs that have greater resources may also choose to incorporate oral fluid testing into the testing protocol.

There is also now an over-the-counter market for HIV self-testing in the United States. OraSure Technologies Inc. received FDA approval for an over-the-counter (self-testing) version of its previously professional-market-approved (test performed on an individual by a health care professional) HIV test. The FDA approval was granted in July 2012, and OraSure has been investing heavily in developing this market. Initial results after over two years of marketing are well below expectations. The costs for such over-the-counter approval, including primarily the associated clinical trials, are estimated to be at least $5 million and they may take two to three years to complete, not to mention the cost of distribution. OraSure's initial results are not convincing of a large market, although this possibility remains. If it appears that there is an attractive market, we believe we are very well positioned to participate in this market.

~~Rapid HIV-Syphilis Test~~

There are significant risks relating to transmission of Syphilis from a pregnant mother to child, just as there are for transmission of HIV. Therefore we believe there is a significant opportunity to improve prevention efforts in pregnant mother to child transmission testing programs (PMTCT) that are currently not doing any or nearly enough testing for syphilis even though they are testing for HIV. In the United States, we believe there is also a significant need for this product in some of the highest HIV prevalence populations, such as among men that have sex with men (MSM), as data show high degrees of HIV and Syphilis co-infection in this segment of the population.

~~Marketing Strategy~~

~~Our marketing strategy is to:~~

Market our DPP® HIV 1/2 Assay, HIV 1/2 STAT-PAK® Assay, our SURE CHECK® HIV 1/2 Assay and future DPP® based new products in the US through our internal sales and marketing organization and selected channel partners (e.g., McKesson/PSS, Fisher Healthcare, Henry Schein, etc.). Following the June 2014 termination of the STAT-PAK® agreement with Alere, and the May 31, 2016 termination of the SURE CHECK® agreement with Alere, we no longer have to share any portion of the net sales proceeds for these products with Alere. These changes resulted in our incurring expenditures related to hiring sales representatives, establishing agreements and associated discounts with distributors, incurring advertising and marketing expenditures, warehousing, customer service and technical support. If Alere's new competitive product is indeed successful, our ability to retain a significant share of the market that has been established for our products may be enhanced by our having control of the marketing of our products, rather than relying on Alere to sell both our products while it is also selling its own competing product. We are leveraging the same sales force for U.S. Sales of our DPP® HIV 1/2 Assay.

~~Outside the U.S., we will market our products primarily through commercial collaborators and distribution partners.~~

Leverage our DPP® intellectual property and product development and manufacturing experience to continue creating new collaborations where we can be the exclusive development and manufacturing partner supporting leading marketing organizations.

Establish strong distribution relationships for our Chembio-branded products in the U.S and abroad, and establish a direct sales and marketing organization that is focused in the public health market segment, and that utilizes distributors for other market segments, primarily the acute care market which, together with public health, are the main market segments for rapid HIV tests in the United States. We believe that creation of a Chembio public health brand and marketing organization is fundamental to the creation of shareholder value over the long-term.

We have increased our commercial activities and efforts in Africa, Europe and Asia for our HIV tests and product pipeline. We believe these efforts will enable us to be more closely engaged with opportunities to engage with customers and partners and to participate in the national testing algorithms that are established and revised from time to time by countries that are beneficiaries of PEPFAR, Global Fund and/or other bilateral or multilateral donor funding. In Europe, where there are a larger percentage of HIV positive people unaware of their status than in the United States, we believe that there is an emerging public health outreach opportunity, and there are relatively few strong competitors that are CE-marked. Most recently we have established new sales and marketing positions in the Company to support our efforts to increase brand awareness globally and to lead our direct sales effort in the U.S. market.

~~Competition~~

~~There are several established rapid HIV tests which are already in the marketplace that compete with our lateral flow HIV tests and DPP~~® ~~HIV 1/2 Assay. These include OraSure (sold by OraSure Technologies), Alere Determine~~® ~~rapid test product (sold by Alere, Inc.), and INSTI (sold by Biolytical, Inc.). Our competitors may have significant advantages over us, including being substantially~~significantly larger and ~~having~~have greater financial, research, manufacturing, and marketing resources. Important competitive factors include product quality, analytical performance, ease of use, price, customer service and reputation. Industry competition ~~in general~~ is based on these and the ~~following:~~following additional factors:

~~Scientific and technological capability;~~

patent protection;

scientific expertise;

ability to develop and market products and processes;

ability to obtain required regulatory approvals;

ability to manufacture cost-effective products that meet applicable regulatory requirements;

access to adequate capital; and,

ability to attract and retain qualified personnel.

~~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);~~

~~The ability to manufacture products cost-effectively;~~

~~Access to adequate capital;~~

~~The ability to attract and retain qualified personnel; and~~

~~The availability of patent protection.~~

We believe our scientific ~~and technological~~ capabilities and ~~our~~ proprietary know-how relating to our ~~in-licensed~~patented DPP technology and lateral flow technology ~~rapid tests and to our proprietary know-how related to our patented DPP® technology,~~are very strong, particularly for the development and manufacture of tests for the detection of antibodies to infectious diseases, ~~such as HIV, are very strong.~~and other diseases.

Our ability to develop and market other products is in large measure dependent on our having additional resources and/or collaborative relationships. Some of our product development efforts have been funded on a project or milestone basis. We believe that our proprietary know-how ~~in lateral flow technology and in~~relating to our ~~DPP®~~patented DPP technology has been instrumental in our obtaining the collaborations we have and that we continue to pursue. We believe that ~~the~~our patent protection ~~that we have with our DPP® technology~~ enhances our ability to both develop more profitable, collaborative relationships and ~~to license out the technology.~~expand licensing revenue. However, there are a number of competitive technologies used and/or seeking to be used by others in point-of-care settings. ~~These technologies may be based on immunoassay principles such as the Company~~'~~s products or other technologies, such as molecular-based technologies.~~

We launched our FDA-approved DPP® HIV 1/2 Assay, which test also can be used with either oral fluid or blood samples, in the U.S. market under a Chembio brand in the fourth quarter of 2014. OraSure Technologies manufactures the only other rapid, oral fluid HIV test that is FDA-approved, and OraSure has enjoyed this position for approximately 10 years. OraSure has lost a significant share of this market as certain customers have been indifferent to using blood or oral fluid samples, because the blood tests, including those made/marketed by Chembio and marketed by Alere, are priced lower and/or are as or more accurate than the performance of OraSure's product on blood samples. OraSure has primarily retained those customers for whom the oral fluid sample feature is a strong preference, and this is an estimated $35 million business for OraSure. Although we believe we can capture a meaningful portion of this OraSure market share, we also anticipate that OraSure will defend this business aggressively.

In 2006 Alere acquired a division from Abbott Diagnostic located in Japan that manufactured and marketed a rapid HIV test product line called Determine®. The Determine® format was developed for the developing world and remote settings and, central to the needs of that market, the format is essentially a test strip that is integrated into a thin foil wrapper that, when opened, the underside of the wrapper serves as the test surface for applying the blood sample and performing the test. This design reduces costs and shipping weights and volumes and is an advantage for the developing world markets it has served. Some of the disadvantages of the platform are the amount of blood sample that is needed (50 microliters versus 2.5, 5 and 10 for our lateral flow barrel, lateral flow cassette, and DPP® products respectively), the open nature of the test surface, and the absence of a true control that differentiates biological from other kinds of samples.

~~The so-called~~ "~~3rd generation~~" version of this product has been marketed for many years and is the leading rapid HIV test that is used in a large majority of the national algorithms of countries funded by PEPFAR and the Global Fund, as well as many other countries in the world. That product is not FDA-approved though it is CE-marked. The newest Determine® HIV version, which was developed and manufactured at Alere'~~s subsidiary in Israel, Orgenics, is the so-called~~ "~~4th Generation~~" ~~version Determine® test. According to its claims, this product detects HIV antibodies and P24 HIV antigens. Since the P24 antigen is known to occur in HIV-positive individuals~~' blood samples before antibodies do, based on its performance claims, the 4th generation Determine® test is therefore able to detect HIV infection earlier than tests that solely rely on antibody detection. Chembio'~~s tests, as well as all of the other currently FDA-approved rapid HIV tests, only detect antibodies. There are however laboratory tests that are FDA-approved that are~~ "~~4th generation~~" ~~tests, but they are of course neither rapid nor point-of-care.~~

~~The initial~~ "~~4th generation~~" Alere Determine® rapid test product that was also CE-marked and that Alere launched internationally some years ago has not been successfully commercialized to the best of our knowledge and at least certain published studies were not favorable for this product. However the 4th generation product that is now FDA-approved was apparently modified as compared to the initial international version of it, and it may perform more satisfactorily. Alere received FDA approval of this modified product in August 2013 and CLIA-waiver for it in the fourth quarter of 2014. There is support by a number of key opinion leaders for the public health value of such 4th generation tests, and it represents a significant competitive threat to Chembio as well as to each of the other rapid HIV test manufacturers (OraSure and Trinity primarily).

~~During 2011 Biolytical, Inc. of Vancouver, Canada received FDA approval and in 2012 received CLIA waiver of a flow-through rapid HIV test called~~ "~~INSTI~~". The technology used in the INSTI test, flow-through, is older than lateral flow, and it requires handling of multiple components (3 vials of solution) to perform the test in multiple steps. However, these steps can be accomplished in less than ten minutes, and the actual test results occur in only one minute after those steps are completed. Therefore sample-to-result time is shorter than any of the competitive products. There are settings where that reduced total test time, despite the multiple steps required, may be a distinct advantage, and we believe Biolytical has made some progress in penetrating certain public health markets.

Although we have no specific knowledge of any other ~~competitors~~'competitors’ products that ~~are a competitive threat to our products, or that will~~could render our products obsolete, if we fail to maintain and enhance our competitive position or fail to introduce new products and product features, our customers may decide to use the products developed by our competitors, which could result in a loss of revenues and cash flow.

Employees

~~Research and Development~~

~~During 2016, 2015 and 2014,~~As of December 31, 2019, we ~~spent $8.4 million, $6.4 million and $4.8, respectively, on~~had 324 full-time equivalent employees, of whom 35 were in administration, 230 were in manufacturing, 42 were in research and development, ~~(including regulatory activities). These expenses~~and 17 were in part underwritten by funding from R&D and milestones revenues of $3.7 million in 2016, $2.3 million in 2015 and $1.7 million in 2014. All of our new product development activities involve employment of our DPP® technology. These activities include completing development of certain products and making significant progress toward the development of additional products.

~~Employees~~

At December 31, 2016, we employed approximately 131 people. We have entered into employment contracts with our Chief Executive Officer and President, John J. Sperzel, our Chief Operating Officer, Sharon Klugewicz, and our Chief Science and Technology Officer, Javan Esfandiari. Due to the specific knowledge and experience of these executives regarding the industry, technology and market, the loss of the services of any one of them would likely have a material adverse effect on the Company. The contract with Mr. Sperzel has a term of three years ending March 13, 2017. The contract with Ms. Klugewicz, has a term of two years ending May 2017. The contract with Mr. Esfandiari has a term of three years ending March 2019. The Company and Mr. Sperzel currently are discussing terms for renewal of his employment agreement. We have obtained a key man insurance policy for Mr. Esfandiari.

~~Governmental Regulation~~

~~The manufacturing~~sales and marketing ~~of our existing~~ and ~~proposed diagnostic products are regulated by the United States Food and Drug Administration (~~"~~FDA~~"~~), United States Department of Agriculture (~~"~~USDA~~"), certain state and local agencies, and/or comparable regulatory bodies in other countries. These regulations govern almost all aspects of development, production and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing and record keeping. The Company'~~s FDA and USDA regulated products require some form of action by each agency before they can be marketed~~customer service. Of these employees, approximately 256 were located in the United States, 30 were located in Malaysia, 19 were located in Germany and ~~after approval~~19 were located in Brazil.

We have never had a work stoppage, and none of our employees are represented by a labor organization or ~~clearance, the Company must continue~~subject to ~~comply with other FDA requirements applicable~~any collective bargaining arrangements. We consider our employee relations to ~~marketed products, e.g. Quality Systems (for medical devices). Failure~~be good.

Governmental Regulation

Certain of our activities are subject to ~~comply with~~regulatory oversight by the FDA'~~s requirements can lead to significant penalties, both before and after approval or clearance.~~

~~There are two review procedures by which medical devices can receive FDA clearance or approval. Some products may qualify for clearance~~ under ~~Section 510(k)~~provisions of the Federal Food, Drug, and Cosmetic Act and regulations thereunder, including regulations governing the development, marketing, labeling, promotion, manufacturing, and export of diagnostic products. Our clinical laboratory customers are subject to oversight by Centers for Medicare and Medicaid Services, or CMS, pursuant to CLIA, as well as agencies in various states. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions, and criminal prosecution.

FDA Approval/Clearance Requirements

Unless an exemption applies, each medical device that we market or wish to market in the United States must receive 510(k) clearance or Premarket Approval, or PMA. Medical devices that receive 510(k) clearance are “cleared” by the FDA to market, distribute, and sell in the United States. Medical devices that obtain a PMA by the FDA are “approved” to market, distribute and sell in the United States. We cannot be certain that 510(k) clearance or PMA approval will ever be obtained for any products that have not already obtained 510(k) clearance or PMA approval. Descriptions of the PMA and 510(k) clearance processes are provided below.

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The FDA decides whether a device line must undergo either the 510(k) clearance or PMA based on statutory criteria that utilize a risk-based classification system. PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices and, in many cases, Class II medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. The FDA uses these criteria to decide whether a PMA or a 510(k) is appropriate, including the level of risk that the agency perceives is associated with the device and a determination by the agency of whether the product is a type of device that is similar to devices that are already legally marketed. Devices deemed to pose relatively less risk are placed in either Class I or II. In many cases, the FDA requires the manufacturer to submit a 510(k) requesting clearance (also referred to as a premarket notification), unless an exemption applies. The 510(k) must demonstrate that the manufacturer’s proposed device is “substantially equivalent” in intended use and in safety and effectiveness to a legally marketed predicate device. A “predicate device” is a pre-existing medical device to which equivalence can be drawn, that is either in Class I or Class II or is a Class III device that was in commercial distribution before May 28, 1976, for which the FDA has not yet called for submission of a PMA application.

Device classification depends on the device’s intended use and its indications for use. In addition, classification is risk-based, that is, the risk the device poses to the patient and/or the user is a major factor in determining the class to which it is assigned. Class I includes devices with the lowest risk and Class III includes those with the greatest risk.

Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, or the General Controls, which include compliance with the applicable portions of the FDA’s quality system regulations, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devices also require premarket clearance by the FDA through the 510(k) process described below.

Class II devices are subject to the FDA’s General Controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) process. Pursuant to the Medical Device User Fee and Modernization Act of 2002, unless a specific exemption applies, 510(k) submissions are subject to user fees. Certain Class II devices are exempt from this premarket review process.

Class III includes devices with the greatest risk. Devices in this class must meet all of the requirements in Classes I and II. In addition, Class III devices cannot be marketed until they receive Premarket Approval.

The safety and effectiveness of Class III devices cannot be assured solely by the General Controls and the other requirements described above. These devices require formal clinical studies to demonstrate safety and effectiveness. Under Medical Device User Fee and Modernization Act of 2002, PMA applications (and supplemental premarket approval applications) are subject to significantly higher user fees than 510(k) applications, and they also require considerably more time and resources.

Rapid HIV tests intended for diagnostic use are regulated as Class III devices. Responsibility for assuring the safety and effectiveness of these tests lies within the Center for Biologics Evaluation and Research’s Office of Blood Research and Review, with oversight by the Blood Products Advisory Committee. Approved rapid HIV tests must meet the regulations in the 21 CFR 800 series subparts, under the investigational device exemption, or IDE and PMA pathways.

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Premarket Approval Pathway

We manufacture, market and distribute three rapid HIV tests in the United States. Our HIV 1/2 STAT-PAK Assay, SURE CHECK HIV 1/2 Assay, and DPP HIV 1/2 Assay all have received FDA PMA approval. A PMA application must be supported by extensive data including, but not limited to, analytical, preclinical, clinical trials, manufacturing, statutory preapproval inspections, and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. Before a PMA is submitted, a manufacturer must apply for an IDE. If the device presents a “significant risk,” as defined by the FDA, to human health, the FDA requires the device sponsor to file an IDE application with the FDA and obtain IDE approval prior to initiation of enrollment of human subjects for clinical trials. The IDE provides the manufacturer with a ~~pre-market notification~~legal pathway to perform clinical trials on human subjects where without the IDE, only approved medical devices may be used on human subjects.

The IDE application must be supported by appropriate data, such as analytical, animal and laboratory testing results, manufacturing information, and an Investigational Review Board, or IRB, approved protocol showing that it ~~intends~~is safe to ~~begin marketing~~test the device in humans and that the testing protocol is scientifically sound. If the clinical trial design is deemed to have “non-significant risk,” the clinical trial may be eligible for “abbreviated” IDE requirements. In some instances, clinical trials for in vitro diagnostic medical devices may be exempt from the more burdensome IDE requirements if certain labeling requirements are met.

A clinical trial may be suspended by either the FDA or the Investigational Review Board at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the study. Even if a study is completed, clinical testing results may not demonstrate the safety and efficacy of the device, or they may be equivocal or otherwise insufficient to obtain approval of the product being tested. After the clinical trials have been completed, if at all, and ~~shows~~the clinical trial data and results are collected and organized, a manufacturer may complete a PMA application.

After a PMA application is sufficiently complete, the FDA will accept the application and begin an in-depth review of the submitted information. By statute, the FDA has 180 days to review the “accepted application,” although, generally, review of the application can take between one and three years, but it may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also, during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The preapproval inspections conducted by the FDA include an evaluation of the manufacturing facility to ensure compliance with the FDA’s quality systems regulations or QSR, as well as inspections of the clinical trial sites by the Bioresearch Monitoring group to evaluate compliance with good clinical practice and human subject protections. New PMA applications or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types of modifications to the device’s indication for use, manufacturing process, labeling and design. Significant changes to an approved PMA require a 180-day supplement, whereas less substantive changes may utilize a 30-day notice, or a 135-day supplement. Premarket approval supplements often require submission of the same type of information as a premarket approval application, except that the supplement is limited to information needed to support any changes from the device covered by the original premarket approval application, and it may not require as extensive clinical data or the convening of an advisory panel.

Our HIV 1/2 STAT-PAK Assay PMA application number BP050009/0 and our SURE CHECK 1/2 HIV Assay PMA application number BP050010/0 were approved by the FDA in May 2006. Our DPP HIV 1/2 Assay PMA application number BP120032/0 was approved by the FDA in December 2012.

510(k) Clearance Pathway

We are currently developing products that either will or are likely to require an FDA 510(k) clearance. We anticipate submitting a 510(k) for each such product to demonstrate that such proposed device is substantially equivalent to ~~another legally marketed product (i.e.,~~a previously cleared 510(k) device or a device that itwas in commercial distribution before May 28, 1976, for which the FDA has not yet called for the ~~same intended use and is as safe and effective as~~submission of a ~~legally marketed device and does not raise different questions of safety and effectiveness)~~510(k). The FDA's 510(k) clearance pathway usually takes from three to twelve months but could take longer. In some cases the FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

If a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, a PMA. The FDA requires each device manufacturer to determine whether the proposed change requires submission ~~must include data from human clinical studies. Marketing may commence when~~of a new 510(k) or a PMA, but the FDA ~~issues a~~can review any such decision and, if it disagrees with the manufacturer's determination, can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance ~~letter finding such substantial equivalence. FDA clearance~~or PMA of ~~our DPP® Syphilis Screen & Confirm test will be by means~~the modified device is obtained.

Table of ~~a 510(k) submission.~~Contents

~~If the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA~~'~~s implementing regulations have an approved application), the FDA must approve a Pre-Marketing Application (~~"~~PMA~~"~~) before marketing can begin. PMA~~'s must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA application is typically a complex submission, including the results of non-clinical and clinical studies. Preparing a PMA application is a much more expensive, detailed and time-consuming process as compared with a 510(K) pre-market notification. The Company has approved PMAs for the two rapid HIV tests now marketed in the U.S.: both our HIV 1/2 STAT-PAK® and our SURE CHECK® 1/2 HIV.

~~FDA approval of our DPP® HIV screening assay for use with oral fluid or blood samples also was achieved by means of a PMA application. The~~ Clinical Laboratory Improvement ~~Act~~Amendments of 1988 ("

A manufacturer of a test categorized as moderately complex may request that categorization of the test be waived through a CLIA"~~) prohibits~~ Waiver by Application, or CW, submission to the FDA. When a test is categorized as waived, it may be performed by laboratories with a Certificate of Waiver, such as a physician’s office outreach setting. In a CW submission, the manufacturer provides evidence to the FDA that a test meets the CLIA statutory criteria for waiver CLIA, a walk-in clinic or an emergency room provides CMS authority over all laboratory testing, except research that is performed on humans in the United States. The Division of Laboratory Services, within the Survey and Certification Group under the CMS, has the responsibility for implementing the CLIA program.

The CLIA program is designed to establish quality laboratory testing by ensuring the accuracy, reliability and timeliness of patient test results. Under CLIA, a laboratory is a facility that does laboratory testing on specimens derived from ~~performing in-vitro tests for the purpose of providing~~humans and used to provide information for the diagnosis, prevention or treatment of ~~any~~ disease, or impairment of, or ~~the~~ assessment of health. Under the ~~health of human beings~~CLIA program, unless ~~there is in effect for such~~waived, laboratories ~~a certificate issued~~must be certified by the ~~United States Department of Health~~government, satisfy governmental quality and ~~Human Services (via the FDA) applicable~~personnel standards, undergo proficiency testing, be subject to ~~the category of examination or procedure performed. Although a certificate is not required for the Company, it considers the applicability of the requirements of CLIA in the design~~inspections and ~~development of its products. The statutory definition of~~ "~~laboratory~~" ~~is very broad, and many of our customers are considered labs. A CLIA waiver will remove certain quality control and other requirements that must be met for certain customers to use the Company~~'~~s products and this is critical to the marketability of a product into the point-of-care diagnostics market.~~pay fees. We have received a CLIA waiver for ~~each~~all of ~~the two~~our lateral flow rapid HIV tests ~~now marketed~~that we market in the ~~U.S. The~~United States. Specifically, the CLIA waiver was granted by the FDA for HIV 1/2 ~~STAT-PAK® on~~STAT-PAK in November ~~20,~~ 2006,for SURE CHECK HIV 1/2 in October 2007, and for ~~SURE CHECK®~~DPP HIV 1/2 onin October ~~22, 2007. In 2008~~2014.

Pervasive and Continuing FDA Regulation

A host of regulatory requirements apply to our approved devices, including: the quality system regulation, which requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance procedures; the Medical Reporting Regulations, which require manufacturers to report to the FDA ~~revised its CLIA waiver~~specified types of adverse events involving their products; labeling regulations; and the FDA’s general prohibition against promoting products for unapproved or “off-label” uses. Some Class II devices are subject to special controls-such as performance standards, post-market surveillance, patient registries, and FDA guidelines-that do not apply to Class I devices.

The regulatory requirements so that ~~an additional prospective trial need be conducted in order~~apply to ~~demonstrate clinical utility by showing that~~our approved products classified as medical devices include:

product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;

QSR, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the ~~device is capable of identifying new infections when used by untrained users. Our DPP® HIV 1/2 test received CLIA waiver in October of 2014.~~development and manufacturing process;

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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;

~~In addition,~~

clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use of one of our cleared devices;

approval of product modifications that affect the safety or effectiveness of one of our cleared devices;

medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur;

post-approval restrictions or conditions, including post-approval study commitments;

post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device;

the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations;

regulations pertaining to voluntary recalls; and,

notices of corrections or removals.

Our Medford, New York facility is currently registered as an establishment with the FDA. We and any third-party manufacturers are subject to announced and unannounced inspections by the FDA ~~regulates~~to determine our compliance with QSR and other regulations.

21st Century Cures Act

The 21st Century Cures Act, enacted in December 2016, contains several sections specific to medical device innovations. We believe that implementation of the ~~export~~21st Century Cures Act may have a positive impact on its businesses by facilitating innovation and/or reducing the regulatory burden imposed on medical device manufacturers.

Government Regulation of ~~medical~~Medical Devices for Animal Subjects

We currently offer two veterinary devices ~~that have not been approved for marketing~~ in the United ~~States. The Federal Food, Drug~~States: DPP VetTB Assay for Cervids and ~~Cosmetic~~DPP VetTB Assay for Elephants. Diagnostic tests for animal health infectious diseases, including our veterinary devices for the prevention and/or treatment of animal disease, are regulated in the U.S. by the Center for Veterinary Biologics within the U.S. Department of Agriculture Animal and Plant Health Inspection Service, or APHIS, under the Virus, Serum, and Toxin Act ~~contains general requirements for any medical device that may not~~of 1913. As a requirement, our veterinary devices were approved by APHIS before they could be sold in the ~~United States~~U.S.

The APHIS regulatory approval process involves the submission of product performance data and ~~is intended~~manufacturing documentation. Following regulatory approval to market a product, APHIS requires that each lot of product be submitted for ~~export. Specifically, a medical device intended~~review before release to customers. In addition, APHIS requires special approval to market products where test results are used in part for export is not deemed to be adulterated or misbranded if the product: (1) complies with the specifications of the foreign purchaser; (2) is not in conflict with the laws of the country to which it is intended for export; (3) is prominently labeled on the outside of the shipping package that it is intended for export; and (4) is not sold or offered for sale in the United States. However, the Federal Food, Drug and Cosmetic Act does permit the export of devices to any country in the world, if the device complies with the laws of the importing country and has valid marketing authorization in one of several "~~listed~~" ~~countries under the theory that these listed countries have sophisticated mechanisms for the review of medical devices for safety and effectiveness.~~government-mandated disease management programs.

We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval or evaluations by international public health agencies, such as the World Health Organization, in order to sell diagnostic products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for United States governmental approvals. On the other hand, the fact that our HIV diagnostic tests are of value in the AIDS epidemic may lead to some government process being expedited. The extent of potentially adverse governmental regulation affecting us that might arise from future legislative or administrative action cannot be predicted.

Environmental Laws

~~To date,~~We believe that we ~~have not encountered any costs relating~~are in compliance in all material respects with all foreign, federal, state, and local environmental regulations applicable to our manufacturing facilities. The cost of ongoing compliance with ~~any environmental laws.~~such regulations does not have a material effect on our operations.

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Intellectual Property

Intellectual Property Strategy

Our intellectual property strategy is to: (1) build our own intellectual property portfolio around our ~~DPP® technology;~~DPP technology and optical analyzers; (2) pursue licenses, trade secrets and know-how within the area of rapid point-of-care ~~testing,~~testing; and, (3) develop and acquire proprietary positions to ~~reagents and new hardware platforms for the development and manufacture of rapid diagnostic tests.~~certain reagents.

DPP Intellectual Property

We have obtained patent coverage on our ~~DPP®~~DPP technology, including ~~four U.S.~~numerous patents ~~and patents~~ in the United States, China, Malaysia, Eurasia, Mexico, Singapore, Japan, Australia, Indonesia, Korea and the U.K. Additional patent applications on our ~~DPP®~~DPP technology are pending in the ~~U.S.,~~United States, as well as in ~~many~~ foreign countries such as Brazil, Canada, the European Union, India, Israel, and South Africa. ~~Patents~~

DPP technology provides us with freedom to operate, which enables us to develop tests with better performance and capabilities compared with tests built on traditional lateral flow platforms. These advantages have allowed us to enter into multiple technology collaborations based upon DPP technology, which we believe will provide new manufacturing and marketing opportunities. We have filed additional patent applications that we believe will strengthen the DPP intellectual property and have also ~~been~~ filed ~~on extensions to the DPP® product line concept, such as 4th generation assays. The four U.S. patents are as follows:~~for patent protection for certain other point-of-care technologies or applications thereof.

~~U.S. Patent No.~~	~~Issued~~	~~Expires~~	~~Nature~~	~~Type~~	~~Description~~
~~7,189,522~~	~~3/13/2007~~	~~3/11/2025~~	~~test device~~	~~utility~~	~~a test device for determining the presence of a ligand in a sample~~
~~7,682,801~~	~~3/23/2010~~	~~3/11/2025~~	~~test device~~ ~~and method~~	~~utility~~	~~a test device and a method for determining~~ ~~the presence of a ligand in a sample~~
~~7,879,597~~	~~2/1/2011~~	~~3/11/2025~~	~~test device~~	~~utility~~	~~a test device for determining multiple~~ ~~ligands in a sample~~
~~8,507,259~~	~~8/13/2013~~	~~3/11/2025~~	~~test device~~	~~utility~~	~~a test device for determining the~~ ~~presence of a ligand in a sample~~

We have also ~~filed for patents and~~ obtained ~~some patents~~patent coverage on our optical-based analyzer technology in the ~~U.S. for other inventions, such as its multiple host species veterinary TB test, and patent applications for the other inventions are~~United States, with patents pending in ~~various stages from being recently filed and not yet examined, to already examined and allowed but not yet issued. We selectively and strategically~~several foreign ~~files its patent applications based on a number of economic and strategic factors related to the invention.~~countries.

Trademarks

We have filed and obtained trademarks for our products, including ~~DPP®,~~DPP, SURE ~~CHECK®,~~CHECK, STAT-VIEW, and ~~STAT-PAK®~~STAT-PAK, and ~~also~~NEXT GENERATION DPP, as well as for the ~~SampleTainer®~~SampleTainer and DPP Micro Reader, which are used inwith certain ~~DPP®~~DPP products. Our ~~DPP® trademark is also registered under~~trademarks have been obtained in the ~~European convention (ECT). We recently filed a trademark for STAT-VIEW®, to market~~United States and certain other countries around the ~~barrel product in Europe.~~world.

Trade Secrets and Know-How

We ~~believe that we~~ have developed a substantial body of trade secrets and know-how relating to the development and manufacture of lateral flow and ~~DPP®-based~~DPP-based diagnostic tests, including ~~but not limited to~~ the sourcing and optimization of materials for such tests, and ~~how~~methods to maximize sensitivity, speed-to-result, specificity, stability and ~~reproducibility.~~reproducibility of our tests. We possess proprietary know-how to develop tests for multiple conditions using colored ~~latex.~~particles. Our ~~buffer~~ formulations enable ~~extremely~~ long shelf lives of our rapid HIV and other tests, ~~and we believe that this provides~~providing us with an important competitive advantage.

Lateral Flow Technology and Reagent Licenses

As part of the agreements executed in 2006 with Alere for the marketing of our HIV tests, we were granted non-exclusive licenses to certain lateral flow patents for certain products manufactured and marketed by us, including but not limited to our lateral flow HIV tests. This license allows us to produce, market and sell assays using lateral flow technologies specifically including our STAT-PAK®, SURE CHECK®, DIPSTICK®, and veterinary product lines. Under this license agreement, prior to February 3, 2015, we paid royalties to Alere ranging from 5% to 8½%, depending upon the country in which the products are sold. Between 2007 and 2015 we incurred a total of $2.87 million in lateral flow royalty expenses. As of February 3, 2015 this royalty expense was no longer payable.

~~Although we believe our DPP® is outside of the scope of all lateral flow patents of which we are aware, we consult with patent counsel, and~~We seek licenses and/or redesigns of products that we believe to be in our best interests. Because of the costs and other negative consequences of time-consuming patent litigation, we often attempt to obtain a license on reasonable terms. Nevertheless there is no assurance that the Alere lateral flow patents we have licensed will not be challenged or that other patents containing claims relevant to our lateral flow or DPP® products will not be granted to third parties and that licenses to such patents, will be available on reasonable terms, if any. In the past Alere has aggressively enforced its lateral flow intellectual property, although some of the main patents have expired and we are not aware of any patent enforcement litigation that is ongoing with respect to the Alere lateral flow intellectual property.

Regardless, the DPP® technology provides us with our own intellectual property. We believe it provides us with a freedom to operate, and that it also enables tests to be developed with improved sensitivity as compared with comparable tests on lateral flow platforms. We have signed and anticipate signing new development projects based upon the DPP® technology that will provide new manufacturing and marketing opportunities. We have filed other patent applications that we believe will strengthen the DPP® intellectual property and have also filed for patent protection for certain other point-of-care technologies or applications thereof.

The peptides used in our rapid HIV tests were ~~patented by Adaltis Inc. and were~~ licensed to us ~~under a 10-year non-exclusive license agreement dated August 30, 2002. However, in connection with Adaltis' bankruptcy, during the~~by one or more third ~~quarter of 2009 we bought out all of our remaining obligations under that agreement.~~parties. We also have licensed the antigens used in other tests including our Syphilis, Tuberculosis, Leptospirosis, Leishmaniasis and Chagas tests, and we may enter into other license agreements. In prior years, we concluded license agreements related to intellectual property rights owned by the United States associated with HIV-1 and ~~during the first quarter of 2008 we entered into~~ a sub-license agreement for HIV-2 with Bio-Rad Laboratories N.A., the exclusive licensee of the Pasteur ~~Institute's~~Institute’s HIV-2 intellectual property estate.

~~Corporate Information~~

We are a Nevada corporation that was formed in December 1985. Since inception, we have been involved in developing, manufacturing, selling and distributing medical diagnostic tests, including rapid tests that detect a number of diseases and other conditions in humans and animals.

~~On May 30, 2012, we effected a 1-for-8 reverse split of its common stock. The effect of this reverse stock split also has been retroactively reflected for all periods in these financial statements.~~

~~Stockholder Rights Agreement~~

On March 8, 2016, we entered into a Rights Agreement (the "Rights Agreement") between us and Action Stock Transfer Corp., as Rights Agent. Pursuant to the Rights Agreement, we declared a dividend distribution of one Preferred Share Purchase Right (a "Right") for each outstanding share of our common stock, par value $0.01 (the "Common Stock"), in the manner described below. The Board of Directors set the payment date for the distribution of the Rights as March 8, 2016, and the Rights were distributed to our shareholders of record on that date. The description and terms of the Rights are set forth in the Rights Agreement.

~~Rights Initially Not Exercisable.~~ The Rights are not exercisable until a Distribution Date. Until a Right is exercised, the holder thereof, as such, has no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends.

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Available Information

~~Separation~~

We are required to file annual, quarterly and ~~Distribution~~current reports, proxy statements and other information with the U.S. Securities and Exchange Commission. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of ~~Rights~~. The Rights are to be evidenced by the certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate rights certificates until the earlier to occur of (i) the close of business on the tenth business day following a public announcement that an Acquiring Person (as defined in the Rights Agreement) has acquired a Combined Ownership (as defined in the Rights Agreement) of 20% or more of the outstanding shares of the Common Stock (the "Shares Acquisition Date") or (ii) the later of (A) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the date that a tender or exchange offer or intention to commence a tender or exchange offer by any person is first published, announced, sent or given within the meaning of Rule 14d-4(A) under the Securities Exchange Act of 1934, are also available free of charge on our website at www.chembio.com as ~~amended,~~soon as reasonably practicable after such reports are electronically filed with or furnished to the ~~consummation~~SEC.

Investors should note that we currently announce material information to our investors and others using filings with the SEC, press releases, public conference calls, webcasts or our website (www.chembio.com), including news and announcements regarding our financial performance, key personnel, our brands and our business strategy. Information that we post on our corporate website could be deemed material to investors. We encourage investors to review the information we post on these channels. We may from time to time update the list of which would result in any person having Combined Ownership of 20% or more of the outstanding shares of the Common Stock, or (B) if such a tender or exchange offer has been published, announced, sent or given before the date of the Rights Agreement, then the close of business on the tenth business day after the date the Rights Agreement was entered into (or such later date as maychannels we will use to communicate information that could be ~~determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person); (the earlier of such dates referred to in (i)~~deemed material and ~~(ii), which date may include~~will post information about any such ~~date that~~change on www.chembio.com. The information on our website is ~~after~~not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the ~~date of the Rights Agreement but prior to the issuance of the Rights, being called the "Distribution Date").~~SEC.

~~Glossary~~

~~AIDS~~	~~Acquired Immunodeficiency Syndrome. AIDS is caused by the Human Immunodeficiency Virus, HIV.~~
~~ALGORITHM (parallel or serial)~~	For rapid HIV testing this refers both to method or protocol (in developing countries to date) 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. A parallel algorithm uses two screening tests from different manufacturers and a tie-breaker test only if there is a discrepancy between the screening tests results. A serial algorithm only uses a second confirmatory test if there is a positive result from the screening test, meaning that the number of confirmatory tests used is equal to the positivity rate in the testing venue. A tie-breaker test resolves discrepancies between the screen and the confirmatory test.
~~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.~~
~~ANVISA~~	~~The National Health Surveillance Agency of Brazil~~
~~ARVs~~	~~Anti-retroviral medications developed to fight AIDS~~
~~CDC~~	~~United States Centers for Disease Control and Prevention~~
~~CLIA waiver~~	~~Clinical Laboratory Improvement Act designation that allows simple tests to be performed in point-of-care settings such as doctor's offices, walk-in clinics and emergency rooms.~~
~~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.~~
~~FIOCRUZ~~	~~The Oswaldo Cruz Foundation of Brazil~~
~~FDA~~	~~United States Food and Drug Administration~~
~~IgG~~	IgG or Immunoglobulin G 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.
~~IgM~~	IgM or Immunoglobulin M 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.
~~NGO~~	~~Non-Governmental Organization~~
~~OTC~~	~~Over-the-Counter~~
~~PEPFAR~~	~~The President's Emergency Plan for AIDS Relief~~
~~PMA~~	Pre-Marketing Approval –FDA approval classification for a medical device that is not substantially equivalent to a legally marketed device or is otherwise required by statute to have an approved application. Rapid HIV tests must have an approved PMA application before marketing of such a product can begin.
~~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.~~
~~RETROVIRAL~~	~~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.~~
~~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.
~~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.~~
~~USDA~~	~~U.S Department of Agriculture~~
~~WHO~~	~~World Health Organization~~

17Corporate Information

Our principal executive offices are located at 555 Wireless Boulevard, Hauppauge, New York 11788. Our telephone number is (631) 924-1135. Our website address is www.chembio.com. The information contained in, or accessible through, our corporate website does not constitute part of this report.

ITEM 1A.

RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information provided in this Form 10-K ~~before purchasing~~in considering whether to make or continue to hold an investment in our Common Stock. The risks described below are those we currently believe may materially affect us. An investment in our Company involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment. Although we believe that these risks are the most important for you to consider, you should read this section in conjunction with our financial statements, the notes to those financial statements and our ~~management's~~management’s discussion and analysis of financial condition and results of operations included in our periodic reports and incorporated into this ~~prospectus supplement~~Form 10-K by reference.

Risks Related to Our Business

Important competitive factors for our products include price, quality, performance, ease of use, and customer service. A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented.

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More generally, the point-of-care diagnostics industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. As new technologies become introduced into the point-of-care diagnostic testing market, we may be required to commit considerable additional efforts, time and resources to enhance our current product portfolio or develop new products. We may not have the available time and resources to accomplish this, and many of our competitors have substantially greater financial and other resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, which would materially harm our operating results.

Although we own DPP patents, lateral flow technology is still a competitive platform to DPP, and lateral flow technology has a lower cost of manufacture than DPP products. Although the DPP platform has shown improved sensitivity as compared with conventional lateral flow platforms in a number of studies, several factors go into the development and performance attributes of products. Therefore the ability of our products to successfully compete will depend on several other factors, including our having a patented rapid test platform technology that differentiates DPP from lateral flow as well as from other diagnostic platform technologies.

There can be no assurance that our DPP patents or our products incorporating those patents will not be challenged at some time in the future.

Our Competitors may Develop and Commercialize More Effective or Successful Products, and Our Research, Development and Commercialization Efforts may not Succeed.

We regularly commit substantial resources to research and development and the commercialization of our new or enhanced products. The research and development process usually takes a long time from inception to commercial launch. During each stage of this process there is a substantial risk that we will not achieve our goals in a timely fashion, or at all, and we may have to abandon a new or enhanced product in which we have invested substantial time and money. We expect to continue to incur significant costs related to our research and development activities.

Our products require significant development and investment prior to commercialization, including testing to demonstrate the products’ performance capabilities, cost-effectiveness or other benefits. We must obtain regulatory approval before most products may be sold and additional development efforts on these products may be required before the products will be reviewed. However, regulatory authorities may not approve these products for commercial sale or may substantially delay or condition such approval. There may be little or no market for the product and entry into or development of new markets for our products may require an investment of substantial resources even if all applicable regulatory approvals are obtained. Furthermore, we may spend a significant amount of money on advertising or other activities and still fail to develop a market for the product. The success of our efforts may be affected by our ability to manufacture products in a cost-effective manner, whether we can obtain necessary intellectual property rights and protection and our ability to obtain reimbursement authorizations in the markets where the product will be sold. Therefore, if we fail to develop and gain commercial acceptance for our products, or if competitors develop more effective products or a greater number of successful new products, customers may decide not to purchase our products.

Our Products may not be Able to Compete with New Diagnostic Products or Existing Products Developed by Well-Established Competitors, which would Negatively Affect Our Business.

The diagnostic industry is focused on the testing of biological specimens in a laboratory or at the point-of-care and is highly competitive and rapidly changing. Important competitive factors for our products include price, quality, performance, ease of use, and customer service.

A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented.

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Some of our principal competitors may have considerably greater financial, technical and marketing resources than we do. Several companies produce diagnostic tests that compete directly with our testing product line, including Abbott (Alere), OraSure Technologies and Trinity Biotech. Some competitors offer broader product lines and may have greater name recognition than we have. These and other companies have or may have products incorporating molecular or other advanced technologies that over time could directly compete with our testing product line. We also face competition from certain of our distributors or former customers that have created or may decide to create, their own products to compete with ours.

As new products incorporating new technologies enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold. If our competitors’ products take market share from our products through more effective marketing or competitive pricing, our revenues, margins and operating results could be adversely affected. In addition, our revenues and operating results could be negatively impacted if some of our customers internally develop or acquire their own sample collection devices and use those devices in place of our products in order to reduce costs.

Our Future Revenues and Operating Results may be Negatively Affected by Ongoing Consolidation in the Healthcare Industry.

There has been a significant amount of consolidation in the healthcare industry. This consolidation has increased the competition to provide goods and services to customers. In addition, group purchasing organizations and integrated health delivery networks have served to concentrate purchasing decisions for some customers, which has also placed pricing pressure on medical device suppliers. Due to ongoing consolidation, there could be additional pressure on the prices of our products.

The Company may not successfully manage the transition associated with the appointment of a new chief executive officer, which could have an adverse impact on the Company.

On January 9, 2020, we announced that John J. Sperzel III had notified the board of directors of his resignation as our Chief Executive Officer and President and one of our directors. On the same day, we announced that we had appointed Gail S. Page, one of our directors, to serve as our Interim Chief Executive Officer. On March 12, 2020, we announced that we had appointed Richard Eberly as our Chief Executive Officer, effective as of March 16, 2020.

The effectiveness of our new Chief Executive Officer, and our senior leadership team generally, following these transitions and any further transition as a result of these changes, could have a significant impact on our results of operations. Management transition is often difficult and inherently causes some loss of institutional knowledge, which could negatively affect our results of operations and financial condition. Our ability to execute our business strategies may be adversely affected by the uncertainty associated with these transitions.

Our Continued Growth Depends on Retaining Our Current Key Employees and Attracting Additional Qualified Personnel, and We may not be Able to do so.

Our success depends to a large extent upon the skills and experience of our executive officers, sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees due to the intense competition for qualified personnel among medical products businesses and academic and other research institutions, as well as to geographic considerations, our ability to offer competitive compensation and benefits, and other reasons.

If we are not able to attract and retain the necessary qualified personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products to meet the demands of our customers and strategic partners in a timely fashion, or to support internal research and development programs.

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We have entered into employment contracts with our Interim Chief Executive Officer, Gail S. Page; our incoming Chief Executive Officer, Richard Eberly, our Chief Science & Technology Officer, Javan Esfandiari, and our Chief Financial Officer, Neil Goldman. Due to the specific knowledge and experience of these executives regarding the industry, technology and market generally and to our company specifically, the loss of the services of any one of these executives could have a material adverse effect on us. We have not obtained a key man insurance policy on any officer other than Mr. Esfandiari.

We may not generate the expected benefits of our acquisitions of opTricon GmbH or Orangelife Comercio e Industria Ltda. and the integration of the acquisitions could disrupt our ongoing business, distract our management and increase our expenses.

We acquired opTricon GmbH, or opTricon, and Orangelife Comercio e Industria Ltda., or Orangelife, in November 2018 and November 2019, respectively, with the expectation that the acquisition will result in various benefits, including securing global commercial rights and reducing cost of goods. Achieving the anticipated benefits of either acquisition is subject to a number of uncertainties, including whether our business and ~~strategy~~the businesses of opTricon or Orangelife can be integrated in an efficient and effective manner. We cannot assure you that we will be able to accurately forecast the performance or ultimate impact of either the opTricon acquisition or the Orangelife acquisition.

~~Because~~The integration processes may take longer than anticipated and result in the loss of valuable employees, the incurrence of additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the acquisitions. There may be increased risk due to integrating financial reporting and internal control systems. The integration processes are subject to a number of uncertainties, and no assurance can be given that the anticipated benefits, expense savings and synergies will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect our future business, financial condition, operating results and prospects.

We have incurred and will continue to incur non-recurring expenses in connection with the opTricon acquisition and the Orangelife acquisition, including legal, accounting and other expenses. Additional unanticipated costs may be incurred following consummation of the opTricon acquisition or the Orangelife acquisition in the course of the integration of the respective businesses into our business. We cannot be certain that the realization of efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all, or any losses from undiscovered liabilities not covered by an indemnification from the sellers of opTricon or Orangelife.

We may not Generate the Expected Benefits of Future Acquisitions or Investments, and they could Disrupt Our Ongoing Business, Distract Our Management, Increase Our Expenses and Negatively Affect Our Business.

As a way for us to grow our business, we may pursue strategic acquisitions or investments. These activities, and their impact on our business, are subject to many risks, including the following: (i) the benefits expected to be derived from an acquisition or investment may not materialize and could be affected by numerous factors, such as regulatory developments, insurance reimbursement, our inexperience with new businesses or markets, general economic conditions and increased competition; (ii) we may be unable to successfully integrate an acquired company’s personnel, assets, management, information technology systems, accounting policies and practices, products and/or technology into our business; (iii) we may not be able to accurately forecast the performance or ultimate impact of an acquired business; and (iv) an acquisition may result in the incurrence of unexpected expenses, stockholder lawsuits, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business.

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If these factors occur, we may be unable to achieve all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives.

Third-Party Reimbursement Policies and Potential Cost Constraints could Negatively Affect Our Business.

The list of our product end-users includes hospitals, physicians and other healthcare providers. If these end-users do not receive adequate reimbursement for the cost of our products from their patients’ healthcare insurers or payors, the use of our products could be negatively impacted. Furthermore, the net sales of our products could also be adversely affected by changes in reimbursement policies of government or private healthcare payors.

Hospitals, physicians and other healthcare providers who purchase diagnostic products in the United States generally rely on third-party payors, such as private health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the product. Due to the overall escalating cost of medical products and services, there is increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States, available levels of reimbursement may change for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or international markets, current reimbursement amounts may be decreased in the future and future legislation, and regulation or reimbursement policies of third-party payors, may reduce the demand for our products or our ability to sell our products on a profitable basis.

To the Extent that We are Unable to Collect Our Outstanding Accounts Receivable, Our Operating Results could be Materially Harmed.

There may be circumstances and timing that require us to accept payment terms, including delayed payment terms, from distributors or customers, which, if not satisfied, could cause financial losses.

We generally accept payment terms which require us to ship product before the contract price has been paid fully, and there also are circumstances pursuant to which we may accept further delayed payment terms pursuant to which we may continue to deliver product. To the extent that these circumstances result in significant accounts receivables and those accounts receivables are not paid on a timely basis, or are not paid at all, especially if concentrated in one or two customers, we could suffer financial losses.

Ongoing Changes in Healthcare Regulation could Negatively Affect Our Revenues, Business and Financial Condition.

There have been several proposed changes in the United States at the federal and state level for comprehensive reforms regarding the payment for, the availability of and reimbursement for healthcare services. These proposals have ranged from fundamentally changing federal and state healthcare reimbursement programs, including providing comprehensive healthcare coverage to the public under government-funded programs, to minor modifications to existing programs. One example is the Patient Protection and Affordable Care or the Affordable Care Act, the Federal healthcare reform law enacted in 2010.

Healthcare reform initiatives will continue to be proposed, and may reduce healthcare related funding in an effort. It is impossible to predict the ultimate content and timing of any healthcare reform legislation and its resulting impact on us. If significant reforms are made to the healthcare system in the United States, or in other jurisdictions, those reforms may increase our costs or otherwise negatively effect on our financial condition and results of operations.

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In April 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the European Union Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the European Economic Area, which we refer to as the EEA, member States, the regulations would be directly applicable, i.e., without the need for adoption of EEA member State laws implementing them, in all EEA member States and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation will, however, only become fully applicable three years after publication (in May 2020). Once applicable, the Medical Devices Regulation will, among other things:

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and

strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

Once applicable, the Medical Devices Regulation may impose increased compliance obligations for us to access the EU market.

We Believe Our Success Depends in Part on the Continued Funding of, and Our Ability to Participate in, Large Testing Programs in the U.S. and Worldwide, the Funding of which may be Reduced or Discontinued or Otherwise be Unavailable to Us.

We believe it to be in our best interests to meaningfully participate in large testing programs. Moreover many of these programs are funded by governments and other donors, and there can be no assurance that funding will not be reduced or completely discontinued. Participation in these programs also requires alignment and engagement with the many other participants in these programs, including WHO, CDC, the U.S. Agency for International Development, foreign governments and their agencies, non-governmental organizations, and HIV service organizations. If we are unsuccessful in our efforts to participate in these programs, our operating results could be materially harmed.

Developing Testing Guidelines could Negatively Affect Sales of Our Products.

Government agencies may issue diagnostic testing guidelines or recommendations, which can alter the usage of our HIV testing products. New laws or guidelines, or changes to existing laws or guidelines, and the manner in which these new or changed laws and guidelines are interpreted and applied, could impact the degree to which our testing products are used. These developments could affect the frequency of testing, the number of people tested and whether the testing products are used broadly for screening large populations or in a more limited capacity. These factors could in turn affect the level of sales of our products and our results of operations.

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Legislative and Other Regulatory Changes could have an Effect on Our Business.

The current U.S. Presidential Administration has promised to repeal and replace the Affordable Care Act, expressed concerns with respect to existing trade agreements, and has indicated a desire to make other regulatory changes during his administration. Changes in regulatory or economic conditions or in the laws and policies governing foreign trade, taxes, manufacturing, and development in the United States could impact our business. Economic and regulatory changes could also affect foreign currency exchange rates which, in turn, could affect our reported financial results and our competitiveness on a worldwide basis.

Developments Related to the U.K.’s Referendum On Membership in the E.U. Could Adversely Affect Us.

On June 23, 2016, the United Kingdom voted in favor of leaving the European Union, or E.U.. On January 24, 2020, the U.K. and the E.U. entered into a withdrawal agreement pursuant to which the U.K. formally left the E.U. on January 31, 2020, but will, for a transition period ending on December 31, 2020, maintain access to the E.U. single market and to the global trade deals negotiated by the E.U. on behalf of its members and remain subject to E.U. law. The ultimate impact of the “leave” vote will depend on the terms that are negotiated in relation to the U.K.’s future relationship with the E.U. “Brexit” could impair our ability to transact business in the U.K. and E.U. countries. Brexit has already and could continue to contribute to instability in the global financial markets. The long-term effects of Brexit will depend in part on any new trade agreements the U.K. makes to retain access to E.U. markets following the U.K.’s withdrawal transition period from the E.U. Negotiations of a trade agreement may be unsuccessful, and the U.K. may not reach agreement with the E.U. on the future terms of the U.K.’s relationship with the E.U.

Without an agreement, there will be a period of considerable uncertainty particularly in relation to the financial and banking markets and the regulation of our industry, including the regulatory approval process.

We expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replicate or replace. If the U.K. were to significantly alter its regulations affecting the pharmaceutical industry, we could face significant new costs relating to the development, manufacture, and marketing of our current and future products. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with any new regulations.

Among other outcomes, Brexit could disrupt the free movement of goods, services and people between the U.K. and the E.U., and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in the U.K. and the E.U. In addition, changes to U.K. immigration policy as a result of Brexit could adversely affect our ability to retain talent for our European operations. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory, and legal implications the final withdrawal of the U.K. from the E.U. would have and how such withdrawal would affect us. Any of these effects, and others we cannot anticipate, could negatively affect our business and financial condition.

We could be Exposed to Liability if We Experience Security Breaches or Other Disruptions, which could Harm Our Reputation and Business.

We may be subject to cyber-attacks whereby computer hackers may attempt to access our computer systems or our third party IT service provider’s systems and, if successful, misappropriate personal or confidential information. In addition, a contractor or other third party with whom we do business may attempt to circumvent our security measures or obtain such information, and may purposefully or inadvertently cause a breach involving sensitive information. We will continue to evaluate and implement additional protective measures to reduce the risk and detect cyber incidents, but cyber-attacks are becoming more sophisticated and frequent and the techniques used in such attacks change rapidly. Even though we take cyber-security measures that are continuously reviewed and updated, our information technology networks and infrastructure may still be vulnerable due to sophisticated attacks by hackers or breaches.

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Even the most well protected IT networks, systems, and facilities remain potentially vulnerable because the techniques used in security breaches are continually evolving and generally are not recognized until launched against a target and, in fact, may not be detected. Any such compromise of our or our third party’s IT service providers’ data security and access, public disclosure, or loss of personal or confidential business information, could result in legal claims proceedings, liability under laws to protect, privacy of personal information, and regulatory penalties, disrupt our operations, require significant management attention and resources to remedy any damages that result, damage our reputation and customers willingness to transact business with us, any of which could adversely affect our business.

Our Ability to Efficiently Operate Our Business is Reliant on Information Technology, and Any Material Failure, Inadequacy, Interruption or Security Breach of that Technology could Harm Our Business.

We rely heavily on complex information technology systems across our operations and on the internet, including for management of inventory, invoices, purchase orders, shipping, interactions with our third-party logistics provider, revenue and expense accounting, consumer call support, online business, and various other processes and transactions. Our ability to effectively manage our business, coordinate the production, distribution and sale of our products, respond to customer inquiries, and ensure the timely and accurate recording and disclosure of financial information depends significantly on the reliability and capacity of these systems and the internet.

If any of the foregoing systems fails to operate effectively, problems with transitioning to upgraded or replacement systems, or disruptions in the operation of the internet, could cause delays in product sales and reduced efficiency of our operations. Significant expenditures could be required to fix any such problem.

If there is an Increase in Demand for Our Products, it could Require Us to Expend Considerable Resources or Harm Our Customer Relationships if We are Unable to Meet that Demand.

If there are significant or unexpected increases in the demand for our products, we may not be able to meet that demand without expending additional capital resources. This would increase our capital costs, which could negatively affect our earnings in the short term. In addition, new manufacturing equipment or facilities may require FDA, WHO, and other regulatory approvals before they can be used to manufacture our products. To the extent we are unable to obtain or are delayed in obtaining such approvals, our ability to meet the demand for our products could be adversely affected. Furthermore, our suppliers may be unable or unwilling to expend the necessary capital resources or otherwise expand their capacity, which could negatively affect our business.

Our business could be negatively affected if we or our suppliers are unable to develop necessary manufacturing capabilities in a timely manner. If we fail to increase production volumes in a cost effective manner or if we experience lower than anticipated yields or production problems as a result of changes that we or our suppliers make in our manufacturing processes to meet increased demand, we could experience shipment delays or interruptions and increased manufacturing costs, which could also have a material adverse effect on our revenues and profitability.

If there are unexpected increases in demand for our products, we may be required to obtain additional raw materials in order to manufacture products to meet the increase in demand. However, some raw materials require significant ordering lead time and some are currently obtained from a sole supplier or a limited group of suppliers. It is also possible that one or more of our suppliers may become unwilling or unable to deliver materials to us. Any shortfall in our supply of raw materials and components, or our inability to quickly and cost-effectively obtain alternative sources for this supply, could have a material adverse effect on our ability to meet increased demand for our products. This could negatively affect our total revenues or cost of sales and related profits.

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If we are unable to meet customer demand for our products, it could also harm our relationships with our customers and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business.

Risks Related to Our Products

For Our Business to Succeed in the Future, Our Current and Future Products Must Receive Market Acceptance.

Market acceptance and the timing of such acceptance, of our new products or technologies is necessary for our future success. To achieve market acceptance, we and our distributors will likely be required to undertake substantial efforts and spend significant funds to inform every one of the existence and perceived benefits of our products. We also may require government funding for the purchase of our products to help create market acceptance and expand the use of our products.

It may be difficult evaluate the market reaction to our products and our marketing efforts for new products may not be successful. The government funding we receive may be limited for new products. As such, there can be no assurance that any products will obtain significant market acceptance and fill the market need that is perceived to exist on a timely basis, or at all.

We may not have Sufficient Resources to Effectively Introduce and Market Our Products, which could Materially Harm Our Operating Results.

Introducing and achieving market acceptance for our new products will require substantial marketing efforts and will require us and/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and distributors. If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed.

New Developments in Health Treatments and Non-Diagnostic Products may Reduce or Eliminate the Demand for Our Products.

The development and commercialization of products outside of the diagnostics industry could adversely affect sales of our products. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce or eventually eliminate the demand for our HIV or other diagnostic products and result in a loss of revenues.

Sales Cycles for Our Products can be Lengthy, which can Cause Variability and Unpredictability in Our Business.

Some of our products may require lengthy and unpredictable sales cycles, which makes it more difficult to accurately forecast revenues in a given period and may cause revenues and operating results to vary from period to period. Our products may involve sales to large public and private institutions which may require many levels of approval and may be dependent on economic or political conditions and the availability of grants or funding from government or public health agencies which can vary from period to period. There can be no assurance that purchases or funding from these agencies will occur or continue, especially if current negative economic conditions continue or intensify. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to complete transactions at all or on a schedule and in an amount consistent with our objectives.

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We May Face Product Liability Claims for Injuries.

The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We cannot be sure that we will not incur liabilities in excess of the policy limits of our existing product liability insurance coverage or that we will be able to continue to obtain adequate product liability insurance coverage in the future at an acceptable cost, or at all. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.

Our Customers may not Adopt Rapid Point-of-Care Diagnostic Testing.

Rapid point-of-care tests are beneficial because, among other things, they can be administered by healthcare providers in their own facilities or used by consumers at home without sending samples to central laboratories. But currently the majority of diagnostic tests used by physicians and other healthcare providers in the U.S. are provided by clinical reference laboratories and hospital-based laboratories. In some international markets, such as Europe, diagnostic testing is performed primarily by centralized laboratories. Future sales of our products will depend, in part, on our ability to expand market acceptance of rapid point-of-care testing and successfully compete against laboratory testing methods and products. However, we expect that clinical reference and other hospital-based laboratories will continue to compete vigorously against our rapid point-of-care products. Even if we can demonstrate that our products are more cost effective, save time, or have better performance or other benefits, physicians, other healthcare providers and consumers may resist changing to rapid point-of-care tests and instead may choose to obtain diagnostic results through laboratory tests. If we fail to achieve and expand market acceptance of our rapid point-of-care diagnostic tests with customers, it would have a negative effect on our future sales growth.

Customer Concentration Creates Risks for Our Business.

A significant portion of our revenues each year comes from a few large customers. To the extent that such a large customer fails to meet its purchase commitments, changes its ordering patterns or business strategy, or otherwise reduces its purchases or stops purchasing our products, or if we experience difficulty in meeting the demand by these customers for our products, our revenues and results of operations could be adversely affected.

If Our Products do not Perform Properly, It may Affect Our Revenues, Stock Price and Reputation.

Our products may not perform as expected. For example, a defect in one of our diagnostic products or a failure by a customer to follow proper testing procedures may cause the product to report inaccurate information. Identifying the root cause of a product performance or quality issue can be difficult and time consuming.

If our products do not to perform in accordance with the applicable label claims or otherwise in accordance with the expectations or needs of our customers, customers may switch to a competing product or otherwise stop using our products, and our revenues could be negatively affected. If this occurs, we may be required to implement holds or product recalls and incur warranty obligations. Furthermore, the poor performance by one or more of our products could have an adverse effect on our reputation, our continuing ability to sell products and the price of our Common Stock.

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If We Expand Our International Presence, It may Increase Our Risks and Expose Our Business to Regulatory, Cultural or Other Challenges.

We will continue to try to increase revenue derived from international sales of our products. There are several of factors that could adversely affect the performance of our business and/or cause us to incur substantially increased costs because of our international presence and sales, including: (i) uncertainty in the application of foreign laws and the interpretation of contracts with foreign parties; (ii) cultural and political differences that favor local competitors or make it difficult to effectively market, sell and gain acceptance of our products; (iii) exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on international distributors or representatives; (iv) trade protection measures, trade sanctions and import/export licensing requirements; (v) our inability to obtain or maintain ~~the necessary~~ regulatory approvals or registrations for our products; (vi) Economic conditions, political instability, the absence of available funding sources, terrorism, civil unrest, war and natural disasters in foreign countries; (vii) Reduced protection for, or enforcement of, our patents and other intellectual property rights in foreign countries; (viii) our inability to identify international distributors and negotiate acceptable terms for distribution agreements; and (ix) restrictions on our ability to repatriate investments and earnings from foreign operations.

Economic, cultural and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. Foreign currency fluctuations and economic conditions in foreign countries could also increase the costs of manufacturing our products in foreign countries.

Financial, Economic and Financing Risks

We have incurred losses in recent years and we are uncertain about our future profitability.

We incurred an operating loss every year from 2014 through 2019. Under our operating plans, we have made, and plan to continue to make, significant investments in our production capacity, including in expanding facilities and automating manufacturing, and in our sales and marketing, regulatory approval, and research and development activities. Our ability to achieve profitability and generate cash flow in the future will depend on our ability to increase sales of our existing products and to successfully introduce new and enhanced products into the marketplace, all while controlling and managing our expenses consistent with our operating plan.

If we are unable to increase our revenues and manage our expenses in accordance with our operating plan, our operating results would be harmed and we may not be able to generate the cash flow needed to fund the investments in our production capacity and other activities, we will be required to implement one or both of the following:

We could reduce the level, or otherwise delay the timing, of the anticipated investments in our production capacity and other activities, 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.

We could raise additional funds through public or private financings, strategic relationships, or other arrangements, to the extent funding would be available to us on acceptable terms or at all. If we succeed in raising additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. Furthermore, the holders of these new securities or debt may have rights, preferences and privileges senior to those of the holders of our Common Stock.

In such circumstances, we also would need to forego acquisition opportunities, which could impede our ability to grow our business.

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Our Financial Results may Fluctuate.

From quarter to quarter and year to year, our operating results can fluctuate, which could cause our growth or financial performance to fail to meet the expectations of investors and securities analysts. Sales to our distributors and other customers may not meet expectations because of lower than expected customer demand or other factors, including continued economic volatility and disruption, reduced governmental funding, and other circumstances described elsewhere in this report. A variety of factors could also contribute to the variability of our financial results, including infrequent, unusual or unexpected changes in revenues or costs.

Different products provide dissimilar contributions to our gross product margin. Accordingly, our operating results could also fluctuate and be negatively affected by the mix of products sold and the relative prices and gross product margin contribution of those products. Failure to achieve operating results consistent with the expectations of investors and securities analysts could adversely affect our reputation and the price of our Common Stock.

The failure to comply with the terms of our Credit Agreement and Guaranty could result in a default under its terms and, if uncured, could result in action against our pledged assets and dilution of our stockholders.

On September 3, 2019, we entered into a Credit Agreement and Guaranty, or Credit Agreement, with Perceptive Credit Holdings II, LP, or Perceptive. Under the Credit Agreement, we received a $20,000,000 senior secured term loan credit facility, which was drawn in full on September 4, 2019. In connection with the Credit Agreement, we issued a warrant to purchase up to 550,000 shares of our common stock. The credit agreement is secured by a first priority, perfected lien on substantially all of our property and assets, including our equity interests in our subsidiaries.

The Credit Agreement also contains covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. The Credit Agreement restricts our ability and the ability of our restricted subsidiaries to:

incur, assume or guarantee additional Indebtedness (as defined in the Credit Agreement);

repurchase capital stock;

make other restricted payments including, without limitation, paying dividends and making investments;

create liens;

sell or otherwise dispose of assets, including capital stock of subsidiaries;

enter into agreements that restrict dividends from subsidiaries;

enter into mergers or consolidations; and

enter into transactions with affiliates

In addition, the Credit Agreement also contain covenants requiring us and our subsidiaries to maintain cash and cash equivalents held in one or more accounts subject to the first priority perfected security interests of the lenders under the Credit Agreement of not less than $3,000,000. The Credit Agreement also provides for specified quarterly minimum consolidated net revenue covenants of us and our subsidiaries for the trailing twelve-month period ended on each such calculation date during the term of the Credit Agreement. A breach of any of these covenants would result in a default under the Credit Agreement. If an event of default under our Credit Agreements occurs, Perceptive could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we were unable to pay such amounts, Perceptive could proceed against the collateral pledged to them. We have pledged our inventory, accounts receivable, cash, securities, other general intangibles and the capital stock of certain subsidiaries to the lenders. In such an event, we cannot assure you that we would have sufficient assets to pay amounts due under the Credit Agreement.

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Servicing our debt will require a significant amount of cash. Our ability to generate sufficient cash to service our debt depends on many factors beyond our control.

Our ability to make payments on and to refinance our debt, to fund planned capital expenditures, and to maintain sufficient working capital depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or from other sources in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. In the year ended December 31, 2019, our operations used $9.1 million in cash. If our cash flow and capital resources are insufficient to allow us to make scheduled payments on our debt, we may need seek additional capital or restructure or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that, if needed, we would be able to refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that we will be able to obtain any financing when needed.

Our Operating Results may be Negatively Affected by Changes in Foreign Currency Exchange Rates.

In the past our exposure to foreign currency exchange rate risk has not been material. Nevertheless, sales of our products are subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. The fluctuations in the exchange rate could negatively impact international sales of our products, as could changes in the general economic conditions.

The revenues and expenses of Chembio Diagnostics Malaysia, opTricon and Orangelife, one of our subsidiaries, are recorded in Malaysian Ringgit, in Euros and Brazilian Real, respectively. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars for purposes of reporting our consolidated financial results. Our expectation is that the Chembio Diagnostics Malaysia, opTricon and Orangelife businesses will continue to grow and, consequently, our exposure to foreign currency exchange rates may grow as well.

Our foreign subsidiaries’ revenues and expenses and the translation of their financial results into U.S. dollars may be negatively affected by fluctuations in the exchange rate. Favorable movement in exchange rates have benefited us in prior periods. However, where there are unfavorable currency exchange rate fluctuations, our consolidated financial statements could be negatively affected. Furthermore, fluctuations in exchange rates could affect year-to-year comparability of operating results. In the past, we have not generally entered into hedging instruments to manage our currency exchange rate risk, but we may need to do so in the future. However, our attempts to hedge against these risks may not be successful. If we are unable to successfully hedge against unfavorable foreign currency exchange rate movements, our consolidated financial results may be adversely impacted.

We Operate in Countries where there is or may be Widespread Corruption.

We have a policy in place prohibiting our employees, distributors and agents from engaging in corrupt business practices, including activities prohibited by the U.S. Foreign Corrupt Practices Act. Nevertheless, because we work through independent sales agents and distributors outside the United States, we do not have control over the day-to-day activities of such independent agents and distributors. In addition, in the donor-funded markets in Africa where we sell our products, there is significant oversight from PEPFAR, the Global Fund, and advisory committees comprised of technical experts concerning the development and establishment of national testing protocols. This is a process that includes an overall assessment of a product which includes extensive product performance evaluations including five active collaborations and manufacturer’s quality systems, as well as price and delivery. In Brazil, where we operate our subsidiary Orangelife and have had numerous product collaborations with FIOCRUZ, the programs through which our products may be deployed are all funded by the Brazilian Ministry of Health. Although FIOCRUZ is affiliated with the Brazilian Ministry of Health, and is its sole customer, FIOCRUZ is not the exclusive supplier for the Ministry of Health. However, because each of our previous collaborations with FIOCRUZ incorporates a technology transfer aspect, we believe we have a competitive advantage versus other suppliers to the Brazilian Ministry of Health, assuming other aspects of our product offering through FIOCRUZ are otherwise competitive in comparison. We have no knowledge or reason to know of any activities by our employees, distributors or sales agents of any actions which could be in violation of the FCPA, although there can be no assurance of this.

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Our subsidiary Chembio Diagnostics Malaysia Sdn. Bhd. is located in Malaysia. There have been numerous high-profile corruption cases, and corruption is one of the most problematic factors for doing business in Malaysia. While the Malaysian government has acknowledged the problem, it appears that endemic corruption is continuing and that market-based principles are not applied in cases involving individuals with high-level political access. To the extent bribery and similar practices continue to exist in Malaysia, U.S. companies such as ours, which are subject to U.S. laws making it illegal to pay bribes to foreign officials, may make us less competitive in winning business in Malaysia when competing with non-U.S. companies.

Changes in Interpretation or Application of U.S. Generally Accepted Accounting Principles may Adversely Affect Our Operating Results.

We prepare our financial statements to conform to U.S. generally accepted accounting principles. These principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the Securities and Exchange Commission and various other regulatory or accounting bodies. A change in interpretations of, or our application of, these principles can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Additionally, as we are required to adopt new accounting standards, our methods of accounting for certain items may change, which could cause our results of operations to fluctuate from period to period. For example, upon adoption of Accounting Standards Codification (“ASC”) 606 Revenue from Contracts with Customers of the Financial Accounting Standards Board (“FASB”), we now recognize revenue upon transfer of control, which is generally at time of delivery. Under the previous accounting guidance, we recognized revenue upon acceptance when and if we had production responsibilities. If circumstances change over time or interpretation of the revenue recognition rules change, we could be required to adjust the timing of recognizing revenue and our financial results could suffer.

We Base Our Estimates or Judgments Relating to Critical Accounting Policies on Assumptions that can Change or Prove to be Incorrect.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States and our discussion and analysis of financial condition and results of operations is based on such statements. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We continuously evaluate significant estimates used in preparing our financial statements, including those related to (i) revenue recognition; (ii) stock-based compensation; (iii) allowance for uncollectible accounts receivable; (iv) inventory reserves and obsolescence; (v) customer sales returns and allowances; (vi) contingencies; and (vii) income taxes, (viii) goodwill and intangibles, (ix) business acquisition, and (x) research and development costs.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable, as set forth in our discussion and analysis of financial condition and results of operations, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these and other estimates if our assumptions change or if actual circumstances differ from those in our assumptions. If our operating results fall below the expectations of securities analysts and investors, the price of our Common Stock may decline.

Our Global Operations may be Adversely Effected by the Coronavirus Outbreak and Face Risks that could Impact our Business.

A novel strain of coronavirus, COVID-19, originated in Wuhan, China, in December 2019. As of March 2020, the virus has spread globally, including to the United States, Malaysia, Germany and Brazil. Our business operations in those locations are subject to potential business interruptions arising from protective measures that may be taken by the respective governments, agencies or other governing bodies in each country. Business disruptions in other countries also could negatively affect the sources and availability of components and materials that are essential to the operation of our business. Extended periods of interruption to our U.S. or international operations due to the coronavirus outbreak could adversely impact the growth of our business, could cause us to cease or delay operations, and could prevent our customers from receiving shipments or processing payments.

The extent to which the coronavirus impacts our global business, sales and results of operations will depend on future developments, which are highly uncertain and cannot be predicted. This includes new information that may emerge concerning the severity of the coronavirus, the spread and proliferation of the coronavirus around the world, and the actions taken to contain the coronavirus or treat its impact, among others.

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Our Business may be Negatively Affected by Terrorist Attacks or Natural Disasters.

Terrorist attacks or natural disasters could cause economic instability. These events could negatively affect economic conditions both within and outside the United States and harm demand for our products. The operations of our customers and suppliers could be negatively impacted and eliminate, reduce or delay our customers’ ability to purchase and use our products and our suppliers’ ability to provide raw materials and finished products.

Our facilities, including some pieces of manufacturing equipment and our computer systems, may be difficult to replace. Various types of disasters, including fires, earthquakes, floods and acts of terrorism, may affect our facilities and computer systems. In the event our existing facilities or computer systems are affected by man-made or natural disasters, we may have difficulty operating our business and may be unable to manufacture products for sale or meet customer demands or sales projections. If our manufacturing operations were curtailed or shut down entirely, it would seriously harm our business.

Risks Related to Intellectual Property

Our Success Depends on Our Ability to Protect Our Proprietary Technology. We Rely on Trade Secret Laws and Agreements with Our Key Employees and Other Third Parties to Protect Our Proprietary Rights, and We cannot be sure that these Laws or Agreements will Adequately Protect Our Rights.

Our industry places considerable importance on obtaining patent, trademark and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtain licenses to patents and technologies, both in the United States and in other countries. If we cannot continue to develop, obtain and protect intellectual property rights, our revenues and gross profits could be adversely affected. Moreover, our current and future licenses or other rights to patents and other technologies may not be adequate for the operation of our business.

As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products and apparatuses relating to the use or manufacture of those products. However, there have been changes to the patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office, which may impact our ability to protect our technology and enforce our intellectual property rights. For example, in 2011, the U.S. enacted sweeping changes to the U.S. patent system under the Leahy-Smith America Invents Act, including changes that would transition the U.S. from a “first-to-invent” system to a “first-to-file” system and alter the processes for challenging issued patents. These changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

We believe that factors such as the technological and creative skills of our personnel, strategic relationships, new product developments, frequent product enhancements and name recognition are essential to our success. All our management personnel are bound by non-disclosure agreements. If personnel leave our employment, in some cases we would be required to protect our intellectual property rights pursuant to common law theories which may be less protective than provisions of employment, non-competition or non-disclosure agreements.

We seek to protect our proprietary products under trade secret and copyright laws, enter into license agreements for various materials and methods employed in our products, and enter into strategic relationships for distribution of the products. These strategies afford only limited protection. We currently have some foreign patents issued, and we are seeking additional patent protection in several other foreign jurisdictions for our DPP and optical technology. We have licenses to reagents (antigens and peptides) used in several of our products and products under development. Despite our efforts to protect our proprietary assets, and respect the intellectual property rights of others, we participate in several markets where intellectual property rights protections are of little or no value. This can place our products and our company at a competitive disadvantage.

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Moreover, issued patents remain in effect for a fixed period and after expiration will not provide protection of the inventions they cover. Once our patents expire, we may be faced with increased competition, which could reduce our revenues. We may also not be able to successfully protect our rights to unpatented trade secrets and know-how.

To facilitate development and commercialization of a proprietary technology base, we may need to obtain additional licenses to patents or other proprietary rights from other parties. Obtaining and maintaining these licenses, which may not be available, may require the payment of up-front fees and royalties. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded.

Any Future Intellectual Property Disputes could Require Significant Resource and Limit or Eliminate Our Ability to Sell Products or Use Certain Technologies.

We may be required to expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits related to intellectual property rights. We may seek to enforce our patents or other intellectual property rights through litigation. Such litigation is prevalent and is expected to continue. In our business, there are a large number of patents and patent applications similar to our products, and additional patents may be issued to third parties relating to our product areas. We, our customers or our suppliers may be sued for infringement of patents or misappropriation of other intellectual property rights with respect to one or more of our products. We may also have disputes with parties that license patents to us if we believe the license is no longer needed for our products or the licensed patents are no longer valid or enforceable.

There are a large number of patents in our industry, and the claims of these patents appear to overlap in many cases. Therefore there is a significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have pending patent applications, which are typically confidential for the first eighteen months following filing that cover technologies we incorporate in our products. Accordingly, we may be subjected to substantial damages for past infringement or be required to modify our products or stop selling them if it is ultimately determined that our products infringe a third party’s proprietary rights. In addition, governmental agencies could commence investigations or criminal proceedings against our employees or us relating to claims of misuse or misappropriation of another party’s proprietary rights.

If we are involved in litigation or other legal proceedings with respect to patents or other intellectual property and proprietary technology, it could adversely affect our revenues, results of operations, market share and business because (1) it could consume a substantial portion of managerial and financial resources; (2) its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are valid and infringed by our products; (3) the pendency of any litigation may in and of itself cause our distributors and customers to reduce or terminate purchases of our products; (4) a court could award a preliminary and/or permanent injunction, which would prevent us from selling our current or future products; and (5) an adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, reimbursement of litigation costs and legal fees, special and punitive damages, or future royalty payments, any of which could significantly affect our future earnings.

Under certain contracts with third parties, we may indemnify the other party if our products or activities have actually or allegedly infringed upon, misappropriated or misused another party’s proprietary rights. Furthermore, our products may contain technology provided to us by third parties, and we may be unable to determine in advance whether such technology infringes the intellectual property rights of a third party. These other parties may also not be required or financially able to indemnify us in the event that an infringement or misappropriation claim is asserted against us.

There may also be other types of disputes that we become involved in regarding intellectual property rights, including state, federal or foreign court litigation, and patent interference, patent reissue, patent reexamination, or trademark opposition proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office as well. These proceedings permit certain persons to challenge the validity of a patent on the grounds that it was known from the prior art. The filing of such proceedings, or the issuance of an adverse decision in such proceedings, could result in the loss of valuable patent rights that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

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Risks Related to Our Third Party Collaborators

Our Use of Third-Party Suppliers, some of which may Constitute Our Sole Supply Source, for Certain Important Product Components and Materials Presents Risks that Could Have Negative Consequences for Our Business.

We purchase certain HIV antigens, a syphilis antigen, the nitrocellulose, and certain other critical components used in our STAT-PAK, STAT-VIEW, SURE CHECK and DPP product lines from a sole or limited number of sources. If for any reason these suppliers become unwilling or unable to supply our antigen, nitrocellulose, or other critical component needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in any of the antigens, nitrocellulose or other critical components used in our products would require additional development work and approval by the FDA and other regulatory agencies. In addition, it may be difficult to find such an alternate supply source in a reasonable time period or on commercially reasonable terms, if at all. As a result, the termination or limitation of our relationship with one or more of these suppliers could require significant time to complete, increase our costs, and disrupt or discontinue our ability to manufacture and sell the affected products.

With some of these suppliers, we do not have long-term agreements and instead purchase components and materials through a purchase order process. As a result, these suppliers may stop supplying us components and materials, limit the allocation of supply and equipment to us due to increased industry demand, or significantly increase their prices at any time with little or no advance notice. Our reliance on a limited number of suppliers could also result in delivery problems, reduced control over product pricing and quality, and our inability to identify and qualify another supplier in a timely manner.

Moreover, some of these suppliers may experience financial difficulties that could prevent them from supplying us with components or subassemblies used in the design and manufacture of our products. In addition, these suppliers may experience manufacturing delays or shut downs due to circumstances beyond their control, such as labor issues, political unrest or natural disasters.

Any supply deficiencies could materially and adversely affect our ability to fulfill customer orders and our results of operations. The availability of critical components and materials from sole- or limited source suppliers could reduce our control over pricing, quality and timely delivery, increase our costs, could disrupt our ability to manufacture and sell, and preclude us from manufacturing and selling, certain of our products into one or more markets. Any such event could have a material adverse effect on our results of operations, cash flow and business.

We May Work with Strategic Collaborators to Assist in Developing and Commercializing Our Products, which could Limit Rights We Receive from the Collaborations and Exposes Us to Other Risks Outside Our Control.

Some business opportunities that require a technology controlled by a third party, a significant level of investment for development and commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic collaborators. As part of our strategy for development and commercialization of our products, we may enter into arrangements with distributors or other third-parties. Relying on such collaborative relationships could be risky to our business for a number of reasons, including: (i) we may be required to transfer material rights to such strategic collaborators, licensees and others; (ii) our collaborators may not ~~generate revenues in the amounts we expect, or in the amounts~~obtain regulatory approvals necessary to continue the collaborations in a timely manner; (iii) our ~~business.~~collaborators may decide to terminate our collaborative arrangement or become insolvent; (iv) our collaborators may develop technologies or components competitive with our products; (v) disagreements with collaborators could result in the termination of the relationship or litigation; and (vi) we may not be able to agree to future collaborative arrangements, or renewals of existing collaborative agreements, on acceptable terms or at all.

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We expect our collaborators will have an economic motivation to succeed in performing their contractual responsibilities under our agreements, there is no assurance that they will do so. Due to our reliance on strategic agreements, it can make it difficult to accurately forecast our future revenues and operating results.

Our Ability to Grow Our Business will be Limited if We Fail to Maintain Existing Distribution Channels or Develop New Distribution Channels.

We collaborate with laboratories, diagnostic companies and distributors in order to sell our products. The sale of our products depends in large part on our ability to sell products to these customers and on the marketing and distribution abilities of the companies with which we collaborate and work with.

By relying on distributors or third-parties to market and sell our products could negatively impact our business for various reasons, including: (i) we may not be able to find suitable distributors for our products on satisfactory terms, or at all; (ii) agreements with distributors may prematurely terminate or may result in litigation between the parties; (iii) our distributors or other customers may not fulfill their contractual obligations and distribute our products in the manner or at the levels we expect; (iv) our distributors may prioritize their own private label products that compete with our products; (v) Our existing ~~products~~distributor relationships or contracts may preclude or limit us from entering into arrangements with other distributors; and (vi) we may not be able to negotiate new or renew existing distribution agreements on acceptable terms, or at all.

We will try to maintain and expand our business with distributors and customers and make every effort to require that they fulfill their contractual obligations, but there can be no assurance that such companies will do so or that new distribution channels will be available on satisfactory terms. If we are unable to do so, our business will be negatively impacted.

Our U.S. Government Contracts Require Compliance with Numerous Laws and Increases Our Risk and Liability.

We are currently receiving funding from the U.S. government related to DPP Zika, and our growth strategy targets sales to U.S. government entities. As a result of our U.S. government funding and potential product sales to the U.S. government, we must comply with laws and regulations relating to the award, administration and performance of U.S. government contracts. U.S. government contracts typically contain a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to us as compared to competitors that do not rely on government contracts. As a U.S. government contractor, we are subject to increased risks of investigation, criminal prosecution and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact our business and have an adverse effect on our consolidated financial performance.

A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts, as well as suspension or debarment. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to our ~~manufacturing facility must meet quality standards~~entire enterprise in certain severe circumstances. Even a narrow scope suspension or debarment could result in negative publicity that could adversely affect our ability to renew contracts and to secure new contracts, both with the U.S. government and private customers, which could materially and adversely affect our business and results of operations. Fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow rules relating to billing on cost-plus contracts, receiving or paying kickbacks, or filing false claims, among other potential violations. In addition, we could suffer serious reputational harm and the value of our Common Stock could be negatively affected if allegations of impropriety related to such contracts are made against us.

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Our U.S. Government Contracts are Subject to Future Funding and the Government’s Choice to Exercise Options, and may be Terminated at the Government’s Convenience.

Our contracts with the U.S. government are subject to future funding and are subject to ~~inspection~~the right of the government to terminate the contracts in whole or in part for its convenience. There is pressure for the U.S. government to reduce spending. The non-appropriation of funds or the termination for the government’s convenience of our contracts could negatively affect our financial results. If levels of U.S. government expenditures and authorizations for emerging diseases decrease or shift to programs in areas where we do not offer products or are not developing product candidates, or if the U.S. government otherwise declines to exercise its options under its contracts with us, our business, revenues and other operating results would suffer.

Risks Related to Regulations

Because We may not be Able to Obtain or Maintain the Necessary Regulatory Approvals for Some of Our Products, We may not Generate Revenues in the Amounts We Expect, or in the Amounts Necessary to Continue Our Business. Our Existing Products as well as Our Manufacturing Facility Must Meet Quality Standards and are Subject to Inspection by a ~~number~~Number of ~~domestic regulatory~~Domestic Regulatory and ~~other governmental~~Other Governmental and ~~non-governmental agencies.~~Non-Governmental Agencies.

All of our proposed and existing products are subject to regulation in the U.S. by the U.S. Food and Drug Administration, the U.S. Department of Agriculture and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. The process of obtaining required approvals or clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy and detailed laboratory testing, human or animal clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval or clearance for that product. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance, even though a product has been approved in another country.

The time taken to obtain approval or clearance varies depending on the nature of the application and may result in the passage of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling the subject products, and we may determine to devote our resources to different products.

Changes in government regulations could increase our costs and could require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all.

Changes in government regulations may adversely affect our financial condition and results of operations because we may have to incur additional expenses if we are required to change or implement new testing, manufacturing and control procedures. If we are required to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development, marketing, or other activities that are critical to our business.

We can manufacture and sell our products only if we comply with regulations and quality standards established by government agencies such as the FDA and the ~~USDA~~U.S. Department of Agriculture as well as by non-governmental organizations such as the ISO and WHO. We have implemented a quality control system that is intended to comply with applicable regulations. Although FDA approval is not required for the export of our products, there are export regulations promulgated by the FDA that specifically relate to the export of our products that require compliance with FDA ~~quality system regulation ("QSRs")~~QSRs and that also require meeting certain documentary requirements regarding the approval of the product in export markets. ~~Although we believe that we meet~~

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If We do not Comply with FDA or Other Regulatory Requirements, We may be Required to Suspend Production or Sale of Our Products or Institute a Recall, which could Result in Higher Costs and a Loss of Revenues.

Regulations of the FDA and other federal, state and foreign regulatory ~~standards required for the export~~agencies have significant effects on many aspects of our ~~products, these regulations could change in a manner that could adversely impact our ability to export our products.~~

~~Our products may not be able to compete with new diagnostic products or existing products developed by well-established competitors, which would negatively affect our business.~~

~~The diagnostic industry is focused on~~operations, and the ~~testing of biological specimens in a laboratory or at the point-of-care and is highly competitive and rapidly changing. Some~~operations of our ~~principal competitors may have considerably greater financial, technical~~suppliers and ~~marketing resources than we do. Several companies produce diagnostic tests that compete directly~~distributors, including packaging, labeling, manufacturing, adverse event reporting, recalls, distribution, storage, advertising, promotion and record keeping. We are subject to routine inspection by the FDA and other agencies to determine compliance with ~~our testing product line,~~QSRs and FDA regulatory requirements in the United States and other applicable regulations worldwide, including but not limited to OraSure Technologies, Alere and Trinity Biotech. Furthermore these and/or other companies have or may have products incorporating molecular and/or other advanced technologies that over time could directly compete with our testing product line. As new products incorporating new technologies enter the market, our products may become obsolete or a competitor's products may be more effective or more effectively marketed and sold.

~~There are competing products that could significantly reduce our U.S. sales of rapid HIV tests.~~

In 2006 Alere, Inc. acquired a division from Abbott Diagnostic located in Japan that manufactured and marketed a rapid HIV test product line called Determine®. The Determine® format was developed for the developing world and remote settings and, central to the needs of that market. The format is essentially a test strip that is integrated into a thin foil wrapper. When opened, the underside of the wrapper serves as the test surface for applying the blood sample and performing the test. This design reduces costs and shipping weights and volumes and provides an advantage for the developing world markets it serves. Some of the disadvantages of the platform are the amount of blood sample that is needed (50 microliters versus 2.5, 5 and 10 for our lateral flow barrel, lateral flow cassette, and DPP® products respectively), the open nature of the test surface, and the absence of a true control that differentiates biological from other kinds of samples.

The so-called "3rd generation" version of this product has been marketed for many years and is the leading rapid HIV test that is used in a large majority of the national algorithms of countries funded by PEPFAR and the Global Fund, as well as many other countries in the world. That product is not FDA-approved though it is CE marked. The newest Determine® HIV version, which was developed and manufactured by Alere's subsidiary in Israel, Orgenics, is the so-called "4th Generation" version Determine® test. According to its claims, this product detects HIV antibodies and P24 HIV antigens. Because the P24 antigen is known to occur in HIV-positive individuals' blood samples before antibodies do, the 4th generation Determine® test is designed to detect HIV infection earlier than tests that solely rely on antibody detection. Chembio's tests, as well as all of the other currently FDA-approved rapid HIV tests, only detect antibodies. There are however laboratory tests that are FDA-approved that are "4th generation" tests, but they are neither rapid nor point-of-care.

The initial "4th generation" Alere Determine® rapid test product that was also CE marked and that Alere launched internationally some years ago has not been successfully commercialized to the best of our knowledge and at least certain published studies were not favorable for this product. The 4th generation product that is now FDA-approved was apparently modified as compared to the initial international version, and it may perform more satisfactorily. Alere received FDA approval of this modified product in August 2013 and CLIA waiver for it in December 2014. Alere is also aggressively pursuing development of the market for this product. Moreover there is support by a number of key opinion leaders for the public health value of such 4th generation tests, and this product represents a significant competitive threat to Chembio as well as to each of the other rapid HIV test manufacturers (OraSure and Trinity primarily).

During 2011, Biolytical, Inc. of Vancouver, Canada received FDA approval and in 2012 received CLIA waiver of a flow-through rapid HIV test called "INSTI". The flow-through technology used in the INSTI test is older than lateral flow, and requires handling of multiple components (3 vials of solution) to perform the test in multiple steps. However, these steps can be accomplished in less than ten minutes, and the actual test results occur in only one minute after those steps are completed. Therefore sample-to-result time is shorter than any of the competitive products. The product also has good performance claims. There are settings where that reduced total test time, despite the multiple steps required, may be a distinct advantage, and we believe Biolytical has made some progress in penetrating certain public health markets.

Therefore, even though our lateral flow products currently enjoy a substantial market share in the U.S. rapid HIV test market, and we have an additional rapid HIV test, the DPP® HIV 1/2 Assay, there a number of risks and uncertainties concerning current and anticipated developments in this market. Although we have no specific knowledge of any other new product that is a significant competitive threat to our products, or that will render our products obsolete, if we fail to maintain and enhance our competitive position or fail to introduce new products and product features, our customers may decide to use products developed by our competitors, which could result in a loss of revenues and cash flow.

Although we own our DPP® patent, lateral flow technology is still a competitive platform to DPP®, and lateral flow technology has a lower cost of manufacture than DPP® products. Although the DPP® platform has shown improved sensitivity as compared with conventional lateral flow platforms in a number of studies, several factors go into the development and performance attributes of products. Therefore the ability of our products to successfully compete will depend on several other factors, including but not limited to our having a patented rapid test platform technology that differentiates DPP® from lateral flow as well as from other diagnostic platform technologies.

ISO standards. We believe that our ~~DPP®~~facilities and procedures are in material compliance with the FDA requirements and ISO standards, but the regulations may be unclear and are subject to change, and we cannot be sure that the FDA or other regulators will agree with our compliance with these requirements. The FDA and foreign regulatory agencies may require post-marketing testing and surveillance to monitor the performance of approved or cleared products or impose conditions on any product clearances or approvals that could restrict the distribution or commercial applications of those products. Regulatory agencies may impose restrictions on our or our distributors’ advertising and promotional activities or preclude these activities altogether if a noncompliance is ~~outside~~believed to exist. In addition, the subsequent discovery of previously unknown problems with a product may result in restrictions on the product or additional regulatory actions, including withdrawal of the ~~scope of currently issued patents in~~product from the field of lateral flow technology, thereby offering the possibility of greater freedom to operate. However there can be no assurance that our patents or our products incorporating the patent claims will not be challenged at some time in the future.market.

Our inability to comply with the applicable requirements of the FDA can result in, among other things, 483 notices, warning letters, administrative or judicially imposed sanctions such as injunctions, recall or seizure of products, civil penalties, withdrawal of product registrations, total or partial suspension of production, refusal to grant premarket clearance for devices, a determination that a device is not approvable, marketing clearances or approvals, or criminal prosecution. For example, in February 2020, we received a “not approvable” letter from the U.S. Food and Drug Administration with respect to our premarket approval submission on our DPP HIV-Syphilis multiplex test for commercial use in the United States. The ability of ~~third-party~~our suppliers ~~some~~to supply critical components or materials and of ~~which may constitute~~ our ~~sole supply source, for certain important product components presents a risk that~~distributors to sell our products could ~~have negative consequences for~~also be adversely affected if their operations are determined to be out of compliance. Such actions by the FDA and other ~~business.~~regulatory bodies could adversely affect our revenues, costs and results of operations.

~~A number~~We must frequently make judgment decisions with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with how we have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our ~~components~~products. Our reputation could be substantially impaired if we are assessed any civil and ~~critical raw materials are provided by third-party suppliers, some of which may be sole-source suppliers, which impacts~~criminal penalties and limit our ability to manufacture or sell certain products if our suppliers cannot or will not deliver those materials in a timely fashion, or at all, due to an interruption in their supply, quality or technical issues, or any other reason. If this occurs, we could incur substantial expense and time to be able to reestablish the appropriate quality, cost, regulatory and market-acceptance circumstances needed for commercial success. Even with the needed expense and time, we may not be able to reestablish any or all of these factors. The absence of any one or more of these factors could prevent us from being able to commercially produce and market the affected product or products.

~~New developments in health treatments or new non-diagnostic products may reduce or eliminate the demand for our products.~~

~~We may not have sufficient resources to effectively introduce~~ and market our products which could ~~materially harm~~have a material adverse effect on our ~~operating results.~~

Introducing and achieving market acceptance for our rapid HIV tests and other new products will require substantial marketing efforts and will require us and/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors. If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed.

The success of our business depends on, in addition to the market success of our products, our ability to raise additional capital through the sale of debt or equity or through borrowing, and we may not be able to raise capital or borrow funds on attractive terms and/or in amounts necessary to continue our business, or at all.

We were profitable for five consecutive years through 2013. Nevertheless, prior to 2009 we sustained significant operating losses since 2004, and we incurred an operating loss for 2014, 2015 and 2016. We estimate that our resources are sufficient to fund our needs through the end of 2017 and beyond. We have already made, and may continue to make, significant financial commitments to invest in our sales and marketing organization, regulatory approvals, research and development including new technologies, and production capacity, including expanded facilities.business.

Our ~~liquidity and cash requirements will depend on several factors. These factors include, among others, (1) the level of revenues; (2) the extent~~Inability to ~~which, if any, that revenue level improves operating cash flows; (3) our investments~~Respond to Changes in research and development, facilities, marketing, regulatory approvals, and other investments we may determine to make; and (4) our investment in capital equipment and the extent to which it improves cash flow through operating efficiencies. There are no assurances that we will generate positive cash flow for 2017 or, in the alternative, be successful in raising sufficient capital to fund our needs after 2017.

Regulatory Requirements could Adversely Affect Our U.S. market sales are difficult to predict in 2017 given (i) our early June 2014 termination of the agreement with a third party for exclusive distribution of our cassette product in the U.S; and (ii) the May 31, 2016 termination of the agreement with a third party for exclusive distribution of our barrel product in the U.S. As a result of these terminations, we expect to continue to experience higher average revenue per unit, and a lower volume of U.S. sales, of the cassette and barrel products. Higher revenue per unit is anticipated because we previously sold these products to the exclusive U.S. distributor at a significantly lower price than the price at which the distributor resold these products to customers (including re-sellers and distributors) in the United States. However at this point with respect to the barrel product, this can occur only after any inventory that the exclusive U.S. distributor has accumulated is consumed, which may take several months. In addition, in marketing these products directly, we are incurring substantial costs associated with developing our sales and marketing organization and channel distribution partners.

Business.

We believe that ~~underlying demand~~our products and procedures are in material compliance with all applicable FDA regulations, ISO requirements, and other applicable regulatory requirements, but the regulations regarding the manufacture and sale of our products, the QSR and ISO requirements, and other requirements may be unclear and are subject to change. Newly promulgated regulations could require changes to our products, necessitate additional clinical trials or procedures, or make it impractical or impossible for ~~HIV rapid testing~~us to market our products for certain uses, in certain markets, or at all. The FDA and other regulatory authorities also have the ~~United States remains strong, and that~~ability to change the ~~restoration of some~~requirements for obtaining product approval and/or impose new or additional requirements as part of the ~~funding cutbacks from sequestration~~approval process. These changes or new or additional requirements may occur after the completion of substantial clinical work and ~~the~~other costly development activities. The implementation of ~~the Affordable Care Act~~such changes or new or additional requirements may result in additional clinical trials and ~~of the United States Preventive Services Task Force recommendations will have a positive impact on the development of the market. On the other hand,~~substantial additional costs and could delay or make it ~~is possible that changes~~more difficult or complicated to ~~healthcare law in 2017~~obtain approvals and ~~thereafter could change this and/or have a negative impact on the market for~~sell our products. ~~Further,~~In addition, the FDA may revoke an Emergency Use Authorization under which our products are ~~well established~~sold, where it is determined that the underlying health emergency no longer exists or warrants such authorization. Such revocation would preclude the sale of our affected products unless and ~~relied upon~~until a further regulatory approval or authorization is obtained. We cannot predict the effect, if any, that these changes might have on our business, financial condition or results of operations.

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Demand for Our Products may be Affected by FDA Regulation of Laboratory-Developed Tests and Genetic Testing.

Regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories is covered by the FDA. The FDA has previously taken the position that it has regulatory authority over laboratory-developed tests, or LDTs, but has exercised enforcement discretion by not regulating most LDTs performed by high complexity CLIA-certified laboratories. LDTs are tests designed, developed, and performed in-house by a ~~large installed base of customers over many years of use in~~laboratory. These laboratories are subject to CLIA regulation but such laboratories have previously not been subject to regulation by FDA under the ~~U.S. global market,~~agency’s medical device requirements.

However, the FDA has announced that it would begin regulating LDTs, and ~~we believe this is a strong advantage. We also believe that our DPP® HIV 1/2 Assay for which CLIA waiver was obtained~~ in October 2014 the FDA issued proposed guidance on the regulation of LDTs for ~~use~~public comment. But, on November 18, 2016, the FDA announced that it would not finalize the proposed guidance prior to the end of the Obama administration. On January 13, 2017, the FDA released a discussion paper synthesizing public comments on the 2014 draft guidance documents and outlining a possible approach to regulation of LDTs. The discussion paper has no legal status and does not represent a final version of the LDT draft guidance documents. We cannot predict what policies the Trump administration will adopt with ~~oral fluid~~respect to LDTs. If the FDA increases regulation of LDTs, it could make it more difficult for laboratories and other customers to continue offering LDTs that involve genetic or ~~bloods samples will be able~~molecular testing. This, in turn, could reduce demand for our products and adversely impact our revenues.

In Addition to ~~serve new customers that were~~FDA Requirements, We Are Subject to Several Government Regulations, Compliance with which could Increase Our Costs and Affect Our Operations.

In addition to the FDA regulations previously ~~unavailable~~described, laws and regulations in some states may restrict our ability to ~~us with our lateral flow blood tests. However, development of new customers with this product is costly and time-consuming.~~sell products in those states.

We ~~are attempting~~must comply with numerous laws related to ~~increase international sales~~safe working conditions, environmental protection, disposal of hazardous substances, fire hazard control, manufacturing practices and labor or employment practices. Compliance with these laws or any new or changed laws regulating our ~~products,~~business could result in substantial costs. Due to the number of laws and ~~we have invested in additional resources in connection with this effort; but as we have experienced,~~regulations governing our industry, and the ~~nature~~actions of ~~international business is such that it can be volatile from period to period, depending on ordering patterns of donor-funded programs.~~

~~Furthermore,~~ a number of factors can slow or prevent international sales increases or cause international sales decreases, or substantially increase the cost of achieving sales assuming they are achieved. These factors include:

~~economic conditions and the absence of or reduction in available funding sources;~~

~~regulatory requirements and customs regulations;~~

~~cultural and political differences;~~

~~foreign exchange rates, currency fluctuations and tariffs;~~

~~dependence on and difficulties in managing international distributors or representatives;~~

~~the creditworthiness of foreign entities;~~

~~difficulties in foreign accounts receivable collection;~~

~~competition~~

~~pricing; and~~

~~any inability we may have in maintaining or increasing revenues.~~

~~If we are unable to maintain or increase our revenues from domestic and/or international customers, our operating results will be materially harmed.~~

~~Although we have an ethics and anti-corruption policy in place, and have no knowledge or reason to know of any practices by our employees, agents or distributors~~government agencies that could ~~be construed as in violation~~affect our operations, it is impossible to reliably predict the full nature and impact of ~~such policies,~~these laws and regulations. To the extent the costs and procedures associated with complying with these laws and requirements are substantial or it is determined that we do not comply, our business ~~includes sales~~and results of ~~products to countries where there is or may~~operations could be ~~widespread corruption.~~adversely affected.

We have a policy in place prohibiting our employees, distributors and agents from engaging in corrupt business practices, including activities prohibited by the United States Foreign Corrupt Practices Act (the "FCPA"). Nevertheless, because we work through independent sales agents and distributors (andmay Incur Additional Costs if We do not ~~have any employees or subsidiaries) outside the United States, we do not have control over the day-to-day activities of such independent agents~~Comply with Privacy, Security and distributors. In addition, in the donor-funded markets in Africa where we sell our products, there is significant oversight from PEPFAR, the Global Fund, and advisory committees comprised of technical experts concerning the development and establishment of national testing protocols. This is a process that includes an overall assessment of a product which includes extensive product performance evaluations including five active collaborations and manufacturer's quality systems, as well as price and delivery. In Brazil, where we have had a total of six product collaborations with FIOCRUZ, the programs through which our products may be deployed are all funded by the Brazilian Ministry of Health. Although FIOCRUZ is affiliated with the Brazilian Ministry of Health, and is its sole customer, FIOCRUZ is not the exclusive supplier for the Ministry of Health. However, because each of our previous collaborations with FIOCRUZ incorporates a technology transfer aspect, we believe we have a competitive advantage versus other suppliers to the Brazilian Ministry of Health, assuming other aspects of our product offering through FIOCRUZ are otherwise competitive in comparison. We have no knowledge or reason to know of any activities by our employees, distributors or sales agents of any actions which could be in violation of the FCPA, although there can be no assurance of this.

We rely on trade secret laws and agreements with our key employees and other third parties to protect our proprietary rights, and we cannot be sure that these laws or agreements adequately protect our rights.Breach Notification Regulations.

We believe that ~~factors~~we are not a covered entity nor a business associate of a covered entity and are not responsible for complying with the Health Insurance Portability and Accountability Act of 1996, or HIPAA. Even though we likely are not a covered entity under HIPAA, we do have in place administrative, technical and physical safeguards to protect the privacy and security of consumers’ personal information.] We are required to comply with varying state privacy, security and breach reporting laws. If we fail to comply with existing or new laws and regulations related to properly transferring data containing consumers’ personal information, we could be subject to monetary fines, civil penalties or criminal sanctions. Also, there are other federal and state laws that protect the privacy and security of consumers’ personal information, and we may be subject to enforcement by various governmental authorities and courts resulting in complex compliance issues. We could incur damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of consumers’ personal information.

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Failure to Comply With Recent European Data Protection Requirements could Increase Our Costs.

The EU has adopted a comprehensive overhaul of its data protection regime from the prior national legislative approach to a single European Economic Area Privacy Regulation called the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018. The new EU data protection regime extends the scope of the EU data protection law to all foreign companies processing data of EU residents. It imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover and €20 million and includes new rights such as the ~~technological~~“portability” of personal data. Although the GDPR will apply across the EU without a need for local implementing legislation, as had been the case under the prior data protection regime, local data protection authorities will still have the ability to interpret the GDPR, which has the potential to create inconsistencies on a country-by-country basis. We are evaluating these new requirements and ~~creative skills~~implementing a plan to ensure compliance. Complying with the enhanced obligations imposed by the GDPR may result in significant costs to our business and require us to amend certain of our ~~personnel, strategic relationships,~~business practices. Further, we have no assurances that violations will not occur, particularly given the complexity of the GDPR, as well as the uncertainties that accompany new, product developments, frequent product enhancements and name recognition are essential to our success. All our management personnel are bound by non-disclosure agreements. If personnel leave our employment, in some cases we would be required to protect our intellectual property rights pursuant to common law theories which may be less protective than provisions of employment, non-competition or non-disclosure agreements.comprehensive legislation.

If We ~~seek~~are not Able to ~~protect our proprietary~~Manufacture Products in Accordance with Applicable Requirements, It could Adversely Affect Our Business.

Our products ~~under trade secret~~must meet detailed specifications, performance standards and ~~copyright laws, enter into license agreements for various materials and methods employed in~~quality requirements. As a result, our products and ~~enter into strategic relationships for distribution of~~ the products. These strategies afford only limited protection. We currently have some foreign patents issued, and we are seeking additional patent protection in several other foreign jurisdictions for our DPP® technology. We have licenses to reagents (antigens and peptides)materials used in ~~several of our products~~their manufacture or assembly undergo regular inspections and products under development. Despite our efforts to protect our proprietary assets, and respect the intellectual property rights of others, we participate in several markets where intellectual property rights protections are of little or no value. This can place our products and our company at a competitive disadvantage.

~~Despite the efforts we make to protect our confidential information,~~quality testing. Factors such as ~~entering into confidentiality agreements~~defective materials or processes, mechanical failures, human errors, environmental conditions, changes in ~~connection with new business opportunities, unauthorized parties may attempt to copy aspects of~~materials or production methods, and other events or conditions could cause our products or the materials used to ~~obtain information that we regard as proprietary. We may be required~~produce or assemble our products to ~~expend substantial resources~~fail inspections and quality testing or otherwise not perform in ~~asserting~~accordance with our label claims or protecting our intellectual property rights, or in defending suits related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product development or commercialization activities because somethe expectations of our available funds would be diverted away from our business activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the U.S. Patent and Trademark Office.

~~Our continued growth depends on retaining our current key employees and attracting additional qualified personnel, and we may not be able to do so.~~

Our success will depend to a large extent upon the skills and experience of our executive officers, management and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products businesses, geographic considerations, our ability to offer competitive compensation, relocation packages, benefits, and/or other reasons.customers.

If we are not able to ~~attract and retain~~meet the ~~necessary personnel to accomplish our business objectives, we may experience constraints that will~~applicable specifications, performance standards, quality requirements or customer expectations could adversely affect our ability to ~~effectively~~ manufacture ~~sell~~ and ~~market~~sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results of operations.

Healthcare Fraud and Abuse Laws Could Adversely Affect Our Business and Results of Operations.

There are various federal and state laws targeting fraud and abuse in the healthcare industry to ~~meet~~which we are subject, including anti-kickback laws, laws constraining the ~~demands~~sales, false claims laws, marketing and promotion of our strategic partners in a timely fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientistsmedical devices by limiting the kinds of financial arrangements that manufacturers of these products may enter into with physicians, hospitals, laboratories and other ~~personnel~~potential purchasers of medical devices. There are other laws we are subject to that require us to report certain transactions between it and healthcare professionals. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from ~~numerous companies~~participation in government healthcare programs. Many of the existing requirements are new and ~~academic~~have not been definitively interpreted by state authorities or courts, and available guidance is limited. We could face enforcement action and fines and other ~~research institutions may limit our ability to do so on acceptable terms.~~

~~We have entered into employment contracts~~penalties, and could receive adverse publicity, unless and until we are in full compliance with ~~our Chief Executive Officer, John Sperzel, our Chief Operating Officer, Sharon Klugewicz, and our Chief Scientist & Technology Officer, Javan Esfandiari. Due to the specific knowledge and experience~~these laws, all of which could materially harm us. Furthermore, changes in or evolving interpretations of these ~~executives regarding the industry, technology and market, the loss of the services of any one of them~~laws, regulations, or administrative or judicial interpretations, may require us to change our business practices or subject our business practices to legal challenges, which could have a material adverse effect on ~~the Company. The contract with Mr. Sperzel has a term~~our business, financial condition and results of three years ending March 2017. The contract with Ms. Klugewicz has a term of two years ending May 2017. The contract with Mr. Esfandiari has a term of three years ending March 2019. The Company has obtained a key man insurance policy on Mr. Esfandiari. The Company and Mr. Sperzel currently are discussing terms for renewal of his employment agreement.operations.

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Our Compliance with Regulations Governing Public Companies is Complex and Expensive.

~~We believe our success depends in part on~~Public companies are subject to various laws and regulations, which have increased the ~~continued funding~~scope, complexity and cost of corporate governance, reporting and ~~our ability~~disclosure practices. For example, we are subject to ~~participate in large testing programs in~~ the ~~U.S.~~Sarbanes-Oxley Act of 2002, The Dodd-Frank Wall Street Reform and ~~worldwide. Funding~~Consumer Protection Act and the requirements of The NASDAQ Global Market. The implementation of certain aspects of these laws and ~~or similar programs~~regulations has required and will continue to require substantial management time and oversight and may ~~be reduced, discontinued and/or we may not be able to participate for other reasons.~~

We believe it to be in our best interests to meaningfully participate in large testing programs. Moreover many of these programs are funded by governments and other donors, and there can be no assurance that funding will not be reduced or completely discontinued. Participation in these programs also requires alignment and engagement with the many other participants in these programs, including WHO, CDC, U.S. Agency for International Development, foreign governments and their agencies, non-governmental organizations, and HIV service organizations. If we are unsuccessful in our efforts to participate in these programs, our operating results could be materially harmed.

~~To the extent that we are unable to collect our outstanding accounts receivable, our operating results could be materially harmed.~~

~~There may be circumstances and timing that~~ require us to ~~accept payment terms, including delayed payment terms, from distributors~~incur significant additional accounting and legal costs. We continually review changes with respect to new and proposed rules and cannot predict or ~~customers, which, if not satisfied, could cause financial losses.~~

~~We generally accept payment terms which require us to ship product before~~estimate the ~~contract price has been paid fully,~~amount of additional costs, and ~~there also are circumstances pursuant to which~~the timing of such costs, we may ~~accept further delayed payment terms pursuant~~incur. There are several interpretations of these laws and regulations, in many cases due to ~~which we~~their lack of specificity, and as a result, their application in practice may ~~continue to deliver product. To the extent that these circumstances~~change as new guidance is provided by regulatory and governing bodies. This may result in ~~significant accounts receivables~~continuing uncertainty regarding compliance matters and ~~those accounts receivables~~higher costs. We are ~~not paid on a timely basis, or are not paid at all, especially~~committed to maintaining high standards of corporate governance and public disclosure, but if ~~concentrated in one or two customers,~~ we ~~could suffer financial losses.~~

~~Although we were profitable from 2009 through 2013, we incurred a net loss for 2014, 2015 and 2016 and cannot be certain that we will be able~~fail to ~~sustain profitability in the future.~~

~~From the inception~~comply with any of Chembio Diagnostic Systems, Inc. in 1985 through the period ended December 31, 2008, we incurred net losses. We were then profitable each year from 2009 through 2013. In 2014, 2015 and 2016, we made substantial expenditures for sales and marketing, regulatory submissions, product development, production and warehouse capacity, and other purposes, and we incurred a net operating loss. Our ability to re-achieve profitability in the future will primarily depend on our ability to increase sales of our products based on having made the aforementioned expenditures to reduce production and other costs, and to successfully introduce new products and enhanced versions of our existing products into the marketplace. If we are unable to increase our revenues at a rate that is sufficient to achieve profitability, or adequately control and reduce our operating costs, our operating results would be materially harmed.

To the extent that we are unable to obtain sufficient product liability insurance or that we incur product liability exposure that is not covered by our product liability insurance, our operating results could be materially harmed.

Wethese requirements, legal proceedings may be ~~held liable if any of~~initiated against us, which may adversely affect our products, or any product which is made with the use or incorporation of any of the technologies belonging to us, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or use. We have obtained product liability insurance even though we have never received a product liability claim, and have generally not seen product liability claims for screening tests that are accompanied by appropriate disclaimers. Nevertheless, in the event there is a claim, this insurance may not fully cover our potential liabilities. In addition, as we attempt to bring new products to market, we may need to increase our product liability coverage which could be a significant additional expense that we may not be able to afford. If we are unable to obtain sufficient insurance coverage at an acceptable cost to protect us, we may be forced to abandon efforts to commercialize our products or those of our strategic partners, which would reduce our revenues.

business.

Risks ~~related~~Related to ~~our~~Our Common Stock

Our Common Stock ~~continues to be illiquid, so investors~~has Limited Liquidity, and Investors may not be ~~able~~Able to ~~sell~~Sell as ~~much stock~~Much Stock as ~~they want~~They Want at ~~prevailing market prices.~~Prevailing Market Prices or at all.

The average daily trading volume of our Common Stock on the NASDAQ market was approximately 19,300 shares per day over the three months ended December 31, 2016 as compared with approximately 21,600 shares per day over the three months ended December 31, 2015. The liquidity of our ~~stock~~Common Stock depends on several factors, including but not limited to ~~the~~our financial results ~~of the Company~~ and overall market conditions, so it is not possible to predict whether this level of liquidity will continue, be sustained, or decrease.

Decreased trading volume in our stock would make it more difficult for investors to sell their shares in the public market at any given time at prevailing prices. Our management and larger stockholders exercise significant control over ~~the Company.~~our company.

The Price of Our ~~management~~Common Stock could Continue to be Volatile.

The price of our Common Stock has been volatile and ~~larger stockholders exercise~~may be volatile in the future. The following factors, among others, could have a significant ~~control~~impact on the market for our Common Stock: (1) the performance of our business; (2) clinical results with respect to our products or those of our competitors; (3) the gain or loss of significant contracts and availability of funding for the purchase of our products; (4) actions undertaken by the Congress or the Presidential Administration; (5) changes in our relations with our key customers, distributors or suppliers; (6) developments in patent or other proprietary rights; (7) litigation or threatened litigation; (8) general market and economic conditions; (9) the relatively low trading volume for our Common Stock; (10) changes in competition; (11) Complaints or concerns about the performance or safety of our products and publicity about those issues, including publicity expressed through social media or otherwise over the ~~Company.~~internet; (12) failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders; (13) announcement of regulatory or enforcement actions by the FDA or other agencies against us, our products or our customers; (14) changes in our operating results; and (15) terrorist attacks, civil unrest, war and national disasters.

Overall, the stock market has experienced price and volume fluctuations that have affected the market price of our Common Stock, as well as the stock of many other similar companies. Such price fluctuations are generally unrelated to the operating performance of the specific companies whose stock is affected.

After the volatility in the market price of a company’s stock, class action litigation has occurred against the issuing company. If we were subject to this type of litigation in the future, we could incur substantial costs and the attention and resources of our management could be diverted, each of which could have a material adverse effect on our revenue and earnings. Any adverse determination in this type of litigation could also subject us to significant liabilities.

Any Future Issuances of Shares of Our Common Stock by Us Could Harm the Price of Our Common Stock and Our Ability to Raise Funds in New Equity Offerings.

Any future sales of a substantial number of our shares of Common Stock or other equity-related securities, or the perception that such sales may occur, could adversely affect the price of our Common Stock, and could impair our ability to raise capital through future offerings of equity or equity-related securities.

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Our Management and Larger Stockholders Exercise Significant Control Over Us.

As of December 31, ~~2016,~~2019, 25.5% of our ~~named~~outstanding common stock was beneficially owned by our executive officers, directors and 5% stockholders ~~beneficially owned approximately 38.43% of our voting power, which includes four~~including three large investors that beneficially own ~~approximately 10.36%~~21%, ~~9.36%, 9.00% and 5.02%, respectively~~ of ~~the~~our outstanding common stock. For the foreseeable future, and assuming these ownership percentages continue to apply, to the extent that these parties vote similarly, they may be able to exercise significant control over many matters requiring approval by the board of directors or our stockholders. As a result, they may be able to:

~~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 differ from the interests of each other or the interests of the other stockholders.~~

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 differ from the interests of each other or the interests of the other stockholders.

~~ITEM 1B. Unresolved Staff Comments.~~

Sales of Our Common Stock by Existing Stockholders, Executive Officers or Directors could Depress the Market Price of Our Common Stock.

~~Not Applicable~~If our existing stockholders, officers or directors sell our Common Stock in the public market, or the perception that such sales may occur, it could negatively affect the price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market since this will depend on the market price for our Common Stock, the individual circumstances of the sellers and other factors.

Institutional stockholders own significant amounts of our Common Stock. If one or more of these stockholders sell large portions of their holdings in a relatively short time, the prevailing price of our Common Stock could be negatively affected. In addition, it is possible that one or more of our executive officers or non-employee members of our Board of Directors could sell shares of our Common Stock during an open trading window. These transactions and the perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock.

We do not Intend to Pay Cash Dividends on Our Common Stock.

We do not expect to pay any cash dividends on our Common Stock and currently intend to retain our earnings, if any, to finance the expansion of our business. Therefore, the success of an investment in our Common Stock will depend entirely upon any future increase in value of our Common Stock. There is no guarantee that our Common Stock will gain value or even maintain the price at which investors purchased their shares.

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ITEM 2.

PROPERTIES

Our U.S. manufacturing, administrative offices, and research facilities are located in leased space in Medford, New ~~York. In addition~~York, pursuant to a lease covering approximately 39,650 square feet and expiring on June 30, 2021.

On February 5, 2019, we ~~have warehousing~~entered into a commercial real estate lease for new corporate headquarters comprised of 70,000 square feet of office, research and development, and warehouse space ~~as well as some additional administrative offices~~ located in Hauppauge, New York. The lease has an initial term of eleven years that can be extended, at our option, for two additional terms of five years each. Rent under the lease, which is payable in monthly installments, totals approximately $900,000 for the initial year and then increases by approximately three percent each succeeding year.

On February 5, 2019, we also entered into an agreement to sublet the space at Holbrook, New York. ~~We lease~~The sublease has a term that (a) commenced on the date we vacate the premises and (b) terminate on April 29, 2020. The sublessee has paid us 50% of our rent and additional rent payments, which will total approximately ~~39,660 square feet~~$100,000 per year during the term of ~~industrial~~the sublease.

Our European headquarters and Center of Excellence for Optical Technology is located in leased office and manufacturing space in ~~Medford for $28,688 per month. The space is utilized for research~~Berlin, Germany. Our Southeast Asia manufacturing, warehouse, and development activities (approximately 5,440 square feet), offices (approximately 2,640 square feet) and production (approximately 31,580 square feet). The lease term expires on April 30, 2017. The lease provides for annual increases of two and one-half percent each year starting May 1, 2015. We lease approximately 21,450 square feet of industrialcommercial facilities are located in leased space in ~~Holbrook for $15,550 per month. The space is utilized for offices (approximately 2,500 square feet)~~Kuala Lumpur, Malaysia. Our Latin America manufacturing, warehouse, and warehousing (approximately 18,950 square feet). The lease term expires on April 30, 2018. The lease provides for annual increases of three percent each year starting March 1, 2015. The Company believes this space should be sufficient for itscommercial facilities are located in Rio de Janeiro, Brazil. We regularly review our real estate portfolio and develop footprint strategies to support our customers’ global plans, while at the same time supporting our technical needs ~~in the foreseeable future.~~

and controlling operating expenses.

ITEM 3.

LEGAL PROCEEDINGS

From time to time we may bebecome involved in ~~litigation relating~~legal proceedings or may be subject to claims arising ~~out~~in the ordinary course of our ~~operations in~~business. Although the ~~normal~~results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of business. We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, isthe outcome, litigation can have an adverse ~~party or has a material interest that is adverse to our interest.~~impact on us because of defense and settlement costs, diversion of management resources and other factors.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~Not Applicable.~~

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PART II

~~ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Market~~Listing Information

Our stock is listed on the NASDAQ Global Select Market of the NASDAQ Stock Market LLC under the symbol ~~"CEMI." The table below sets forth the high and low prices per share of our common stock for each quarter of our two most recently completed fiscal years.~~

Fiscal Year 2016 High Low
First Quarter $ 6.10 $ 4.03
Second Quarter $ 9.40 $ 5.87
Third Quarter $ 8.48 $ 5.08
Fourth Quarter $ 7.45 $ 6.10

Fiscal Year 2015 High Low
First Quarter $ 4.20 $ 3.47
Second Quarter $ 5.25 $ 4.00
Third Quarter $ 5.20 $ 3.33
Fourth Quarter $ 5.53 $ 3.90

“CEMI.”

Holders

As of March ~~3, 2017,~~1, 2020, there were ~~approximately 2,030~~132 record owners of our ~~common stock~~Common Stock (including nominee holders such as banks and brokerage firms who hold shares for beneficial owners).

~~Dividends~~

The Company has never paid cash dividends on its common stock and has no plans to do so in the foreseeable future. Any future declaration of dividends will be determined by our Board of Directors in its sole discretion and will depend on, among other things, our earnings, capital requirements, financial condition, prospects and any other factors the Board of Directors may deem relevant.

Recent Sales of Unregistered Securities

~~There were no sales of unregistered securities during~~During the year ended December 31, ~~2016 that were not previously reported on a Quarterly Report on Form 10-Q or a Current Report on Form 10-K.~~2019, we issued unregistered securities in connection with the acquisition of Orangelife. See Note 2 - Acquisitions, for further discussion.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the ~~fourth quarter of the fiscal~~ year ended December 31, ~~2016.~~2019.

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~~ITEM 6.~~

~~SELECTED FINANCIAL DATA~~

~~The Following selected financial data should be read in connection with Item 7 - "Management's Discussion and Analysis~~Table of ~~Financial Condition and Results of Operations" and the consolidated financial statements and notes that are included in this Annual Report on Form 10-K.~~Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

SELECTED HISTORICAL FINANCIAL DATA

As of and For the Years Ended

Statement of Operations Data:
December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012

TOTAL REVENUES $ 17,868,841 $ 24,255,485 $ 27,645,284 $ 29,549,609 $ 25,610,595

GROSS MARGIN⁽¹⁾
8,451,336 47 % 10,486,827 43 % 10,814,023 39 % 12,300,159 42 % 10,789,991 42 %

OPERATING COSTS:
Research and development expenses⁽¹⁾
8,427,554 47 % 6,377,839 26 % 4,832,537 17 % 5,834,249 20 % 4,486,302 18 %
Selling, general and administrative expenses⁽¹⁾
7,595,559 43 % 7,663,035 32 % 7,531,739 27 % 5,461,083 18 % 4,851,587 19 %
16,023,113 14,040,874 12,364,276 11,295,332 9,337,889
INCOME (LOSS) FROM OPERATIONS (7,571,777 ) (3,554,047 ) (1,550,253 ) 1,004,827 1,452,102

OTHER INCOME (EXPENSES): 25,548 (3,238 ) 132 12,943 (1,584 )

INCOME (LOSS) BEFORE INCOME TAXES⁽¹⁾
(7,546,229 ) (42 )% (3,557,285 ) (15 )% (1,550,121 ) (6 )% 1,017,770 3 % 1,450,518 6 %

Income tax provision (benefit) 5,800,818 (1,160,243 ) (412,918 ) 486,952 509,237
NET INCOME (LOSS) $ (13,347,047 ) $ (2,397,042 ) $ (1,137,203 ) $ 530,818 $ 941,281

Basic income (loss) per share $ (1.26 ) $ (0.25 ) $ (0.12 ) $ 0.06 $ 0.12

Diluted income (loss) per share $ (1.26 ) $ (0.25 ) $ (0.12 ) $ 0.06 $ 0.11

Weighted average number of shares outstanding, basic 10,622,331 9,626,028 9,530,320 8,994,080 7,986,030

Weighted average number of shares outstanding, diluted 10,622,331 9,626,028 9,530,320 9,519,968 8,614,944

Balance Sheet Data:
Working capital $ 14,707,876 $ 9,479,968 $ 12,372,169 $ 14,221,011 $ 7,630,368
Total assets 20,575,236 20,816,344 25,010,192 24,486,592 17,335,150
Total liabilities 3,405,650 3,154,838 5,286,030 4,309,490 3,460,630
Shareholders' equity 17,169,586 17,661,506 19,724,162 20,177,102 13,874,520

⁽¹⁾ ~~percentage shown reflects the percentage of total revenues~~

ITEM 7.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Overview~~

~~This~~The following discussion and analysis should be read in conjunction with the ~~accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of our financial condition and results of operations are based upon our~~audited consolidated financial statements ~~which have been prepared~~and related notes included in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ''Critical Accounting Policies,'' and have not changed significantly.

this report. In addition ~~certain statements made in this report may constitute "forward-looking statements"~~

~~These~~to historical information, the following discussion contains forward-looking statements ~~involve known or unknown~~that involves risks, uncertainties and ~~other~~assumptions. See “Special Note Regarding Forward-Looking Statements” at page 4 of this report. Please read “Item1A. Risk Factors” for a discussion of factors that ~~may~~could cause ~~the~~our actual results ~~performance or achievements of the Company~~ to bediffer materially ~~different~~ from ~~any future results, performance or achievements expressed or implied by the forward-looking statements. These factors include, among others, 1)~~ our ability to obtain necessary regulatory approvals for our products; and 2) our ability to increase revenues and operating income, which is dependent upon our ability to develop and sell our products, general economic conditions, demand for our products, and other factors. You can identify forward-looking statements by terminology such as "may," "could", "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.expectations.

~~All~~The following discussion is presented in six sections:

Executive Overview

Consolidated Results of ~~the Company's future~~Operations

Liquidity and Capital Resources

Significant Accounting Policies and Critical Accounting Estimates

Recently Issued Accounting Pronouncements

Executive Overview

Through our wholly owned subsidiaries, Chembio Diagnostic Systems Inc., Chembio Diagnostics Malaysia Sdn Bhd, Chembio Diagnostics Germany, and Chembio Diagnostics Brazil we develop, manufacture and commercialize point-of-care diagnostic tests that are used to detect or diagnose diseases. All products that are currently being developed are based on ~~its~~our patented ~~Dual Path Platform (DPP®), which is~~DPP technology, a ~~unique~~novel point-of-care diagnostic ~~point-of-care~~ platform that ~~has~~offers certain customer advantages ~~over~~as compared to traditional lateral flow technology. Chembio was formed in 1985.

Recent operational accomplishments and highlights include:

Achieved product sales of $28.8 million for full year 2019, an increase of 3.3% over prior year

Achieved total revenue of $34.5 million for full year 2019, a decrease of 0.3% over prior year

Acquired Orangelife Comercio e Industria Ltda., a privately-held Brazilian manufacturer of lateral flow tests for infectious diseases to diversify and expand our market penetration in Brazil and support Bio-Manguinhos, a major customer.

Received WHO Prequalification approval for the HIV Self-Test and our Malaysian production facility

Successfully completed the technical feasibility phase for a rare disease with Takeda Pharmaceutical.

Initiated production on our fully-automated DPP test manufacturing line and took delivery of our second and third automated lines for our other product platforms.

We strengthened our balance sheet by entering a credit agreement with Perceptive Credit Holdings II, LP. for a $20 million term loan. See “—Liquidity and Capital Resources.”

The Company’s product commercialization and product development efforts are focused on infectious disease testing and technology collaborations. In infectious disease, the Company ~~has completed~~is commercializing tests for HIV and Syphilis, Zika virus, and developing tests for malaria, dengue virus, chikungunya virus, ebola, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi, individually or as part of fever panel tests. Through technology collaborations, the Company is developing tests for concussion, bovine tuberculosis, a rare disease in collaboration with Takeda Pharmaceutical, and a biomarker development project in collaboration with AstraZeneca.

Large and growing markets have been established for these kinds of ~~several~~tests, initially in high prevalence regions where they are indispensable for large scale prevention and treatment programs. Our product development is focused on areas where the availability of rapid point-of-care screening, diagnostic, or confirmatory results can improve health outcomes. More generally, we believe there is and will continue to be a growing demand for diagnostic products that ~~employ~~can provide accurate, actionable diagnostic information in a rapid, cost-effective manner at the ~~DPP® technology. These~~point of care.

Our products are ~~currently marketed~~sold to medical laboratories and hospitals, governmental and public health entities, non-governmental organizations, medical professionals and retail establishments, both domestically and internationally, under ~~Chembio's label (DPP® HIV 1/2 Screening Assay and DPP® HIV 1/2 –Syphilis Assay),~~our STAT-PAK, SURE CHECK, STAT-VIEW or ~~which may be marketed pursuant to~~DPP registered trademarks, or under the private ~~label license or distribution agreements such as those with the Oswaldo Cruz Foundation ("FIOCRUZ"), and Bio-Rad.~~labels of our marketing partners.

~~Research and development ("R&D"), milestone, and grant and royalty revenues~~

Table of Contents

Consolidated Results of Operations

The results of operations for the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018 were ~~$4.19 million, $2.37 million and $1.70 million, respectively, which was the result of grants awarded in 2016, 2015 and 2014. R&D expenses~~as follows:

	Year Ended December 31,
	2019					2018

TOTAL REVENUES	$	34,464,032		100	%	$	34,581,440		100	%

COSTS AND EXPENSES:
Cost of product sales		22,394,317		65	%		22,599,432		65	%
Research and development expenses		8,538,416		25	%		8,526,256		26	%
Selling, general and administrative expenses		16,138,424		47	%		11,100,775		33	%
Acquisition costs		721,465		2	%		337,645		1	%
		47,792,622		139	%		42,564,108		25	%
LOSS FROM OPERATIONS		(13,328,590	)	(39	)%		(7,982,668	)	(23	)%

OTHER (LOSS)/INCOME		(846,831	)	(2	)%		49,498		0	%

LOSS BEFORE INCOME TAXES		(14,175,421	)	(41	)%		(7,933,170	)	(23	)%

Income tax benefit		(500,292	)	(2	)%		(67,521	)	0	%
NET LOSS	$	(13,675,129	)	(39	)%	$	(7,865,649	)	(23	)%

Percentages in the ~~years ended December 31, 2016, 2015 and 2014 were $8.43 million, $6.38 million and $4.83 million, respectively.~~

~~Research & Development Activities~~

~~Sexually Transmitted Disease~~

~~DPP® HIV-Syphilis Assay~~: The DPP® HIV-Syphilis Assay is a rapid, point-of-care (POC), multiplex test for the simultaneous detection of antibodies to HIV and to Treponema Pallidum (TP) bacteria (the causative agent of syphilis). This novel combination assay was developed to address the growing concern among public health officials regarding the rising co-infection rates of HIV and syphilis as well as mother-to-child transmission (MTCT) of HIV and syphilis. The product received approval by the Mexican regulatory agency (Cofepris) in 2014, received approval by the Brazilian regulatory agency, Agência Nacional de Vigilância Sanitária (ANVISA) in 2015, and received CE mark approval in 2017. We are developing a U.S. version of the DPP® HIV-Syphilis Assay, designed to meet the performance requirements for the "reverse" algorithm that is currently in clinical use for syphilis testing in the United States. The DPP® HIV-SYP Assay clinical trial is on schedule; initiated in the first quarter of 2016 and, at the current enrollment rate, we expect to complete the trial in the first quarter of 2017. Following the completion of the clinical trial, we will file a Premarket Approval Application with the U.S. Food and Drug Administration.

~~Fever & Tropical Disease~~

~~DPP® Malaria Assay~~: The DPP® Malaria Assay is a rapid, POC, multiplex test for the simultaneous detection of plasmodium falciparum and other plasmodium infections. In January 2015, we received a grant from the Bill & Melinda Gates Foundation to expedite the development and feasibility testing of a POC DPP® Malaria Assay. The Company completed this project, which compared the new DPP^® Malaria Assay to the world's leading currently-available POC malaria assay with favorable results: a ten-fold improvement in sensitivity. In April 2016, we received a second Malaria grant from the Bill & Melinda Gates Foundation to expedite the feasibility testing and development of the world's first oral fluid/saliva POC diagnostic test to simply and accurately identify individuals infected with all species of malaria. We recently completed the feasibility and plan to deliver DPP^® ~~Malaria Assays to a partner of the Bill & Melinda Gates Foundation in March 2017, to commence field evaluation.~~

~~DPP® Zika Assay~~: The DPP® Zika Assay is a rapid POC stand-alone test for the simultaneous detection of IgM/IgG antibodies. In February 2016, we received a grant from The Paul G. Allen Family Foundation to initiate development of the DPP® Zika Assay. During 2016, Chembio announced collaborations with Bio-Manguinhos, the unit of the Oswaldo Cruz Foundation (Fiocruz) responsible for the development and production of vaccines, diagnostics and biopharmaceuticals, primarily to meet the demands of Brazil's national public health system, related to the DPP® Zika Assay. In August 2016, the Company received an award from the U.S. Government (HHS/ASPR/BARDA), granting the Company up to $13.2 million ($5.9 million to develop DPP® Zika Assay and obtain U.S. regulatory approval). The Company filed the following regulatory submissions: U.S. Food and Drug Administration Emergency Use Authorization (EUA), World Health Organization EUA, Brazil's regulatory agency ANVISA, Mexico's regulatory agency Cofepris, and CE mark. The Company obtained CE mark in July 2016, and then began selling in the Caribbean region via its distribution partner, Isla Lab, LLC. In September 2016, the Company received a contract award from CDC to initiate a Zika surveillance program in India, Peru, Guatemala and Haiti, and we began selling the DPP® Zika IgM/IgG Assay to CDC for field testing purposes during the first quarter of 2017. The Company received ANVISA approval (Brazil) for the DPP® Zika IgM/IgG Assay in November 2016 and is working with our Brazilian partner, Bio-Manguinhos, to obtain ANVISA approval for the DPP® Micro Reader.

~~DPP® Dengue Fever Assay~~: The DPP® Dengue Fever Assay is a rapid, POC, multiplex test for the simultaneous detection of IgG/IgM and NS1 antigens. During 2016, Chembio announced collaborations with Bio-Manguinhos, the unit of the Oswaldo Cruz Foundation (Fiocruz) responsible for the development and production of vaccines, diagnostics and biopharmaceuticals, primarily to meet the demands of Brazil's national public health system related to the DPP® Dengue Fever Assay. We completed verification and validation studies, and production of pilot lots, to support preclinical studies. Also during 2016, we initiated registration to begin initial commercialization in Southeast Asia, and we believe initial DPP^® ~~Dengue Assay sales will occur in Southeast Asia during Q1 2017.~~

~~DPP® Chikungunya Assay~~: The DPP® Chikungunya Assay is a rapid, POC, multiplex test for the simultaneous detection of IgG/IgM antibodies. During 2016, Chembio announced collaborations with Bio-Manguinhos, the unit of the Oswaldo Cruz Foundation (Fiocruz) responsible for the development and production of vaccines, diagnostics and biopharmaceuticals, primarily to meet the demands of Brazil's national public health system, related to the DPP® Chikungunya Assay.

~~DPP® Zika/Dengue/Chikungunya Assay~~: The DPP® Zika/Dengue/Chikungunya Assay is a rapid, POC, multiplex test for the simultaneous detection of IgM/IgG antibodies. In February 2016, we received a grant from The Paul G. Allen Family Foundation to initiate development of the DPP® Zika/Dengue/Chikungunya Assay. During 2016, Chembio announced collaborations with Bio-Manguinhos, the unit of the Oswaldo Cruz Foundation (Fiocruz) responsible for the development and production of vaccines, diagnostics and biopharmaceuticals, primarily to meet the demands of Brazil's national public health system, related to the DPP® Zika/Dengue/Chikungunya Assay. In August 2016, the Company received an award from the U.S. Government (HHS/ASPR/BARDA), granting the Company up to $13.2 million (including an option of $7.3 million to develop DPP® Zika/Dengue/Chikungunya Assay and obtain U.S. regulatory approval). In September 2016, the Company received a contract award from CDC, to initiate a Zika, Dengue, and Chikungunya surveillance program in India, Peru, Guatemala and Haiti and we began selling the DPP® Zika/Dengue/Chikungunya IgM/IgG Assay to CDC for field test purposes during the first quarter of 2017.

~~DPP® Fever Panel Assay~~: The DPP® Fever Panel Assay is a rapid, POC, multiplex test for the simultaneous detection of Malaria, Dengue, Chikungunya, Zika, Ebola, Lassa, and Marburg. In October 2015, we received a $2.1 million grant from the Paul G. Allen Ebola Program, to develop the DPP®Fever Panel Assay and a $0.55 million follow-on grant to add a test for the detection of Zika virus. We completed the development of the DPP® Fever Panel Assay in 2016, including the addition of Zika, and we supplied 10,000 tests to FIND, who will initiate evaluation in Peru and Nigeria.

~~DPP® Ebola Assay and DPP®Malaria-Ebola Assay~~: The DPP® Ebola Assay is a rapid POC test for the detection of Ebola, and the DPP® Malaria-Ebola Assay is a rapid, POC, multiplex test for the simultaneous detection of Malaria and Ebola. In October 2014, we announced plans to develop, validate, and commercialize POC DPP^® Assays for Ebola and Febrile Illness. We completed the development of the DPP® Ebola Assay and submitted it for Emergency Use Authorization (EUA) with the Food & Drug Administration (FDA) and World Health Organization (WHO), and we are actively engaged with these regulatory agencies. During the third and fourth quarters of 2015, we sold DPP® Ebola and DPP® Malaria-Ebola Assays to the Centers for Disease Control & Prevention (CDC) for field studies in West Africa, which is ongoing.

~~Technology Collaboration~~

~~DPP® Cancer Assay~~: The DPP® Cancer Assay is a rapid, POC, multiplex test for the early detection and monitoring of a specific type of cancer. In October 2014, we entered into collaboration with an international diagnostics company to develop a POC diagnostic test for a specific type of cancer. This program is fully funded by this partner. However, under the terms of the agreement, neither Chembio's partner nor the specific type of cancer is being disclosed. The cancer project represents an application of the DPP® technology outside of the infectious disease field, and the scope of the agreement involves product development of a quantitative, reader-based cancer assay for two cancer markers, utilizing Chembio's DPP® technology and its DPP® Micro Reader. During the third quarter of 2015, we completed successful feasibility, and our partner agreed to fund continued development of the DPP® Cancer Assay, which development and verification is ongoing.

~~DPP® Traumatic Brain Injury Assay~~: The DPP® Traumatic Brain Injury Assay is a rapid POC test for the detection of traumatic brain injury (TBI) and sports-related concussion. In January 2015, we entered into an agreement with the Concussion Science Group (CSG) Division of Perseus Science Group LLC, to combine CSG's patented biomarker with our proprietary DPP® platform and DPP® Micro Reader, to develop a semi-quantitative or quantitative POC test, to diagnose TBI. The DPP® Traumatic Brain Injury Assay is in the feasibility and pre-clinical stage. Under institutional review board (IRB) agreements with multiple hospitals, we are conducting pre-clinical studies of the prototype DPP® Traumatic Brain Injury Assay using patient samples.

~~DPP® Bovine Tuberculosis: The DPP~~^® BovidTB Assay is a rapid POC test for the detection of bovine tuberculosis (TB). In September 2016, the Company was awarded a $600,000 grant from the United States Department of Agriculture (USDA) to develop the DPP^® BovidTB Assay. The grant will be managed by the Small Business Innovation Research Program (SBIR) of the National Institute of Food and Agriculture (NIFA), a federal agency within the USDA and the assay will be developed in collaboration with National Animal Disease Center (NADC) and Infectious Disease Research Institute (IDRI). Under the two-year grant, Chembio will use its patented DPP^® ~~technology to undertake to develop a simple, rapid, accurate and cost-effective test for bovine TB in cattle. The DPP~~^® ~~BovidTB Assay will be designed to provide results within 20 minutes, thereby significantly improving on the time-consuming, tedious and inadequate diagnostic methods currently in use.~~

~~Regulatory Activities~~

~~DPP® HIV-Syphilis Assay:~~ We have developed a U.S. version of the DPP® HIV-Syphilis Assay, designed to meet the performance requirements for the "reverse" algorithm that is currently in clinical use for syphilis testing in the United States. The clinical trial to support the FDA application for approval of the DPP® HIV-Syphilis Assay was initiated during first quarter of 2016 and is expected to be completed in the first quarter of 2017. Following the completion of the clinical trial, we will file a Premarket Approval Application with the U.S. Food and Drug Administration. In January 2017, we received CE mark approval for the DPP® HIV-Syphilis Assay.

~~DPP® Zika IgM/IgG System~~: In July of 2016 Chembio obtained a CE Mark for the DPP® Zika IgM/IgG Assay. The DPP® Zika IgM/IgG System, which includes an assay utilizing the patented DPP® technology as well as a digital reader (DPP® Micro Reader), are now cleared for commercialization in European countries as well as the majority of the Caribbean nations, not including U.S. territories. In November of 2016, we received approval from ANVISA, Brazil's regulatory Agency and we are working with our Brazilian partner, Bio-Manguinhos, to obtain ANVISA approval for the DPP® Micro Reader. We have also filed regulatory submissions to U.S. Food and Drug Administration (Emergency Use Authorization), the World Health Organization (Emergency Use Assessment and Listing), and Cofepris (Mexico), and we are actively engaged with these organizations.

~~There can be no assurance that any~~table reflect the percent of the aforementioned Research & Development and/or Regulatory products or activities will result in any product approvals or commercialization, nor that any of the existing research and development activities, or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications, and/or that if continued, will result in completed products, or that such products, if they are successfully completed, can or will be successfully commercialized.total revenues.

~~Recent Events~~Total Revenues

On January 9, 2017, the Company announced it completed the acquisition of RVR Diagnostics Sdn Bhd, a Malaysia corporation ("RVR"), pursuant to the previously reported Amended And Restated Stock Purchase Agreement, dated as of December 7, 2016 (the "Stock Purchase Agreement"), by and among Chembio, RVR, Avijit Roy and Magentiren Vajuram. See footnote 16 to Chembio's Consolidated Financial Statements included in this Form 10-K for more information.

~~RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016 AS COMPARED WITH THE YEAR ENDED DECEMBER 31, 2015~~

~~Income~~:

~~For the year ended December 31, 2016, Loss before income taxes was $7,546,000 compared to Loss before income taxes of~~

$3,557,000 for the year ended December 31, 2015. Net Loss for the year ended December 31, 2016 consists not only of the $7,546,000 Loss before income tax described above, but also of the $5,801,000 non-cash income tax provision described below under "Income tax provision (benefit)". Net Loss for the year ended December 31, 2015 consists not only of the $3,557,000 Loss before income tax described above, but also of the $1,160,000 non-cash income tax benefit described below under "Income tax provision (benefit)". The change in Loss before income taxes is primarily attributable to decreased revenue and gross margin, and increased operating expenses. Gross margin decreased in the year ended December 31, 2016 as compared with the year ended December 31, 2015, by $2,035,000, or (19.4)%. The increased operating expenses, the most significant of which were an increase materials and supplies for R&D of $1,512,000, increased clinical trial expenses of $412,000, and an increase in wages and related expenses of $633,000, partially offset by decreased commission expenses of $611,000, accounted for most of the change in Loss before income taxes.

~~Revenues:~~

Selected Product Categories: For the years ended
December 31, 2016 December 31, 2015 $ Change % Change

Lateral Flow HIV Tests and Components $ 7,943,224 $ 9,957,882 $ (2,014,658 ) -20.23 %
DPP® Tests and Components
5,400,893 11,265,876 (5,864,983 ) -52.06 %
Other 335,990 662,930 (326,940 ) -49.32 %
Net Product Sales 13,680,107 21,886,688 (8,206,581 ) -37.50 %
License and royalty revenue 449,685 52,753 396,932 752.43 %
R&D, milestone and grant revenue 3,739,049 2,316,044 1,423,005 61.44 %
Total Revenues $ 17,868,841 $ 24,255,485 $ (6,386,644 ) -26.33 %

~~Revenues for our lateral flow HIV tests and related components~~Total revenues during the year ended December 31, ~~2016 decreased~~2019 were $34.5 million, a decrease of $0.1 million, or 0.3% compared to 2018. The decrease in total revenues was comprised of the following:

$0.9 million, or 3.3% increase in net product sales, reflecting gains in U.S., Europe, and Latin America, offset in part by approximately $2,015,000 from the same period in 2015. This was primarily attributable to decreased sales to Africa of approximately $1,436,000, decreased sales to Europe of $40,000, decreased sales to the U.S. of $1,580,000, partially offset by increased sales to Mexico of $123,000. Revenues for our DPP® products during the year ended December 31, 2016 decreased by approximately $5,865,000 over the same period in 2015, primarily for decreases inlower sales in ~~Brazil to FIOCRUZ~~Africa and Asia. U.S. sales benefited from our winning back a large public health program and Latin America benefited from initial sales of ~~$5,340,000. The increase~~Zika, Chikungunya, and Dengue Fever tests, both standalone and in the multiplex version. Europe includes contribution from our acquisition of Chembio Diagnostics GmbH in November 2018. Asia and Africa declines were affected by the timing of national tenders.

$1.0 million, or 15.7% decrease in R&D and ~~in milestone~~grant, and ~~grant revenue, was primarily due~~license and royalty revenues compared to ~~revenues from certain development projects that were awarded during~~2018, relating to the ~~period. R&D revenues include funds, recognized on an "as expenses are incurred" basis or on a proportonial~~timing and cadence of customer program schedules and their related performance ~~basis, from various grants, see footnote 14 of our financial statements.~~obligations.

~~Gross Margin:~~

Gross Margin related to Net Product Sales: For the years ended
December 31, 2016 December 31, 2015 $ Change % Change

Gross Margin per Statement of Operations $ 8,451,336 $ 10,486,827 $ (2,035,491 ) -19.41 %
Less: R&D, milestone, grant, license and royalties 4,188,734 2,368,797 1,819,937 76.83 %
Gross Margin from Net Product Sales 4,262,602 8,118,030 $ (3,855,428 ) -47.49 %
Product Gross Margin % $ 31.16 % $ 37.09 %

Gross Product Margin

~~The overall gross~~Cost of product sales is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization, and other operating expenses. Gross product margin ~~dollar decrease of 2,035,000 consisted of a $3,855,000 decrease in gross margin from~~is net product sales ~~and a $1,820,000 increase in non-product revenues. The decrease in net~~less cost of product sales, and gross ~~margin of $3,855,000 is primarily attributable to the change in~~ product sales compared to 2015. The net product sales gross margin decrease is comprised of two components, one is the decrease in product sales of $8,207,000, which at the 37.1% margin contributed $3,044,000 to the decrease, and the other is the decreased change in margin percentage ~~of 5.9% which contributed the balance of $812,000. The 5.9% decrease in the percentage, from 37.1% in 2015 to 31.2% in 2016, was primarily due to increased overhead~~is gross product margin as a percentage of ~~products produced, due to the lower volume of~~net product sales.

Gross product margin increased by $1.1 million, or 21.4% compared to 2018. The following schedule calculates gross product margin:

	For the years ended December 31						Favorable/ (unfavorable)		% Change
	2019			2018			Favorable/ (unfavorable)		% Change
	(in thousands)
Net product sales	$	28,845		$	27,913		$	932		3.3	%
Less: Cost of product sales		(22,394	)		(22,599	)		205		(0.9	%)
Gross product margin	$	6,451		$	5,314		$	1,137		21.4	%
Gross product margin %		22.4	%		19.0	%

The $1.1 million increase in gross product margin was comprised of the following:

$0.2 million from favorable product sales volume as described above, and

$0.9 million from favorable product margins, related to the impact of geographic mix on average selling price, initial benefits from our first automated assembly line, and reduced contract labor costs.

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Table of Contents

Research and ~~Development:~~Development

This category includes costs incurred for clinical and regulatory affairs and ~~for product~~other research and ~~development.~~development, as follows:

Selected expense lines: For the years ended
December 31, 2016 December 31, 2015 $ Change % Change
Clinical and Regulatory Affairs:

Wages and related costs $ 569,664 $ 490,802 $ 78,862 16.07 %
Consulting 40,974 44,135 (3,161 ) -7.16 %
Stock-based compensation - - - 100.00 %
Clinical trials 778,921 366,469 412,452 112.55 %
Other 54,851 80,960 (26,109 ) -32.25 %
Total Regulatory 1,444,410 982,366 462,044 47.03 %

R&D Other than Regulatory:

Wages and related costs 2,951,456 2,896,226 55,230 1.91 %
Consulting 143,321 128,117 15,204 11.87 %
Stock-based compensation 89,246 62,713 26,533 42.31 %
Materials and supplies 3,290,868 1,779,046 1,511,822 84.98 %
Other 508,253 529,371 (21,118 ) -3.99 %
Total other than Regulatory 6,983,144 5,395,473 1,587,671 29.43 %

Total Research and Development $ 8,427,554 $ 6,377,839 $ 2,049,715 32.14 %

	For the years ended December 31				Favorable/ (unfavorable)			% Change
	2019		2018		Favorable/ (unfavorable)			% Change
	(in thousands)
Clinical and regulatory affairs	$	1,516	$	1,307	$	(209	)		(16.0	)%
Other research and development		7,022		7,219		197			2.7	%
Total research and development	$	8,538	$	8,526	$	(12	)		(0.1	)%

~~Expenses~~The increase in clinical & regulatory affairs costs for ~~Clinical and Regulatory Affairs for the year ended December 31, 2016 increased by $462,000~~ 2019 as compared to 2018 is primarily associated with new product negotiations in new countries and around the ~~same period in 2015. This was due to an increase of $412,000 in~~world and clinical trial ~~expenses~~costs. The decrease in other research and ~~increased wages and related~~development costs ~~of $79,000.~~is correlates to the reduction in R&D revenue noted above.

R&D expenses other than Clinical & Regulatory Affairs increased by $1,588,000 in the year ended December 31, 2016, as compared with the same period in 2015. The increases were primarily related to an increase in wages and related costs, and in material and supplies, to support our sponsored research and internal development programs.

Selling, General and Administrative ~~Expense:~~Expense

Selected expense lines: For the years ended
December 31, 2016 December 31, 2015 $ Change % Change

Wages and related costs $ 3,559,482 $ 3,060,407 $ 499,075 16.31 %
Consulting 128,992 311,488 (182,496 ) -58.59 %
Commissions 680,545 1,291,453 (610,908 ) -47.30 %
Stock-based compensation 214,913 271,674 (56,761 ) -20.89 %
Marketing materials 375,739 223,445 152,294 68.16 %
Investor relations/investment bankers 298,675 204,198 94,477 46.27 %
Legal, accounting and compliance 1,086,212 879,887 206,325 23.45 %
Travel, entertainment and trade shows 446,541 448,599 (2,058 ) -0.46 %
Bad debt allowance (recovery) - - - 100.00 %
Other 804,460 971,884 (167,424 ) -17.23 %
Total S, G &A $ 7,595,559 $ 7,663,035 $ (67,476 ) -0.88 %

Selling, general and administrative expense includes administrative expenses, sales and marketing costs including commissions, and other corporate items. The $5.0 million, or 45.4% increase in selling, general and administrative expenses for the year ended December 31, ~~2016, decreased by $67,000~~ 2019 as compared ~~with the same period~~to 2018 includes $0.9 million costs from Chembio Diagnostics Germany, $1.1 million higher non-cash equity compensation costs, and $0.7 million of rent and other costs related to leasing our new facility in ~~2015, a 0.9% decrease. This decrease resulted primarily from decreases in consulting, commissions (due to decreased sales to Brazil), and stock-based compensation,~~Hauppauge, NY, which were partially ~~offset by increases~~non-cash in ~~wages~~2019 due to the lease terms.

Acquisition Costs

Acquisition costs include legal, due diligence, audit, and related costs ~~and travel expenses which for 2016 included the continued development of a sales and marketing team over 2015, marketing materials, professional fees and~~associated with acquisitions. The $0.4 million increase in ~~investor relations/investment bankers.~~

~~Other Income and Expense:~~

For the years ended
December 31, 2016 December 31, 2015 $ Change % Change

Other income (expense) $ - $ (4,814 ) $ 4,814 -100.00 %
Interest income 25,548 2,412 23,136 959.20 %
Interest expense - (836 ) 836 -100.00 %
Total Other Income and (Expense) $ 25,548 $ (3,238 ) $ 28,786 889.01 %

~~Other income (expense)~~acquisition costs for the year ended December 31, ~~2016~~2019 as compared to 2018 is associated with spending related to acquisitions. During 2019, these included an audit required for Chembio Diagnostics Germany, as well as diligence and legal costs related to the acquisition of Chembio Dignostics Brazil in November 2019.

Other Income and Expense

Other income and expenses are principally interest income earned on our deposits, net of interest expense, which increased by approximately ~~$29,000, primarily~~$0.9 million for 2019 as compared to 2018 due to the interest ~~income, compared to~~paid on the ~~same period~~term loan debt the company entered into in ~~2015.~~September 2019.

Income ~~tax provision (benefit):~~Tax Provision

For 2019 we recognized a tax benefit of $0.6 primarily attributable to the ~~year ended~~loss generated by Chembio Diagnostics Malaysia. As of December 31, ~~2016~~2019 and 2018, the Company ~~recognized a $5,801,000 non-cash income tax provision and decreased its deferred tax assets by $5,801,000 as the Company took~~recorded a full valuation allowance against its ~~carryforward losses~~net deferred tax assets.

Liquidity and Capital Resources

During 2019, we funded our business operations, including capital expenditures and working capital requirements, principally from cash and cash equivalents. Our operations used $9.1 million of cash. As of December 31, 2019, we had outstanding debt (excluding leases) in the ~~second quarter. For~~amount of $20.2 million (carrying amount of $17.7 million), consisting of loans of $20.0 million under a credit agreement entered into on September 3, 2019 (see “—Sources of Funds—Credit Agreement” below) and $0.2 million under a seller-financed note payable incurred in connection with our purchase of automated manufacturing equipment.

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We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs and our planned growth initiatives. We believe our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months.

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, however, those sources of liquidity become insufficient to fund the growth of our business, we may need to reduce the level or slow the timing of its growth plans, 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, to the extent funding would be available to us on acceptable terms or at all. If we were to raise additional funds through the issuance of equity or convertible securities, the issuance could result in substantial dilution to existing stockholders, and the holders of these new securities or debt may have rights, preferences and privileges senior to those of the holders of common stock.

Sources of Funds

Credit Agreement. On September 3, 2019, we, as borrower, and certain of our subsidiaries, as guarantors, entered into a Credit Agreement and Guaranty, or the Credit Agreement, with Perceptive Credit Holdings II, LP, or the Lender.

• Principal Amount. The Credit Agreement provides for a $20,000,000 senior secured term loan credit facility, which was drawn in full on September 4, 2019. Under the terms of the Credit Agreement, we may use the proceeds (i) for general working capital purposes and other permitted corporate purposes, (ii) to refinance certain of our existing indebtedness and (iii) to pay fees, costs and expenses incurred in connection with the Credit Agreement, including the Lender’s closing cost amount of $550,000, which was netted from the proceeds, and a financing fee of $600,000 (3.0% of gross proceeds) payable to Craig-Hallum Capital Group LLC, our financial advisor for the financing.

• Interest Rate. Principal outstanding under the Credit Agreement bears interest at a rate per annum equal to the sum of (a) the greater of the one-month London Interbank Offered Rate and 2.5% plus (b) 8.75%. At any time at which an event of default (as described under “—Default Provisions” below) has occurred and is continuing, the interest rate will increase by 4.0%. Accrued interest is payable on a monthly basis.

• Scheduled Repayment. No principal repayments are due prior to September 30, 2022, unless we elect to prepay principal as described under “—Optional Prepayment” below or principal is accelerated pursuant to an event of default as described under “—Default Provisions” below. Principal installments in the amount of $300,000 are payable on the last day of each of the eleven months from September 2022 through July 2023, and all remaining principal is payable at maturity on September 3, 2023.

• Optional Prepayment. We may prepay outstanding principal from time to time, subject to payment of a premium on the prepaid principal amount equal to 10% through September 3, 2020, 8% from September 4, 2020 through September 3, 2021, and 4% from September 4, 2021 through September 3, 2022.

No premium will be due with respect to any prepayment made on or after September 4, 2022.

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• Guaranties. Our subsidiaries Chembio Diagnostic Systems Inc. and Chembio Diagnostics Malaysia Sdn Bhd. have guaranteed, and the Lender from time to time may require our other subsidiaries to guarantee, our obligations under the Credit Agreement.

• Security. Our obligations under the Credit Agreement are secured by a first priority, perfected lien on substantially all of our property and assets, including our equity interests in our subsidiaries. Our subsidiary Chembio Diagnostic Systems Inc. has secured its guarantee of our Credit Agreement obligations with a lien on substantially all of its assets, and the Lender from time to time may require Chembio Diagnostics Malaysia Sdn Bhd. and any of our other subsidiaries that has guaranteed our Credit Agreement obligations to do the same.

• Representations and Warranties; Financial and Other Covenants. In the Credit Agreement we made customary representations and warranties as well as customary affirmative and negative covenants, including covenants limiting additional indebtedness, liens, guaranties, mergers and acquisitions, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates, and fundamental changes. The Credit Agreement also contains financial covenants requiring that (i) we maintain aggregate unrestricted cash of not less than $3,000,000 at all times and (ii) we achieve specified minimum rolling four-quarter (“last twelve month”) total revenue amounts as of September 30, 2019 and the last day of each calendar quarter thereafter. The minimum total revenue amounts, which range from $32.0 million to $50.1 million, were developed for purposes of the Credit Agreement and do not reflect the internal estimates and plans used by our management and board of directors to understand and evaluate our operating performance, to establish budgets, and to establish operational goals for managing our business. We therefore do not believe that the covenant requirements provide useful information to investors or others in enhancing an understanding of our future prospects.

• Default Provisions. The Credit Agreement provides for customary events of default, including events of default based on non-payment of amounts due under the Credit Agreement, defaults on other debt, misrepresentations, covenant breaches, changes of control, insolvency, bankruptcy and the occurrence of a material adverse effect on the Company. Upon an event of default resulting from a voluntary or involuntary proceeding for bankruptcy, insolvency or receivership, the amounts outstanding under the Credit Agreement will become immediately due and payable and the Lender’s commitments will be automatically terminated. Upon the occurrence and continuation of any other event of default, the Lender may accelerate payment of all obligations and terminate the Lender’s commitments under the Credit Agreement. Upon an acceleration of payment following an event of default occurring prior to September 4, 2021, the amounts due and payable by us will include a prepayment premium on accelerated principal in the amount described under “—Optional Prepayment” above.

In connection with entering into the Credit Agreement, on September 3, 2019, we issued to the Lender a seven-year warrant, or the Warrant, to purchase up to 550,000 shares of our common stock at a per-share exercise price of $5.22. The Warrant is exercisable for cash or on a net, or “cashless,” basis, and the exercise price of the Warrant is subject to price-based, weighted-average antidilution adjustments for one year after issuance.

Equity and Equity-Related Securities. We did not raise additional capital from a public offering of Common Stock in 2019.

Research and Development Awards. We frequently seek research and development programs that may be awarded by government, non-governmental organizations, and non-profit entities, including private foundations.

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Since 2015 we have earned over $12.2 million of funding from some of the world’s leading health organizations, which has helped us accelerate the expansion of our pipeline of infectious disease tests. Our collaborators have included Bill & Melinda Gates Foundation, The Paul G. Allen Family Foundation, FIOCRUZ and FIND, as well as U.S. government agencies such as CDC, BARDA and the U.S. Department of Agriculture. See “Item 1. Business—Products” above. During the year ended December 31, ~~2015,~~2019, we recognized grant revenue totaling $1.4 million from government, non-governmental organizations, and non-profit entities.

Working Capital. The following table sets forth selected working capital information:

	December 31, 2019
	(in thousands)
Cash and cash equivalents	$	18,271
Accounts receivable, net		3,661
Inventories, net		9,598
Prepaid expenses and other current assets		693
Total current assets		32,223
Less: Total current liabilities		(6,442	)
Working capital	$	25,781

Our cash and cash equivalents at December 31, 2019 were unrestricted and held for working capital purposes. We currently intend to retain all available funds and any future earnings for use in the ~~Company recognized a $1,160,000 non-cash income tax benefit~~operation of our business and ~~increased its deferred tax assets by $1,160,000. The effective tax rate used~~do not anticipate paying any cash dividends. We have not entered into, and do not expect to ~~recognize~~enter into, investments for trading or speculative purposes. Our accounts receivable and inventory balances fluctuate from period to period, which affects our cash flow from operating activities. Fluctuations vary depending on cash collections, client mix, and the ~~benefit in 2015 was 32.0% to record~~timing of shipment of our products and the ~~amount charged. In the 2015 year, non-deductible expenses for tax purposes accounted for most~~invoicing of ~~the difference from the standard 34% U.S. tax rate. The Company still maintains a full valuation allowance on~~our research and development ~~tax credits~~activities.

~~RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2015 AS COMPARED WITH THE YEAR ENDED DECEMBER 31, 2014~~

~~Income~~:Uses of Funds

~~For the year ended December 31, 2015, Loss before income taxes was $3,557,000 compared to Loss before income taxes~~Cash Flow Used in Operating Activities. Our operations used $9.1 million of $1,550,000 for the year ended December 31, 2014. Net Loss for the year ended December 31, 2015 consists not only of the $3,557,000 Loss before income tax described above, but also of the $1,160,000 non-cash income tax benefit described below under "Income tax provision (benefit)". Net Loss for the year ended December 31, 2014 consists not only of the $1,550,000 Loss before income tax described above, but also of the $413,000 non-cash income tax benefit described below under "Income tax provision (benefit)". The change in Loss before income taxes is primarily attributable to decreased revenue and gross margin, and increased operating expenses. Gross margin decreased in the year ended December 31, 2015 as compared with the year ended December 31, 2014, by $327,000, or 3.0%. The increased operating expenses, the most significant of which were an increase in wages and related expenses of $779,000, an increase in materials and supplies for R&D of $758,000, and increased clinical trial expenses of $161,000, partially offset by decreased commission expenses of $141,000, accounted for most of the change in Loss before income taxes.

~~Revenues:~~

Selected Product Categories: For the years ended
December 31, 2015 December 31, 2014 $ Change % Change

Lateral Flow HIV Tests and Components $ 9,957,882 $ 9,518,242 $ 439,640 4.62 %
DPP® Tests and Components
11,265,876 15,655,680 (4,389,804 ) -28.04 %
Other 662,930 775,847 (112,917 ) -14.55 %
Net Product Sales 21,886,688 25,949,769 (4,063,081 ) -15.66 %
License and royalty revenue 52,753 23,257 29,496 126.83 %
R&D, milestone and grant revenue 2,316,044 1,672,258 643,786 38.50 %
Total Revenues $ 24,255,485 $ 27,645,284 $ (3,389,799 ) -12.26 %

~~Revenues for our lateral flow HIV tests and related components~~cash during the year ended December 31, 2015 increased by approximately $440,000 from the same period in 2014. This was primarily attributable to increased sales to Africa, of approximately $1,576,000 and increased sales to Europe of $973,000, partially offset by decreased sales to the U.S. of $1,604,000, and decreased sales to Mexico of $458,000. Revenues for our DPP® products during the year ended December 31, 2015 decreased by approximately $4,390,000 over the same period in 2014, primarily for decreases in sales in Mexico of $3,455,000 and decreases in sales in Brazil to FIOCRUZ of $2,112,000, partially offset by increased sales in the U.S. of $1,011,000. The increase in R&D, and in milestone and grant revenue, was primarily due to revenues from certain development projects that were awarded during the period. R&D revenues include funds, recognized on an "as expenses are incurred" basis or on a milestone basis, from various grants, see footnote 14 of our financial statements.

~~Gross Margin:~~

Gross Margin related to Net Product Sales: For the years ended
December 31, 2015 December 31, 2014 $ Change % Change

Gross Margin per Statement of Operations $ 10,486,827 $ 10,814,023 $ (327,196 ) -3.03 %
Less: R&D, milestone, grant, license and royalties 2,368,797 1,695,515 673,282 39.71 %
Gross Margin from Net Product Sales $ 8,118,030 $ 9,118,508 $ (1,000,478 ) -10.97 %
Product Gross Margin % 37.09 % 35.14 %

The overall gross margin dollar decrease of $327,000 included a $1,000,000 decrease in gross margin from net product sales and a $673,000 increase in non-product revenues. The decrease in net product sales gross margin of $1,000,000 is primarily attributable to the change in product sales compared to 2014. The net product sales gross margin decrease is comprised of two components, one is the decrease in product sales of $4,063,000, which at the 35.1% margin contributed $1,428,000 to the decrease, and the other is the increased change in margin percentage of 2.0% which contributed the balance of $427,000. The 2.0% increase in the percentage, from 35.1% in 2014 to 37.1% in 2015, was primarily due to increased efficiencies from our operations excellence program.

~~Research and Development:~~

~~This category includes costs incurred for clinical and regulatory affairs and for product research and development.~~

Selected expense lines: For the years ended
December 31, 2015 December 31, 2014 $ Change % Change
Clinical and Regulatory Affairs:

Wages and related costs $ 490,802 $ 448,852 $ 41,950 9.35 %
Consulting 44,135 29,741 14,394 48.40 %
Stock-based compensation - 3,231 (3,231 ) -100.00 %
Clinical trials 366,469 205,589 160,880 78.25 %
Other 80,960 93,780 (12,820 ) -13.67 %
Total Regulatory 982,366 781,193 201,173 25.75 %

R&D Other than Regulatory:

Wages and related costs 2,896,226 2,456,514 439,712 17.90 %
Consulting 128,117 123,965 4,152 3.35 %
Stock-based compensation 62,713 41,306 21,407 51.83 %
Materials and supplies 1,779,046 1,021,516 757,530 74.16 %
Other 529,371 408,043 121,328 29.73 %
Total other than Regulatory 5,395,473 4,051,344 1,344,129 33.18 %

Total Research and Development $ 6,377,839 $ 4,832,537 $ 1,545,302 31.98 %

Expenses for Clinical and Regulatory Affairs for the year ended December 31, 2015 increased by $201,000 as compared to the same period in 2014. This was primarily due to an increase of $161,000 in clinical trial expenses and increased wages and related costs of $42,000.

R&D expenses other than Clinical & Regulatory Affairs increased by $1,344,000 in the year ended December 31, 2015, as compared with the same period in 2014. The increases were primarily related to an increase in wages and related costs, and in material and supplies, to support our sponsored research and internal development programs.

~~Selling, General and Administrative Expense:~~

Selected expense lines: For the years ended
December 31, 2015 December 31, 2014 $ Change % Change

Wages and related costs $ 3,060,407 $ 2,763,370 $ 297,037 10.75 %
Consulting 311,488 456,658 (145,170 ) -31.79 %
Commissions 1,291,453 1,432,567 (141,114 ) -9.85 %
Stock-based compensation 271,674 399,334 (127,660 ) -31.97 %
Marketing materials 223,445 345,426 (121,981 ) -35.31 %
Investor relations/investment bankers 204,198 168,410 35,788 21.25 %
Legal, accounting and compliance 879,887 662,522 217,365 32.81 %
Travel, entertainment and trade shows 448,599 320,280 128,319 40.06 %
Bad debt allowance (recovery) - 28,000 (28,000 ) -100.00 %
Other 971,884 955,172 16,712 1.75 %
Total S, G &A $ 7,663,035 $ 7,531,739 $ 131,296 1.74 %

Selling, general and administrative expenses for the year ended December 31, 2015, increased by $131,000 as compared with the same period in 2014, a 1.7% increase. This increase resulted primarily from increases in wages and related costs and travel expenses, which for 2015 included the continued development of a sales and marketing team over 2014, professional fees and in investor relations/investment bankers, which were partially offset by decreases in consulting, commissions (due to decreased sales to Brazil), stock-based compensation, and marketing materials.

~~Other Income and Expense:~~

For the years ended
December 31, 2015 December 31, 2014 $ Change % Change

Other (expense) $ (4,814 ) $ (5,707 ) $ 893 15.65 %
Interest income $ 2,412 $ 5,839 $ (3,427 ) -58.69 %
Interest expense (836 ) - (836 ) 100.00 %
Total Other Income and (Expense) $ (3,238 ) $ 132 $ (3,370 ) -2,553.03 %

~~Other (expense) for the year ended December 31, 2015 decreased approximately $3,400, primarily due to decreased interest income, compared to the same period in 2014.~~

~~Income tax provision (benefit):~~

For the year ended December 31, 2015 the Company recognized a $(1,160,000) non-cash income tax benefit and increased its deferred tax assets by $(1,160,000). For the year ended December 31, 2014, the Company recognized a $(413,000) non-cash income tax benefit and increased its deferred tax assets by $(413,000). The effective tax rate used to recognize the benefit in 2015 was 32.0% compared to a 26.6% rate used in 2014 to record the amount charged. In both years non-deductible expenses for tax purposes accounted for most of the difference from the standard 34% U.S. tax rate. The Company maintains a full valuation allowance on research and development tax credits.

~~MATERIAL CHANGES IN FINANCIAL CONDITION~~

Selected Changes in Financial Condition As of
December 31, 2016 December 31, 2015 $ Change % Change
Cash and cash equivalents $ 10,554,464 $ 5,376,931 $ 5,177,533 96.29 %
Accounts receivable, net of allowance for doubtful accounts of $52,000 and $52,000 at December 31, 2016 and 2015, respectively 3,383,729 2,422,971 960,758 39.65 %
Prepaid expenses and other current assets 840,145 1,256,879 (416,734 ) -33.16 %
Fixed assets, net of accumulated depreciation 1,709,321 2,374,308 (664,987 ) -28.01 %
Deferred tax asset, net of valuation allowance - 5,467,143 (5,467,143 ) -100.00 %
Deposits and other assets 720,489 209,169 511,320 244.45 %
Accounts payable and accrued liabilities 3,013,133 2,801,432 211,701 7.56 %
Deferred revenue 392,517 353,406 39,111 11.07 %
Additional paid-in capital 60,721,783 47,890,642 12,831,141 26.79 %

Cash increased by $5,178,000 from December 31, 2015, primarily due to net cash provided by financing activities for the year of 2016. The Company raised, net of expenses, approximately $12,500,000 which was partially offset by cash used in operating activities for the year of 2016. In addition there were increases in accounts receivable, net of allowance, of $961,000, deposits, accounts payable and accrued liabilities of $212,000 and other assets of $511,000, deferred revenue of $39,000, and decreases in fixed assets of $665,000 after depreciation, prepaid expenses of $417,000, non-current deferred tax asset of $5,467,000, and an increase in additional paid-in-capital of $12,831,000.

The accounts receivable increase from December 31, 2015, is primarily due to an increase in December 2016 versus December 2015 sales of approximately $1.50 million, partially offset by lower sales in prior months. The decrease in fixed assets is primarily due to depreciation for the year ending December 2016 versus December 2015. Deferred tax asset decrease is related to recording of a full valuation allowance.

~~LIQUIDITY AND CAPITAL RESOURCES~~

For the years ended
December 31, 2016 December 31, 2015 $ Change % Change

Net cash provided by (used in) operating activities $ (6,704,734 ) $ 1,792,978 $ (8,497,712 ) -473.94 %
Net cash used in investing activities (668,706 ) (1,030,585 ) 361,879 35.11 %
Net cash provided by financing activities 12,550,973 - 12,550,973 100.00 %
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 5,177,533 $ 762,393 $ 4,415,140 579.12 %

The Company's cash increased as of December 31, 2016 by $5,178,000 from December 31, 2015, primarily due to net cash provided by operating activities and partially offset by cash used in investing activities for 2016.

~~The cash used in operations in 2016 was $6,705,000,~~2019, primarily due to the net loss ~~net of~~adjusted for non-cash items of ~~$6,103,000 and with an increase~~$10.6 million, a $3.8 million decrease in accounts receivable ~~of $961,000,~~related to favorable collections timing, and a $1.5 million increase in ~~prepaid~~inventory related to supply chain timelines.

Acquisition. In November 2019, we acquired all of the equity interests of Orangelife for a purchase price net of cash acquired of $100,000 in cash, and 153,707 common shares, with an additional 316,456 common shares that would be deliverable as an earnout, based on the achievement of certain milestones between 2020 and 2022.

Capital Expenditures. During the year ended December 31, 2019, we advanced our plan to invest in automated manufacturing equipment, facilities, and other ~~current assets of $136,000, and a decrease~~fixed assets. Our capital expenditures totaled $3.5 million in accounts payable and other accrued liabilities of $212,000, partially offset by a decrease in inventories of $243,000, decrease in deposits and other assets of $1,000, and an increase in deferred revenue of $39,000. Net loss net of non-cash items includes net loss of $13,347,000 partially offset by $5,801,000 in income tax provision, $1,139,000 in depreciation and amortization, and $304,000 in share-based compensation. The use of cash from investing activities is primarily the purchase of fixed assets and acquisition of licenses.2019.

~~Fixed Asset Commitments~~Effects of Inflation

AsInflation and changing prices have not had a material effect on our business, and we do not expect that they will materially affect our business in the foreseeable future. Any impact of ~~December 31, 2016,~~inflation on cost of revenue and operating expenses, especially employee compensation costs, may not be readily recoverable in the ~~Company had paid deposits on various pieces~~price of equipment aggregating $31,900 which is reflected in Deposits on manufacturing equipment on the balance sheet. As of December 31, 2016, the Company was not committed to additional equipment-purchase obligations.our product offerings.

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~~RECENT DEVELOPMENTS AND CHEMBIO'S PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS~~

During 2016, Chembio took three important strategic steps which management believes will position the Company for growth. First, the Company continued to expand its product portfolio, leveraging its patented DPP^® technology platform. Second, the Company expanded its global sales and marketing infrastructure, strengthening its U.S. sales leadership and building its first international sales team. Third, the Company expanded its operational capabilities, acquiring a Malaysia-based operation.

~~Expanding Chembio's Product Portfolio~~

For nearly fifteen years, Chembio was primarily focused on POC HIV testing and succeeded in commercializing multiple FDA-approved and CLIA-Waived POC HIV tests. In 2014, the Company made the strategic decision to expand its product portfolio and focus on three initiatives: 1) strengthening its core sexually transmitted disease business, 2) building a highly-differentiated fever and tropical disease business, and 3) establishing technology collaborations to further leverage its patented DPP^® ~~technology platform.~~

~~1. Strengthening the Company's core sexually transmitted disease business began with the decision to terminate its U.S. distribution agreements for HIV 1/2 Stat-Pak~~^® ~~Assay in 2014 and SURE CHECK HIV~~^® ~~1/2 Assay in 2016, which provided the Company with worldwide commercial control~~Table of ~~its legacy POC HIV tests, which are FDA-approved, CLIA-waived, WHO Prequalified and CE marked. The Company leveraged its DPP~~^® technology platform to develop a DPP® HIV 1/2 Assay, which became FDA-Approved and CLIA-Waived in October 2014 for use with blood and oral fluid, the second such entrant in the U.S. market. Finally, following the introduction of its DPP^® ~~HIV-Syphilis Assay in Latin America, the Company has prioritized the development of a DPP~~^® ~~HIV-Syphilis Assay for the U.S. market to address the rise in HIV and Syphilis co-infection.~~

2. Building a highly-differentiated fever and tropical disease business began as a response to the 2014-2015 Ebola outbreak in West Africa, which led to the Company's decision to enter the fever and tropical disease market. Today, the Company is developing eight POC fever and tropical disease tests, specifically the following: DPP^® ~~Malaria Assay, DPP~~^® ~~Zika Assay, DPP~~^® ~~Dengue Fever Assay, DPP~~^® ~~Chikungunya Assay, DPP~~^® ~~Zika/Dengue/Chikungunya Assay, DPP~~^® ~~Fever Assay (Malaria, Zika, Dengue, Chikungunya, Ebola, Lassa, Marburg), DPP~~^® ~~Ebola Assay, and DPP~~^® Ebola-Malaria Assay. The Company's fever and tropical disease products are being developed through collaborations and/or funding's from the Bill & Melinda Gates Foundation, the Paul G. Allen Family Foundation, the Centers for Disease Control and Prevention (CDC), the U.S. Department of Health and Human Services (HHS), the Office of the Assistant Secretary for Preparedness and Response, and the Biomedical Advanced Research and Development Authority (BARDA).

~~3. Establishing technology collaborations to further leverage the Company's patented DPP~~^® technology platform has allowed the Company to advance the development of novel POC tests in areas with unmet medical needs, such as traumatic brain injury (concussion), a specific form or cancer, and bovine tuberculosis in cattle. The collaborations and external funding can be attributed to the unique characteristics of the Company's DPP^® technology platform as compared to traditional lateral flow technology, such as enhanced sensitivity and specificity, the ability to multiplex, and the ability to provide a semi-quantitative result when combined with Chembio's DPP^® ~~Micro Reader.~~

~~Expanding Chembio's Sales & Marketing Infrastructure~~

Prior to 2014, Chembio's HIV products were sold through a single, exclusive distribution partner in the U.S. market, the majority of the Company's international sales were limited to a few countries, and the Company had no internal commercialization infrastructure. Between 2014 and 2016, Chembio took important steps to gain control of its HIV products in the U.S. market, ending the longstanding relationship with its previous distribution partner and building its own U.S. sales and marketing team to sell its DPP^® ~~HIV, STAT-PAK~~^® ~~HIV, and SURE CHECK~~^® HIV products in the U.S. market. In addition, the Company has partnered with professional distributors such as Fisher, McKesson/PSS, Henry Schein and Medline to establish a geographic coverage model in the U.S. market.

To lead this growing infrastructure, Chembio recently appointed two senior executives to direct the expansion of the Company's global commercial operations. Robert Passas, Ph.D., joined the Company in October 2016 as President, EMEA and APAC regions, and is responsible for commercial operations in Europe, the Middle East, Africa, and Asia. Prior to joining the Company, Dr. Passas held positions of increasing responsibility at Abbott, Quidel, The Binding Site, and Trinity Biotech. In his most recent position, he was responsible for worldwide marketing and international sales at Trinity Biotech.

Sharon Klugewicz, who most recently served as Chembio's Chief Operating Officer, was promoted to President, Americas region in October 2016, with responsibility for commercial operations in the United States, Latin America, and Canada. Ms. Klugewicz is responsible for sales, marketing, customer support, clinical and regulatory affairs, and quality systems in the Americas, and will be tasked with leading the U.S. commercial team and expanding commercial operations throughout Latin America, the U.S. and Canada. Prior to joining the Company in 2012, she spent 20 years at Pall Corporation where she held positions of increasing responsibility, including Senior Vice President, Scientific and Laboratory Services.

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In addition, Chembio has recently hired three international sales executives to oversee commercial expansion in specific regions. Javier Gutman was named Regional Director, Latin America; Kenneth Burns was named Regional Director, Africa; and Mohan Anasalam was named Regional Director, Asia Pacific. Each of these sales executives brings considerable experience to Chembio, and each will focus on increasing product sales, strengthening and expanding the Company's distribution channels, and providing local support to customers and commercial partners in their respective areas of Latin America, Africa and Asia Pacific.

Today, led by experienced executives with extensive experience in global diagnostic sales, Chembio is building a world-class commercialization organization with focus on the U.S., Europe, Africa, Asia Pacific and Latin America.

~~Expanding Chembio's Operational Capabilities~~

In November 2016, Chembio announced plans to acquire Malaysia-based RVR Diagnostics ("RVR"), a strategic decision to expand the Company's operational capabilities, increasing manufacturing capacity and establishing a physical presence in Southeast Asia.

Previously, in 2014, Chembio entered into two agreements with RVR, a privately-held company in Malaysia. The agreements were intended to build a Chembio presence in Asia and establish RVR as a licensee, distributor and contract manufacturer. Through these agreements, RVR acquired rights to license, manufacture and distribute certain Chembio products in Southeast Asia. Between 2014 and 2016, RVR achieved a number of important milestones under the agreements, including the following:

•	~~completed a manufacturing facility capable of producing DPP® Assays and obtained ISO 13485 certification;~~

•	~~provided funding to accelerate the development of Chembio's DPP® Dengue Assay;~~

•	~~received regulatory approval to market and sell products in certain Southeast Asia countries;~~

•	~~obtained RVR Dengue tender award in Malaysia, which resulted in 2016 revenue in excess of US$1 million.~~

In light of the considerable progress made by RVR, and to further support Chembio's global product and commercialization strategies, Chembio acquired RVR in January 2017. As a subsidiary of Chembio, RVR provides an important base of operations, providing additional revenue, a strategically located and cost-effective manufacturing facility, and a path to regulatory access in Southeast Asia that management believes will be an important growth driver.

~~Overview of Chembio's Business~~

~~Sexually Transmitted Disease:~~

Chembio's sexually transmitted disease product sales decreased during 2016, primarily due to the Company's loss of ongoing DPP® HIV and DPP® Syphilis product sales as a result of a previously disclosed tender offer in Brazil having been awarded to a competitor at an extremely low price point as well as lower sales of HIV products in Africa. Despite the loss of the HIV and Syphilis tender in Brazil, Chembio continues to supply other novel DPP^® ~~products to Bio-Manguinhos/Fiocruz, and the Ministry of Health in Brazil. These products include DPP~~^® ~~HIV Confirmatory Assay and DPP~~^® Leishmania Assay. Given Chembio's product portfolio in sexually transmitted disease, coupled with the expansion of our global commercial resources, the Company believes the Unites States, Latin America, Africa, and Asia Pacific will be important current and future markets for its sexually transmitted disease products.

~~In the U.S., sales of the Company's POC HIV Assays showed positive trends. During 2016, U.S. sales of the HIV 1/2 STAT-PAK~~^® ~~Assay increased 34.7% as compared to 2015. We are also seeing very encouraging U.S. sales of the SURE CHECK~~^® ~~HIV 1/2 Assay. During the fourth quarter of 2016, U.S. sales of the SURE CHECK~~^® HIV 1/2 Assay increased by approximately $516,000 or 230.5% as compared to the third quarter of 2016. Our U.S. HIV sales are bolstered by a receipt of a two-year HIV tender for the state of Florida, which the Company was awarded during the fourth quarter of 2016 and of a two-year HIV tender for another state, which the Company was awarded subsequent to the end of 2016. This growth provides evidence that we are effectively rebuilding the U.S. HIV STAT-PAK^® ~~and SURE CHECK~~^® ~~HIV business, after we took back the U.S. distribution rights to these products in June 2014 and June 2016 respectively.~~

~~Looking toward 2017 sales of Chembio's sexually transmitted disease products, the Company recently received CE Mark for the DPP~~^® HIV-Syphilis Assay, clearing the product to be marketed and sold within the member states of the European Union and the Caribbean region, except for Puerto Rico and the U.S. Virgin Islands. The Company continued to advance the clinical trial for its DPP^® HIV-Syphilis Assay for the U.S. market during 2016, which is expected to be completed as planned, in the first quarter of 2017. As we've stated previously, we are striving to be the first-to-market in the U.S. with an HIV-Syphilis combination test.

~~Fever Disease:~~

~~During 2016, Chembio significantly advanced the development of its fever disease products, including: DPP~~^®~~Malaria Assay, DPP~~^® ~~Dengue Assay, DPP~~^® ~~Zika Assay, DPP~~^® ~~Chikungunya Assay, DPP~~^® ~~Zika/Dengue/Chikungunya Assay, DPP~~^® ~~Fever Panel Assay, DPP~~^® ~~Ebola Assay, and DPP~~^® Malaria/Ebola Assay. Also during 2016, the Company pursued and received numerous grants which fund much of the fever disease development initiatives, including funding from the Paul G. Allen Family Foundation, the Bill & Melinda Gates Foundation, and the U.S. Government (HHS/ASPR/BARDA and CDC). In addition, during the first quarter of 2016, the Company also entered into a collaboration with Bio-Manguinhos/Fiocruz for the development of POC Zika diagnostic tests for Brazil.

Of particular note is the Company's work to develop a much-needed alternative to currently available molecular tests for the Zika virus that have limited utility as they are accurate only during a narrow window of time, approximately one week, between initial Zika virus exposure and the patient's development of detectable antibodies to the virus, a process known as seroconversion. Following seroconversion, antibody tests are recommended to accurately identify Zika virus infections. The DPP^® ~~Zika IgM/IgG Assay is an antibody test that will provide timely results, during the patient consultation. The DPP~~^® ~~Zika System, which includes the DPP~~^® ~~Zika IgM/IgG Assay and DPP~~^® Micro Reader, detects both IgM and IgG antibodies, uses a 10uL fingerstick blood sample, and provides semi-quantitative results in 15 minutes. Though Chembio's Zika program was only initiated in February 2016, by September 2016, the Company was awarded a contract by the CDC for the purchase of POC surveillance diagnostic assays for Zika, Dengue and Chikungunya. Under the terms of the contract, during the first quarter of 2017 Chembio will supply its DPP^® ~~Zika IgM/IgG Assay, DPP~~^® ~~Zika/Chikungunya/Dengue IgM/IgG Combination Assay, and DPP~~^® ~~Micro Reader to the CDC, for a surveillance testing pilot program in India, Peru, Guatemala and Haiti.~~

Concurrent with this important development work, Chembio is moving expeditiously to complete regulatory filings that will ultimately determine the availability of our products to the regions in need. In July 2016, a CE Mark was obtained that allowed the Company to begin commercializing the DPP^®~~Zika IgM/IgG System, which includes an assay utilizing the patented DPP~~^® ~~technology, as well as a digital reader, the DPP~~^® Micro Reader, in 17 European countries, including the United Kingdom, Germany, and France, as well as a majority of the Caribbean nations. During the fourth quarter of 2016, Chembio initiated sales of the DPP^® ~~Zika system via its exclusive Caribbean distribution partner, Isla Labs.~~

~~In November 2016, the Company received approval for commercial use of its DPP~~^® Zika IgM/IgG Assay by the Brazilian health regulatory agency, Agência Nacional de Vigilância Sanitária (ANVISA), and during the first quarter 2017, the Company was notified of the successful evaluation of the DPP^® Zika system by INCQS, Brazil's National Institute for Quality Control in Health. Brazil has been hardest hit by the Zika virus, where it is estimated that 1.5 million people have been infected with Zika virus and approximately 2,000 babies have been born with microcephaly, a devastating birth defect linked to the Zika virus. For this reason the Company is particularly pleased to receive approval from Brazil's health regulatory agency, and we look forward to initiating sales of our DPP^® ~~Zika IgM/IgG Assay, following ANVISA approval of the DPP~~^® ~~Micro Reader. There is no assurance of the timing of this approval or that it will occur at all.~~

~~Beyond these approvals, the Company made multiple other regulatory filings during 2016 for the DPP~~^®Zika IgM/IgG Assay, including an Emergency Use Authorization (EUA) submission with the U.S. Food and Drug Administration (FDA), an Emergency Use Assessment and Listing (EUAL) with the World Health Organization (WHO), and a submission with Cofepris in Mexico. Supplementing these filings, the Company is engaged fully with these agencies in the hope of facilitating the earliest possible approvals.

~~Technology Collaborations:~~

~~Chembio currently has the following ongoing technology collaborations: DPP~~^® ~~Cancer Assay for a specific form of cancer, DPP~~^®~~Traumatic Brain Injury Assay, and DPP~~^® ~~BovidTB Assay. We are pleased to report that we made progress with each of these programs in 2016.~~

~~The DPP~~^® Cancer Assay, which is funded by an undisclosed entity, targets a specific form of cancer. We have successfully completed the feasibility phase of the program and moved into the product development stage, which is also funded by the undisclosed entity. The results to-date with this program have been highly encouraging. With success, we are hopeful that we'll be able to find additional applications for our DPP^® ~~technology in the broader oncology market.~~

We also made important advances with our DPP® Traumatic Brain Injury Assay program during 2016. This project, which is funded by Perseus Science Group, LLC, is in the feasibility phase. We recently finalized institutional review board (IRB) agreements with several hospitals and began conducting initial studies of the DPP® Traumatic Brain Injury Assay using patient samples.

~~The DPP~~^® BovidTB Assay is a rapid POC test for the detection of bovine tuberculosis (TB). In September 2016, the Company was awarded a $600,000 grant from the United States Department of Agriculture (USDA) to develop the DPP^® ~~BovidTB Assay. Under the two-year grant, Chembio will use its patented DPP~~^® ~~technology in an effort to develop a simple, rapid, accurate and cost-effective test for bovine TB in cattle. The DPP~~^® ~~BovidTB Assay will be designed to provide results within 20 minutes, thereby significantly improving on the time-consuming, tedious and inadequate diagnostic methods currently in use.~~

~~Conclusion~~

~~During 2016, the Company made significant advances to expand its product portfolio, its sales and marketing infrastructure, and its operational capabilities.~~

The product strategy includes three strategic initiatives: strengthening the Company's core sexually transmitted disease, building a highly-differentiated fever and tropical disease, and establishing technology collaborations to further leverage the Company's patented DPP^® ~~technology platform. Though the Company only initiated its fever disease program in late 2014, sales of two fever disease products were initiated in 2015 (DPP~~^® ~~Ebola, DPP~~^® ~~Malaria-Ebola) and expanded in late 2016 (DPP~~^® ~~Zika Assay). The efficiency with which these products were developed, and regulatory clearances were obtained, speaks to the versatility of the Company's patented DPP~~^® ~~technology platform, the Company's scientific expertise, and its commitment to fever disease. It further highlights Chembio's ability to succeed with a range of new product opportunities.~~

The commercial strategy shifted from a product supply model, in which the Company relied on others to market and sell its products, to taking critical steps to build a global sales and marketing organization. Prior to 2014, the Company had no sales infrastructure. Today, Chembio has experienced sales leadership guiding the Company's global commercialization plan, with focus on the U.S., Europe, the Middle East, Africa, Asia, and Latin America. The new sales and marketing leadership joined Chembio starting in Q4 of 2016 with 2017 goals of increasing product sales, strengthening and expanding the Company's distribution channels, and providing local support to customers and commercial partners around the world. With several fever and HIV products receiving regulatory approvals in late 2016, there is great optimism for 2017 sales.

And the operational strategy was significantly expanded beyond Medford, NY to incorporate Malaysia-based RVR Diagnostics. The acquisition, of RVR provides Chembio with an important base of operations, providing additional revenue, a strategically located and cost-effective manufacturing facility, and a path to regulatory access in Southeast Asia that management believes will be an important growth driver.

~~2016 was an important year for Chembio, but it was merely a starting point for this new global organization.~~

~~Contractual Obligations and Commercial Commitments~~

~~The following sets forth our approximate aggregate obligations as of December 31, 2016 for future payments under contracts and other contingent commitments, for the year 2017 and beyond:~~

Payments due by period
Contractual Obligations Total Less than one year 1 - 3 years 3-5 years More than 5 years
Operating leases¹

$ 370,085 $ 306,018 $ 64,067 $ - $ -
Employment contracts²
907,000 516,200 390,800 - -
Purchase obligations³
694,725 694,725 - - -
Minimum commitments under contracts⁴
532,627 333,627 92,000 77,000 30,000

Total contractual obligations $ 2,504,437 $ 1,850,570 $ 546,867 $ 77,000 $ 30,000

¹	~~Represents payments required under our operating leases. See Note 13 of the Notes to the consolidated financial statements included herein.~~
²	~~Represents salary payments payable under the terms of employment agreements executed by us with certain executives. See Note 13 of the Notes to the consolidated financial statements included herein.~~
³	~~Represents payments required by non-cancellable purchase orders related to inventory, capital expenditures and other goods or services.~~
⁴	Represents payments required pursuant to certain licensing agreements executed by the Company. These agreements are cancellable within a specified number of days after communication by the Company of its intent to terminate.

Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of ~~1934,~~1934.

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies are described in Note 3 – Significant Accounting Policies to the audited consolidated financial statements included herein. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and information available from other outside sources, as ~~amended.~~

appropriate. We consider an accounting estimate to be critical if:

It requires us to make assumptions about matters that were uncertain at the time we were making the estimate, and

~~Critical Accounting Policies and Estimates~~

Changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

The ~~preparation~~following listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the ~~financial statements in conformity with~~accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, ~~of America requires management to make estimates and assumptions that affect the amounts reported~~with no need for management’s judgment in ~~the financial statements and accompanying notes. Actual results could differ~~their application. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially ~~from those estimates.~~

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management's judgments and estimates. These significant accounting policies relate to revenue recognition, research and development costs, valuation of inventory, valuation of long-lived assets and income taxes. These policies, and the related procedures, are described in detail below.different result.

Revenue Recognition –

We recognize revenue for product sales in accordance with FASB ASC ~~605.~~ 606, Revenue isfrom Contracts with Customers. Revenues from product sales are recognized when ~~there~~the customer obtains control of our product, which occurs at a point in time, typically upon tendering to the customer. We expense incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is ~~persuasive evidence~~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. We have made an ~~arrangement, delivery has occurred~~accounting policy election to account for shipping and handling activities that occur either when or ~~services have been rendered,~~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 excludes certain taxes from the transaction price (e.g., sales, ~~price is determinable,~~value added and ~~collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates and returns.~~some excise taxes).

For certain contracts, we recognize revenue from ~~R&D,~~research and development, milestone and grant revenues when earned. Grants are invoiced after expenses are incurred. Revenues from projects or grants funded in advance are deferred until earned.

For certain collaborative research projects, we recognize revenue by defining milestones at the inception of the agreement and applying ~~the milestone method of~~judgement and estimates in recognizing revenue ~~recognition~~ for relevant contracts.

Stock-Based Compensation –

We recognize the fair value of equity-based awards as compensation expense in our consolidated statement of operations. The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. The fair value of our stock option awards was estimated using a Black-Scholes option valuation model. This valuation ~~model's~~model’s computations incorporate highly subjective assumptions, such as the expected stock price volatility and the estimated life of each award. The fair value of ~~the options,~~equity-based awards, after considering the effect of expected forfeitures, is then amortized, generally on a straight-line basis, over the related vesting period of the option. ~~The fair value of our restricted shares is based on the market value of the shares at the date of grant and is recognized on a straight-line basis over the related vesting period of the award.~~

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Research &and Development Costs –

Research and development activities consist primarily of new product development, continuing engineering for existing products, and regulatory and clinical trial costs. Costs related to research and development efforts on existing or potential products are ~~expensed~~expensed/accrued as incurred.

~~Valuation of~~ Inventories –

Inventories are stated at the lower of cost ~~or market,~~and net realizable value, using the first-in, first-out method, ~~(FIFO)~~or FIFO, to determine cost. Our policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a reserve for any inventory considered slow moving or obsolete. For example, each additional 1% of obsolete inventory would reduce such inventory by approximately ~~$35,000.~~$95,980.

~~Allowance for doubtful accounts –~~Accounts Receivable

Our policy is to review our accounts receivable on a periodic basis, no less frequently than monthly. On a quarterly basis an analysis is made of the adequacy of our allowance for doubtful accounts and adjustments are made accordingly. The current allowance is approximately 2%0.6% of accounts receivable. For example, each additional 1% of accounts receivable that becomes uncollectible would reduce such balance of accounts receivable by approximately ~~$32,000.~~$36,613.

Acquisitions

In accordance with accounting guidance for the provisions in FASB ASC 805, Business Combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. In addition, an acquisition may include a contingent consideration component. The fair value of the contingent consideration is estimated as of the date of the acquisition and is recorded as part of the purchase price. This estimate is updated in future periods and any changes in the estimate, which are not considered an adjustment to the purchase price, are recorded in our consolidated statements of operations.

We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We may adjust the preliminary purchase price allocation, if necessary, up to one year after the acquisition closing date if we obtain more information regarding asset valuations and liabilities assumed that materially differs from the information available during the time of close.

Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.

Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions, actuarial assumptions for benefit plans and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

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Goodwill and Intangible Assets

We periodically review goodwill for impairment indicators. We review goodwill for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill might be impaired. We perform the goodwill impairment review at the reporting unit level. We perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If so, we perform the step discussed hereafter. Our qualitative assessment involves significant estimates, assumptions, and judgments, including, macroeconomic conditions, industry and market conditions, our financial performance, reporting unit specific events and changes in our share price.

If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered to be impaired. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

Income Taxes –

Income taxes are accounted for under FASB ASC 740, Income Taxes, authoritative guidance, ~~("Guidance")~~which we refer to as the Guidance and which requires the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered.

The Guidance also requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence needs to be considered, including a ~~company's~~company’s current and past performance, the market environment in which the company operates, length of carryback and carryforward periods and existing contracts that will result in future profits. The Company believes that it will not be able to utilize its net operating loss carryforwards and maintains a full valuation allowance. The Company still maintains a full valuation allowance on research and development tax credits.

The Guidance also prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the consolidated financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America ("U.S. GAAP"), with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any viable alternative would not produce a materially different result. See our audited financial statements and notes thereto which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.Recently Issued Accounting Pronouncements

~~Recent~~Refer to Note 3 – Significant Accounting ~~Pronouncements –~~

~~In May 2014,~~Policies to the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on ouraudited consolidated financial statements ~~and~~included herein for a complete description of recent accounting standards which we have not yet determined the method by which we will adopt the standard in 2018. The Company has conducted a preliminary analysis of its sales contracts which are based on the shipment of goods to the customer, and currently this new accounting standard will not have a material impact on its consolidated financial statement for our sales contracts. The Company has conducted a preliminary analysis of its current R&D contracts which are currently based on "as expenses are incurred" basis, and currently this new accounting standard will not have a material impact on its consolidated financial statement for our current R&D contracts.

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 arebeen required to ~~separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still~~implement which may be ~~required under~~applicable to our operations. Additionally, the ~~new guidance. This guidance will be effective for Chembio beginning in 2018, with early adoption permitted. The Company does not believe this new~~significant accounting ~~standard update will~~standards that have ~~a material impact on its consolidated financial statements.~~

In February 2016, the FASB issued Accounting Standards Update ("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 US GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. We are in the initial stages of evaluating the effect of the standard on our 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 March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will change certain aspects of accounting for share-based payments to employees. ASU 2016-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The Company is currently in the initial stages of evaluating the impact of the provisions of ASU 2016-09. We are still evaluating this standard and currently the Company does not believe this new accounting standard will have a material impact on its consolidated financial statement.

~~ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.~~

~~We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item.~~

~~As of December 31, 2016, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows. Sales for~~been adopted during the year ended December 31, ~~2016~~2019 are ~~in U.S. Dollars (USD).~~described.

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and schedules that constitute Item 8 are attached at the end of this ~~Annual Report on Form 10-K.~~report. An index to ~~these~~the Consolidated Financial Statements and schedules is also included on page F-1 of this ~~Annual Report on Form 10-K.~~report.

~~ITEM 9.~~

~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.~~

~~Not Applicable.~~

ITEM 9A.

~~CONTROLS AND PROCEDURES~~Controls and Procedures

~~(a)~~Evaluation of Disclosure Controls and ~~Procedures. Under the supervision and~~Procedures

Our management, with the participation of our ~~senior management, consisting of our chief executive officer~~Interim Chief Executive Officer and ~~our chief financial officer, we conducted an evaluation of~~Chief Financial Officer, evaluated the effectiveness ~~of the design and operation~~ of our disclosure controls and procedures, ~~(as~~as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2019. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules ~~13a-15(e)~~13a-15(f) and ~~15d-15(e)~~15d-15(f) promulgated under the Securities Exchange Act of 1934 as ~~amended (the "Exchange Act")), as of the end of the period covered~~a process designed by, this report (the "Evaluation Date"). Based on that evaluation, the Company's management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our Exchange Act reports is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting. The Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is a process,or under the supervision of, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer, designed~~Chief Financial Officer and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles ~~in the United States. These internal controls over financial reporting processes include~~and includes those policies and procedures that:

~~Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;~~

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

~~Management's Report on Internal Control over Financial Reporting~~

~~Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).~~

~~The Company's internal control over financial reporting includes those policies and procedures that (i)~~ pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the ~~Company; (ii)~~ company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the ~~Company~~company are being made ~~only~~ in accordance with authorizations of management and directors of the ~~Company;~~company; and ~~(iii)~~

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the ~~Company's~~company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting ~~can only provide reasonable assurance and~~ may not prevent or detect misstatements. ~~Also, projections~~As a result, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our ~~management, including the~~Interim Chief Executive Officer ~~(CEO)~~ and ~~the~~ Chief Financial Officer, ~~(CFO), we conducted an evaluation of~~our management evaluated the effectiveness of our internal control over financial reporting as of December 31, ~~2016, based on~~2019. In making their assessment of internal control over financial reporting, our management used the ~~framework and~~ criteria described in the 2013 Internal ~~Control –~~ Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission (COSO).~~Commission. Our evaluation included documenting, evaluating and testing of the design and operating effectiveness of our internal control over financial reporting. Based on ~~management's~~this evaluation, ~~and those criteria, the CEO and CFO~~we concluded that ~~its system~~our controls over financial reporting were effective as of December 31, 2019.

Previously Identified Material Weaknesses in Internal Control Over Financial Reporting

None.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting ~~was effective as~~identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of ~~December 31, 2016.~~

~~The Company's independent registered public accounting firm has issued an attestation report~~the Securities Exchange Act of 1934 during the period covered by this Annual Report on ~~the Company's~~Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Dated: March 7, 2017~~ ~~/s/ John J. Sperzel~~

~~John J. Sperzel III~~

~~Chief Executive Officer~~

~~Dated: March 7, 2017~~ ~~/s/ Richard J. Larkin~~

~~Richard J. Larkin~~

~~Chief Financial Officer~~

4551

Table of Contents

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors ~~and Stockholders of~~

Chembio Diagnostics, Inc.

~~Medford,~~Hauppauge, New York

Opinion on Internal Control over Financial Reporting

We have audited ~~the~~Chembio Diagnostics, Inc.’s (the “Company’s”) internal control over financial reporting ~~of Chembio Diagnostics, Inc. and subsidiaries (the "Company")~~ as of December 31, ~~2016,~~2019, based on criteria established in Internal ~~Control—~~Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ~~(COSO)~~(the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and our report dated March 13, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The ~~Company's~~Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~Management's~~“Item 9A, Management’s Report on Internal Control over Financial ~~Reporting ("Management's Report")~~Reporting”. Our responsibility is to express an opinion on the ~~Company's~~Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed ~~risk, and~~risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A ~~company's~~company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A ~~company's~~company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the ~~company's~~company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~In our opinion, Chembio Diagnostics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based COSO criteria.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chembio Diagnostics, Inc. and subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 7, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Melville, ~~New York~~NY

March ~~7, 2017~~13, 2020

4652

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d)Table of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the Company's last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Contents

~~ITEM 9B.~~

~~OTHER INFORMATION~~

~~Not applicable.~~

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required in response to this Item 10 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 11.

EXECUTIVE COMPENSATION

The information required in response to this Item 11 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required in response to this Item 12 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required in response to this Item 13 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required in response to this Item 14 is incorporated herein by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

4853

Table of Contents

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

~~PART IV~~(a) See “Item 8. Financial Statements and Supplementary Data – Index to Consolidated Financial Statements” above.

~~ITEM 15.~~

~~EXHIBITS INDEX~~(b) Exhibits

~~Number~~Exhibit No.		Description
3.1		Articles of Incorporation, as ~~amended.~~amended, of Chembio Diagnostics, Inc. ~~(1)~~
3.2		Amended and Restated Bylaws, ~~and Bylaw Amendments. (2)~~of Chembio Diagnostics, Inc.
~~3.3~~4.1		~~Certificate~~Warrant to Purchase Common Stock dated as of ~~Designation of Series D Preferred Stock~~September 3, 2019, issued by Chembio Diagnostics, Inc. to Perceptive Credit Holdings II, LP ~~(13)~~
~~4.1~~10.1(a)*		2008 Stock Incentive Plan, as amended~~. (3)~~
~~4.2~~10.1(b)*		Form of Option for 2008 Stock Incentive Plan ~~(4)~~
~~4.3~~10.2(a)*		2014 Stock Incentive Plan ~~(5)~~
~~4.4~~10.2(b)*		Form of Option for 2014 Stock Incentive Plan ~~(6)~~
~~4.5~~10.3*		~~Rights Agreement, dated~~2019 Omnibus Incentive Plan
10.4*		Restated Annual Incentive Bonus Plan of Chembio Diagnostics, Inc., adopted as of March ~~8, 2016~~15, 2019 ~~(7)~~
~~4.6~~		~~Form of Warrant (to be filed by amendment)~~
10.110.5		~~Employment Agreement~~Letter agreement dated ~~March 13, 2014 with John J. Sperzel III~~January 17, 2020, between Chembio Diagnostics, Inc. and Gail S. Page ~~(4)~~
10.210.6(a)		Employment Agreement dated March 5, 2016 ~~with~~between Chembio Diagnostics, Inc. and Javan Esfandiari ~~(8)~~
10.310.6(b)		Amendment No. 1 dated March 20, 2019 between Chembio Diagnostics, Inc. and Javan Esfandiari, amending the Employment Agreement dated March 5, 2016
10.7*		Employment Agreement dated ~~June 12, 2015 with~~September 14, 2017 between Chembio Diagnostics, Inc. and Sharon Klugewicz
10.8(a)*		Employment Agreement dated December 18, 2017 between Chembio Diagnostics, Inc. and Neil A. Goldman
10.8(b)*		Amendment No. 1 dated January 21, 2019 between Chembio Diagnostics, Inc. and Neil A. Goldman, amending Employment Agreement dated December 18, 2017
10.9*		Offer Letter dated October 19, 2016 between Worldwide Workplace Ireland and Robert Passas, with respect to employment by Chembio Diagnostics Systems, Inc ~~(9)~~.
~~10.4~~10.10		H~~IV Barrel License, Marketing~~Separation and ~~Distribution~~Release Agreement, dated January 7, 2020, between Chembio Diagnostics, Inc. and John J. Sperzel III
10.11(a)		Lease Agreement, dated February 15, 2017, between Horseblock Associates and Chembio Diagnostics, Inc. with respect to 3661 Horseblock Road, Medford, New York, as amended
10.11(b)		Agreement of Sublease dated February 5, 2019 between Chembio Diagnostic Systems Inc., as sublessor, and Reliance Communications of New Jersey, LLC, as sublessee, with respect to 3661 Horseblock Road, Medford, New York, as amended
10.12		Lease Agreement, dated February 4, 2013, between Sherwood Corporate Center LLC and Chembio Diagnostics, Inc. with respect to 91-1A Colin Drive, Holbrook, New York, as amended on September 19, 2017
10.13		Lease Agreement dated February 5, 2019 between Myra Properties, LLC, as lessor, and Chembio Diagnostic Systems Inc., as lessee, with respect to 555 Wireless Boulevard, Hauppauge, New York.
10.14†		Credit Agreement and Guaranty dated as of September ~~29, 2006, by~~3, 2019, among Chembio Diagnostics, Inc., as the Borrower, the Guarantors from time to time party thereto, and ~~among the Registrant, Alere~~Perceptive Credit Holdings II, LP and ~~StatSure.~~its successors and assigns party ~~(10)~~
~~10.5~~		~~HIV Cassette License, Marketing~~thereto, as Administrative Agent and ~~Distribution Agreement, dated~~ as ~~of September 29, 2006, between the Registrant and Alere.~~a Lender ~~(10)~~
~~10.6~~		~~Non-Exclusive License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (10)~~
~~10.7~~		~~Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, between the Registrant and StatSure. (10)~~
~~10.8~~		~~2015 Omnibus Agreement~~ ~~(11)~~
14.1		Ethics Policy ~~(12)~~
2121.1		List of Subsidiaries of Chembio Diagnostics, Inc.
23.1		Consent of BDO USA, LLP, Independent Registered Public ~~Accountants.~~Accounting Firm
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
3232.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

*
1		~~Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on July 29, 2010.~~
2		~~Incorporated by reference to the Registrant's registration statement on~~ ~~Form SB-2 (File No. 333-85787) filed with the Commission on August 23, 1999~~ ~~and the Registrant's Forms 8-K filed on~~ ~~May 14, 2004~~, ~~December 20, 2007~~ ~~and~~ ~~April 18, 2008~~.
3		~~Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on August 3, 2012.~~
4		~~Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on May 8, 2014.~~
5		~~Incorporated by reference to the Registrant's definitive proxy statement on Schedule 14A filed with the Commission on April 29, 2014.~~
6		~~Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on August 7, 2014.~~
7		~~Incorporated by reference to the Registrant's registration statement on Form 8-A filed with the Commission on April 7, 2016.~~
8		~~Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on March 14, 2016.~~
9		~~Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on June 17, 2015.~~
10		~~Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on October 5, 2006.~~
11		~~Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Commission on March 5, 2015.~~
12		~~Incorporated by reference to the Registrant's Annual Report on Form 10-KSB filed with the Commission on March 30, 2006.~~
13		~~Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on April 7, 2016.~~

~~(*)~~		~~An asterisk (*) beside an exhibit number indicates the exhibit contains a~~Indicates management contract or compensatory ~~plan or arrangement which is required~~plan.

†

Certain exhibits and schedules have been omitted pursuant to ~~be identified in this report.~~Item 601(a)(5) of Regulation S-K. We hereby undertake to furnish copies of the omitted exhibits and schedules upon request by the Securities and Exchange Commission, provided that we may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 for the exhibits and schedules so furnished.

4954

~~ITEM 16. Form 10-K Summary~~

~~None.~~

Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHEMBIO DIAGNOSTICS, INC.

March ~~7, 2017~~13, 2020	By	~~/s/ John J. Sperzel~~ /s/ Gail S. Page
		~~John J. Sperzel III~~Gail S. Page
		~~President,~~Interim Chief Executive Officer ~~and~~
		~~Member of the Board~~

In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Gail S. Page

~~/s/ John J. Sperzel~~	Interim Chief Executive Officer ~~President~~ and Director	March ~~7, 2017~~13, 2020
~~John J. Sperzel III~~	~~Member Of The Board~~
Gail S. Page	(Principal Executive Officer)

/s/ Neil A. Goldman

~~/s/ Richard J. Larkin~~	Executive Vice President and Chief Financial Officer ~~(Principal Financial &~~	March ~~7, 2017~~13, 2020
~~Richard J. Larkin~~Neil A. Goldman	(Principal Financial & Accounting Officer)



~~/s/ Gary Meller~~	~~Director~~	~~March 7, 2017~~
~~Gary Meller~~



/s/ Katherine L. Davis	~~Director &~~ Chair of the Board	March ~~7, 2017~~13, 2020
Katherine L. Davis

/s/ Mary Lake Polan	Director	March 13, 2020
Mary Lake Polan

/s/ ~~Peter T. Kissinger~~ John G. Potthoff	Director	March ~~7, 2017~~13, 2020
~~Peter T. Kissinger~~




��John G. Potthoff

5155

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

Index to Consolidated Financial Statements

—INDEX—

		Page(s)
Report of Independent Registered Public Accounting Firm		F-1

Consolidated Financial Statements:

	Balance Sheets as of December 31, ~~2016~~2019 and ~~2015~~2018	F-2

	Statements of Operations for ~~each of~~ the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018	F-3

	Statements of ~~Changes in Stockholders' Equity~~Comprehensive Loss for ~~each of~~ the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018	F-4

	Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018	F-5

	Statements of Cash Flows for ~~each of~~ the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018	~~F-5~~F-6

	Notes to Consolidated Financial Statements	~~F-6~~F-7 - ~~F-19~~

~~Schedule II - Valuation and Qualifying Accounts~~	F-30

Table of Contents

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors ~~and Stockholders of~~

Chembio Diagnostics, Inc.

~~Medford,~~Hauppauge, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Chembio Diagnostics, Inc. (the “Company”) and ~~Subsidiary (the "Company")~~subsidiaries as of December 31, ~~2016~~2019 and ~~2015 and~~2018, the related consolidated statements of operations, ~~stockholders'~~comprehensive loss, changes in stockholders’ equity, and cash flows the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the ~~three~~two years in the period ended December 31, ~~2016. In connection~~2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our ~~audits~~report dated March 13, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

On January 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases. The effects of the adoption are described in Note 3 to the consolidated financial ~~statements, we have also audited the financial statement schedule as listed in the accompanying index.~~ statements.

Basis for Opinion

These consolidated financial statements ~~and schedule~~ are the responsibility of the ~~Company's~~Company’s management. Our responsibility is to express an opinion on ~~these~~the Company’s consolidated financial statements ~~and schedule~~ based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material ~~misstatement. An audit also includes~~misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the consolidated financial ~~statements and schedule, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial ~~statements and schedule.~~statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chembio Diagnostics, Inc. and Subsidiary as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chembio Diagnostics, Inc.'s internal control over financial reporting as of December 31, 2016, based on criteria established in ~~Internal Control – Integrated Framework 2013~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 7, 2017 expressed an unqualified opinion thereon.~~

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2011.

Melville, ~~New York~~NY

March ~~7, 2017~~13, 2020

F-1

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF

~~- ASSETS -~~

December 31, 2016 December 31, 2015
CURRENT ASSETS:
Cash and cash equivalents $ 10,554,464 $ 5,376,931
Accounts receivable, net of allowance for doubtful accounts of $52,000 and $52,000 at December 31, 2016 and 2015, respectively 3,383,729 2,422,971
Inventories 3,335,188 3,578,025
Prepaid expenses and other current assets 840,145 1,256,879
TOTAL CURRENT ASSETS 18,113,526 12,634,806

FIXED ASSETS, net of accumulated depreciation
1,709,321 2,374,308

OTHER ASSETS:
Deferred tax asset, net of valuation allowance - 5,467,143
License agreements, net of current portion - 100,000
Deposits on manufacturing equipment 31,900 30,918
Deposits and other assets 720,489 209,169

TOTAL ASSETS $ 20,575,236 $ 20,816,344

- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,013,133 $ 2,801,432
Deferred revenue 392,517 353,406
TOTAL CURRENT LIABILITIES 3,405,650 3,154,838

TOTAL LIABILITIES 3,405,650 3,154,838

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY:
Preferred stock – 10,000,000 shares authorized, none outstanding - -
Common stock - $.01 par value; 100,000,000 shares authorized, 12,026,847 and 9,628,248 shares issued and outstanding for 2016 and 2015, respectively 120,268 96,282
Additional paid-in capital 60,721,783 47,890,642
Accumulated deficit (43,672,465 ) (30,325,418 )
TOTAL STOCKHOLDERS' EQUITY 17,169,586 17,661,506

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,575,236 $ $ 20,816,344

~~See accompanying notes to condensed consolidated financial statements~~

~~F-2~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

For the years ended
December 31, 2016 December 31, 2015 December 31, 2014
REVENUES:
Net product sales $ 13,680,107 $ 21,886,688 $ 25,949,769
License and royalty revenue 449,685 52,753 23,257
R&D, milestone and grant revenue 3,739,049 2,316,044 1,672,258
TOTAL REVENUES 17,868,841 24,255,485 27,645,284

Cost of product sales 9,417,505 13,768,658 16,831,261

GROSS MARGIN 8,451,336 10,486,827 10,814,023

OPERATING EXPENSES:
Research and development expenses 8,427,554 6,377,839 4,832,537
Selling, general and administrative expenses 7,595,559 7,663,035 7,531,739
16,023,113 14,040,874 12,364,276
LOSS FROM OPERATIONS (7,571,777 ) (3,554,047 ) (1,550,253 )

OTHER INCOME (EXPENSE):
Other expense - (4,814 ) (5,707 )
Interest income 25,548 2,412 5,839
Interest expense - (836 ) -
25,548 (3,238 ) 132

LOSS BEFORE INCOME TAXES (BENEFIT) (7,546,229 ) (3,557,285 ) (1,550,121 )

Income tax provision (benefit) 5,800,818 (1,160,243 ) (412,918 )

NET LOSS $ (13,347,047 ) $ (2,397,042 ) $ (1,137,203 )

Basic loss per share $ $ (1.26 ) $ (0.25 ) $ (0.12 )

Diluted loss per share $ $ (1.26 ) $ (0.25 ) $ (0.12 )

Weighted average number of shares outstanding, basic 10,622,331 9,626,028 9,530,320

Weighted average number of shares outstanding, diluted 10,622,331 9,626,028 9,530,320

~~See accompanying notes to condensed consolidated financial statements~~

~~F-3~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~

~~FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014~~

Common Stock
Additional Paid-
in Capital

Accumulated
Deficit
Total
Shares Amount Amount Amount Amount
Balance at December 31, 2013 9,324,783 $ 93,248 $ 46,875,027 $ (26,791,173 ) $ 20,177,102

Options:
Exercised 286,356 2,864 234,299 - 237,163
Stock option compensation - - 447,100 - 447,100

Net loss (1,137,203 ) (1,137,203 )

Balance at December 31, 2014 9,611,139 $ 96,112 $ 47,556,426 $ (27,928,376 ) $ 19,724,162

Options:
Exercised 17,109 170 (170 ) - -
Stock option compensation - - 334,386 - 334,386

Net loss - - - (2,397,042 ) (2,397,042 )

Balance at December 31, 2015 9,628,248 $ 96,282 $ 47,890,642 $ (30,325,418 ) $ 17,661,506

Common Stock:
New stock from offering 2,300,000 23,000 12,470,398 - 12,493,398

Options:
Exercised 98,599 986 56,589 - 57,575
Stock option compensation - - 304,154 - 304,154

Net loss - - - (13,347,047 ) (13,347,047 )

Balance at December 31, 2016 12,026,847 $ 120,268 $ 60,721,783 $ (43,672,465 ) $ 17,169,586

	December 31, 2019			December 31, 2018
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents	$	18,271,352		$	12,524,551
Accounts receivable, net of allowance for doubtful accounts of $62,000 and $42,000 at December 31, 2019 and 2018, respectively		3,661,325			7,373,971
Inventories, net		9,598,030			7,851,222
Prepaid expenses and other current assets		693,013			702,010
TOTAL CURRENT ASSETS		32,223,720			28,451,754

FIXED ASSETS:
Property, plant and equipment, net		5,933,569			2,873,920
Finance lease right-of-use assets, net		210,350			–

OTHER ASSETS:
Operating right-of-use assets, net		7,030,744			–
Intangible assets, net		3,914,352			3,884,831
Goodwill		5,872,690			4,983,127
Deposits and other assets		543,539			717,551

TOTAL ASSETS	$	55,728,964		$	40,911,183

- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	5,526,243		$	5,888,681
Deferred revenue		125,000			422,905
Note payable		180,249			207,694
Finance lease liabilities		41,894			–
Operating lease liabilities		568,294			–
TOTAL CURRENT LIABILITIES		6,441,680			6,519,280

OTHER LIABILITIES:
Long-term operating lease liabilities		6,969,603			–
Long-term finance lease liabilities		171,953			–
Note payable		–			171,821
Long-term debt net of debt discount and issuance costs		17,644,149			–
Deferred tax liability		466,326			892,308

TOTAL LIABILITIES		31,693,711			7,583,409

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY:
Preferred stock – 10,000,000 shares authorized, none outstanding		–			–
Common stock - $.01 par value; 100,000,000 shares authorized, 17,733,617 and 17,166,459 shares issued and outstanding at December 31, 2019 and 2018, respectively		177,335			171,664
Additional paid-in capital		95,433,077			90,953,788
Accumulated deficit		(71,585,003	)		(57,909,874	)
Accumulated other comprehensive income		9,844			112,196
TOTAL STOCKHOLDERS’ EQUITY		24,035,253			33,327,774

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	55,728,964		$	40,911,183

See accompanying notes to consolidated financial statements

~~F-4~~F-2

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND ~~SUBSIDIARY~~

SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS

~~FOR THE YEARS ENDED~~

December 31, 2016 December 31, 2015 December 31, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants $ 16,947,194 $ 30,174,083 $ 23,898,516
Cash paid to suppliers and employees (23,677,476 ) (28,382,681 ) (27,724,654 )
Interest received 25,548 2,412 5,839
Interest paid - (836 ) -
Net cash provided by (used in) operating activities (6,704,734 ) 1,792,978 (3,820,299 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of license - (550,000 ) -
Deposit for investment in RVR (550,000 ) - -
Acquisition of and deposits on fixed assets (118,706 ) (480,585 ) (1,452,601 )
Net cash used in investing activities (668,706 ) (1,030,585 ) (1,452,601 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option and warrant exercises 57,575 - 237,163
Proceeds from credit line - 700,000 -
Repayment of credit line - (700,000 ) -
Proceeds from sale of common stock, net 12,493,398 - -
Net cash provided by financing activities 12,550,973 - 237,163

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 5,177,533 762,393 (5,035,737 )
Cash and cash equivalents - beginning of the period 5,376,931 4,614,538 9,650,275

Cash and cash equivalents - end of the period $ 10,554,464 $ 5,376,931 $ 4,614,538

RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:

Net Loss $ (13,347,047 ) $ (2,397,042 ) $ (1,137,203 )
Adjustments:
Depreciation and amortization 1,139,228 1,372,563 739,297
Provision for (benefit from) deferred taxes 5,800,818 (1,170,969 ) (403,375 )
Provision for (recovery of) doubtful accounts - - 28,000
Share based compensation 304,154 334,386 447,100
Changes in assets and liabilities:
Accounts receivable (960,758 ) 5,915,918 (3,774,768 )
Inventories 242,837 60,274 (449,573 )
Prepaid expenses and other current assets (136,258 ) (190,960 ) 32,906
Deposits and other assets 1,480 - (279,223 )
Accounts payable and accrued liabilities 211,701 (2,144,598 ) 636,540
Customer deposits and deferred revenue 39,111 13,406 340,000
Net cash provided by (used in) operating activities $ (6,704,734 ) $ 1,792,978 $ (3,820,299 )

Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets $ - $ 20,017 $ 603,627

	For the years ended
	December 31, 2019			December 31, 2018
REVENUES:
Net product sales	$	28,844,997		$	27,913,209
R&D and grant revenue		4,680,282			5,719,458
License and royalty revenue		938,753			948,773
TOTAL REVENUES		34,464,032			34,581,440

COSTS AND EXPENSES:
Cost of product sales		22,394,317			22,599,432
Research and development expenses		8,538,416			8,526,256
Selling, general and administrative expenses		16,138,424			11,100,775
Acquisition costs		721,465			337,645
		47,792,622			42,564,108
LOSS FROM OPERATIONS		(13,328,590	)		(7,982,668	)

OTHER (EXPENSE) INCOME:
Interest (expense) income, net		(846,831	)		49,498

LOSS BEFORE INCOME TAX BENEFIT		(14,175,421	)		(7,933,170	)

Income tax benefit		(500,292	)		(67,521	)

NET LOSS	$	(13,675,129	)	$	(7,865,649	)

Basic loss per share	$	(0.81	)	$	(0.54	)

Diluted loss per share	$	(0.81	)	$	(0.54	)

Weighted average number of shares outstanding, basic		16,954,142			14,432,505

Weighted average number of shares outstanding, diluted		16,954,142			14,432,505

See accompanying notes to ~~condensed~~ consolidated financial statements

F-3

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	For the years ended
	December 31, 2019			December 31, 2018

Net loss	$	(13,675,129	)	$	(7,865,649	)
Other comprehensive loss:
Foreign currency translation adjustments		(102,352	)		(66,752	)
COMPREHENSIVE LOSS	$	(13,777,481	)	$	(7,932,401	)

See accompanying notes to consolidated financial statements

F-4

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019, AND 2018

	Common Stock				Additional Paid-in-Capital Amount			Accumulated Deficit Amount			AOCI Amount			Total Amount
	Shares		Amount		Additional Paid-in-Capital Amount			Accumulated Deficit Amount			AOCI Amount			Total 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 offerings		4,509,760		45,098		27,431,162			–			–			27,476,260
Restricted stock issued		266,839		2,668		(2,668	)		–			–			–
Restricted stock compensation		–		–		281,249			–			–			281,249

Options:
Exercised		71,290		713		71,201			–			–			71,914
Stock option compensation		–		–		351,556			–			–			351,556

Comprehensive loss		–		–		–			–			(66,752	)		(66,752	)

Net loss		–		–		–			(7,865,649	)		–			(7,865,649	)

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 issued		381,908		3,819		(128,081	)		–			–			(124,262	)
Restricted stock compensation		–		–		1,394,812			–			–			1,394,812
Issuance of common stock for business acquired		153,707		1,537		441,754			–			–			443,291

Options:
Exercised		31,543		315		32,171			–			–			32,486
Stock option compensation		–		–		261,088			–			–			261,088

Warrants and Other:
Warrant on Term Debt		–		–		1,196,093			–			–			1,196,093
Contingent Earnout for business acquired		–		–		1,281,452			–			–			1,281,452

Comprehensive loss		–		–		–			–			(102,352	)		(102,352	)

Net loss		–		–		–			(13,675,129	)		–			(13,675,129	)

Balance at December 31, 2019		17,733,617	$	177,335	$	95,433,077		$	(71,585,003	)	$	9,844		$	24,035,253

See accompanying notes to consolidated financial statements

F-5

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND ~~SUBSIDIARY~~SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED

	December 31, 2019			December 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants	$	37,930,172		$	29,804,273
Cash paid to suppliers and employees		(45,655,562	)		(41,624,299	)
Cash paid for operating and finance leases		(640,844	)		–
Interest and taxes, net		(689,272	)		38,585
Net cash used in operating activities		(9,055,506	)		(11,781,441	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired		(100,000	)		(5,491,204	)
Acquisition of and deposits on fixed assets		(3,502,540	)		(1,467,192	)
Patent Application Costs		(297,006	)		–
Working capital adjustments related to business combination		145,760			–
Net cash used in investing activities		(3,753,786	)		(6,958,396	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option exercises		32,486			71,914
Principal payments for finance leases		(19,875	)		–
Payments on debt issuance costs		(186,313	)		–
Payments on note payable		(181,822	)		(64,481	)
Proceeds from issuance of long-term debt, net		18,850,000			–
Proceeds from sale of common stock, net		–			27,476,260
Net cash provided by financing activities		18,494,476			27,483,693

Effect of exchange rate changes on cash		61,617			(9,607	)
INCREASE IN CASH AND CASH EQUIVALENTS		5,746,801			8,734,249
Cash and cash equivalents - beginning of the period		12,524,551			3,790,302

Cash and cash equivalents - end of the period	$	18,271,352		$	12,524,551

RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:

Net Loss	$	(13,675,129	)	$	(7,865,649	)
Adjustments:
Depreciation and amortization		1,916,194			902,505
Share based compensation		1,655,900			632,805
Benefit from deferred tax liability		(513,715	)		(78,432	)
Provision for doubtful accounts		20,000			–
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		3,764,045			(5,150,072	)
Inventories		(1,457,612	)		(3,077,104	)
Prepaid expenses and other current assets		64,355			(118,293	)
Deposits and other assets		(90,624	)		–
Accounts payable and accrued liabilities		(441,015	)		2,599,894
Deferred revenue		(297,905	)		372,905
Net cash used in operating activities	$	(9,055,506	)	$	(11,781,441	)

Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets	$	430,000		$	257,455
Deposits and other assets transferred to intangible assets		–			118,899
Seller-financed equipment purchases		–			326,110
Issuance of common stock for net assets of business acquired		443,291			–
Contingent liability earnout		1,225,000			–

See accompanying notes to consolidated financial statements

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~F-6

~~DECEMBER 31, 2016, 2015 AND 2014~~

Table of Contents

NOTE 1 — DESCRIPTION OF BUSINESS:

Chembio Diagnostics, Inc. and its ~~subsidiary, Chembio Diagnostic Systems, Inc.~~subsidiaries (collectively, the ~~"Company"~~“Company” or ~~"Chembio"~~“Chembio”), develop, manufacture, and ~~market rapid~~commercialize point-of-care diagnostic tests that are used to detect ~~infectious~~and diagnose diseases. The ~~Company's main~~Company is pursuing three corporate priorities: (1) expand its commercialization, (2) advance its research and development pipeline, and (3) prepare for future growth.

All products that are currently being developed are based on the Company’s patented DPP^® technology, a novel point-of-care diagnostic platform that offers certain customer advantages as compared to traditional lateral flow ~~products~~technology.

The Company’s product commercialization and product development efforts are ~~three rapid~~focused on infectious disease testing and technology collaborations. In infectious disease, the Company is commercializing tests for HIV and Syphilis, Zika virus, and developing tests for malaria, dengue virus, chikungunya virus, ebola, lassa, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi, individually or as part of fever panel tests. Through technology collaborations, the ~~detection~~Company is developing tests for concussion, bovine tuberculosis, a rare disease in collaboration with Takeda Pharmaceutical, and a biomarker development project in collaboration with AstraZeneca.

Large and growing markets have been established for these kinds of ~~HIV antibodies~~tests, initially in ~~whole blood, serum~~high prevalence regions where they are indispensable for large scale prevention and ~~plasma samples, two~~treatment programs. 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 ~~which were approved by the FDA in 2006; the third is sold for export only. Lateral Flow Rapid HIV tests represented nearly 58% of the Company's product revenues in 2016.~~ care.

The Company's products based on its patented DPP® platform represented approximately 40% of the Company's product revenues in 2016. The Company also has other rapid tests that together represented approximately 2% of sales in 2016. The Company'sCompany’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. Chembio's products are sold~~internationally, under the ~~Company's STAT-PAK®~~Company’s STAT PAK^®, SURE CHECK^®, ~~SURE CHECK®, STAT VIEW®~~STAT-VIEW^® or ~~DPP®~~DPP^® registered trademarks, or under the private labels of ~~its~~the Company’s marketing partners. All of the Company's products that are currently being developed are based on its patented Dual Path Platform (DPP®), which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology. In December 2012, the

The Company ~~received FDA approval for its DPP® HIV 1/2 Assay~~routinely enters into arrangements with governmental and non-governmental organizations for the ~~detection~~funding of ~~HIV antibodies in saliva, whole blood, serum~~certain research and ~~plasma samples, which was CLIA-Waived in October 2014.~~development efforts.

NOTE 2 — ACQUISITIONS:

Orangelife

On November 25, 2019, pursuant to a quote purchase agreement, the Company acquired all of the outstanding shares of Orangelife Comercio e Industria Ltda., or Orangelife, a privately-held Brazilian company, which is an original equipment manufacturer of point-of-care tests approved by the Brazilian Health Surveillance Agency (Agência Nacional de Vigilância Sanitária, or ANVISA) for infectious diseases that include HIV, Hepatitis C, Zika, Chikungunya, and Dengue Fever. Orangelife tests are manufactured in its Rio de Janeiro facility, which is ISO-certified and approved by ANVISA to produce Class II/III/IV medical devices. The purchase price includes the following consideration:

$150,000 in cash and 153,707 shares of our common stock.

Issuance of 316,456 shares of our common stock to Dr. Manco Collovati, the founder and former CEO of Orangelife, based on the transfer and approval of certain of our product registration in Brazil prior to November 25, 2022. All of the shares may be deliverable in the event of change in control of our company. The number of shares issued is subjected to adjustments based upon Orangelife’s working capital at closing. The fair value of the shares on the date of the acquisition are recorded in equity.

The purchase consideration is subject to routine post-closing adjustments. The acquisition of Orangelife will allow us to expand our commercial presence by offering our products to the state, private, and pharmacy markets in Brazil, in addition to providing local support to our long time customer Bio-Manguinhos, the subsidiary of the Oswaldo Cruz Foundation (Fiocruz) that oversees development and production of vaccines, diagnostics, and biopharmaceuticals, primarily to meet the demands of Brazil’s national public health system. The results of Orangelife’s operations have been reflected in the consolidated financial statements since November 25, 2019.

F-7

Table of Contents

The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 25, 2019:

	Amount
Net current assets	$	320,293
Property, plant and equipment and other assets		226,035
Inventory		289,205
Goodwill		986,058
Deferred tax liability		(50,000	)
Other intangible assets (estimated useful life):
Trade name (0.5 years)		5,000
Customer contracts / relationships (5 years)		195,000
Total consideration	$	1,971,591

The Company calculated the fair value of the fixed assets based on the net book value of Orangelife as that approximates fair value. The trade name, customer contracts/relationships and contingent earnouts were based on discounted cash flows using management estimates.

As a result of the consideration paid exceeding the fair value of the net assets acquired, goodwill in the amount of $986,058 was recorded in connection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $200,000 in intangible assets associated with the addition of Orangelife’s trade name and customer base. The Consolidated Statements of Operations for the year ended December 31, 2019 include $325,853 of transaction costs related to the Orangelife acquisition.

The following represents pro forma operating results for the year ended December 31, 2019 as if the operations of Orangelife had been included in the Company’s Consolidated Statements of Operations as of January 1, 2019. This pro forma financial information is unaudited and presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the acquisition of Orangelife and the other transactions contemplated by this acquisition had been completed as of January 1, 2019, nor is it necessarily indicative of the future operating results of Chembio Diagnostics and Orangelife on a combined and consolidated basis.

	Unaudited Proforma December 31, 2019
Total revenues	$	35,157,248

Net loss	$	(13,654,001	)

Net loss per common share	$	(0.80	)

Diluted net loss per common share	$	(0.80	)

F-8

Table of Contents

opTricon

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 Readers 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 fair value of the net assets acquired, goodwill in the amount of $3,290,888 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. The Consolidated Statements of Operations for the year ended December 31, 2019 and 2018 includes $395,612 and $337,645 of transaction costs related to the opTricon acquisition, respectively.

	Amount
Net current assets	$	404,204
Property, plant and equipment		125,000
Goodwill		3,383,112
Deferred tax liability		(681,112	)
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.

The following represents unaudited pro forma operating results for the year ended December 31, 2018 as if the operations of opTricon had been included in the Company’s Consolidated Statements of Operations as of January 1, 2018:

	Proforma
	December 31, 2018
Total revenues	$	36,614,995

Net loss	$	(8,394,074	)

Net loss per common share	$	(0.58	)

Diluted net loss per common share	$	(0.58	)

The pro forma financial information includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets of opTricon approximately $351,000 for the year ended December 31, 2018. The unaudited pro forma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2018. Included in the proforma table above are opTricon’s net revenues and pre-tax loss for the year ended December 31, 2018 which were approximately $2,214,000 and $213,000, respectively. opTricon’s results of operations from the date of acquisition through December 31, 2018 are immaterial to the Company’s Consolidated Statements of Operations.

F-9

Table of Contents

NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES:

(a)

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned ~~subsidiary.~~subsidiaries. All significant intercompany transactions and balances ~~have been~~are eliminated in consolidation.

(b)

Use of Estimates:

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the amounts reported ~~amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of~~in the consolidated financial statements and ~~the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates.~~accompanying notes. Judgments and estimates of uncertainties are required in applying the ~~Company's~~Company’s accounting policies in certain areas. ~~The following are some~~Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, asset impairments, recognition of ~~the areas requiring significant judgments and estimates: determinations of the~~revenue pursuant to milestones, useful lives of intangible and fixed assets, ~~estimates of allowances for doubtful accounts, inventory reserves,~~ stock-based compensation, and deferred tax ~~assets.~~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:

The carrying value for cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value ~~because of~~due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents is $16.0 million and $4.7 million as of December 31, 2019 and 2018, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s notes 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:

~~(d)~~

~~Statements of Cash Flows:~~Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

~~For purposes of the statements~~

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).

(d)

Cash and Cash Equivalents:

Cash and cash ~~flows, the Company considers all~~equivalents are defined as short-term, highly liquid investments with ~~a maturity~~original maturities of three months or ~~less when purchased to be cash equivalents.~~less.

F-10

Table of Contents

(e)

Concentrations of Credit Risk:

Financial instruments ~~which~~that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the FDIC insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the ~~Company's~~Company’s ability to obtain letters of credit from certain foreign customers and its diverse customer base, both in number of customers and geographic locations.

~~F-6~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

(f)

Inventories:

Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost ~~or market.~~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.

(g)

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 three to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service.

(h)

License Agreements:

~~In February 2008, the~~The Company ~~entered into a sublicense agreement for which it had initially recorded an asset of $1,000,000. This asset is being expensed~~records up-front payments related to license agreements as prepaids and amortizes them over ~~an estimated~~their respective economic ~~life of ten years, based on the expected lifespan of our then current HIV products. The current portion of this asset is $100,000 as~~life. As of December 31, ~~2016~~2019 and ~~2015 and is reported in prepaid expenses and other current assets. The long-term portion as of December 31, 2016 and 2015 is $-~~2018, total prepaids were $100,000 and $100,000, ~~respectively and is reflected in other assets on the consolidated balance sheet.~~

In January 2015, the Company entered into a sublicense agreement for which it had initially recorded an asset of $400,000. This asset is being expensed over the life of the patent of 22 months. The current portion of this asset is $- and $181,818 as of December 31, 2016 and 2015, respectively and is reported in prepaid expenses. The long-term portion as of December 31, 2016 and 2015 is $- and $-, respectively and is reflected in other assets on the consolidated balance sheet.

In August 2015, the Company entered into a sublicense agreement for which it had initially recorded an asset of $100,000. This asset is being validated and will be expensed over the estimated economic life of the product(s) which will utilize this sublicense. The current portion of this asset is $100,000 as of December 31, 2016 and 2015 and is reported in prepaid expenses and other current assets. The long-term portion of this asset is $- as of December 31, 2016 and 2015.respectively.

Amortization expenses for the licenses above for the years ended December 31, ~~2016, 2015~~2019, and ~~2014~~2018 were ~~$357,000, $479,000~~$0, and ~~$122,000.~~$0, respectively.

(i)

~~Impairment~~Valuation of Long-Lived Assets and Intangible ~~Assets~~Assets:

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. ~~We believe that the carrying values~~No impairment of ~~our~~ long-lived tangible and intangible assets ~~were realizable at~~was recorded for the years ended December 31, ~~2016~~2019 and ~~2015, respectively.~~2018.

(j)

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”) 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.

F-11

Table of Contents

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 R&D, milestone and grant revenues, no adjustment to retained earnings was required upon adoption.

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

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 ~~revenue for~~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 obligation.

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 excludes certain taxes from the transaction price (e.g., sales, value added and some excise taxes).

Our contracts with customers often include promises to transfer products or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. Typical products sold are diagnostic tests and typical services performed are R&D feasibility studies. Revenues from sale of products are recognized point-in-time and revenues from R&D feasibility studies are recognized ratably, over the period of the agreement.

Judgement is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. SSP is directly observable and we can use a range of amounts to estimate SSP, as we sell products and services separately, and can determine whether there is a discount to be allocated based on the relative SSP of the various products and services, for the various geographies. The Company currently does not have agreements in which multiple performance obligations are sold combined.

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.

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Table of Contents

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 licensee of products covered under patents that it owns. The Company does not have future performance obligations under this license arrangement. 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 the licensee 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 licensee.

R&D and grant revenue

All such 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 ASC ~~605,~~958. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized ~~when there~~ratably as that is ~~persuasive evidence~~the depiction of ~~an arrangement, delivery has occurred or services have been rendered,~~ the ~~sales price~~timing of the transfer of services. Performance obligation is ~~fixed~~the feasibility study which encompasses various phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and ~~determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates and returns.~~pivotal studies.

~~For certain contracts,~~In June 2018, the Company recognizes revenue from non-milestone contracts and grant revenues when earned. Grants are invoiced after expenses are incurred. Revenues from projects or grants funded in advance are deferred until earned.

~~F-7~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

~~The Company follows~~ Financial Accounting Standards Board ~~("FASB")~~(FASB) issued Accounting Standards Update (ASU) 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU clarifies the ~~recognition of revenue under the milestone method. The Company applies the milestone method of revenue recognition for certain collaborative research projects defining milestones at the inception~~guidance presented in Topic 958, “Not-for-Profit Entities,” of the ~~agreement.~~FASB’s Accounting Standards Codification (ASC) for evaluating whether a transaction is reciprocal (i.e., an exchange transaction) or nonreciprocal (i.e., a contribution) and for distinguishing between conditional and unconditional contributions. The ASU also clarifies the guidance used by entities other than not-for-profits to identify and account for contributions made.

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Table of Contents

Disaggregation of Revenue

The following tables disaggregate Total Revenues for the year ended December 31, 2019, by type of transaction and by geography:

	Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	28,844,997	$	–	$	28,844,997
R&D, milestone and grant revenue		3,321,031		1,359,251		4,680,282
License and royalty revenue		938,753		–		938,753
	$	33,104,781	$	1,359,251	$	34,464,032

Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASU No. 2018-08.

	Total
Africa	$	7,564,360
Asia		888,800
Europe & Middle East		6,498,995
Latin America		11,808,768
United States		7,703,109
	$	34,464,032

The following tables disaggregate Total Revenues for the year ended December 31, 2018, by type of transaction and by geography:

	Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	27,913,209	$	–	$	27,913,209
R&D, milestone and grant revenue		2,687,210		3,032,248		5,719,458
License and royalty revenue		948,773		–		948,773
	$	34,581,440	$	3,032,248	$	34,581,440

Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASU No. 2018-08.

	Total
Africa	$	8,838,632
Asia		1,404,982
Europe & Middle East		4,895,273
Latin America		12,546,083
United States		6,896,470
	$	34,581,440

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, milestone and grant revenue during the year ended December 31, 2019. At December 31, 2019, the Company reported $125,000 in deferred revenue which is expected to be recognized during the first quarter of 2020.

In April 2017, the Company entered into a $1.1 million agreement with FIND to develop a simple, point-of-care fever panel assay that can identify multiple life-threatening acute febrile illnesses common in the Asia Pacific region. The Company earned $0.2 million and $1.1 million for the year ended December 31, 2019, and from inception through December 31, 2019, respectively as R&D, milestone and grant revenue in the Company’s Consolidated Statements of Operations.

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Table of Contents

In August 2016, the Company was awarded a grant of $5.9 million from BARDA, which is part of the U.S. Department of Health And Human Resources to develop a rapid Zika virus assay. The Company earned $0.6 million and $5.9 million for the year ended December 31, 2019 and from inception through December 31, 2019, respectively, as R&D, milestone and grant revenue in the Company’s Consolidated Statements of Operations.

(k)

Research and Development:

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.

(l)

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. During 2018, the Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”.

(m)

Income Taxes:

The Company accounts for income taxes under an asset and liability approach ~~which~~that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The guidance relates to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to uncertain tax positions ~~will be~~are recorded in tax expense.

The Company assesses the realizability of its net deferred tax assets on an annual basis. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company ~~would~~will reduce the net deferred tax assets by a valuation allowance. The realization of ~~the~~ net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of net operating loss carryforwards.

(n)

Loss Per ~~Share~~Share:

~~The following weighted average shares were used for the computation of basic and diluted earnings per share:~~

For the years ended
December 31, 2016 December 31, 2015 December 31, 2014
Basic 10,622,331 9,626,028 9,530,320

Diluted 10,622,331 9,626,028 9,530,320

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.~~period including outstanding restricted stock that by its terms is includible in the calculation. Diluted loss per share for the ~~year~~years ended December 31, ~~2016, 2015~~2019, and ~~2014~~2018 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive.

~~The following securities, presented on a common share equivalent basis, have been used in the diluted per share computations:~~

	~~For the years ended~~
	~~December 31, 2016~~	~~December 31, 2015~~	~~December 31, 2014~~
~~1999, 2008 and 2014 Plan Stock Options~~	-	-	-

There were ~~600,549, 658,631~~666,197, and ~~798,475~~732,906 options ~~and warrants~~ outstanding as of December 31, ~~2016, 2015~~2019 and ~~2014,~~2018, respectively, which were not included in the calculation of diluted income per share for the years ended because their effect would have been anti-dilutive.

~~F-8~~F-15

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~Table of Contents

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

(o)

Goodwill 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, Chembio Diagnostics Malaysia in January 2017 and Orangelife in November 2019. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter, or sooner 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 it would recognize 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.

For the year ended December 31, 2019 and 2018, there was no impairment of goodwill and other intangible assets.

Following is a table that reflects changes in Goodwill:

Beginning balance January 1, 2019	$	4,983,127
Acquisition of Orangelife		986,058
Chembio Diagnostics GmbH measurement period adjustment		(99,648	)
Changes in foreign currency exchange rate		3,153
Balance at December 31, 2019	$	5,872,690

Intangible assets consist of the following at:

	Weighted Average Remaining Life		December 31, 2019						December 31, 2018
	Weighted Average Remaining Life		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property		6	$	1,418,681	$	299,232	$	1,119,449	$	1,089,688	$	173,633	$	916,055
Developed technology		6		1,922,682		266,550		1,656,132		1,910,315		–		1,910,315
Customer contracts/relationships		7		1,325,521		270,902		1,054,619		1,121,600		151,929		969,671
Trade names		8		114,946		30,794		84,152		108,521		19,731		88,790
			$	4,781,830	$	867,478	$	3,914,352	$	4,230,124	$	345,293	$	3,884,831

Amortization expense for the year ended December 31, 2019 and 2018 was $515,263 and $233,734, respectively, and is recorded within COGS, R&D and Selling, General and Administrative expenses. Amortization expense, subject to changes in currency exchange rates, is expected to be approximately $590,000 per year from 2020 through 2024, and total $1 million for all of the years thereafter.

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Table of Contents

(p)

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.

(q)

Acquisition Costs:

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

(r)

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/losses are immaterial.

(s)

Recent Accounting Pronouncements Affecting the Company:

In ~~May 2014,~~February 2016, the FASB issued ~~Accounting Standards Update~~ASU No. ~~2014-09, "Revenue from Contracts~~2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with ~~Customers" ("~~classification affecting expense recognition in the income statement. In July 2018 the FASB issued ASU ~~2014-09")~~2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842) Targeted Improvements, which ~~supersedes nearly all existing revenue recognition~~provide supplemental adoption guidance ~~under accounting principles generally accepted in the United States ("U.S. GAAP"). The core principle of~~and clarification to ASU ~~2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to~~2016-02, and must be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting periodadopted concurrently with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU ~~2014-09~~2016-02, cumulatively referred to as “Topic 842”. Topic 842 was effective for the Company in the first quarter of 2019, with early adoption permitted, and was 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 on ~~our consolidated~~Note 12(c) – 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 ~~statements~~information or make the new required lease disclosures for periods before the effective date. The impact of adoption of right-of-use assets and ~~have not yet determined~~liabilities on January 1, 2019 was $0.8 million, and $0.8 million, respectively.

In March 2016, the ~~method by which we will adopt~~FASB issued authoritative guidance under ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 provides for simplification of several aspects of the ~~standard in 2018.~~accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017. As the Company has ~~conducted~~ a ~~preliminary analysis~~full valuation allowance against its U.S. net deferred tax assets, the adoption of ~~its sales contracts which are based on~~this standard for recognition of the ~~shipment~~tax effect of ~~goods to the customer, and currently this new accounting standard will~~deductions for employee share awards in excess of compensation costs (“windfall”) did not have a material impact on its consolidated financial ~~statement~~statements and related disclosures. See Note 8 – Income Taxes, for ~~our sales contracts. The Company has conducted a preliminary analysis~~additional information. Should the full valuation allowance be reversed in future periods, the adoption of ~~its current R&D contracts which are currently based on "as expenses are incurred" basis, and currently~~ this new ~~accounting standard will~~guidance could introduce more volatility in the calculation of the Company’s effective tax rate, depending on the Company’s share price at exercise or vesting of share-based awards as compared to grant date. The other provisions of ASU 2016-09 did not have a material impact on ~~its~~the Company’s consolidated financial ~~statement for our current R&D contracts.~~statements and related disclosures.

In ~~November 2015,~~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. The Company adopted ASU 2016-15 in the first quarter of 2018. The guidance in ASU 2016-15 is generally consistent with the Company’s current cash flow classifications, and did not have a material impact on the Company’s consolidated financial statements.

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Table of Contents

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This update will be effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU 2017-04 in the fourth quarter of 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted ASU 2017-09 in the first quarter of 2018. Adoption did not have a material effect on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features and Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Per the ASU, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The ASU is effective for public entities for fiscal years beginning after December 15, 2018 and the Company adopted it effective January 1, 2019. This ASU is applicable to the stock warrants issued as part of the Credit Agreement, as further discussed in Note 14 – Warrants.

In July 2018, the FASB issued ASU 2018-08Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting ~~Standards Board ("FASB")~~Guidance for Contributions Received and Contributions Made to clarify the accounting guidance related to contributions made or received. This guidance primarily affects not-for-profit entities, although it also applies to businesses to the extent that they make or receive contributions, including grants. ASU 2018-08 clarifies and improves the scope and accounting guidance for both contributions received and made in order to assist entities in evaluating if those transactions should be accounted for as contributions under the scope of Topic 958, or as an exchange transaction subject to other guidance. Public entities are required to apply the amendments on contributions received and contributions made to annual periods beginning after June 15, 2018, and December 15, 2018, respectively, each including interim periods within those annual periods. Early adoption is permitted, and the Company adopted ASU 2018-08 effective as of January 1, 2018. The impact of adoption was immaterial.

In December 2019, the FASB issued ~~Accounting Standards Update ("ASU") 2015-17,~~ASU 2019-12, Income Taxes (Topic 740) ~~Balance Sheet Classification~~: Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition 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~~for outside basis differences. The new guidance also simplifies aspects of the ~~balance sheet. Under~~accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the ~~current guidance,~~accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities ~~are required~~not subject 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. This guidance will beincome tax. ASU 2019-12 is effective for ~~Chembio~~fiscal years beginning ~~in 2018,~~after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company ~~does not believe~~is currently evaluating the impact of this new ~~accounting~~ standard ~~update will have a material impact~~ on its consolidated financial statements.

In ~~February~~June 2016, the FASB issued ~~Accounting Standards Update ("ASU") 2016-02, which amends~~a new standard to replace the ~~ASC~~incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and ~~creates Topic 842, Leases. Topic 842~~requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will ~~require lessees~~be required to ~~recognize lease assets~~use a forward-looking expected credit loss model for accounts receivables, loans, and ~~lease liabilities~~other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for ~~those leases classified~~credit losses rather than as ~~operating leases under previous US GAAP on~~a reduction in the ~~balance sheet. This guidance is~~amortized cost basis of the securities. The standard will be effective for ~~annual periods~~us beginning ~~after December 15, 2018 and~~July 1, 2020, with early adoption ~~is permitted. We are in the initial stages of evaluating the effect~~permitted beginning July 1, 2019. Adoption of the standard ~~on our financial statements and~~ will ~~continue~~be applied using a modified retrospective approach through a cumulative-effect adjustment to ~~evaluate. While not yet in a position to assess the full impact~~retained earnings as of the ~~application of~~effective date to align our credit loss methodology with 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 March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will change certain aspects of accounting for share-based payments to employees. ASU 2016-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The Company isstandard. We are currently ~~in the initial stages of~~ evaluating the impact of ~~the provisions of ASU 2016-09. We are still evaluating~~ this standard ~~and currently the Company does not believe this new accounting standard will have a material impact on its~~in our consolidated financial ~~statement.~~statements, including accounting policies, processes, and systems.

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Table of Contents

NOTE 34 — INVENTORIES:

Inventories consist of the following ~~at:~~at December 31, 2019:

December 31, 2016 December 31, 2015
Raw materials $ 1,824,248 $ 2,248,371
Work in process 535,320 370,340
Finished goods 975,620 959,314
$ 3,335,188 $ 3,578,025

	December 31
	2019		2018
Raw Materials	$	2,901,319	$	2,803,677
Work in Process		793,343		263,043
Finished Goods		5,903,368		4,784,502
	$	9,598,030	$	7,851,222

~~F-9~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

NOTE 45 — FIXED ASSETS:

Fixed assets consist of the following ~~at:~~

December 31, 2016 December 31, 2015
Machinery and equipment $ 3,962,051 $ 3,862,698
Furniture and fixtures 437,962 436,588
Computer and telephone equipment 343,167 326,170
Leasehold improvements 2,012,945 2,012,945
6,756,125 6,638,401
Less accumulated depreciation and amortization (5,046,804 ) (4,264,093 )
$ 1,709,321 $ 2,374,308

~~There were no capital leases at the end of December 31, 2016. Fixed assets~~ at December 31, ~~2016 also include $199,921 in equipment, which has been delivered and set-up but is undergoing validation and as such is currently not being depreciated.~~ 2019:

	December 31
	2019			2018
Machinery and Equipment	$	7,955,511		$	6,070,137
Furniture and Fixtures		21,477			35,287
Computer Equipment		416,359			435,348
Leasehold Improvements		3,038,469			2,334,512
Enterprise Business Systems		1,830,925			462,420
Less: Accumulated Depreciation and Amortization		(7,329,173	)		(6,463,784	)
	$	5,933,569		$	2,873,920

Depreciation expense for the ~~2016, 2015~~2019 and ~~2014~~2018 years ~~aggregated $782,711, $893,305~~totaled $933,558 and ~~$616,943,~~$634,261, respectively.

As of December 31, ~~2016~~2019 and ~~2015,~~2018, the Company ~~had paid deposits on various pieces of~~has purchased manufacturing equipment that is not yet in use and therefore has not been depreciated, aggregating ~~$31,900~~$1,400,181 and ~~$30,918,~~$428,859, respectively.

NOTE 56 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

Accounts payable and accrued liabilities consist of the following ~~at:~~at December 31, 2019:

December 31, 2016 December 31, 2015
Accounts payable – suppliers $ 1,437,290 $ 1,260,520
Accrued commissions 221,982 129,192
Accrued royalties / license fees 352,660 732,301
Accrued payroll 167,575 146,962
Accrued vacation 289,587 244,810
Accrued bonuses 282,500 177,700
Accrued expenses – other 261,539 109,947
TOTAL $ 3,013,133 $ 2,801,432

	December 31
	2019		2018
Accounts Payable - suppliers	$	3,144,098	$	3,622,765
Accrued Commissions & Royalties		931,760		867,344
Accrued Payroll		231,753		48,867
Accrued Vacation		410,199		264,789
Accrued Bonuses		215,000		494,318
Accrued Expenses - Other		593,433		590,598
	$	5,526,243	$	5,888,681

F-19

Table of Contents

NOTE 67 — DEFERRED RESEARCH AND DEVELOPMENT REVENUE:

The Company recognizes income from R&D milestones when those milestones are reached and non-milestone contracts and grants when earned. ~~Grants~~These projects are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned. As of December 31, ~~2016~~2019 and ~~2015,~~2018, there were ~~$392,517~~$125,000 and ~~$353,406~~$422,905 unearned advanced revenues, respectively.

~~NOTE 7 — TERM NOTE, REVOLVING DEMAND NOTE, VEHICLE FINANCING AND LICENSE FEE PAYABLE:~~

On April 30, 2013, the Company entered into a new demand loan agreement ("Demand Note") with HSBC Bank, USA ("HSBC"). The Demand Note allowed the Company to draw on the line from time to time an amount up to an aggregate of $2,000,000 outstanding at any one time. The accrued interest on the Demand Note was payable monthly at an interest rate equal to one-quarter percent above prime per annum. The Company could repay any or all of the principal balance outstanding at any time. This was a demand note for which the bank lender could demand repayment of the entire loan, with accrued interest, at any time. The loan was subject to annual reviews, as well as an annual 30-day clean-up, during which there could be no amounts outstanding. In January 2016 HSBC notified the Company that it could no longer extend the credit and the Demand Note was cancelled.

The Security Agreement, related to the Demand Note, contained covenants that placed restrictions on the Company's operations, including covenants relating to mergers, debt restrictions, capital expenditures, tangible net worth, net profit, leverage, fixed charge coverage, employee loan restrictions, distribution restrictions (common stock and preferred stock), dividend restrictions, restrictions on lease payments to affiliates, restrictions on changes in business, asset sale restrictions, restrictions on acquisitions and intercompany transactions, and restrictions on fundamental changes in the Company and in its business.

~~The Company currently maintains its operating, payroll, and primary cash accounts at HSBC.~~

~~F-10~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

NOTE 8 — INCOME TAXES:

The components of (loss) before income taxes consisted of the following:

	Year Ending December 31,
	2019			2018
United States operations	$	(12,504,780	)	$	(7,137,428	)
International operations		(1,670,641	)		(795,742	)
(Loss) before taxes	$	(14,175,421	)	$	(7,933,170	)

The (benefit from) provision for income taxes for the years ended December 31, ~~2016~~2019 and ~~2015,~~2018 is comprised of the following:

									Year Ending December 31,
	2016		2015			2014			2019			2018
Current
Federal	$	-	$	-		$	(16,119	)	$	–		$	–
State		-		10,726			6,576			9,790			10,911
Foreign										3,633			–
Total current (benefit) provision		-		10,726			(9,543	)		13,423			10,911

Deferred
Federal		5,778,185		(1,171,865	)		(449,452	)		–			–
State		22,633		896			46,077			–			–
Foreign										(513,715	)		(78,435	)
Total deferred (benefit) provision		5,800,818		(1,170,969	)		(403,375	)		(513,715	)		(78,435	)

Total (benefit) provision	$	5,800,818	$	(1,160,243	)		(412,918	)	$	(500,292	)	$	(67,521	)

A reconciliation of the Federal statutory rate to the effective rate applicable to loss before income taxes is as follows:

	Year Ending December 31,
	2019			2018
Federal income tax at statutory rates		21.00	%		21.00	%
State income taxes, net of federal benefit		(0.05	)%		(0.10	)%
Nondeductible expenses		(1.00	)%		(1.58	)%
Foreign rate differential		0.45	%		0.36	%
Change in valuation allowance		(17.51	)%		(18.44	)%
Other		0.64	%		(0.39	)%
Income tax benefit		3.53	%		0.85	%

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows companies to make an accounting policy election to either (1) account for GILTI as a component of tax expense in the period in which they are subject to the rules (the period cost method), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the deferred method). After completing the analysis of the GILTI provisions, the Company elected to account for GILTI using the period cost method.

F-20

Table of Contents

The Company had an ownership change as described in Internal Revenue Code Sec. 382 during 2004 ("(“2004 ~~change"~~change”). As a result, the ~~Company's~~Company’s net operating losses prior to the 2004 change of $5,832,516 were subject to an annual limitation of $150,608 and for the first five (5) years are entitled to a BIG (Built-In-Gains) of $488,207 per year. These net operating losses expire in ~~2018~~2020 through 2024.

The Company had a second ownership change during 2006 ("(“2006 ~~change"~~change”). The net operating losses incurred between the 2004 change and the 2006 change of $8,586,861 were subject to an annual limitation of $1,111,831 and for the first five (5) years are entitled to a BIG of $1,756,842 per year. These net operating losses expire in ~~2018~~2024 through ~~2028.~~2026.

After applying the above limitations, at December 31, ~~2016,~~2019, the Company has post-change net operating loss carry-forwards of approximately ~~$21,960,362~~$27,235,494 which expire between 2020 and ~~2036.~~2037 and $16,242,683 which do not expire. In addition the Company has research and development tax credit carryforwards of approximately ~~$1,461,351~~$1,679,495 for the year ended December 31, ~~2016,~~2019, which expire between 2020 and 2036.

The Company has state net operating loss carryforwards of approximately $1,912,798 which generally expire between 2035 and 2039. The Company has foreign net operating loss carryforwards of approximately $3,355,645 which generally expire between 2025 and ~~2036.~~2026.

2016 2015
Current assets
Inventory reserves $ 253,380 $ 242,532
Accrued expenses 53,140 91,143
Current deferred tax assets 306,520 333,675
Less valuation allowances (306,520 ) -
Net current deferred asset $ - $ 333,675

Noncurrent assets
Net operating loss carry-forwards $ 7,487,937 $ 5,365,401
Research and development credit 1,461,351 1,518,414
Other credits 97,339 97,339
Depreciation 31,285 (206,150 )
Other 292,556 210,553
Noncurrent deferred tax assets 9,370,468 6,985,557
Less valuation allowances (9,370,468 ) (1,518,414 )
Net noncurrent deferred tax assets $ - $ 5,467,143

	2019			2018
Inventory reserves	$	196,193		$	204,206
Accrued expenses		105,323			175,168
Net operating loss carry-forwards		10,079,317			7,122,576
Research and development credit		1,679,495			1,696,870
Stock-based compensation		581,053			215,797
Lease obligations		1,646,584			–
Depreciation		44,993			139,362
Total deferred tax assets		14,332,958			9,553,979

Right-of-use assets		(1,538,129	)		–
Intangibles		(921,807	)		(968,849	)
Total deferred tax liabilities		(2,459,936	)		(968,849	)

Net deferred tax assets before valuation allowance		11,873,022			8,585,130
Less valuation allowances		(12,339,348	)		(9,477,438	)
Net noncurrent deferred tax liabilities	$	(466,326	)	$	(892,308	)

~~F-11~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

~~A reconciliation of the Federal statutory rate to the effective rate applicable to income (loss) before~~The Company does not provide for U.S. income taxes on unremitted earnings of foreign subsidiaries as its present intention is ~~as follows:~~to reinvest the unremitted earnings in the Company’s foreign operations. At December 31, 2019 there were no unremitted earnings of foreign subsidiaries.

Year Ending December 31,
2016 2015 2014
Federal income tax at statutory rates (34.00)% (34.00)% (34.00)%
State income taxes, net of federal benefit .21% 0.23% 0.28%
Nondeductible expenses .57% 1.38% 4.54%
Change in valuation allowance 114.81% 9.46% 9.47%
Tax credits .00% (9.46)% (9.47)%
Change in tax rates .00% 0.00% 1.96%
Other .04% 0.34% 0.58%
Income tax (benefit) 81.63% (32.05)% (26.64)%

Interest and penalties, if any, related to income tax liabilities are included in income tax expense. As of December 31, ~~2016,~~2019, the Company does not have a liability for uncertain tax positions.

F-21

Table of Contents

The Company files Federal and state income tax ~~returns. Tax~~returns, Chembio Germany files in Germany, Chembio Brazil files in Brazil and Chembio Malaysia files in Malaysia and has been on tax holiday which expired on December 31, 2018. With few exceptions, tax years for fiscal ~~2013~~ 2016 through ~~2015~~ 2019 are open and potentially subject to examination by ~~the~~ federal, state and ~~state~~foreign taxing authorities.

NOTE 9 — ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY:

(a)

Common Stock

During 2019, options to purchase 54,343 shares of the Company’s common stock were exercised for 31,543 shares of common stock at exercise prices ranging from $3.48 to $4.35. During 2018, options to purchase 144,947 shares of the Company’s common stock were exercised for 71,290 shares of common stock at exercise prices ranging from $3.48 to $5.64 by surrendering options and shares of common stock already owned.

In ~~August of 2016,~~November 2018, the Company closed on an underwritten public offering of ~~2,300,000~~2,726,000 shares of its common stock, including the underwriter’s exercise of its overallotment of 355,565 shares, at ~~$6.00~~$6.75 per share. The net proceeds of the offering, after deducting the ~~underwriters'~~underwriter’s discounts and other offering expenses payable by the Company, was approximately ~~$12,493,000. The Company intends to use the net proceeds for business expansion and working capital.~~$16.5 million.

~~During 2016, options to purchase 191,804~~In February 2018, the Company closed on an underwritten registered public offering of 1,783,760 shares of ~~the Company's common stock were exercised on a cashless basis into 98,599 shares of~~its common stock at ~~exercise prices ranging from $2.80 to $5.56~~$6.75 per share. The net proceeds of the offering, after deducting the underwriter’s discounts and other offering expenses payable by ~~surrendering options and shares of common stock already owned~~.the Company, was approximately $10.9 million.

During 2015, options to purchase 41,141 shares of the Company's common stock were exercised, either for cash or cashless, into 17,109 shares of common stock at exercise prices ranging from $2.16 to $3.60 by paying cash or surrendering options already owned.

During 2014, options to purchase 318,750 shares of the Company's common stock were exercised, either for cash or cashless, into 286,356 shares of common stock at an exercise price of $1.04 by paying cash or surrendering options already owned

(b)

Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized and none outstanding. These shares can become issuable upon an approved resolution by the board of directors and the filing of a Certificate of Designation with the state of Nevada.

(c)

Options, Restricted Stock, and Restricted Stock Units

~~During the fourth quarter~~The Board of ~~2016, the Company issued~~Directors or its Compensation Committee may issue options, ~~to purchase 36,000 shares of common~~restricted stock, ~~to a newly-hired president of the EMEA~~ and APAC regions. The options are exercisable in three equal annual installments starting on the first anniversary of the date of issue. The options issued have an exercise price of $7.15 per share, which was the last traded price of the commonrestricted stock ~~on the day issued. The options expire five years from date of issue.~~

~~During the second quarter of 2016 the Company issued options to purchase 46,875 shares of common stock to one of its directors~~units pursuant to employee stock incentive plans that have been approved by the Company's compensation policy for directors. The options become exercisable in five equal annual installments starting on the date of issue. The options issued have an exercise price of $8.860 per share, which was the last traded price of the common stock on the day issued. The options expire five years from date of issue.Company’s stockholders.

~~F-12~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

The Company entered into an employment agreement, effective as of March 5, 2016 (the "Employment Agreement"), with Javan Esfandiari to serve as the Company's Chief Scientific and Technical Officer, for an additional term of three years through March 5, 2019. Pursuant to the Employment Agreement, the Company issued to Mr. Esfandiari incentive and non-qualified stock options to purchase 60,000 shares of the Company's common stock. Of these stock options, options to purchase 20,000 shares vest on each of the first three anniversaries of March 11, 2016 which is the date on which the Employment Agreement was entered into. The exercise price for these options was to be equal to the trading price for the Company's common stock on March 11, 2016, which was $5.64 per share. Each option granted will expire and terminate, if not exercised sooner, upon the earlier to occur of (a) 30 days after termination of Mr. Esfandiari's employment with the Company or (b) the fifth anniversary of the effective date of the grant.

~~During 2015, the Company did not issue options to purchase common stock.~~

During the fourth quarter of 2014, the Company issued options to purchase 36,000 shares of common stock to a newly-hired vice-president of the Company. The options are exercisable in three equal annual installments starting on the first anniversary of the date of issue. The options issued have an exercise price of $4.35 per share, which was the last traded price of the common stock on the day issued. The options expire five years from date of issue.

During the second quarter of 2014 the Company issued options to two of its directors pursuant to the Company's compensation policy for directors. Each director was issued options to purchase 46,875 shares of common stock. The options become exercisable in five equal annual installments starting on the date of issue. The options issued have an exercise price of $3.480 per share, which was the last traded price of the common stock on the day issued. The options expire five years from date of issue.

The Company entered into an employment agreement, effective March 13, 2014 ("Employment Agreement"), with Mr. Sperzel to serve as the Company's Chief Executive Officer, which included issuing incentive and non-incentive stock options to purchase 250,000 shares of the Company's common stock. The options become exercisable in five equal annual installments starting on the first anniversary of the effective date of the Employment Agreement. The exercise price for these options was to be equal to the volume-weighted average trading price for the Company's common stock on March 13, 2014, which was $3.416 per share. The options expire seven years from date of issue.

(d)

Warrants

As of December 31, ~~2016 and 2015,~~2019, the Company ~~had no~~has 550,000 warrants outstanding to purchase shares of common ~~stock.~~stock as further discussed in Note 14 – Warrants.

NOTE 10 — ~~RIGHTS AGREEMENT:~~

In March 2010, the Company entered into a Rights Agreement (the "Rights Agreement") between the Company and Action Stock Transfer Corp., as Rights Agent. The Rights Agreement expired at the end of November 2015. Pursuant to the Rights Agreement, the Company declared a dividend distribution of one preferred share purchase right (a "Right") for each outstanding share of Common Stock, $0.01 par value (the "Common Stock"), of the Company. The Board of Directors set the payment date for the distribution of the Rights as March 8, 2010, and the Rights were distributed to the Company's shareholders of record on that date. The description and terms of the Rights are set forth in the Rights Agreement.

~~Rights Initially Not Exercisable.~~ The Rights were not exercisable until a Distribution Date. Until a Right was exercised, the holder thereof, as such, would have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends.

~~F-13~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

~~Separation and Distribution of Rights~~. The Rights were to be evidenced by the certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate rights certificates until the earlier to occur of (i) the close of business on the tenth business day following a public announcement that an Acquiring Person (as defined in the Rights Agreement) acquired a Combined Ownership (as defined in the Rights Agreement) of 20% or more of the outstanding shares of the Common Stock (the "Shares Acquisition Date") or (ii) the later of (A) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the date that a tender or exchange offer or intention to commence a tender or exchange offer by any person is first published, announced, sent or given within the meaning of Rule 14d-4(A) under the Securities Exchange Act of 1934, as amended, the consummation of which would result in any person having Combined Ownership of 20% or more of the outstanding shares of the Common Stock, or (B) if such a tender or exchange offer has been published, announced, sent or given before the date of the Rights Agreement, then the close of business on the tenth business day after the date the Rights Agreement was entered into (or such later date as may be determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person); (the earlier of such dates referred to in (i) and (ii), which date may include any such date that is after the date of the Rights Agreement but prior to the issuance of the Rights, being called the "Distribution Date").

~~NOTE 11 — EMPLOYEE STOCK OPTION PLAN:~~EQUITY INCENTIVE PLANS:

Effective June 3, 2008, the ~~Company's~~Company’s stockholders voted to approve the 2008 Stock Incentive Plan ~~("SIP"~~(“SIP”), with 625,000 shares of ~~Common Stock~~common stock available to be issued. At the Annual Stockholder ~~meeting~~Meeting on September 22, 2011 the ~~Company's~~Company’s stockholders voted to approve an increase to the shares of ~~Common Stock~~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 awards became vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through December 31, 2019, there were 0 options exercised, and at December 31, 2019, 0 options were outstanding and no Equity Award Units were available to be issued under the SIP.

F-22

Table of Contents

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 ~~Company's~~SIP14, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be ~~stock options, restricted stock and/or restricted stock units.~~in the form of Equity Award Units. The awards become vested at such times and under such conditions as determined by the Board or its Compensation Committee. ~~As of~~Cumulatively through December 31, ~~2016,~~2019, there were ~~467,685~~54,343 options exercised, ~~275,931~~and at December 31, 2019, 642,625 options were outstanding and ~~6,384 options~~148,667 Equity Award Units were still available to be issued under the ~~SIP.~~SIP14.

Effective June ~~19, 2014,~~18, 2019, the ~~Company's~~Company’s stockholders voted to approve the ~~2014 Stock~~2019 Omnibus Incentive Plan ~~("SIP14"~~(“2019 Plan”), with ~~800,000~~2,400,000 shares of common stock available to be issued. In addition, shares of Common Stock underlying any outstanding award granted under the 2019 Plan that, following the effective date of the 2019 Plan, expires, or is terminated, surrendered or forfeited for any reason without issuance of such shares shall be available ~~to be issued.~~for the grant of new awards under the 2019 Plan. Under the terms of the ~~SIP14,~~2019 Plan, the Board or its Compensation Committee ~~of the Company's Board~~ has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of options, stock ~~options,~~appreciation rights, restricted stock, ~~and/or~~ restricted stock ~~units.~~unit, or other stock-based award under the 2019 Plan (collectively, 2019 Equity Units). The awards become vested at such times and under such conditions as determined by the Board or its Compensation Committee. ~~As of~~Cumulatively through December 31, ~~2016,~~2019, there were ~~12,000 options exercised, 117,750 options outstanding~~375,000 2019 Equity Units awarded under the 2019 Plan, and ~~670,250 options still~~2,025,000 2019 Equity Units available to be ~~issued under the SIP14.~~awarded.

The ~~Company's~~Company’s results for the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018 include stock-based compensation expense totaling ~~$304,100, $334,400,~~$1,655,900 and ~~$447,100~~$632,805, respectively. Such amounts have been included in the Consolidated Statements of Operations within cost of ~~goods sold~~product sales ($~~-, $-,~~10,806 and ~~$700~~$25,615, respectively), research and development ($~~89,200, $62,700,~~228,597 and ~~$44,500~~$78,831, respectively) and selling, general and administrative expenses ($~~214,900, $271,700,~~1,416,497 and ~~$401,900~~$528,360, respectively). In accordance with ASC 718 the Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of disqualifying stock options in the accompanying financial statements.

Stock option compensation expense in the years ended December 31, ~~2016, 2015~~2019 and ~~2014~~2018 represents the estimated fair value of options outstanding, which is being amortized on a straight-line basis over the requisite vesting period of the entire award. The stock compensation expense were $261,088 and $351,556 in December 31, 2019 and 2018, respectively.

No stock options were issued during 2019. The weighted average estimated fair value of stock options granted in the year ended December 31, ~~2016~~2018 was $2.75 per share. The Company did not grant any stock options during the year ended December 31, 2015 . The weighted average estimated fair value of stock options granted in the year ended December 31, 2014 was $3.52$3.76 per share. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of ~~our~~the Company’s stock and other contributing factors. The expected term is based on the ~~Company's~~Company’s historical experience with similar type options.

The weighted-average assumptions made in calculating the fair values of options are as ~~follows:~~follows for the respective years ended December 31:

~~For the year ended~~	~~December 31, 2016~~	~~December 31, 2015~~	~~December 31, 2014~~
~~Expected term (in years)~~	~~4.71~~	~~n/a~~	~~4.50-6.30~~
~~Expected volatility~~	~~45.78 %~~	~~n/a~~	~~61.50-96.10%~~
~~Expected dividend yield~~	~~n/a~~	~~n/a~~	~~n/a~~
~~Risk-free interest rate~~	~~0.92 %~~	~~n/a~~	~~.83-1.52%~~

	2019		2018
Expected term (in years)		n/a		4.96
Expected volatility		n/a		39.91	%
Expected dividend yield		n/a		n/a
Risk-free interest rate		n/a		2.70	%

~~F-14~~F-23

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~Table of Contents

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

~~The Company granted 142,875 new options during the year ended December 31, 2016 to employees and directors.~~

The following table provides stock ~~options~~option activity for the ~~year~~years ended December 31, ~~2016:~~2019 and 2018:

Stock Options
Number of
Shares

Weighted
Average Exercise Price per Share

Weighted Average
Remaining Contractual Term

Aggregate Intrinsic
Value

Outstanding at December 31, 2013 656,398 2.57 1.65 years $ 801,888

Granted 379,750 3.52
Exercised 318,750 1.04 341,729
Forfeited/expired/cancelled 25,529 3.17
Outstanding at December 31, 2014 691,869 3.66 3.97 years $ 334,636

Exercisable at December 31, 2014 265,619 3.67 1.94 years $ 158,149

Outstanding at December 31, 2014 691,869 3.66 3.97 years $ 334,636

Granted - -
Exercised 41,141 2.25 65,449
Forfeited/expired/cancelled 1,250 4.30
Outstanding at December 31, 2015 649,478 3.75 3.21 years $ 1,032,362

Exercisable at December 31, 2015 359,228 3.89 2.03 years $ 522,039

Outstanding at December 31, 2015 649,478 $ 3.75 3.21 years $ 1,032,362

Granted 142,875 $ 7.08
Exercised 191,804 $ 3.73 629,143
Forfeited/expired/cancelled - $ -
Outstanding at December 31, 2016 600,549 $ 4.55 3.43 years $ 1,463,052

Exercisable at December 31, 2016 267,549 $ 4.14 2.66 years $ 731,997

	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2017		810,670	$	5.18	3.69 years	$	2,477,853

Granted		93,750		9.80
Exercised		144,947		4.83			523,327
Forfeited/expired/cancelled		47,505		8.82
Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364

Exercisable at December 31, 2018		396,799	$	4.70	2.66 years	$	568,956

Outstanding at December 31, 2018		711,968	$	5.62	3.33 years	$	687,364

Granted		–	$	0.00			–
Exercised		54,343	$	3.60			172,242
Forfeited/expired/cancelled		15,000	$	5.68			–
Outstanding at December 31, 2019		642,625	$	5.79	2.57 years	$	285,925

Exercisable at December 31, 2019		493,958	$	5.22	2.20 years	$	285,925

The following table summarizes information about stock options outstanding at December 31, ~~2016:~~2019:

	Stock Options Outstanding						Stock Options Exercisable					Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Shares	Average Remaining Contract Life (Year)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Shares Outstanding		Average Remaining Contract Life (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Shares Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999	-	-	$	-	$	-	-	$	-	$	-		–		–	$	–	$	–		–	$	–	$	–
2.8 to 4.59999	419,719	3.30		3.60		1,342,788	220,219		3.71		681,333		250,000		1.20		3.42		285,925		250,000		3.42		285,925
4.6 to 6.39999	97,955	3.02		5.57		120,264	37,955		5.47		50,664		137,875		2.44		5.87		–		87,125		5.89		–
6.4 to 8.19999	36,000	4.78		7.15		-	-		-		-		207,875		4.05		7.31		–		138,083		7.22		–
8.2 to 10	46,875	4.44		8.86		-	9,375		8.86		-
8.2 to 12													46,875		3.60		11.45		–		18,750		11.45		–
Total	600,549	3.43	$	4.55	$	1,463,052	267,549	$	4.14	$	731,997		642,625		2.57	$	5.79	$	285,925		493,958	$	5.22	$	285,925

The average remaining contract life for the shares exercisable is 2.2 years, as of December 31, 2019.

~~F-15~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

As of December 31, ~~2016,~~2019, there was ~~$386,000~~$432,746 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately ~~2.32~~2.00 years. The total fair value of shares vested during the year ended December 31, ~~2016,~~2019, was ~~$262,000.~~$469,032.

F-24

Table of Contents

The following table summarizes information about restricted stock and restricted stock units outstanding as of December 31, 2019:

	Number of Shares & Units			Weighted Average Grant Date Fair Value
Unvested at December 31, 2018		287,564		$	9.65

Granted		375,000			5.80
Vested		(116,578	)		9.65
Forfeited/expired/cancelled		–			–
Unvested at December 31, 2019		545,986			7.47

As of December 31, 2019, there was $3,273,929 of net unrecognized compensation cost related to restricted stock and restricted stock units that are not vested, which is expected to be recognized over a weighted average period of approximately 1.4 years. Stock based compensation cost related to restricted stock and restricted stock units recognized during the years ended December 31, 2019 and 2018 was $1,394,814 and $281,249, respectively.

NOTE 1211 — GEOGRAPHIC INFORMATION AND ECONOMIC DEPENDENCY:

FASB Guidance establishes standards for the way that business enterprises report information about operating segments in financial statements and requires that those enterprises report selected information. It also establishes standards for related disclosures about product and services, geographic areas, and major customers.

The Company produces only one group of similar products known collectively as ~~"rapid~~“rapid medical ~~tests". Management believes that~~tests,” and it operates in a single business segment. Net product sales by geographic area are as follows:

For the years ended
December 31, 2016 December 31, 2015 December 31, 2014
Africa $ 2,363,944 $ 3,673,199 $ 2,097,353
Asia 227,564 172,250 96,061
Europe 1,131,193 1,164,476 191,947
North America 5,082,319 6,525,951 11,134,691
South America 4,875,087 10,350,812 12,429,717
$ 13,680,107 $ 21,886,688 $ 25,949,769

	Year Ending December 31,
	2019		2018
Africa	$	7,564,360	$	8,838,632
Asia		888,800		1,404,982
Europe & Middle East		3,781,761		2,208,063
Latin America		11,808,767		12,546,083
United States		4,801,309		2,915,449
	$	28,844,997	$	27,913,209

~~Sales to Africa decreased in 2016 primarily due to decreased sales in Uganda~~Long-lived assets by approximately $1,122,400, and Nigeria by approximately $220,900. Sales in Asia increased slightly by $55,300. European sales decreased by $68,600. Sales decreased in 2016 to North America from decreased sales in the U.S by approximately $1,579,800 and partially offset by increased sales to Mexico of $123,200. Sales decreased in 2016 to South America were primarily from decreased sales in Brazil of approximately $5,340,250.geographic area are as follows:

Sales to Africa increased in 2015 primarily due to increased sales in Uganda by approximately $1,344,500, and Nigeria by approximately $287,500. Sales in Asia increased slightly by $76,200. European sales increased by $972,500. Sales decreased in 2015 to North America from decreased sales to Mexico of $3,913,400 and by decreased sales in the U.S by approximately $1,545,000. Sales decreased in 2015 to South America were primarily from decreased sales in Brazil of approximately $2,111,700.

	2019		2018
Asia	$	393,299	$	466,185
Europe & Middle East		165,029		123,752
Latin America		60,527		–
United States		5,314,715		2,283,983
	$	5,933,569	$	2,873,920

NOTE 1312 — COMMITMENTS, CONTINGENCIES AND ~~CONTINGENCIES:~~CONCENTRATIONS:

Employment Contracts:

The Company has multi-year contracts with ~~three~~two key employees. The contracts call for salaries presently aggregating ~~$975,000~~$730,000 per ~~year. One contract expires in May 2017, one expires~~year, and they expire in March ~~2019~~2020 and ~~one contract expires in March 2017.~~December 2021. The following table is a schedule of future minimum salary commitments:

2020		$	365,000
2021			365,000

Chembio’s President & CEO, the key employee whose agreement was set to expire in March 2020, resigned effective as of January 3, 2020.

2017 $ 516,200
2018 335,000
2019 55,800

F-25

~~Pension Plan:~~

Table of Contents

Pension Plan:

The Company has a 401(k) plan established for its ~~employees. Effective January 1, 2011 the Company elected to match~~employees whereby it matches 40% of the first 5% (or 2% of salary) that an employee contributes to ~~their 401(k)~~the plan. ~~Expenses related to this matching~~Matching contribution ~~aggregated $96,051, $90,915~~expenses totaled $93,892 and ~~$82,750~~$94,544 for the years ended December 31, ~~2016, 2015,~~2019 and ~~2014~~2018, respectively.

Leases:

~~F-16~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER~~Chembio’s leases have historically been limited to its facilities in New York, Germany, Malaysia & Brazil. As of December 31, ~~2016, 2015 AND 2014~~

~~Obligations Under Operating Leases:~~2019, the Company was a party to eight leases. One of the leases is subject to a sublease for the remainder of its term, as further described below.

The Company’s leases generally include optional renewal periods. Upon entering into a new lease, the Company ~~leases industrial space used for office, R&D~~evaluates the leasehold improvements and ~~manufacturing facilities, currently~~regulatory requirements related to its operations in that location. To the extent that the initial lease term of the related lease is less than the useful life of the leasehold improvements and potential regulatory costs associated with moving the facility, the Company concludes that it is reasonably certain that a ~~monthly rent~~renewal option will be exercised, and thus that renewal period is included in the lease term and the related payments are reflected in the right-of-use (“ROU”) asset and lease liability. In January 2019 the Company recognized $0.8 million and $0.8 million of ~~$28,688. The current lease expires on April 30, 2017. The lease provides for annual increases of 2.50% percent each year starting May 1, 2016. In February of 2014,~~right-of-use assets and liabilities, respectively. During 2019, the Company entered into a new lease ~~effective March 1, 2014,~~agreement for ~~another facility located a short distance from~~ its ~~current facility currently with a monthly rent of $15,550.~~new headquarter location in Hauppauge, NY. The ~~space is used primarily~~right-of-use asset acquired in exchange for ~~warehousing and provides for additional office space. The lease expires on April 30, 2018. The lease provides for annual increases of 3.00% percent each year starting March 1, 2016.~~

~~The following is a schedule of future minimum rental commitments (assuming no increases):~~right-of-use liabilities was approximately $6.5 million.

~~Years ending December 31,~~The Company’s leases generally include fixed rental payments with defined annual increases. While certain of the Company’s leases are gross leases, the majority of the Company’s leases are net leases in which the Company makes separate payments to the lessor based on the lessor’s property and casualty insurance costs, the property taxes assessed on the property, and a portion of the common area maintenance where applicable. The Company has elected the practical expedient not to separate lease and nonlease components for all of the Company’s facility leases. The Company has also elected the practical expedient for short-term lease exception for all of its facility leases.

2017 $ 306,018
2018 64,067
2019 -
$ 370,085

The components of lease expense were as follows:

	Year Ended December 31, 2019
Operating lease expense	$	1,655,573

Finance lease cost
Amortization of right-of-use assets	$	23,372
Interest on lease liabilities		7,892
Total finance lease expense	$	31,265

Rent expense was ~~$516,708, $511,900~~$653,155 for the year ended December 31, 2018.

Supplemental cash flow and ~~$476,000~~other information related to leases were as follows:

	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	632,952
Operating cash flows for finance leases		7,892
Financing cash flows for finance leases		19,875
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7,030,744
Finance leases		210,350

F-26

Table of Contents

Supplemental balance sheet information related to leases was as follows:

	December 31, 2019
Operating Leases
Operating lease right-of-use assets	$	7,030,744
		–
Current portion of operating lease liability		568,294
Operating lease liabilities		6,969,603
Total operating lease liabilities	$	7,537,897

Finance Leases
Finance lease right of use asset	$	233,722
Accumulated depreciation		(23,372	)
Finance lease right of use asset, net	$	210,350

Current portion of finance lease liability		41,894
Finance lease liability		171,953
Total finance lease liabilities	$	213,847

Weighted Average Remaining Lease Term
Operating leases	9.3 years
Finance leases	4.8 years

Weighted Average Discount Rate
Operating leases		8.67	%
Finance leases		7.00	%

During 2019, the Company executed an operating sublease related to its former Holbrook, New York facility. The sublease runs conterminously with the base lease in Holbrook, for which the Company remains primarily responsible. In addition, the Company entered into a finance lease agreement relating to office furniture in June 2019. The Company recognized the corresponding lease asset and liability effective June 30, 2019 and recorded related depreciation starting on July 1, 2019. Monthly payments towards this lease commenced in July 2019.

At the time of the initial assessment, the Company did not have an established incremental borrowing rate and the interest rates implicit in each of the leases were not readily determinable, therefore the Company used an interest rate based on the market place for public debt. In September 2019, the Company entered into a credit agreement for a $20 million term loan as described on Note 13 - Long Term Debt.

Maturities of lease liabilities as of December 31, 2019 were as follows.

	Operating Leases			Finance Leases
2020	$	1,205,161		$	55,536
2021		1,209,787			55,536
2022		1,057,757			55,536
2023		1,026,272			55,536
2024		1,018,875			27,767
Thereafter		5,773,887			–
Total lease payments	$	11,291,739		$	249,911
Less: imputed interest		(3,753,842	)		(36,064	)
Total	$	7,537,897		$	213,847

F-27

Table of Contents

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K, and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows for the years ~~ended~~ending December ~~31, 2016, 2015, and 2014 respectively.~~31:

2019	$	384,308
2020		88,576
2021		–
	$	472,884

Economic Dependency:

~~Economic Dependency:~~Customers are considered major customers when net sales exceed 10% of the Company’s total net sales for period or outstanding trade receivables exceed 10% of accounts receivable. The Company had the following major customers for the respective periods:

~~The following table delineates sales the Company had to customers in excess of 10% of total sales for the periods indicated:~~

	For the years ended														Accounts Receivable						For the years ended										Accounts Receivable
	December 31, 2016					December 31, 2015					December 31, 2014				December 31, 2016			December 31, 2015			December 31, 2019					December 31, 2018					December 31, 2019		December 31, 2018
	Sales			% of Sales		Sales			% of Sales			Sales	% of Sales								Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer 1		$	4,801,577	35	%		$	10,132,512	46	%	$	12,253,526	47	%		$	828,848		$	775,209	$	11,263,573		39	%	$	11,333,767		33	%	$	941,962	$	3,499,340
Customer 2			1,796,477	13	%			4,526,908	21	%		6,618,251	26	%			-			700,656		5,782,543		20	%		4,346,640		13	%		16,033		1,033,824

The following table delineates purchases the Company had with vendors in excess of 10% of total purchases for the periods indicated:

For the years ended Accounts Payable
December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2016 December 31, 2015
Purchases % of Purc. Purchases % of Purc. Purchases % of Purc.
Vendor 1 $ 652,273 11 % $ * * $ * * $ 26,984 $ *
Vendor 2 * * 794,536 11 % 1,331,647 14 % * 90,075

For the years ended

Accounts Payable

December 31, 2019

December 31, 2018

December

31, 2019

December

31, 2018

Purchases

% of Purc.

Purchases

% of

Purc.

Vendor 1

1,646,614

164,312

In the ~~table~~tables above, ~~the~~an asterisk (*) indicates that purchases from the vendor did not exceed 10% for the period indicated.

The Company ~~currently buys~~purchases materials ~~which are purchased under~~pursuant to intellectual property rights agreements ~~and~~that are important components in its products. Management believes that other suppliers could provide similar materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which ~~would~~could adversely affect operating ~~results adversely.~~

~~NOTE 14 — COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS:~~

In 2016, 2015, and 2014 the Company earned $3.7 million, $2.3 million, and $1.7 million, respectively, from research revenues and milestones. The Company is now involved in additional feasibility and development contracts related to its DPP® technology. The total expended on R&D, excluding regulatory, in 2016, 2015, and 2014, was approximately $6.9 million, $5.4 million, and $4.1 million, respectively.

~~F-17~~

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

~~a. RVR DPP® technology transfer agreement:~~

In February 2014, the Company entered into a technology transfer agreement with RVR Diagnostics for $1,500,000. The agreement was modified in September 2014 and September 2015. Per the agreement, as modified, the Company earned $-, $125,000 and $1,125,000 in milestone payments during 2016, 2015 and 2014. The Company has earned $1,250,000 from this grant from inception through December 31, 2016. See subsequent event note describing the Company's acquistion of RVR Diagnostics in January 2017.

~~b. Dengue agreement:~~

In October 2014, the Company entered into a development agreement with an international diagnostics company for $300,000. Revenue for this agreement is being recognized under a proportional performance method. For the years ended December 31, 2016, 2015 and 2014, the Company earned $-, $240,000 and $60,000, respectively from this grant. The Company has earned $300,000 from this grant from inception through December 31, 2016.

~~Brain Injury agreement:~~

In January 2015, the Company entered into a technology development agreement with Perseus Science Group LLC for $946,000 and a follow-on agreement in December 2016 for $350,000. Revenue for this agreement is being recognized under a proportional performance method. The Company earned $297,000 and $469,600 for the year ended December 31, 2016 and 2015, respectively from this agreement. The Company has earned $766,600 from this grant from inception through December 31, 2016.

~~Malaria agreement:~~

In January 2015, the Company was awarded a grant from The Bill & Melinda Gates Foundation for $307,000. Revenue for this agreement is being recognized under a proportional performance method. The Company earned $- and $307,000 for the year ended December 31, 2016 and 2015, respectively from this agreement. The Company has earned $307,000 from this grant from inception through December 31, 2016.

In April 2016, the Company was awarded a grant from the Bill & Melinda Gates Foundation for $677,944. The Company earned $518,761 for the year ended December 31, 2016 from this agreement, which is the total amount earned from this grant from inception through December 31, 2016.

~~Cancer agreement:~~

In October 2014, the Company entered into a technology development agreement with an international diagnostics company for $320,000. Revenue for this agreement is being recognized under a proportional performance method. For the years ended December 31, 2016, 2015 and 2014, the Company earned $65,000, $205,000 and $-, respectively from this grant. The Company has earned $270,000 from this grant from inception through December 31, 2016.

~~Fever panel agreement:~~

In October 2015, the Company entered into an agreement with Paul G. Allen Ebola Program for $2,118,265 and a follow-on agreement in February 2016 for $550,000. Revenue for this agreement is being recognized under a proportional performance method. The Company earned $2,259,800 and $408,500 for the year ended December 31, 2016 and 2015, respectively from this agreement. The Company has earned $2,668,265 from this grant from inception through December 31, 2016.

~~g. BARDA Zika agreement:~~

In August 2016, the Company was awarded a grant for $5,933,742 from BARDA, which is part of the U.S. Department of Health And Human Resources. The Company earned $472,700 for the year ended December 31, 2016 from this agreement. The Company earned $472,700 from this grant from inception through December 31, 2016.

~~USDA Bovid:~~

In September 2016, the Company entered into an agreement with the USDA for $669,423 to develop a Bovid TB assay. Revenue for this agreement is being recognized under a proportional performance method. The Company earned $121,500 for the year ended December 31, 2016 from this agreement.results.

~~F-18~~F-28

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~DECEMBER 31, 2016, 2015 AND 2014~~

Table of Contents

Litigation:

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. The outcomes of such actions, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s future financial position or results of operations.

Governmental Regulation:

All of the ~~Company's~~Company’s existing and proposed diagnostic products are regulated by the ~~United States~~U.S. Food and Drug Administration, ~~(FDA), United States~~U.S. Department of Agriculture, certain U.S., state and local agencies, and/or comparable regulatory bodies in other countries. Most aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and record keeping, are subject to regulatory review. After marketing approval has been granted, Chembio must continue to comply with governmental regulations. Failure to comply with ~~these regulations~~applicable requirements can ~~result in significant penalties.~~lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, civil money penalties, injunctions, and criminal prosecution.

NOTE 1513 — ~~QUARTERLY FINANCIAL DATA (UNAUDITED)~~LONG-TERM DEBT:

In September 2017, the Company entered into an agreement with an equipment vendor to purchase automated assembly equipment for approximately $660,000. The ~~sum~~terms call for payments of 30% down, 60% at time of factory acceptance testing and 10% after delivery. The vendor agreed to lend the ~~earnings per common share may not equal~~Company 15%, 40%, and 10%, of each originally scheduled payment, respectively. The Company paid interest at an annual rate of 12% until delivery. Beginning in September 2018, the ~~corresponding~~Company began making monthly payments of principal and interest of approximately $20,150, at an annual ~~amounts due to interim quarter rounding.~~

For the Quarters Ended in Fiscal 2016
March 31 June 30 September 30 December 31
Total revenues $ 6,601,099 $ 3,266,405 $ 3,746,461 $ 4,254,876
Gross profit 3,165,548 1,580,305 1,952,097 1,753,386
Net loss (303,590 ) (8,347,482 ) (2,138,218 ) (2,557,757 )
Basic loss per share (0.03 ) (0.86 ) (0.19 ) (0.21 )
Diluted loss per share (0.03 ) (0.86 ) (0.19 ) (0.21 )

For the Quarters Ended in Fiscal 2015
March 31 June 30 September 30 December 31
Total revenues $ 6,231,137 $ 6,716,158 $ 6,887,374 $ 4,420,816
Gross profit 2,686,618 3,019,132 2,910,534 1,870,543
Net loss (646,817 ) (664,085 ) (437,157 ) (648,984 )
Basic loss per share (0.07 ) (0.07 ) (0.05 ) (0.07 )
Diluted loss per share (0.07 ) (0.07 ) (0.05 ) (0.07 )

~~NOTE 16 — SUBSEQUENT EVENTS:~~rate of 12% over a twenty-four month period. The remaining balance was entirely short-term as of December 31, 2019.

On ~~January 9, 2017,~~September 3, 2019, the Company ~~completed~~entered into a Credit Agreement and Guaranty (the “Credit Agreement”) with Perceptive Credit Holdings II, LP (the “Lender”). The Credit Agreement provides for a $20,000,000 senior secured term loan credit facility, which was drawn in full on September 4, 2019. Under the ~~acquisition~~terms of ~~RVR Diagnostics Sdn Bhd,~~the Credit Agreement, the Company may use the proceeds (i) for general working capital purposes and other permitted corporate purposes, (ii) to refinance certain of the Company’s existing indebtedness and (iii) to pay fees, costs and expenses incurred in connection with the Credit Agreement, including the Lender’s closing cost amount of $550,000, which was netted from the proceeds, and a ~~Malaysia corporation ("RVR"), pursuant~~financing fee of $600,000 (3.0% of gross proceeds) payable to Craig-Hallum Capital Group LLC, the Company’s financial advisor for the financing.

Principal outstanding under the Credit Agreement bears interest at a rate per annum equal to the ~~previously reported Amended And Restated Stock Purchase Agreement, dated as~~sum of (a) the greater of the one-month London Interbank Offered Rate and 2.5% plus (b) 8.75%. At any time at which an event of default has occurred and is continuing, the interest rate will increase by 4.0%. Accrued interest is payable on a monthly basis. On December ~~7, 2016 (the "Stock Purchase Agreement"), by and among~~31, 2019 the ~~Company, RVR, Avijit Roy and Magentiren Vajuram (Messrs. Roy and Vajuram, the "Sellers")~~interest rate was 11.25%.

~~Pursuant~~No principal repayments are due under the Credit Agreement prior to ~~the Stock Purchase Agreement,~~September 30, 2022, unless the Company ~~acquired~~elects to prepay principal or principal is accelerated pursuant to an event of default identified in the Credit Agreement. Principal installments in the amount of $300,000 are payable on the last day of each of the eleven months from September 2022 through July 2023, and all remaining principal is payable at maturity on September 3, 2023. The Company may prepay outstanding principal from time to time, subject to payment of a premium on the prepaid principal amount equal to 10% through September 3, 2020, 8% from September 4, 2020 through September 3, 2021, and 4% from September 4, 2021 through September 3, 2022. No premium will be due with respect to any prepayment made on or after September 4, 2022.

As of December 31, 2019, the loan balance, net of unamortized discounts and debt issuance costs, was $17.6 million, and the company was in compliance with its loan covenants. Our obligations under the Credit Agreement are secured by a first priority, perfected lien on substantially all of ~~the issued~~our property and ~~outstanding common stock and other~~assets, including our equity interests of RVR from the Sellers for (i) a cash payment of $1,400,000 and (ii) 269,236 shares of the Company's common stock, of which 7,277 shares are being held back to satisfy certain potential claims under the Stock Purchase Agreement and will become issuable to the Sellers, if at all, on the one-year anniversary of the closing.in our subsidiaries.

~~In addition, the Stock Purchase Agreement provides that the Sellers may become entitled to receive certain milestone payments based on the achievement~~

F-29

Table of performance goals related to sales by RVR during the 12 months ending December 31, 2017. Based on the actual sales achieved by RVR, the Sellers will be entitled to receive (i) a cash milestone payment equal to $100,000 multiplied by the Milestone Proration Amount, for a maximum cash milestone payment of $100,000, and (ii) a stock milestone payment equal to 21,830 shares of the Company's common stock multiplied by the Milestone Proration Amount, with a maximum stock milestone payment of 21,830 shares of the Company's common stock.Contents

NOTE 14 — WARRANTS:

In connection with entering into the ~~closing~~Credit Agreement, on September 3, 2019, the Company issued to the Lender a seven-year warrant (the “Warrant”) to purchase up to 550,000 shares of the ~~transaction under~~Company’s common stock at a per-share exercise price of $5.22. The Warrant is exercisable for cash or on a net, or “cashless,” basis, and the ~~Stock Purchase Agreement, each~~exercise price of the ~~Sellers entered into an employment agreement with RVR, pursuant~~Warrant is subject to ~~which, among other things, each~~price-based, weighted-average antidilution adjustments for one year after issuance.

The Warrant was evaluated by the Company and classified to stockholder’s equity. Its fair value was estimated using aBlack-Scholes option-pricing model using the assumptions below.

Stock price on issuance date	$	5.40
Strike Price	$	5.22
Risk-free interest rate		1.45	%
Volatility		43.65	%
Expected life	7 years

The fair value of the ~~Sellers agreed~~Warrant was determined to ~~serve as an employee~~be approximately $1.4 million at $2.49 per share.

As of ~~RVR~~December 31, 2019, the balance recorded in the Company’s Stockholders’ Equity for the ~~one-year period following the closing in exchange for a monthly base salary~~Warrants, net of ~~$10,000. In addition, at the closing, John J. Sperzel III, the Company's President, Chief Executive Officer~~allocated issuance costs, was $1.2 million.

As of December 31, 2019, no warrants were exercised and a member of the Company's board of directors, Richard J. Larkin, the Company's Chief Financial Officer and Executive Vice President, and Katherine L. Davis, the Company's Chairman of the Board and a member of the Company's board of directors, were appointed as the directors of RVR, with each of the Sellers continuing as the other two directors of RVR.

~~F-19~~

no warrants have expired.

~~Schedule II~~F-30

~~Valuation and Qualifying Accounts~~

Additions
Description Balance at beginning of period Charged to statement of income Charged to other accounts Deductions Balance at end of period
Year ended December 31, 2016
Allowance for doubtful accounts $ 52,000 $ - $ - $ - $ 52,000
Inventory Reserve $ 218,000 $ 221,478 $ - $ 194,478 $ 245,000

Year ended December 31, 2015
Allowance for doubtful accounts $ 52,000 $ - $ - $ - $ 52,000
Inventory Reserve $ 218,000 $ 256,302 $ - $ 256,302 $ 218,000

Year ended December 31, 2014
Allowance for doubtful accounts $ 52,000 $ - $ - $ - $ 52,000
Inventory Reserve $ 218,000 $ 274,506 $ - $ 274,506 $ 218,000

Nevada		88-0425691
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~3661 Horseblock Road, Medford,~~555 Wireless Boulevard, Hauppauge, NY		~~11763~~11788
(Address of principal executive offices)		(Zip Code)

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

Large accelerated filer ~~[ ]~~☐	Accelerated filer ~~[X ]~~☒
Non-accelerated filer ~~[ ]~~☐	Smaller reporting company []☒
~~(Do not check if a smaller reporting company)~~	Emerging growth company ☐

Product (Assay)	U.S.	International
DPP HIV 1/2	✓	✓
DPP HIV-Syphilis		✓
DPP Syphilis Screen & Confirm		✓
DPP Zika	✓	✓
DPP Leishmaniasis		✓
STAT-PAK HIV 1/2	✓	✓
STAT-PAK Chagas		✓
SURE CHECK HIV 1/2	✓	✓
SURE CHECK HIV 1/2 Self Test		✓

Product	Collaborator	Phase I Feasibility	Phase II Development	Phase III Verification &Validation	Phase IV Clinical & Regulatory	Phase V Commercial Launch
DPP HIV-Syphilis (US)	Self-funded	✓	✓	✓	✓	PMA/510K pending
DPP Dengue IgM/IgG (International)	Self-funded	✓	✓	✓	✓	CE and ANVISA¹
DPP Dengue NS1 Antigen (International)	Self-funded	✓	✓	✓	✓	CE and ANVISA pending
DPP Zika IgM/IgG (International)	Self-funded	✓	✓	✓	✓	CE and ANVISA
DPP Chikungunya IgM/IgG (International)	Self-funded	✓	✓	✓	✓	CE and ANVISA
DPP ZCD IgM/IgG(International)	Self-funded	✓	✓	✓	✓	CE and ANVISA
DPP Zika IgM (US)	BARDA	✓	✓	✓	✓	FDA-EUA²FDA
DPP Ebola	CDC	✓	✓	✓	✓	FDA-EUA
DPP Fever Assay Asia	FIND	✓	✓	✓	✓	Field studies ongoing
DPP Fever Assay Africa	Paul Allen Foundation	✓	✓	✓

		Page
PART I
ITEM 1.	BUSINESS	25
ITEM 1A.	RISK FACTORS	18
~~ITEM 1B.~~	~~UNRESOLVED STAFF COMMENTS~~	2516
ITEM 2.	PROPERTIES	2540
ITEM 3.	LEGAL PROCEEDINGS	25
~~ITEM 4~~.	~~MINE SAFETY DISCLOSURES~~	2540
PART II
ITEM 5.	MARKET FOR ~~REGISTRANT'S~~REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	26
~~ITEM 6.~~	~~SELECTED FINANCIAL DATA~~	2741
ITEM 7.	~~MANAGEMENT'S~~ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
~~ITEM 7A.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	4442
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	44
~~ITEM 9.~~	~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.~~	4451
ITEM 9A.	CONTROLS AND PROCEDURES	44
~~ITEM 9B.~~	~~OTHER INFORMATION~~	4751
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	4853
ITEM 11.	EXECUTIVE COMPENSATION	4853
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	4853
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	4853
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	4853
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	4954
~~ITEM 16.~~	~~FORM 10-K SUMMARY~~	50
SIGNATURES		5155

Fiscal Year 2016	High			Low
First Quarter		$	6.10		$	4.03
Second Quarter		$	9.40		$	5.87
Third Quarter		$	8.48		$	5.08
Fourth Quarter		$	7.45		$	6.10

Fiscal Year 2015	High			Low
First Quarter		$	4.20		$	3.47
Second Quarter		$	5.25		$	4.00
Third Quarter		$	5.20		$	3.33
Fourth Quarter		$	5.53		$	3.90

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
As of and For the Years Ended
Statement of Operations Data:
	December 31, 2016					December 31, 2015					December 31, 2014					December 31, 2013				December 31, 2012

TOTAL REVENUES	$	17,868,841				$	24,255,485				$	27,645,284				$	29,549,609			$	25,610,595

GROSS MARGIN⁽¹⁾		8,451,336		47	%		10,486,827		43	%		10,814,023		39	%		12,300,159	42	%		10,789,991		42	%

OPERATING COSTS:
Research and development expenses⁽¹⁾		8,427,554		47	%		6,377,839		26	%		4,832,537		17	%		5,834,249	20	%		4,486,302		18	%
Selling, general and administrative expenses⁽¹⁾		7,595,559		43	%		7,663,035		32	%		7,531,739		27	%		5,461,083	18	%		4,851,587		19	%
		16,023,113					14,040,874					12,364,276					11,295,332				9,337,889
INCOME (LOSS) FROM OPERATIONS		(7,571,777	)				(3,554,047	)				(1,550,253	)				1,004,827				1,452,102

OTHER INCOME (EXPENSES):		25,548					(3,238	)				132					12,943				(1,584	)

INCOME (LOSS) BEFORE INCOME TAXES⁽¹⁾		(7,546,229	)	(42	)%		(3,557,285	)	(15	)%		(1,550,121	)	(6	)%		1,017,770	3	%		1,450,518		6	%

Income tax provision (benefit)		5,800,818					(1,160,243	)				(412,918	)				486,952				509,237
NET INCOME (LOSS)	$	(13,347,047	)			$	(2,397,042	)			$	(1,137,203	)			$	530,818			$	941,281

Basic income (loss) per share	$	(1.26	)			$	(0.25	)			$	(0.12	)			$	0.06			$	0.12

Diluted income (loss) per share	$	(1.26	)			$	(0.25	)			$	(0.12	)			$	0.06			$	0.11

Weighted average number of shares outstanding, basic		10,622,331					9,626,028					9,530,320					8,994,080				7,986,030

Weighted average number of shares outstanding, diluted		10,622,331					9,626,028					9,530,320					9,519,968				8,614,944

Balance Sheet Data:
Working capital	$	14,707,876				$	9,479,968				$	12,372,169				$	14,221,011			$	7,630,368
Total assets		20,575,236					20,816,344					25,010,192					24,486,592				17,335,150
Total liabilities		3,405,650					3,154,838					5,286,030					4,309,490				3,460,630
Shareholders' equity		17,169,586					17,661,506					19,724,162					20,177,102				13,874,520

Selected Product Categories:	For the years ended
	December 31, 2016		December 31, 2015		$ Change			% Change

Lateral Flow HIV Tests and Components	$	7,943,224	$	9,957,882	$	(2,014,658	)		-20.23	%
DPP® Tests and Components		5,400,893		11,265,876		(5,864,983	)		-52.06	%
Other		335,990		662,930		(326,940	)		-49.32	%
Net Product Sales		13,680,107		21,886,688		(8,206,581	)		-37.50	%
License and royalty revenue		449,685		52,753		396,932			752.43	%
R&D, milestone and grant revenue		3,739,049		2,316,044		1,423,005			61.44	%
Total Revenues	$	17,868,841	$	24,255,485	$	(6,386,644	)		-26.33	%

Selected expense lines:	For the years ended
	December 31, 2016		December 31, 2015		$ Change			% Change
Clinical and Regulatory Affairs:
Wages and related costs	$	569,664	$	490,802	$	78,862			16.07	%
Consulting		40,974		44,135		(3,161	)		-7.16	%
Stock-based compensation		-		-		-			100.00	%
Clinical trials		778,921		366,469		412,452			112.55	%
Other		54,851		80,960		(26,109	)		-32.25	%
Total Regulatory		1,444,410		982,366		462,044			47.03	%

R&D Other than Regulatory:
Wages and related costs		2,951,456		2,896,226		55,230			1.91	%
Consulting		143,321		128,117		15,204			11.87	%
Stock-based compensation		89,246		62,713		26,533			42.31	%
Materials and supplies		3,290,868		1,779,046		1,511,822			84.98	%
Other		508,253		529,371		(21,118	)		-3.99	%
Total other than Regulatory		6,983,144		5,395,473		1,587,671			29.43	%

Total Research and Development	$	8,427,554	$	6,377,839	$	2,049,715			32.14	%

Selected Changes in Financial Condition	As of
	December 31, 2016		December 31, 2015		$ Change			% Change
Cash and cash equivalents	$	10,554,464	$	5,376,931	$	5,177,533			96.29	%
Accounts receivable, net of allowance for doubtful accounts of $52,000 and $52,000 at December 31, 2016 and 2015, respectively		3,383,729		2,422,971		960,758			39.65	%
Prepaid expenses and other current assets		840,145		1,256,879		(416,734	)		-33.16	%
Fixed assets, net of accumulated depreciation		1,709,321		2,374,308		(664,987	)		-28.01	%
Deferred tax asset, net of valuation allowance		-		5,467,143		(5,467,143	)		-100.00	%
Deposits and other assets		720,489		209,169		511,320			244.45	%
Accounts payable and accrued liabilities		3,013,133		2,801,432		211,701			7.56	%
Deferred revenue		392,517		353,406		39,111			11.07	%
Additional paid-in capital		60,721,783		47,890,642		12,831,141			26.79	%

	Payments due by period
Contractual Obligations	Total		Less than one year		1 - 3 years		3-5 years		More than 5 years
Operating leases¹	$	370,085	$	306,018	$	64,067	$	-	$	-
Employment contracts²		907,000		516,200		390,800		-		-
Purchase obligations³		694,725		694,725		-		-		-
Minimum commitments under contracts⁴		532,627		333,627		92,000		77,000		30,000

Total contractual obligations	$	2,504,437	$	1,850,570	$	546,867	$	77,000	$	30,000

	Common Stock				Additional Paid- in Capital			Accumulated Deficit			Total
	Shares		Amount		Amount			Amount			Amount
Balance at December 31, 2013		9,324,783	$	93,248	$	46,875,027		$	(26,791,173	)	$	20,177,102

Options:
Exercised		286,356		2,864		234,299			-			237,163
Stock option compensation		-		-		447,100			-			447,100

Net loss									(1,137,203	)		(1,137,203	)

Balance at December 31, 2014		9,611,139	$	96,112	$	47,556,426		$	(27,928,376	)	$	19,724,162

Options:
Exercised		17,109		170		(170	)		-			-
Stock option compensation		-		-		334,386			-			334,386

Net loss		-		-		-			(2,397,042	)		(2,397,042	)

Balance at December 31, 2015		9,628,248	$	96,282	$	47,890,642		$	(30,325,418	)	$	17,661,506

Common Stock:
New stock from offering		2,300,000		23,000		12,470,398			-			12,493,398

Options:
Exercised		98,599		986		56,589			-			57,575
Stock option compensation		-		-		304,154			-			304,154

Net loss		-		-		-			(13,347,047	)		(13,347,047	)

Balance at December 31, 2016		12,026,847	$	120,268	$	60,721,783		$	(43,672,465	)	$	17,169,586

	December 31, 2016		December 31, 2015
Accounts payable – suppliers	$	1,437,290	$	1,260,520
Accrued commissions		221,982		129,192
Accrued royalties / license fees		352,660		732,301
Accrued payroll		167,575		146,962
Accrued vacation		289,587		244,810
Accrued bonuses		282,500		177,700
Accrued expenses – other		261,539		109,947
TOTAL	$	3,013,133	$	2,801,432

	2016			2015
Current assets
Inventory reserves	$	253,380		$	242,532
Accrued expenses		53,140			91,143
Current deferred tax assets		306,520			333,675
Less valuation allowances		(306,520	)		-
Net current deferred asset	$	-		$	333,675

Noncurrent assets
Net operating loss carry-forwards	$	7,487,937		$	5,365,401
Research and development credit		1,461,351			1,518,414
Other credits		97,339			97,339
Depreciation		31,285			(206,150	)
Other		292,556			210,553
Noncurrent deferred tax assets		9,370,468			6,985,557
Less valuation allowances		(9,370,468	)		(1,518,414	)
Net noncurrent deferred tax assets	$	-		$	5,467,143

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2013		656,398		2.57	1.65 years	$	801,888

Granted		379,750		3.52
Exercised		318,750		1.04			341,729
Forfeited/expired/cancelled		25,529		3.17
Outstanding at December 31, 2014		691,869		3.66	3.97 years	$	334,636

Exercisable at December 31, 2014		265,619		3.67	1.94 years	$	158,149

Outstanding at December 31, 2014		691,869		3.66	3.97 years	$	334,636

Granted		-		-
Exercised		41,141		2.25			65,449
Forfeited/expired/cancelled		1,250		4.30
Outstanding at December 31, 2015		649,478		3.75	3.21 years	$	1,032,362

Exercisable at December 31, 2015		359,228		3.89	2.03 years	$	522,039

Outstanding at December 31, 2015		649,478	$	3.75	3.21 years	$	1,032,362

Granted		142,875	$	7.08
Exercised		191,804	$	3.73			629,143
Forfeited/expired/cancelled		-	$	-
Outstanding at December 31, 2016		600,549	$	4.55	3.43 years	$	1,463,052

Exercisable at December 31, 2016		267,549	$	4.14	2.66 years	$	731,997

For the Quarters Ended in Fiscal 2016	March 31			June 30			September 30			December 31
Total revenues	$	6,601,099		$	3,266,405		$	3,746,461		$	4,254,876
Gross profit		3,165,548			1,580,305			1,952,097			1,753,386
Net loss		(303,590	)		(8,347,482	)		(2,138,218	)		(2,557,757	)
Basic loss per share		(0.03	)		(0.86	)		(0.19	)		(0.21	)
Diluted loss per share		(0.03	)		(0.86	)		(0.19	)		(0.21	)

For the Quarters Ended in Fiscal 2015	March 31			June 30			September 30			December 31
Total revenues	$	6,231,137		$	6,716,158		$	6,887,374		$	4,420,816
Gross profit		2,686,618			3,019,132			2,910,534			1,870,543
Net loss		(646,817	)		(664,085	)		(437,157	)		(648,984	)
Basic loss per share		(0.07	)		(0.07	)		(0.05	)		(0.07	)
Diluted loss per share		(0.07	)		(0.07	)		(0.05	)		(0.07	)

			Additions
Description	Balance at beginning of period		Charged to statement of income		Charged to other accounts		Deductions		Balance at end of period
Year ended December 31, 2016
Allowance for doubtful accounts	$	52,000	$	-	$	-	$	-	$	52,000
Inventory Reserve	$	218,000	$	221,478	$	-	$	194,478	$	245,000

Year ended December 31, 2015
Allowance for doubtful accounts	$	52,000	$	-	$	-	$	-	$	52,000
Inventory Reserve	$	218,000	$	256,302	$	-	$	256,302	$	218,000

Year ended December 31, 2014
Allowance for doubtful accounts	$	52,000	$	-	$	-	$	-	$	52,000
Inventory Reserve	$	218,000	$	274,506	$	-	$	274,506	$	218,000