UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~June~~September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ______ to ________

~~000-30379~~001-355669

(Commission File Number)

Chembio Diagnostics, Inc.

(Exact name of registrant as specified in its charter)

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

555 Wireless Blvd.

Hauppauge, NY 11788

(Address of principal executive offices including zip code)

(631) 924-1135

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

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

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

As of ~~July 29,~~October 24, 2022, the registrant had ~~30,224,606~~36,708,474 shares outstanding of its common stock, ~~$.01~~$0.01 par value.

Quarterly Report on Form 10-Q

For The Quarterly Period Ended

~~June~~September 30, 2022

Table of Contents

Chembio Diagnostics, Inc.

		Page

Part I. FINANCIAL INFORMATION:

	Item 1. Financial Statements:

	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2022 (unaudited) and December 31, 2021	4

	Condensed Consolidated Statements of Operations (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	5

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	7

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	9

	Notes to Condensed Consolidated Financial Statements (unaudited)	10

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2830

	Item 3. Controls and Procedures	3941

Part II. OTHER INFORMATION:

	Item 1. Legal Proceedings	3941

	Item 1A. Risk Factors	3942

	Item 6. Exhibits	4448

SIGNATURES		4549

Table of Contents

Unless the context requires otherwise, the words ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ ‘‘our company,’’ ‘‘Chembio’’ and similar terms refer to Chembio Diagnostics, Inc. and its consolidated subsidiaries.

DPP, STAT-PAK, STAT-VIEW and SURE CHECK are our registered trademarks, and CHEMBIO and MICRO READER are our trademarks. For convenience, these trademarks appear in this report without ® and ™ symbols, and that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks.

FORWARD-LOOKING STATEMENTS AND STATISTICAL ESTIMATES

This report contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified through the inclusion of words such as “anticipate,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” or variations of such words or similar expressions. All statements addressing our future operating performance, and statements addressing events and developments that we expect or anticipate will occur in the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon currently available information, operating plans, and projections about future events and trends.

This report contains estimates, projections and other data concerning our industry, our business and the markets for our products. Where expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by the World Health Organization, or WHO. We also include data that we have compiled, obtained, identified or otherwise derived from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. Other than WHO, we do not expressly refer to the sources from which this data is derived.

Forward-looking statements and statistical estimates inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted or expressed in this report. These risks and uncertainties include those described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or our 2021 Form 10-K, as filed with the Securities and Exchange Commission or the SEC, on March 3, 2022, or Part II, Item 1A, “Risk Factors” in our Quarterly ~~Report~~Reports on Form 10-Q for the ~~quarter~~quarters ended March 31, 2022 and June 30, 2022, as filed with the SEC on May 5, 2022 and in Part II, Item 1A, “Risk Factors,” of this report. You should interpret many of the risks identified in these reports as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.August 5, 2022, respectively. Investors are cautioned not to place undue reliance on any forward-looking statements or statistical estimates, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement or statistical estimate, whether as a result of new information, future events or otherwise.

Table of Contents

PART I

Item 1. FINANCIAL STATEMENTS

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited) June 30, 2022			December 31, 2021			(Unaudited) September 30, 2022			December 31, 2021
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents	$	22,837,453		$	28,772,892		$	21,055,026		$	28,772,892
Accounts receivable, net of allowance for doubtful accounts of $242,671 and $243,042 at June 30, 2022 and December 31, 2021, respectively		4,255,944			11,441,107
Accounts receivable, net of allowance for doubtful accounts of $242,354 and $243,042 at September 30, 2022 and December 31, 2021, respectively								5,252,573			11,441,107
Inventories, net		11,308,660			12,920,451			8,465,210			12,920,451
Prepaid expenses and other current assets		2,498,447			2,096,399			12,509,604			2,096,399
TOTAL CURRENT ASSETS		40,900,504			55,230,849			47,282,413			55,230,849

FIXED ASSETS:
Property, plant and equipment, net		8,843,954			8,556,773			8,813,699			8,556,773
Finance lease right-of-use asset, net		172,676			191,870			154,826			191,870

OTHER ASSETS:
Operating lease right-of-use assets, net		5,841,382			5,891,906			5,639,763			5,891,906
Goodwill		0			3,022,787			-			3,022,787
Deposits and other assets		297,024			358,010			289,203			358,010

TOTAL ASSETS	$	56,055,540		$	73,252,195		$	62,179,904		$	73,252,195

- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	10,051,649		$	13,127,993		$	18,645,498		$	13,127,993
Current portion of long-term debt		3,000,000			1,200,000			18,993,535			1,200,000
Operating lease liabilities		905,516			886,294			910,100			886,294
Finance lease liabilities		73,724			68,176			75,279			68,176
TOTAL CURRENT LIABILITIES		14,030,889			15,282,463			38,624,412			15,282,463

OTHER LIABILITIES:
Long-term operating lease liabilities		5,877,063			5,976,151			5,655,468			5,976,151
Long-term finance lease liabilities		115,943			139,678			96,529			139,678
Long-term debt, net		16,126,833			17,589,003			-			17,576,635
Other long-term liabilities								10,684			12,368

TOTAL LIABILITIES		36,150,728			38,987,295			44,387,093			38,987,295

COMMITMENTS AND CONTINGENCIES		0			0

STOCKHOLDERS’ EQUITY:
Preferred stock - 10,000,000 shares authorized; NaN outstanding		0			0
Common stock - $0.01 par value; 100,000,000 shares authorized; 30,272,663 shares and 30,104,986 shares issued at June 30, 2022 and December 31, 2021, respectively		302,727			301,050
Preferred stock - 10,000,000 shares authorized; none outstanding								-			-
Common stock - $0.01 par value; 100,000,000 shares authorized; 35,440,553 shares and 30,104,986 shares issued at September 30, 2022 and December 31, 2021, respectively								354,406			301,050
Additional paid-in capital		167,041,203			165,772,636			171,448,870			165,772,636
Accumulated deficit		(146,746,597	)		(131,009,860	)		(153,445,401	)		(131,009,860	)
Treasury Stock, 48,057 shares at cost, at June 30, 2022 and December 31, 2021		(206,554	)		(206,554	)
Treasury Stock, 48,057 shares at cost, at September 30, 2022 and December 31, 2021								(206,554	)		(206,554	)
Accumulated other comprehensive loss		(485,967	)		(592,372	)		(358,510	)		(592,372	)
TOTAL STOCKHOLDERS’ EQUITY		19,904,812			34,264,900			17,792,811			34,264,900

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	56,055,540		$	73,252,195		$	62,179,904		$	73,252,195

See accompanying notes to condensed consolidated financial statements

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended						For the six months ended						For the three months ended						For the nine months ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
REVENUES:
Net product sales	$	8,858,146		$	3,931,383		$	27,385,602		$	7,956,045		$	10,844,003		$	9,371,160		$	38,229,605		$	17,327,204
R&D and grant revenue		8,046			727			26,219			1,107,366			50,000			441			76,219			1,107,808
Government grant income		0			2,280,000			0			5,630,000			-			2,400,000			-			8,030,000
License and royalty revenue		295,238			250,000			566,220			493,058			306,145			286,843			872,365			779,901
TOTAL REVENUES		9,161,430			6,462,110			27,978,041			15,186,469			11,200,148			12,058,444			39,178,189			27,244,913

COSTS AND EXPENSES:
Cost of product sales		8,086,849			4,039,696			23,310,710			7,588,137			9,658,678			7,902,819			32,969,388			15,490,956
Research and development expenses		2,042,351			2,796,981			3,696,057			5,660,319			1,871,113			3,442,044			5,567,169			9,102,363
Selling, general and administrative expenses		5,249,980			6,001,353			12,196,250			12,086,422			5,551,362			5,947,327			17,747,613			18,033,748
Impairment, restructuring, severance and related costs		0			1,961,156			3,043,179			2,044,243			110,250			396,740			3,153,429			2,440,983
TOTAL COSTS AND EXPENSES		15,379,180			14,799,186			42,246,196			27,379,121			17,191,403			17,688,930			59,437,599			45,068,050

LOSS FROM OPERATIONS		(6,217,750	)		(8,337,076	)		(14,268,155	)		(12,192,652	)		(5,991,255	)		(5,630,486	)		(20,259,410	)		(17,823,137	)

OTHER EXPENSE:
Interest (expense) income, net		(728,414	)		(727,374	)		(1,461,976	)		(1,439,851	)		(707,549	)		(735,336	)		(2,169,525	)		(2,175,188	)

LOSS BEFORE INCOME TAXES		(6,946,164	)		(9,064,450	)		(15,730,131	)		(13,632,503	)		(6,698,804	)		(6,365,822	)		(22,428,935	)		(19,998,325	)

Income tax (expense)/benefit		(279	)		65			(6,606	)		67,955			-			(28	)		(6,606	)		67,928

NET LOSS	$	(6,946,443	)	$	(9,064,385	)	$	(15,736,737	)	$	(13,564,548	)	$	(6,698,804	)	$	(6,365,850	)	$	(22,435,541	)	$	(19,930,397	)

Basic and diluted loss per share	$	(0.23	)	$	(0.45	)	$	(0.52	)	$	(0.67	)	$	(0.21	)	$	(0.24	)	$	(0.73	)	$	(0.89	)

Weighted average number of shares outstanding, basic and diluted		30,222,758			20,219,617			30,156,768			20,191,657			32,274,664			26,701,546			30,862,982			22,361,899

See accompanying notes to condensed consolidated financial statements

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	For the three months ended						For the six months ended						For the three months ended						For the nine months ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Net loss	$	(6,946,443	)	$	(9,064,385	)	$	(15,736,737	)	$	(13,564,548	)	$	(6,698,804	)	$	(6,365,850	)	$	(22,435,541	)	$	(19,930,397	)
Other comprehensive income/(loss):
Foreign currency translation adjustments, net of tax		(241,746	)		301,102			106,405			(154,620	)		127,457			(352,918	)		233,862			(507,538	)
Comprehensive loss	$	(7,188,189	)	$	(8,763,283	)	$	(15,630,332	)	$	(13,719,168	)	$	(6,571,347	)	$	(6,718,768	)	$	(22,201,679	)	$	(20,437,935	)

See accompanying notes to condensed consolidated financial statements

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	For the six months ended June 30, 2022																						For the nine months ended September 30, 2022
	Common Stock				Additional Paid-in-Capital			Treasury Stock						Accumulated Deficit			AOCI			Total			Common Stock				Additional Paid-in- Capital			Treasury Stock						Accumulated Deficit			AOCI			Total
	Shares		Amount		Additional Paid-in-Capital			Shares			Amount			Accumulated Deficit			AOCI			Total			Shares		Amount		Amount			Shares			Amount			Amount			Amount			Amount
Balance at December 31, 2021		30,104,986	$	301,050	$	165,772,636			(48,057	)	$	(206,554	)	$	(131,009,860	)	$	(592,372	)	$	34,264,900			30,104,986	$	301,050	$	165,772,636			(48,057	)	$	(206,554	)	$	(131,009,860	)	$	(592,372	)	$	34,264,900

Common Stock:
Restricted stock issued		164,930		1,649		264,437			0			0			0			0			266,086			164,930		1,649		264,437			-			-			-			-			266,086
Restricted stock compensation		0		0		229,563			0			0			0			0			229,563			-		-		229,563			-			-			-			-			229,563
Shares tendered for withholding taxes		0		0		(38,514	)		0			0			0			0			(38,514	)		-		-		(38,514	)		-			-			-			-			(38,514	)

Options:
Stock option compensation		-		0		255,254			-			0			0			0			255,254			-		-		255,254			-			-			-			-			255,254

Comprehensive income		-		0		0			-			0			0			348,151			348,151			-		-		-			-			-			-			348,151			348,151

Net loss		-		0		0			-			0			(8,790,294	)		0			(8,790,294	)		-		-		-			-			-			(8,790,294	)		-			(8,790,294	)

Balance at March 31, 2022		30,269,916	$	302,699	$	166,483,376			(48,057	)	$	(206,554	)	$	(139,800,154	)	$	(244,221	)	$	26,535,146			30,269,916	$	302,699	$	166,483,376			(48,057	)	$	(206,554	)	$	(139,800,154	)	$	(244,221	)	$	26,535,146

Common Stock:
Restricted stock issued		2,747		28		(28	)		0			0			0			0			0			2,747		28		(28	)		-			-			-			-			-
Restricted stock compensation		0		0		276,024			0			0			0			0			276,024			-		-		276,024			-			-			-			-			276,024
Shares tendered for withholding taxes		0		0		(1,154	)		0			0			0			0			(1,154	)		-		-		(1,154	)		-			-			-			-			(1,154	)

Options:
Stock option compensation		-		0		282,985			-			0			0			0			282,985			-		-		282,985			-			-			-			-			282,985

Comprehensive loss		-		0		0			-			0			0			(241,746	)		(241,746	)		-		-		-			-			-			-			(241,746	)		(241,746	)

Net loss		-		0		0			-			0			(6,946,443	)		0			(6,946,443	)		-		-		-			-			-			(6,946,443	)		-			(6,946,443	)

Balance at June 30, 2022		30,272,663	$	302,727	$	167,041,203			(48,057	)	$	(206,554	)	$	(146,746,597	)	$	(485,967	)	$	19,904,812			30,272,663	$	302,727	$	167,041,203			(48,057	)	$	(206,554	)	$	(146,746,597	)	$	(485,967	)	$	19,904,812

Common Stock:
Restricted stock issued																								17,623		176		(176	)		-			-			-			-			-
Restricted stock compensation																								-		-		268,751			-			-			-			-			268,751
Shares tendered for withholding taxes																								-		-		(237	)		-			-			-			-			(237	)
Issuance of common stock under ATM agreement																								5,150,267		51,503		3,871,754															3,923,257

Options:
Stock option compensation																								-		-		267,575			-			-			-			-			267,575

Comprehensive loss																								-		-		-			-			-			-			127,457			127,457

Net loss																								-		-		-			-			-			(6,698,804	)		-			(6,698,804	)

Balance at September 30, 2022																								35,440,553	$	354,406	$	171,448,870			(48,057	)	$	(206,554	)	$	(153,445,401	)	$	(358,510	)	$	17,792,811

See accompanying notes to condensed consolidated financial statements

Table of Contents

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	For the six months ended June 30, 2021																						For the nine months ended September 30, 2021
	Common Stock				Additional Paid-in-Capital			Treasury Stock						Accumulated Deficit			AOCI			Total			Common Stock				Additional Paid-in- Capital			Treasury Stock						Accumulated Deficit			AOCI			Total
	Shares		Amount		Additional Paid-in-Capital			Shares			Amount			Accumulated Deficit			AOCI			Total			Shares		Amount		Amount			Shares			Amount			Amount			Amount			Amount
Balance at December 31, 2020		20,223,498	$	202,235	$	124,961,514			(41,141	)	$	(190,093	)	$	(97,106,331	)	$	(90,916	)	$	27,776,409			20,223,498	$	202,235	$	124,961,514			(41,141	)	$	(190,093	)	$	(97,106,331	)	$	(90,916	)	$	27,776,409

Common Stock:
Restricted stock issued		62,197		622		58,909			0			0			0			0			59,531			62,197		622		58,909			-			-			-			-			59,531
Restricted stock compensation		0		0		309,010			0			0			0			0			309,010
Restricted stock compensation, net																								-		-		309,010			-			-			-			-			309,010
Shares tendered for withholding taxes		0		0		(115,059	)		0			0			0			0			(115,059	)		-		-		(115,059	)		-			-			-			-			(115,059	)

Options:
Stock option compensation		-		0		211,140			-			0			0			0			211,140			-		-		211,140			-			-			-			-			211,140

Comprehensive loss		-		0		0			-			0			0			(455,722	)		(455,722	)		-		-		-			-			-			-			(455,722	)		(455,722	)

Net loss		-		0		0			-			0			(4,500,163	)		0			(4,500,163	)		-		-		-			-			-			(4,500,163	)		-			(4,500,163	)

Balance at March 31, 2021		20,285,695	$	202,857	$	125,425,514			(41,141	)	$	(190,093	)	$	(101,606,494	)	$	(546,638	)	$	23,285,146			20,285,695	$	202,857	$	125,425,514			(41,141	)	$	(190,093	)	$	(101,606,494	)	$	(546,638	)	$	23,285,146

Common Stock:
Restricted stock issued		51,677		517		(517	)		0			0			0			0			0			51,677		517		(517	)		-			-			-			-			-
Restricted stock compensation		0		0		288,053			0			0			0			0			288,053
Restricted stock compensation, net																								-		-		288,053			-			-			-			-			288,053
Shares tendered for withholding taxes		0		0		(4,454	)		0			0			0			0			(4,454	)		-		-		(4,454	)		-			-			-			-			(4,454	)

Options:
Stock option compensation		-		0		297,791			-			0			0			0			297,791			-		-		297,791			-			-			-			-			297,791


Comprehensive income		-		0		0			-			0			0			301,102			301,102			-		-		-			-			-			-			301,102			301,102

Net loss		-		0		0			-			0			(9,064,385	)		0			(9,064,385	)		-		-		-			-			-			(9,064,385	)		-			(9,064,385	)

Balance at June 30, 2021		20,337,372	$	203,374	$	126,006,387			(41,141	)	$	(190,093	)	$	(110,670,879	)	$	(245,536	)	$	15,103,253			20,337,372	$	203,374	$	126,006,387			(41,141	)	$	(190,093	)	$	(110,670,879	)	$	(245,536	)	$	15,103,253

Common Stock:
Issuance of stock, net																								9,709,328		97,093		38,714,867			-			-			-			-			38,811,960
Restricted stock issued																								3,331		33		18,385			-			-			-			-			18,418
Restricted stock compensation, net																								-		-		399,548			-			-			-			-			399,548

Options:
Exercised																								36,252		363		85,192			-			-			-			-			85,555
Stock option compensation																								-		-		218,563			-			-			-			-			218,563

Comprehensive loss																								-		-		-			-			-			-			(352,918	)		(352,918	)

Net loss																								-		-		-			-			-			(6,365,850	)		-			(6,365,850	)

Balance at September 30, 2021																								30,086,283	$	300,863	$	165,442,942			(41,141	)	$	(190,093	)	$	(117,036,729	)	$	(598,454	)	$	47,918,529

See accompanying notes to condensed consolidated financial statements

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CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED

(Unaudited)

	June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants	$	35,162,834		$	14,493,073		$	45,366,035		$	22,355,958
Cash paid to suppliers and employees		(38,112,997	)		(28,559,938	)		(52,481,928	)		(43,732,182	)
Cash paid for operating leases		(722,204	)		(696,188	)		(1,086,793	)		(1,049,198	)
Cash paid for finance leases		(9,166	)		(10,312	)		(13,278	)		(15,358	)
Interest and taxes, net		(1,120,612	)		(1,135,295	)		(1,645,952	)		(1,709,704	)
Net cash used in operating activities		(4,802,145	)		(15,908,660	)		(9,861,916	)		(24,150,484	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Patent application costs		0			(28,023	)		-			(32,648	)
Acquisition of and deposits on fixed assets		(1,135,332	)		(1,270,989	)		(1,480,662	)		(1,387,601	)
Net cash used in investing activities		(1,135,332	)		(1,299,012	)		(1,480,662	)		(1,420,249	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of withholding tax on stock award		(39,668	)		(119,513	)
Payments on finance lease		(34,421	)		(29,820	)
Net cash used in financing activities		(74,089	)		(149,333	)
Issuance of stock, net								3,923,257			38,811,960
Payments of tax withholding on stock award								(39,906	)		(119,513	)
Principal payments for finance leases								(52,280	)		(45,680	)
Principal payments on Note Payable								(300,000	)		-
Net cash provided by financing activities								3,531,071			38,646,767

Effect of exchange rate changes on cash		76,127			(144,947	)		93,641			(138,335	)
DECREASE IN CASH AND CASH EQUIVALENTS		(5,935,439	)		(17,501,952	)		(7,717,866	)		12,937,699
Cash and cash equivalents - beginning of the period		28,772,892			23,066,301			28,772,892			23,066,301

Cash and cash equivalents - end of the period	$	22,837,453		$	5,564,349		$	21,055,026		$	36,004,000

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

Net loss	$	(15,736,737	)	$	(13,564,548	)	$	(22,435,541	)	$	(19,930,397	)
Adjustments:
Depreciation and amortization		1,211,567			1,390,897			1,867,325			2,186,684
Share based compensation		1,309,912			1,165,632			1,846,238			1,802,056
Non-cash inventory adjustment		335,524			863,612			657,686			926,499
Benefit from deferred tax liability		0			(69,941	)		-			(69,941	)
Provision of (recovery of) doubtful accounts		(371	)		(103,258	)		(688	)		(103,258	)
Impairment		3,033,565			1,273,945
Impairment, restructuring and severance								3,043,179			1,273,945
Changes in assets and liabilities:
Accounts receivable		7,185,534			503,563			6,189,222			(3,302,153	)
Inventories		1,276,267			(4,067,502	)		3,797,556			(5,215,766	)
Prepaid expenses and other current assets		(402,048	)		(285,825	)		(10,413,205	)		(412,995	)
Deposits and other assets		60,986			138,698			68,807			141,946
Accounts payable and accrued liabilities		(3,076,344	)		(1,951,422	)		5,517,505			139,698
Deferred revenue		0			(1,202,511	)		-			(1,586,802	)
Net cash used in operating activities	$	(4,802,145	)	$	(15,908,660	)	$	(9,861,916	)	$	(24,150,484	)

See accompanying notes to condensed consolidated financial statements

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CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2022

(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS:

Chembio Diagnostics, Inc. (“Chembio”) and its subsidiaries (collectively with Chembio, the “Company”) develop and commercialize point-of-care diagnostic tests used for the rapid detection and diagnosis of infectious diseases, including sexually transmitted disease, insect vector and tropical disease, COVID-19 and other viral and bacterial infections, enabling expedited treatment.

The Company’s product portfolio is based upon our proprietary DPP technology, a diagnostic platform that provides high-quality, cost-effective results in 15 to 20 minutes using fingertip blood, nasal swabs and other sample types. The DPP technology platform addresses the rapid diagnostic test market, which includes infectious diseases such as sexually transmitted infections and HIV, Gastroenterology and Women’s Health. Compared with traditional lateral flow technology, the DPP technology platform can provide:

•

Enhanced sensitivity and specificity: This is achieved via the Company’s proprietary approach to separating the sample path from the buffer path, together with patent and other proprietary strategies, which differ significantly from traditional lateral flow test.

Advanced multiplexing capabilities: Through advanced multiplexing, the DPP platform can detect and differentiate up to eight distinct test results from a single patient sample, which can deliver greater clinical value than other rapid tests currently on the market.

Objective results: For some diagnostic applications, the Company’s easy-to-use, highly portable, battery-operated DPP Micro Reader optical analyzers can report accurate results in approximately 15 seconds, making it well-suited for decentralized testing where real-time results enable patients to be clinically assessed while they are still on site. Objective results produced by the DPP Micro Reader can reduce the possibility of the types of human error that can be experienced in the visual interpretations required by many rapid tests.

The Company targets the market for rapid diagnostic test solutions for infectious diseases, which is driven by the high prevalence of infectious diseases globally, an increase in the geriatric population, growing demand for rapid test results, and advancements in multiplexing. The Company has a broad portfolio of infectious disease products, which prior to 2020 were focused principally on sexually transmitted disease and fever and tropical disease. In February 2020 the Company began the process of shifting substantially all of its resources to seek to leverage the DPP technology platform to address the acute and escalating need for diagnostic testing for COVID-19. The Company is continuing to pursue:

an emergency use authorization (“EUA”), from the U.S. Food and Drug Administration (the “FDA”), as well as 510(k) clearance from the FDA, for the DPP SARS-CoV-2 Antigen test system;

an EUA from the FDA for the DPP Respiratory Antigen Panel; and

•

a Clinical Laboratory Improvement Amendment (“CLIA”), waiver from the FDA for the DPP HIV-Syphilis test system.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES:

(a)

Basis of presentation:

The accompanying unaudited condensed consolidated financial statements include the accounts of Chembio and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Certain reclassifications have been made to the unaudited condensed consolidated balance sheet of the prior year to conform to the current year presentation. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC.

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Going Concern Considerations

The Company continued to experience market, clinical trial and regulatory complications in seeking to develop and commercialize a portfolio of COVID-19 test systems during the continuing, but evolving, uncertainty resulting from COVID‑19. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company also continued to incur significant expenses in connection with pending legal matters (see Note 6 – Commitments, Contingencies, and Concentrations: Litigation).

The Company performed an assessment to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying unaudited condensed consolidated financial statements are being issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. Because, as described below, substantial doubt was determined to exist as the result of this initial assessment, management then assessed the mitigating effect of its plans to determine if it is probable that the plans (1) would be effectively implemented within one year after the date the accompanying unaudited condensed consolidated financial statements are issued and (2) when implemented, would mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

The Company achieved significant revenue growth in recent years while profitability has not been at levels as expected. It has taken steps including investments in automation to mitigate headwinds such as labor availability, volatile capacity planning and implementation of operational efficiency targets to proactively monitor production with the overarching goal of profitable growth. The Company undertook measures to increase its total revenues and improve its liquidity position by continuing to develop the Global Competitiveness Program. The main pillars of the Global Competitiveness Program include the following:

Focus on higher margin business in growth markets

Lower manufacturing costs

Reduce infrastructure costs

Strategic review of non-core businesses and assets

In addition, the Company will continue to focus on regulatory approvals for its DPP SARS-CoV-2 Antigen test system, DPP Respiratory Antigen Panel, and DPP HIV-Syphilis test system. These measures and other plans and initiatives have been designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date the accompanying unaudited condensed consolidated financial statements are being issued. The Company’s execution of its plans continue to depend, however, on factors and uncertainties that are beyond the Company’s control, or that may not be addressable on terms acceptable to the Company or at all. The Company considered in particular how:

The ongoing healthcare and economic impacts of COVID-19 on the global customer base for the Company’s non‑COVID-19 products continue to negatively affect the timing and rate of recovery of the Company’s revenues from those products.

Although the Company has entered into agreements to distribute third-party COVID-19 products in the United States, its ability to sell those products could be constrained because of staffing and supply chain limitations affecting the suppliers of those products.

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The Company further considered how these factors and uncertainties could impact its ability over the next year to meet the obligations specified in the Credit Agreement with the Lender (as defined in Note 7 – Long-Term Debt). Those obligations include covenants requiring: i) minimum cash balance of $3.0 million and ii) minimum total revenue amounts for the twelve months preceding each quarter end. For the next ~~four~~three quarters, the minimum total revenue requirements range from ~~$45.6~~$47.4 million for the twelve months ending ~~September 30,~~December 31, 2022 to $50.1 million for the twelve months ending June 30, 2023. Upon an event of default under the Credit Agreement, the Lender could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In such an event, there can be no assurance that the Company would have sufficient liquidity to fund payment of the amounts that would be due under the Credit Agreement or that, if such liquidity were not available, the Company would be successful in raising additional capital on acceptable terms, or at all, or in completing any other endeavor to continue to be financially viable and continue as a going concern. The Company’s inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the Credit Agreement or providing additional liquidity needed for its operations, could have a material adverse effect on its business, prospects, results of operations, liquidity and financial condition.

Accordingly, management determined the Company could not be certain that the Company’s plans and initiatives would be effectively implemented within one year after the date on which the accompanying unaudited condensed consolidated financial statements are being issued. Without giving effect to the prospect of raising additional capital, increasing product revenue in the near future or executing other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its debt service and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date on which the accompanying unaudited condensed consolidated financial statements are being issued.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the accompanying unaudited condensed consolidated financial statements are issued. As such, the accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

(b)

Significant Accounting Policies:

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

(c)

Fair Value of Financial Instruments:

The carrying values for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the immediate or short-term maturity of these financial instruments. Included in cash and cash equivalents were $ ~~17.1~~17.2 million and $25.0 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company’s total debt of $20.0 million (carrying value of ~~$19.1~~$19.0 million) and $20.0 million (carrying value of $18.8 million) as of ~~June~~September 30, 2022 and December 31, 2021 respectively, is a Level 2 fair value measurement under the hierarchy and the Company’s debt face value approximates the recorded value, as the rate is based upon the current rates available to the Company for similar financial instruments.

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

Level 1:

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

Level 2:

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

Level 3:

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

(d)

Cash and Cash Equivalents:

Cash and cash equivalents are defined as short-term, highly liquid investments, such as money market funds, with original maturities of three months or less at date of purchase.

(e)

Loss Per Share:

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period excluding unvested restricted stock. Diluted net loss per share is computed using the treasury stock method if the additional shares are dilutive. For all periods presented, basic and diluted net loss per share are the same as any additional shares would be anti-dilutive.

There were ~~3,776,436~~3,674,971 and ~~1,867,045~~1,786,324 options outstanding as of ~~June~~September 30, 2022 and 2021, respectively, that were not included in the calculation of diluted per common share equivalents for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, because the effect would have been anti-dilutive.

There were ~~1,759,307~~1,723,384 and ~~803,062~~811,038 shares of restricted stock outstanding as of ~~June~~September 30, 2022 and 2021, respectively, that were not included in the calculation of diluted per common share equivalents for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, because the effect would have been anti-dilutive.

(f)

Income Taxes:

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, the Company’s effective tax rate for the three months ended ~~June~~September 30, 2022 and 2021 was 0.0% and ~~(1.1)%~~0.0% respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 the effective tax rate was ~~(0.04)~~(0.03)% and ~~0.51%~~0.34% respectively. The Company’s effective tax rates for both periods were affected primarily by a full valuation allowance on domestic and foreign net deferred tax assets.

(g)

Recently Issued Accounting Standards Affecting the Company:

Recently Adopted

ASU 2021-10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which creates Accounting Standards Codification (“ASC”) 832 and aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. The disclosure requirements in ASC 832 only apply to transactions with a government that are accounted for by analogizing to either a grant model (for example, in International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance), or a contribution model (for example, in ASC 958-605, Not-for-Profit Entities – Revenue Recognition). The FASB broadly defined “government assistance” in ASC 832 to ensure that assistance received from most types of governmental entities or other related organizations would be disclosed. Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and to new transactions entered into after that date. Retrospective application of the guidance is permitted. The Company adopted the standard effective January 1, 2022 and has determined that the adoption did not have an impact on the Company’s consolidated financial statements.

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Not Yet Adopted

ASU 2020-06 - Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

On August 5, 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. ASU 2020-06 simplifies the guidance in GAAP on the issuer’s accounting for convertible debt instruments, requires entities to provide expanded disclosures about “the terms and features of convertible instruments” and how the instruments have been reported in the entity’s financial statements. It also removes from ASC 815-40-25-10 certain conditions for equity classification and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The ASU’s amendments are effective for smaller public business entities fiscal years beginning after December 15, 2023. The Company continues to assess the potential impact of the standard and will disclose the nature and reason for any elections that the Company makes.

ASU 2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

On October 28, 2021, the FASB issued ASU 2021-08,1 which amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. ASU 2021-08 amends ASC 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to “require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.” While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, “the amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20.” The ASU’s amendments are effective for public business entities for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company continues to assess the potential impact of the standard and will disclose the nature and reason for any elections that the Company makes.

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NOTE 3 — REVENUE:

Disaggregation of Revenue

The following table disaggregates Total Revenues by revenue type:

	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	June 30, 2022						June 30, 2021						September 30, 2022						September 30, 2021
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	8,858,146	$	0	$	8,858,146	$	3,931,383	$	0	$	3,931,383	$	10,844,003	$	-	$	10,844,003	$	9,371,160	$	-	$	9,371,160
R&D and grant revenue		8,046		0		8,046		727		0		727		50,000		-		50,000		441		-		441
Government grant income		0		0		0		0		2,280,000		2,280,000		-		-		-		-		2,400,000		2,400,000
License and royalty revenue		295,238		0		295,238		250,000		0		250,000		306,145		-		306,145		286,843		-		286,843
	$	9,161,430	$	0	$	9,161,430	$	4,182,110	$	2,280,000	$	6,462,110	$	11,200,148	$	-	$	11,200,148	$	9,658,444	$	2,400,000	$	12,058,444

	Six Months Ended						Six Months Ended						Nine Months Ended						Nine Months Ended
	June 30, 2022						June 30, 2021						September 30, 2022						September 30, 2021
	Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total		Exchange Transactions		Non-Exchange Transactions		Total
Net product sales	$	27,385,602	$	0	$	27,385,602	$	7,956,045	$	0	$	7,956,045	$	38,229,605	$	-	$	38,229,605	$	17,327,204	$	-	$	17,327,204
R&D and grant revenue		26,219		0		26,219		1,107,366		0		1,107,366		76,219		-		76,219		1,107,808		-		1,107,808
Government grant income		0		0		0		0		5,630,000		5,630,000		-		-		-		-		8,030,000		8,030,000
License and royalty revenue		566,220		0		566,220		493,058		0		493,058		872,365		-		872,365		779,901		-		779,901
	$	27,978,041	$	0	$	27,978,041	$	9,556,469	$	5,630,000	$	15,186,469	$	39,178,189	$	-	$	39,178,189	$	19,214,913	$	8,030,000	$	27,244,913

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

The following table disaggregates Total Revenues by geographic location:

	For the three months ended				For the six months ended				For the three months ended				For the nine months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Africa	$	3,144,599	$	1,466,356	$	3,911,951	$	2,811,214	$	2,730,311	$	1,293,405	$	6,642,263	$	4,104,619
Asia		439,661		53,592		455,219		270,547		86,648		208,750		541,867		479,297
Europe & Middle East		1,299,000		806,209		2,022,745		3,406,485		1,263,050		1,132,961		3,556,778		4,539,444
Latin America		834,689		487,517		13,392,079		745,536		2,286,121		5,698,920		15,678,200		6,444,456
United States		3,443,481		3,648,436		8,196,047		7,952,687		4,834,018		3,724,408		12,759,081		11,677,097
	$	9,161,430	$	6,462,110	$	27,978,041	$	15,186,469	$	11,200,148	$	12,058,444	$	39,178,189	$	27,244,913

NOTE 4 — INVENTORY:

Inventories are presented net of reserves and consist of the following at:

	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Raw materials	$	6,661,210	$	7,306,095	$	5,633,735	$	7,306,095
Work in process		1,471,848		3,556,878		915,590		3,556,878
Finished goods		3,175,602		2,057,478		1,915,885		2,057,478
	$	11,308,660	$	12,920,451	$	8,465,210	$	12,920,451

During the ~~three~~nine months ended ~~June~~September 30, 2022 and 2021, the Company recognized a ~~$0.3~~$0.7 million and $0.9 million charge, respectively, related to the write-down of inventory.

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NOTE 5 — STOCKHOLDERS’ EQUITY:

(a)

Common Stock

During the three and ~~six~~nine months ending ~~June~~September 30, 2022 and 2021, there were 0 and 36,252 options ~~exercised.~~exercised for the purchase of common stock shares.

(b)

Preferred Stock

Chembio has 10,000,000 shares of preferred stock authorized and ~~NaN~~none outstanding. These shares can become issuable upon an approved resolution by the board of directors of Chembio (the “Board”) and the filing of a Certificate of Designation with the state of Nevada.

(c)

Treasury Stock

Chembio has 48,057 shares of treasury stock acquired upon the vesting of restricted stock awards related to the tax withholding requirements paid on behalf of the employees.

(d)

Options, Restricted Stock, and Restricted Stock Units

The Board or its Compensation Committee may make grants of options, restricted stock, and restricted stock units pursuant to equity incentive plans that have been approved by Chembio’s stockholders.

NOTE 6 — COMMITMENTS, CONTINGENCIES, AND CONCENTRATIONS:

Concentrations:

The following table discloses product sales the Company had to each customer that purchased in excess of 10% of the Company’s net product sales for the periods indicated:

	For the three months ended										For the six months ended										Accounts Receivable as of				For the three months ended										For the nine months ended										Accounts Receivable as of
	June 30, 2022					June 30, 2021					June 30, 2022					June 30, 2021					June 30, 2022		December 31, 2021		September 30, 2022					September 30, 2021					September 30, 2022					September 30, 2021					September 30, 2022		December 31, 2021
	Product Sales		% of Product Sales			Product Sales		% of Product Sales			Product Sales		% of Product Sales			Product Sales		% of Product Sales							Product Sales		% of Product Sales			Product Sales		% of Product Sales			Product Sales		% of Product Sales			Product Sales		% of Product Sales
Customer 1	$	1,947,390		22	%	$	*		*		$	3,431,910	$	13	%	$	*	$	*		$	1,534,560	$	*	$	2,163,414		20	%	$	5,434,186		58	%	$	14,503,058	$	38	%	$	5,724,171	$	33	%	$	1,424,614	$	7,672,845
Customer 2		1,729,310		20	%		1,014,638		26	%		*		*			1,151,615		15	%		1,066,340		1,433,305		1,583,453		15	%		1,196,217		13	%		3,812,433		10	%		2,347,832		14	%		125,433		1,433,305
Customer 3		1,633,957		18	%		*		*			*		*			*		*			996,619		*		1,886,906		17	%		*		*			5,318,816		14	%		*		*			1,553,306		-
Customer 4		*		*			*		*			12,339,644		45	%		*		*			399,420		7,672,845		1,443,480		13	%		*		*			*		*			*		*			195,011		-

Revenue includes product sales only, while accounts receivable reflects the total due from the customer, including freight.

The following table discloses purchases the Company had to each vendor ~~that purchased~~ in excess of 10% of the Company’s net purchases for the periods indicated:

	For the three months ended									For the six months ended									Accounts Payable as of				For the three months ended										For the nine months ended										Accounts Payable as of
	June 30, 2022					June 30, 2021				June 30, 2022					June 30, 2021				June 30, 2022		December 31, 2021		September 30, 2022					September 30, 2021					September 30, 2022					September 30, 2021					September 30, 2022		December 31, 2021
	Purchases		% of Purchases			Purchases		% of Purchases		Purchases		% of Purchases			Purchases		% of Purchases						Purchases		% of Purchases			Purchases		% of Purchases			Purchases		% of Purchases			Purchases		% of Purchases
Vendor 1		*		*			*		*		*		*			*		*		*		1,361,383	$	*		*		$	1,678,250		34	%	$	*	$	*		$	2,339,182	$	19	%	$	*	$	1,107,530
Vendor 2		*		*			*		*		1,589,033		15	%		*		*		166,945		353,097		*		*			*		*			2,200,905		16	%		*		*			148,255		103,443
Vendor 3	$	1,317,233		19	%	$	*		*	$	3,640,838	$	35	%	$	*	$	*	$	187,630	$	*	$	944,460		14	%	$	*		*		$	4,585,298	$	33	%	$	*	$	*		$	-	$	149,230

In the tables above, an asterisk (*) indicates that indicates that sales, accounts receivable, purchases or accounts payable, as applicable to the tabular column, did not exceed 10% for the period indicated.

Table of Contents

The Company purchases materials pursuant to intellectual property rights agreements 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 could adversely affect operating results.

We have capital purchase obligations of ~~$0.5~~$0.3 million related to additional automated manufacturing equipment with payments expected to come due during 2022 based on vendor performance milestones.

~~The Company has a minimum volume commitment of 10 million STAT-PAK units to be manufactured by Reszon through December 31, 2024.~~

Employment Contracts:

The Company has multi-year contracts with 3three key employees. The contracts call for salaries presently aggregating $1,178,000 per year. The contracts expire in December 2022 and December 31, 2024. The following table is a schedule of future minimum salary commitments:

2022	$	589,000	$	294,500
2023		383,000		383,000
2024		383,000		383,000

Benefit Plan:

Chembio has a 401(k) plan established for the Company’s employees whereby it matches 40% of the first 5% of salary (or up to 2% of salary) that an employee contributes to the plan. Matching contribution expenses totaled approximately $~~37,778~~44,103 and $~~29,933~~35,533 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Matching contribution expenses totaled approximately ~~$104,913~~$149,016 and ~~$65,388~~$100,922 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Leases:

The Company leases facilities in New York, Germany, Malaysia, and Brazil, and certain equipment.

The Company’s facility leases generally include optional renewal periods. Upon entering into a new facility lease, the Company evaluates the leasehold improvements and regulatory requirements related to its operations in that location. To the extent that the initial lease term of the related facility 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 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 asset and lease liability.

Table of Contents

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 non-lease components for all of the Company’s facility leases.

~~Table of Contents~~

The components of lease expense were as follows:

	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021		2022		2021		2022		2021
Operating lease expense	$	372,232	$	402,329	$	775,617	$	810,795	$	390,204	$	398,089	$	1,180,953	$	1,208,885

Finance lease cost
Amortization of right-of-use assets	$	17,850	$	17,038		35,429		32,796	$	17,850	$	17,038		53,279		49,834
Interest on lease liabilities		4,480		5,368		9,166		10,312		4,112		5,047		13,278		15,358
Total finance lease expense	$	22,330	$	22,406	$	44,595	$	43,108	$	21,962	$	22,085	$	66,557	$	65,192

Supplemental cash flow information related to leases was as follows.

	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021		2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	361,325	$	348,317	$	722,204	$	696,188	$	364,590	$	353,009	$	1,086,793	$	1,049,198
Operating cash flows for finance leases		4,480		5,368		9,166		10,312		4,112		5,047		13,278		15,358
Financing cash flows for finance leases		17,491		15,538		34,421		29,820		17,859		15,859		52,280		45,680
Right-of-use assets obtained in exchange for lease obligations:
Finance leases		0		25,609		16,234		25,609		-		-		16,234		25,609
Operating leases		717,956		694,668		717,956		694,668		-		-		717,956		616,100

Supplemental balance sheet information related to leases was as follows:

	June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Finance Leases
Finance lease right of use asset	$	356,997		$	340,762		$	356,997		$	340,762
Accumulated depreciation		(184,321	)		(114,815	)		(202,171	)		(131,854	)
Finance lease right of use asset, net	$	172,676		$	225,947		$	154,826		$	208,908

Weighted Average Remaining Lease Term
Operating leases	7.0 years			7.9 years			6.8 years			7.7 years
Finance leases	2.4 years			3.4 years			2.0 years			3.1 years

Weighted Average Discount Rate
Operating leases		8.75	%		8.73	%		8.38	%		8.41	%
Finance leases		9.05	%		8.43	%		9.11	%		8.74	%

Table of Contents

Maturities of lease liabilities were as follows.

	June 30, 2022				June 30, 2021				September 30, 2022				September 30, 2021
	Operating Leases		Finance Leases		Operating Leases		Finance Leases		Operating Leases		Finance Leases		Operating Leases		Finance Leases
2022	$	731,574	$	43,942	$	708,344	$	41,812	$	366,985	$	21,971	$	355,335	$	20,906
2023		1,428,820		87,884		1,447,249		83,624		1,428,821		87,884		1,447,249		83,624
2024		1,220,150		60,116		1,221,017		83,624		1,220,150		60,116		1,221,017		83,624
2025		1,049,441		16,731		1,018,875		55,856		1,049,442		16,731		1,018,875		55,856
2026		1,080,925		5,940		1,049,442		12,471		1,080,925		5,940		1,049,442		12,471
Thereafter		3,643,521		355		4,724,446		1,680		3,643,521		355		4,724,446		1,679
Total lease payments	$	9,154,431	$	214,968	$	10,169,373	$	279,067	$	8,789,844	$	192,997	$	9,816,364	$	258,160
Less: imputed interest		2,371,852		25,301		2,909,688		39,166		2,224,276		21,189		2,751,749		34,119
Total	$	6,782,579	$	189,667	$	7,259,685	$	239,901	$	6,565,568	$	171,808	$	7,064,615	$	224,041

~~Table of Contents~~

Litigation:

SEC Investigation

The SEC is conducting a non-public, fact-finding investigation relating to the public offering of common stock that Chembio completed in May 2020 (the “May 2020 Offering”) and to the FDA’s revocation in June 2020 of an emergency use authorization for the DPP COVID-19 IgM/IgG system that was issued by the FDA in April 2020. Chembio received subpoenas from the SEC in July 2020 and April 2021 seeking the production of documents in connection with this investigation. In addition, the SEC delivered subpoenas in April 2021 to five of Chembio’s employees (including its three executive officers, who consist of its Chief Executive Officer and President, its former Executive Vice President and Chief Financial Officer, and its Executive Vice President and Chief Scientific and Technology Officer). An additional subpoena was issued in June 2021 to Chembio’s former Interim Chief Executive Officer and Executive Chair. Each subpoena requested the production of documents relating to the same matters as are the subject of the subpoenas Chembio received. One current employee, the Chief Executive Officer, also received a testimonial subpoena from the SEC. Chembio and the six individuals are cooperating fully in the SEC’s investigation and expect to continue to do so.

The SEC’s ~~letters transmitting~~investigation is ongoing, and Chembio has recently engaged in discussions with the ~~subpoenas expressly provide~~SEC regarding a potential resolution that would, among other things, involve the ~~inquiry does not mean~~payment of a civil penalty. There can be no assurance that Chembio will be able to agree on a resolution with the SEC or ~~its staff have concluded~~ that ~~anyone has violated~~ the ~~federal securities laws or have a negative opinion~~terms of any ~~person, entity or security. The Company~~such resolution will be favorable to Chembio. Chembio cannot predict the scope, duration or outcome of the investigation or the impact, if any, of the investigation on its results of operations.

Legal Proceedings

Stockholder Litigation

Putative Stockholder Securities Class-Action Litigation

In 2020 4four purported securities class-action lawsuits were filed in the United States District Court for the Eastern District of New York by alleged stockholders of Chembio:

Sergey Chernysh v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 18, 2020;

James Gowen v. Chembio Diagnostics, Inc., Richard L. Eberly, and Gail S. Page, filed on June 22, 2020;

Anthony Bailey v. Chembio Diagnostics, Inc. Richard J. Eberly, Gail S. Page, and Neil A. Goldman, filed on July 3, 2020; and;

Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., and Special Situations Private Equity Fund, L.P. v. Chembio Diagnostics, Inc., Richard Eberly, Gail S. Page, Robert W. Baird & Co. Inc. and Dougherty & Company LLC, filed August 17, 2020.

Table of Contents

The plaintiffs in each of the above cases alleged claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 thereunder and Section 20(a) of the Exchange Act. Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, the “Special Situations Funds”) also asserted claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”) relating to the May 2020 Offering.

Chembio and the plaintiffs entered into Court-approved stipulations relieving Chembio and the other defendants of the obligation to respond to the complaints in these cases pending the designation of a lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995. ~~NaN~~Eight motions for appointment as lead plaintiff were filed by various prospective lead plaintiffs. However, all but 2two of these motions were withdrawn or otherwise abandoned, leaving before the Court 2two motions for appointment as lead plaintiff - 1one filed by the Special Situations Funds and 1one by Municipal Employees’ Retirement System of Michigan. By order entered December 29, 2020, Magistrate Judge Lindsay consolidated the cases and appointed the Special Situations Funds and Municipal Employees’ Retirement System of Michigan (together, the “Lead Plaintiffs”), as co-lead plaintiffs and their respective counsel as co-lead counsel. The consolidated cases are now pending under the caption “In re Chembio Diagnostics, Inc. Securities Litigation.”

~~Table of Contents~~

The Lead Plaintiffs filed their Consolidated Amended Complaint (the “CAC”) on February 12, 2021. In summary, the CAC purported to allege claims based on assertedly false and misleading statements and omissions concerning the performance of the DPP COVID-19 IgM/IgG System, as well as an asserted failure to timely disclose that the emergency use authorization that had been granted by the FDA with respect to the DPP COVID-19 IgM/IgG System “was - or was at an increased risk of - being revoked.” The CAC named as defendants Chembio, Richard L. Eberly, Gail S. Page, Neil A. Goldman, Javan Esfandiari, Katherine L. Davis, Mary Lake Polan, John Potthoff (together, the “Chembio Defendants”) and the underwriters for the May 2020 Offering, Robert W. Baird & Co., Inc. and Dougherty & Company LLC (the “Underwriter Defendants”).

The CAC purported to assert five counts under the Securities Act and the Exchange Act. Counts I through III were brought under the Securities Act, allegedly on behalf of a purported class consisting of all persons who purchased Chembio common stock directly in or traceable to the May 2020 Offering pursuant to Chembio’s shelf registration statement on Form S 3 (File No. 333-227398) and the related prospectus, as supplemented by a prospectus supplement dated May 7, 2020 (the “Securities Act Class”). Count I purported to allege a claim for violation of Section 11 of the Securities Act against all defendants other than Messrs. Eberly and Esfandiari. Count II purported to allege a claim for violation of Section 12 of the Securities Act against all defendants other than Messrs. Eberly and Esfandiari. Count III purported to allege a claim under Section 15 of the Securities Act against Ms. Davis, Dr. Polan, Dr. Potthoff, Ms. Page and Mr. Goldman.

Counts IV and V alleged claims under the Exchange Act on behalf of a purported class consisting of all persons who purchased Chembio common stock on the open market from March 12, 2020 through June 16, 2020 (the “Exchange Act Class”). Count IV purported to allege a claim for violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against Chembio, Mr. Eberly, Ms. Page, Mr. Goldman and Mr. Esfandiari. Count V purported to allege a claim under Section 20(a) of the Exchange Act against Mr. Eberly, Ms. Page, Mr. Goldman and Mr. Esfandiari.

In their CAC, the Lead Plaintiffs sought, on behalf of the Securities Act Class and the Exchange Act Class, among other things, an award of damages in an amount to be proven at trial, as well as an award of reasonable costs, including attorneys’ fees and expenses, expert fees, pre-judgment and post-judgment interest, and such other relief as the Court deems just and proper. The Lead Plaintiffs also sought rescission “or a rescissory measure of damages” on behalf of the Securities Act Class as to Count II.

Pursuant to an order entered by the Court on January 29, 2021, any defendant wishing to move against the amended complaint was required to file, by February 18, 2021, a letter requesting a pre-motion conference. On that date, the defendants submitted letters to the Court requesting a pre-motion conference regarding anticipated motions to dismiss the CAC, and the Lead Plaintiffs responded on February 24, 2021. In its January 29, 2021 order, the Court indicated that it would consider a briefing schedule on motions to dismiss after it had received and reviewed the parties’ correspondence.

On March 5, 2021, the Court entered an order in which it advised the parties that it had determined a pre motion conference was not necessary and established a briefing schedule on the defendants’ anticipated motions to dismiss. However, the defendants subsequently agreed with the Lead Plaintiffs’ counsel to a modification of the schedule, which was then approved by the Court. Pursuant to that schedule, defendants’ motions and supporting papers were filed on March 26, 2021, the Lead Plaintiffs’ opposition papers were filed on April 16, 2021, and the defendants’ reply papers were filed on April 30, 2021.

The Court issued its Opinion and Order (the “February 23 Order”) on the defendants’ motions to dismiss on February 23, 2022. In its February 23 Order, the Court: (i) dismissed Counts I and II without prejudice as to all defendants named in those Counts except the Underwriter Defendants as to which Counts I and II were not dismissed; (ii) dismissed Count III without prejudice as to all defendants named in that Count; and (iii) dismissed Counts IV and V with prejudice as to all defendants named in those Counts. The Court gave Lead Plaintiffs fourteen days within which to attempt to replead their claims under the Securities Act against Chembio, Ms. Page, Mr. Goldman, Ms. Davis, ~~Ms.~~Dr. Polan and ~~Mr.~~Dr. Potthoff.

On March 4, 2022, Lead Plaintiffs filed a letter motion in which they advised the Court that they intended to file an amended complaint, but that they wished to first seek reconsideration of the Court’s February 23 Order. They accordingly requested, and the Court granted, an adjournment of the deadline for filing an amended complaint until three business days after the Court’s ruling on Lead Plaintiffs’ anticipated motion for reconsideration. The Court also granted a request by the Underwriter Defendants to extend the time for them to file their answer to the CAC, and set May 2, 2022 as the date for the filing of that answer.

On March 7, 2022, Magistrate Judge John Wicks entered an order requiring that the parties meet and confer regarding the scheduling of discovery in the case, requiring that the parties submit a Proposed Scheduling Order by March 23, and setting a hearing (via Zoom) on March 30. The Chembio Defendants filed a letter motion requesting that the Court adjourn the initial conference and suspend the other requirements in the March 7, 2022 order. Magistrate Judge Wicks granted the letter motion on March 14, and further ordered that the initial conference would be rescheduled “following the resolution of all preliminary dispositive issues.”

On March 9, 2022, Lead Plaintiffs filed a motion for partial reconsideration of the Court’s February 23 Order. In their motion, Lead Plaintiffs requested that the Court reconsider and reverse its dismissal of Counts IV and V with prejudice, and its dismissal of Counts I, II and III without prejudice. The Chembio Defendants filed their memorandum in opposition to this motion on March 23, 2022; Lead Plaintiffs filed their reply memorandum in support of the motion on March 30, 2022.

On April 26, 2022, the Court entered an order canceling the previously-set May 2 date by which the Underwriter Defendants were required to file their answer to the CAC, and providing that the Underwriter Defendants’ answer to an amended complaint ~~shall~~would be due within three weeks after such amended complaint ~~has~~had been served.

On April 28, 2022, Lead Plaintiffs expressed a willingness to participate in a mediation with the Chembio Defendants. Thereafter, on July 14, 2022, all parties in the In re Chembio Diagnostics, Inc. Securities Litigation action participated in a mediation. The mediation was adjourned without an agreement to resolve the action, but the parties ~~are continuing~~continued to discuss a potential negotiated resolution with the ~~mediator’s~~mediator's assistance.

On July 21, 2022, the Court denied Lead Plaintiffs’ motion for partial reconsideration. Lead Plaintiffs filed their Second Consolidated Amended Complaint (the ~~“SAC”~~“SCAC”) on July 26, 2022. The ~~SAC~~SCAC purports to allege three counts under the Securities Act on behalf of the Securities Act Class. Count I purports to allege a claim for violation of Section 11 of the Securities Act against Chembio, Ms. Page, Mr. Goldman, Ms. Davis, Dr. Polan, Dr. Potthoff and the Underwriter Defendants. Count II purports to allege a claim for violation of Section 12 of the Securities Act against Chembio, Ms. Page, and the Underwriter Defendants. Count III purports to allege a claim under Section 15 of the Securities Act against Ms. Page, Mr. Goldman, Ms. Davis, Dr. Polan and Dr. Potthoff.

In their SCAC, Lead Plaintiffs seek, on behalf of the Securities Act Class, an award of damages in an amount to be proven at trial, as well as an award of reasonable costs and expenses, including counsel fees and expert fees, and such other relief as the Court deems just and proper. Lead Plaintiffs also seek rescission “or a rescissory measure of damages as to Count II.”

Table of Contents

In order to facilitate the parties’ ~~ongoing~~ discussions concerning a potential settlement, the parties ~~have~~ agreed that the defendants ~~may have~~had until August 23, 2022 within which to respond to the SAC. The defendants ~~have accordingly~~ submitted a letter to the Court requesting that the date by which they are required to respond to the ~~SAC~~SCAC be moved to August 23, 2022; the Court granted the ~~defendants'~~defendants’ request on August 1, 2022. ~~At this stage~~Thereafter, the defendants requested that the date for their response be extended to September 6, 2022; the Court granted the request on August 19, 2022.

On August 26, 2022, the Company and the other parties to the litigation reached an agreement in principle on the financial terms of a proposed settlement of all claims that were asserted, or could have been asserted, on an individual and class-wide basis against all defendants in the case, including under both the Securities Act and the Securities Exchange Act. The agreement in principle to settle contemplates an $8.1 million payment on behalf of the defendants, approximately $209,000 of which is to be paid by us with the remainder being funded by certain of the Company’s insurers.

Accordingly, on August 30, 2022, the Chembio Defendants filed a letter motion requesting that the Court stay all proceedings to allow the parties to focus their efforts on negotiating and preparing a stipulation of settlement and other settlement- documents. Lead Plaintiffs and the Underwriter Defendants consented to and joined in the request for relief sought in the letter motion. The Court granted the motion on August 31, 2022 and ordered the parties to file their stipulation of dismissal on or before October 17, 2022. Although the parties’ negotiations on the form and content of documents necessary to effectuate a class-wide settlement of the claims asserted in the litigation have continued, the parties were unable to meet the October 17, 2022 date set by the Court for the submission of a stipulation of dismissal. Consequently, on October 12, 2022, the Company ~~is not able~~submitted a letter motion to ~~predict~~ the ~~probability~~Court, on behalf of each of the parties, requesting a 30 day extension of time to submit the stipulation and agreement of settlement together with accompanying exhibits (including proposed forms of notice of the settlement to class members and proposed forms of orders granting preliminary and final approval to the settlement). The Court granted the motion on October 13, 2022, and directed the parties to file their proposed settlement papers for the Court’s approval on or before November 14, 2022.

Negotiations between the parties concerning the form and substance of documents necessary to implement the proposed settlement continue. There can be no assurance that the parties will reach agreement on the terms of a ~~favorable~~stipulation of settlement and related documents, or ~~unfavorable outcome.~~

Putative Stockholder Derivative Litigation

On September 11, 2020, a putative stockholder derivative action captioned Karen Wong, derivatively on behalf of Chembio Diagnostics, Inc., Plaintiff v. Richard L. Eberly, Gail S. Page, Neil A. Goldman, Javan Esfandiari, Katherine L. Davis, Mary Lake Polan and John G. Potthoff, Defendants, and Chembio Diagnostics, Inc., Nominal Defendant (the “Wong complaint”) was filed purportedly on Chembio’s behalf in the United States District Court for the Eastern District of New York. The Wong complaint purports to assert a claim for violation of Section 14(a) of the Exchange Act and Rule 14a-9 thereunder based on ostensibly false and misleading statements and omissions concerning the Company’s rapid COVID-19 antibody test in the proxy statement disseminated in advance of Chembio’s Annual Meeting of Stockholders held on July 28, 2020. The Wong complaint also asserts claims against the individual defendants for purported breaches of fiduciary duties owed to Chembio, as well as unjust enrichment.

The Wong complaint requests a declaration that the individual defendants have breached or aided and abetted the breach of their fiduciary duties to Chembio, an award of damages to Chembio, restitution, and an award of the plaintiff’s costs and disbursements in the action, including reasonable attorneys’ and experts’ fees, costs and expenses, and improvements to Chembio’s corporate governance and internal procedures regarding compliance with laws. Pursuant to a stipulation by which the individual defendants named in the Wong complaint agreed to waive service of process, the Court ordered that the time for defendants to answer or otherwise respond to the complaint be extended to November 19, 2020. The parties subsequently entered into a stipulation for a stay of proceedings in the action relating to the Wong complaint pending final disposition of motions to dismiss the pending putative class-action litigation, subject to certain conditions. The stipulation provides for a stay that lasts until all motions to dismiss the class action litigation have been finally resolved. Wong can, however, terminate the stipulation on 14 days’ notice if a related derivative action is not stayed for a similar or longer duration. Further, if the defendants in the Wong action agree to engage in a mediation “or other similar formal process” with plaintiffs in any related class action or derivative action during the pendency of the stay or for a one-year period following its termination, they must promptly provide notice of the mediation to Wong, not object to Wong’s participation in the mediation (subject to the consent of the other involved parties), and if consent to Wong’s participation is not provided, they must separately engage in mediation or a similar formal process with Wong. The Court entered an order granting the requested stay on November 3, 2020.

On March 31, 2022, a second putative stockholder derivative action captioned Michelle Chen, derivatively on behalf of Chembio Diagnostics, Inc., Plaintiff v. Richard L. Eberly, Gail S. Page, Neil A. Goldman, Javan Esfandiari, Katherine L. Davis, Mary Lake Polan and John G. Potthoff, Defendants, and Chembio Diagnostics, Inc., Nominal Defendant (the “Chen complaint”) was filed purportedly on behalf of Chembio in the Supreme Court for the State of New York, County of Suffolk. The Chen complaint purports to assert a claim for breach of fiduciary duty against the defendants based on ostensibly false and misleading statements and omissions concerning the Company’s rapid COVID-19 antibody test. The Chen complaint goes on to allege that the misconduct asserted in the complaint gave rise to the filing of the consolidated securities litigation described above.

The parties in the Chen action ~~have~~ agreed to a stipulated stay of the action ~~which shall continue~~continuing until a motion to certify a class in the class action has been decided. Chen can, however, terminate the stay on seven days’ notice if a related derivative action is not stayed for the same or a longer duration. The stipulation also provides that if the defendants agree to engage in a formal mediation with the class action plaintiffs or the plaintiff in any other related derivative action, they must notify Chen of the mediation and participate with Chen in a mediation “or other settlement talks,” whether separately or in combination with a mediation involving other related actions.

The plaintiffs in the Wong and Chen actions took part in the July 14, 2022 mediation described above, and ~~are engaged~~the parties subsequently reached an agreement in ~~continuing discussions concerning~~principle on the terms of a ~~potential resolution~~proposed settlement of ~~these actions. At this stage~~both actions, other than with respect to the maximum amount of attorneys’ fees which plaintiffs may request that the Court approve, and have executed a memorandum of understanding to that effect. The proposed settlement contemplates the adoption of certain corporate governance measures but does not entail any monetary compensation or payment other than the derivative plaintiffs’ attorneys’ fees not exceeding an amount to be negotiated, and subject to Court approval. On October 27, 2022, the parties reached agreement on the amount $595,000 of the ~~litigation,~~derivative plaintiffs’ attorneys’ fees, which the Company ~~is not able to predict~~believes will be funded by certain of its insurers.

There can be no assurance that the ~~probability~~parties will reach agreement on the maximum amount of plaintiffs’ attorneys’ fees which plaintiffs may request that the court approve or on the terms of a ~~favorable~~formal stipulation or ~~unfavorable outcome.~~settlement, or that the court will approve the terms of a stipulation of settlement.

NOTE 7 — LONG-TERM DEBT:

On September 3, 2019, Chembio entered into a Credit Agreement and Guaranty (the “Credit Agreement”) with Perceptive Credit Holdings II, LP (the “Lender”). The Credit Agreement provides for a $20.0 million senior secured term loan credit facility, which was drawn in full on September 4, 2019. Under the terms of the Credit Agreement, Chembio may use the proceeds (i) for general working capital purposes and other permitted corporate purposes, (ii) to refinance certain of Chembio’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 financing fee of $600,000 (3.0% of gross proceeds) payable to Craig-Hallum Capital Group LLC, Chembio’s financial advisor for the financing.

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 has occurred and is continuing, the interest rate will increase by 4.0%. Accrued interest is payable on a monthly basis. On ~~June~~September 30, 2022 the interest rate was ~~11.25%~~11.32%.

No principal repayments ~~are~~were due under the Credit Agreement prior to September 30, ~~2022, unless~~2022. Chembio ~~elects~~did not elect to prepay principal ~~or principal is accelerated pursuant to~~and an event of default identified in the Credit ~~Agreement.~~Agreement did not occur that would have accelerated principal payments. 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~~As of September 30, 2022, Chembio paid the first principal ~~from time to time, subject to payment of a premium on~~installment in accordance with the ~~prepaid principal amount equal to 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.~~Credit Agreement.

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Chembio’s obligations under the Credit Agreement are secured by a first priority, perfected lien on substantially all of its property and assets, including its equity interests in subsidiaries.

As of ~~June~~September 30, 2022, the loan balance, net of unamortized discounts and debt issuance costs, was ~~$19.1~~$19.0 million, and Chembio was in compliance with its loan covenants.

NOTE 8 — EQUITY INCENTIVE PLAN:

(a)

Equity Plans:

Effective June 19, 2014, Chembio’s stockholders voted to approve the 2014 Stock Incentive Plan (the “2014 Plan”), with 800,000 shares of common stock available to be issued. Under the terms of the 2014 Plan, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of Equity Award Units. The awards vest at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through March 31, 2022, there were 732,064 Equity Award Units expired, forfeited or exercised. At ~~June~~September 30, 2022, 46,875 Equity Award Units were outstanding and 21,061 shares were not issued. All shares that expired, forfeited or were not issued rolled over into the 2019 Plan. ~~NaN~~No Equity Award Units remain available to be issued under the 2014 Plan.

Effective June 18, 2019, Chembio’s stockholders voted to approve the 2019 Omnibus Incentive Plan (the “2019 Plan”), with 2,400,000 shares of common stock available to be issued. At the Annual Stockholder Meeting on June 25, 2021, Chembio’s stockholders voted to approve an increase to the shares of common stock issuable under the SIP by 2,400,000 to 4,800,000. In addition, shares of common stock underlying any outstanding award granted under the 2019 Plan that, following the effective date of the 2019 Plan, expire, or are terminated, surrendered or forfeited for any reason without issuance of such shares, shall be available for the grant of new awards under the 2019 Plan. Under the terms of the 2019 Plan, the Board or its Compensation Committee has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of options, stock appreciation rights, restricted stock, restricted stock units, performance stock units or other stock-based awards under the 2019 Plan (collectively, “2019 Equity Units”). The 2019 Equity Units become vested at such times and under such conditions as determined by the Board or its Compensation Committee. Cumulatively through ~~June~~September 30, 2022, ~~1,048,966~~1,168,331 2019 Equity Units have been cancelled or forfeited. At ~~June~~September 30, 2022, ~~4,950,291~~4,812,903 2019 Equity Units were outstanding, and ~~35,629~~87,672 2019 Equity Units were available to be awarded.

(b)

Stock Compensation Expense:

Stock-based compensation expense (net of forfeitures) recognized in the condensed consolidated statements of operations was classified as follows:

	For the three months ended June 30				For the six months ended June 30				For the three months ended September 30				For the nine months ended September 30
	2022		2021		2022		2021		2022		2021		2022		2021
Cost of product sales	$	57,096	$	43,368	$	111,346	$	72,136	$	54,243	$	52,819	$	165,589	$	124,955
Research and development expenses		112,318		139,469		203,507		223,704		113,874		164,560		317,381		388,264
Selling, general and administrative expenses		389,595		403,007		995,059		869,792		368,209		419,152		1,363,268		1,288,837
	$	559,009	$	585,844	$	1,309,912	$	1,165,632	$	536,326	$	636,531	$	1,846,238	$	1,802,056

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

For the three
months ended
June 30,

For the six
months ended
June 30,
2022
2022
Expected term (in years) 5.5 6.0
Expected volatility 95.80% 91.62%
Expected dividend yield N/A N/A
Risk-free interest rate 3.09% 1.97%

	For the nine months ended September 30,
	2022
Expected term (in years)		6.0
Expected volatility		91.62	%
Expected dividend yield		N/A
Risk-free interest rate		1.97	%

The following table provides stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2022:

Stock Options	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contract Term	Aggregate Intrinsic Value
Outstanding at December 31, 2021	1,600,372	$	4.18	6.59 years	$	0		1,600,372	$	4.18	6.59 years	$	-

Granted	2,481,968		1.24			0		2,481,968		1.24			-
Exercised	0		0			0		-		-			-
Forfeited	121,159		2.93			0		137,076		2.77			-
Expired	184,745		5.63					270,293		5.01
Outstanding at June 30, 2022	3,776,436	$	2.21	8.37 years	$	0
Exercisable at June 30, 2022	636,924	$	0	5.08 years	$	0
Outstanding at September 30, 2022								3,674,971	$	2.20	8.30 years	$	-
Exercisable at September 30, 2022								553,360	$	4.01	5.59 years	$	-

The following table summarizes information about stock options outstanding at ~~June~~September 30, 2022:

	Stock Options Outstanding								Stock Options Exercisable						Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
_1 to 2.79999		2,924,253		8.57	$	1.42	$	0		317,758	$	2.36	$	0
1 to 2.79999																2,838,509		8.52	$	1.40	$	-		247,370	$	2.36	$	-
2.8 to 4.59999		27,720		8.94		3.06		0		8,311		3.07		0		26,796		8.54		3.06		-		9,237		3.06		-
4.6 to 6.39999		777,588		8.04		4.81		0		263,980		4.90		0		762,791		7.93		4.81		-		249,878		4.90		-
6.4 to 8.19999		46,875		0.86		8.15		0		46,875		8.15		0		46,875		0.61		8.15		-		46,875		8.15		-
Total		3,776,436		8.37	$	2.21	$	0		636,924	$	3.85	$	0		3,674,971		8.30	$	2.20	$	-		553,360	$	4.01	$	-

As of ~~June~~September 30, 2022, there was ~~$2,667,985~~$2,389,457 of net unrecognized compensation cost related to stock options that had not vested, which is expected to be recognized over a weighted-average period of approximately ~~3.10~~2.85 years. The total fair value of shares vested during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was ~~$913,063~~$917,036 and $335,579, respectively.

The following table summarizes information about restricted stock, restricted stock units and performance stock units outstanding as of ~~June~~September 30, 2022:

	Number of Shares & Units		Weighted Average Grant Date Fair Value		Number of Shares & Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		705,325	$	3.34		705,325	$	3.34

Granted		1,308,547		0.75		1,308,547		-
Vested		172,041		3.73		190,064		-
Forfeited		82,524		2.28		100,424		-
Outstanding at June 30, 2022		1,759,307	$	1.43
Outstanding at September 30, 2022						1,723,384	$	1.39

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As of ~~June~~September 30, 2022, there was ~~$1,829,654~~$1,530,896 of net unrecognized compensation cost related to restricted stock and restricted stock units that had not vested, which is expected to be recognized over a weighted average period of approximately ~~2.28~~2.03 years.

NOTE 9 — GEOGRAPHIC INFORMATION AND ECONOMIC DEPENDENCY:

The Company produces only 1one group of similar products known collectively as “rapid medical tests”, and it operates in a single operating segment. Net product ~~revenue~~sales by geographic area were as follows:

	For the three months ended June 30				For the six months ended June 30				For the three months ended September 30				For the nine months ended September 30
	2022		2021		2022		2021		2022		2021		2022		2021
Africa	$	3,144,599	$	1,466,356	$	3,911,951	$	2,811,215	$	2,730,311	$	1,293,405	$	6,642,263	$	4,104,619
Asia		439,661		53,593		455,219		270,547		86,648		208,750		541,867		479,297
Europe & Middle East		995,716		805,482		1,713,624		2,299,216		956,905		1,132,520		2,670,529		3,431,736
Latin America		834,689		487,517		13,379,742		745,536		2,286,121		5,698,920		15,665,864		6,444,456
United States		3,443,481		1,118,435		7,925,066		1,829,531		4,784,018		1,037,565		12,709,082		2,867,096
	$	8,858,146	$	3,931,383	$	27,385,602	$	7,956,045	$	10,844,003	$	9,371,160	$	38,229,605	$	17,327,204

Property, plant and equipment by geographic area were as follows at:

	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Asia	$	81,430	$	86,041	$	77,398	$	86,041
Europe & Middle East		93,324		113,883		79,107		113,883
Latin America		77,056		36,224		80,255		36,224
United States		8,592,144		8,320,625		8,576,939		8,320,625
	$	8,843,954	$	8,556,773	$	8,813,699	$	8,556,773

NOTE 10 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

Accounts payable and accrued liabilities consisted of:

	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Accounts payable – suppliers	$	3,776,360	$	7,745,592	$	3,066,133	$	7,745,592
Accrued commissions and royalties		2,015,752		1,359,691		2,053,261		1,359,691
Accrued payroll		427,215		494,258		437,757		494,258
Accrued vacation		692,275		421,416		554,468		421,416
Accrued bonuses		1,473,481		1,378,706		1,523,979		1,378,706
Accrued professional fees		715,212		522,935		1,593,504		522,935
Accrued expenses – other		951,354		1,205,395		9,416,396		1,205,395
TOTAL	$	10,051,649	$	13,127,993	$	18,645,498	$	13,127,993

NOTE 11 — GOODWILL AND INTANGIBLE ASSETS:

The following table reflects changes in goodwill:

Beginning balance at December 31, 2021	$	3,022,787		$	3,022,787
Impairment		(3,033,565	)		(3,033,565	)
Change in foreign currency exchange rate		10,778			10,778
Balance at June 30, 2022	$	0
Balance at September 30, 2022				$	-

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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. 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.

The quantitative goodwill impairment test is performed using a one-step process. The process is to compare the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is impaired, and an impairment loss is recognized in an amount equal to that excess.

The Company operates as a single operating segment and has 1one reporting unit. The Company recognized an impairment loss of its goodwill totaling $3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022.

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ITEM 2.

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

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes, or the accompanying financial statements, included elsewhere in this report. In addition to historical information, the following discussion contains forward-looking statements that involves risks, uncertainties and assumptions. See "Forward-Looking Statements" above. Please read Part II, Item 1A. “Risk Factors" of this report for a discussion of factors that could cause our actual results to differ materially from our expectations.

We develop and commercialize point-of-care diagnostic tests used for the rapid detection and diagnosis of infectious diseases, including sexually transmitted disease, insect vector and tropical disease, COVID-19 and other viral and bacterial infections, enabling expedited treatment.

Our product portfolio is based upon our proprietary DPP technology, a diagnostic platform that provides high-quality, cost-effective results in 15 to 20 minutes using fingertip blood, nasal swabs and other sample types. The DPP technology platform addresses the rapid diagnostic test market, which includes infectious diseases, cardiac markers, cholesterol and lipids, pregnancy and fertility, and drugs of abuse. Compared with traditional lateral flow technology, the DPP technology platform can provide enhanced sensitivity and specificity, advanced multiplexing capabilities and, with the DPP Micro Reader, quantitative results.

We target the market for rapid diagnostic test solutions for infectious diseases, which is driven by the high prevalence of infectious diseases globally, an increase in the geriatric population, growing demand for rapid test results, and advancements in multiplexing. We have a broad portfolio of infectious disease products, which prior to 2020 were focused principally on sexually transmitted disease and fever and tropical disease. In February 2020 we began the process of shifting substantially all of our resources to seek to leverage the DPP technology platform to address the acute and escalating need for diagnostic testing for COVID-19. We are continuing to pursue:

an emergency use authorization, or EUA, from the U.S. Food and Drug Administration, or FDA, as well as 510(k) clearance from the FDA, for the DPP SARS-CoV-2 Antigen test system;

an EUA from the FDA for the DPP Respiratory Panel; and

a Clinical Laboratory Improvement Amendment, or CLIA, waiver from the FDA for the DPP HIV-Syphilis test system.

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Our products are sold globally, directly and through distributors, to medical laboratories and hospitals, governmental and public health entities, nongovernmental organizations, medical professionals, and retail establishments. We continue to seek to expand our commercial distribution channels.

Our board of directors has initiated a review of strategic alternatives, including a potential sale or merger transaction, and of our financing strategy. We have retained Craig-Hallum Capital Group LLC as our financial advisor to assist with the strategic review. We have not set a timetable for completion of the strategic review process, and there can be no assurance that the process will result in a transaction at this time or at all. Even if a sale, merger or financing transaction is consummated, it may not return any value to holders of our common stock. Regardless of whether we execute a sale, merger or financing transaction, the adverse pressures that we have experienced may continue or intensify, and we will likely continue to face all of the risks we currently face, including the risk that we may not be able to continue as a going concern.

Going Concern Considerations

Focus on higher margin business in growth markets

Lower manufacturing costs

Reduce infrastructure costs

Strategic review of non-core businesses and assets

The decrease in total research and development costs for the three months ended ~~June~~September 30, 2022 compared to the three months ended ~~June~~September 30, 2021 was primarily associated with work related to pursuing an EUA and 510(k) from the FDA for the DPP SARS-CoV-2 Antigen test system, and an EUA for the DPP Respiratory Panel, each pursuant to awards from the Biomedical Advanced Research and Development Authority, or BARDA (part of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response). Total research and development cost incurred for the three months ended September 30, 2022 were primarily related to ongoing projects in our new product pipeline.

●	$~~19.4~~20.9 million net increase in product sales, reflecting gains in ~~Latin America,~~ the U.S., Latin America, and Africa, offset by lower sales in Europe and the Middle East. Higher sales in Latin ~~American~~America were primarily due to Bio-Manguinhos for DPP SARS-CoV 2 Antigen tests.

●	$~~6.6~~9.0 million, or ~~91.8%~~99%, decrease in R&D, grant and license and royalty revenues were primarily associated with the completion of work related to pursuing an EUA and 510(k) from the FDA for the DPP SARS-CoV-2 Antigen test system, and an EUA for the DPP Respiratory Panel.

●	$~~0.9~~2.2 million favorable product sales volume as described above, together with

●	$~~2.8~~1.2 million from favorable product margins related to the impact of geographic mix on average selling price.

The decrease in total research and development costs for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily associated with the end of the BARDA contract in late 2021. Total research and development cost incurred for the nine months ended September 30, 2022 were primarily related to ongoing projects in our new product pipeline.

On April 5, 2022, we received ~~a deficiency letter~~notification from the Listing Qualifications Department of The Nasdaq Stock Market, ~~notifying us~~or Nasdaq, stating that ~~because~~ the ~~bid price for shares of our common stock had closed below~~Company did not comply with the minimum $1.00 ~~per share minimum~~ bid price requirement for ~~thirty consecutive business~~continued listing set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). In accordance with Nasdaq listing rules, the Company was afforded 180 calendar days ~~or the Bid Price Requirement, our common stock may be subject to delisting by as early as~~(until October 3, ~~2022 if we have been unable~~2022) to regain compliance with the Bid Price ~~Requirements or to qualify~~Requirement. On October 4, 2022, the Company received written notice from Nasdaq stating that, although the Company had not regained compliance with the Bid Price Requirement by October 3, 2022, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is eligible for an additional 180 calendar day period, or until April 3, 2023, to regain compliance ~~by such date,~~with the Bid Price Requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this additional 180-day period, all as described in more detail in the Current ~~Report~~Reports on Form 8-K we filed with the SEC on April 7, 2022 and October 4, 2022. ~~As of August 4, 2022, the~~The closing price of our common stock was ~~$1.08, which was the second day since February 18, 2022 that such closing price was equal to or greater than $1.00.~~ ~~If our closing bid price remains at or above $1.00 for ten consecutive business days we will regain compliance with the Bid Price Requirement.~~$0.42 on October 5, 2022. There can be no assurance that we will be able to regain compliance with the Bid Price Requirement. Our inability to regain compliance with the Bid Price Requirement would, and the existence of the pending deficiency letter could, materially impair our ability to raise capital.

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. On ~~June~~September 30, 2022, the interest rate was ~~11.25%~~11.32%.

Scheduled Repayment. No principal repayments ~~are~~were due prior to September 30, ~~2022, unless we~~2022. Chembio did not elect to prepay principal as described under “—Optional Prepayment” below ~~or principal is accelerated pursuant to~~and an event of default as described under “—Default Provisions” ~~below.~~below did not occur. 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.

Guarantees. 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, guarantees, 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. For the next year, the minimum total revenue requirements range from ~~$45.6~~$47.4 million for the twelve months ending ~~September 30,~~December 31, 2022, and $50.1 million for the twelve months ending June 30, 2023. The minimum total revenue amounts 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 our 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 its commitments under the Credit Agreement.

~~The Company has a minimum volume commitment of 10 million STAT-PAK units to be manufactured by Reszon through December 31, 2024.~~

A discussion of recent accounting pronouncements was included in our 2021 Form 10-K and is updated in Note 2 to the condensed consolidated financial statements included elsewhere in this report.

ITEM 3.

CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of September 30, 2022 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 principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

~~(a)~~

~~Disclosure Controls and Procedures~~. Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of June 30, 2022 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 principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(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) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~(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) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

This information is set forth under “Note 6 – Commitments, Contingencies And Concentrations – Litigation” to the Consolidated Financial Statements of this report is incorporated herein by reference.

Table of Contents

ITEM 1A.

RISK FACTORS

perceptions by members of the health care community, including physicians, about the safety and effectiveness of our products;

limitation on use or warnings required by the FDA or other global regulators in our product labeling;

the cost of our products relative to competing products;

convenience and ease of administration;

potential advantages of alternative diagnostic and treatment methods;

availability of reimbursement for our products from government or other healthcare payers;

effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and

the ability of our diagnostic solutions to address different variants.

third parties lose confidence in our ability to continue to operate in the ordinary course, which could impact our ability to execute on our business strategy;

it may become more difficult for us to attract, retain or replace employees;

employees could be distracted from performance of their duties;

we could lose some or a significant portion of our liquidity, either due to stricter credit terms from vendors, or, in the event we undertake a Chapter 11 proceeding and conclude that we need to procure debtor-in-possession financing, an inability to obtain any needed debtor-in-possession financing or to provide adequate protection to certain secured lenders to permit us to access some or all of our cash; and

our vendors and service providers could seek to renegotiate the terms of our arrangements, terminate their relationships with us or require financial assurances from us.

On April 5, 2022, we received ~~a deficiency letter~~notification from the Listing Qualifications Department of The Nasdaq Stock Market, ~~notifying it~~or Nasdaq, stating that ~~because~~ the Company did not comply with the minimum $1.00 bid price requirement for ~~shares of our common stock had closed below~~continued listing set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). In accordance with Nasdaq listing rules, the ~~$1.00 per share minimum Bid Price Requirement for thirty consecutive business~~Company was afforded 180 calendar days ~~our common stock may be subject to delisting by as early as~~(until October 3, ~~2022 if we are unable~~2022) to regain compliance with the Bid Price ~~Requirements or to qualify~~Requirement. On October 4, 2022, the Company received written notice from Nasdaq stating that, although the Company had not regained compliance with the Bid Price Requirement by October 3, 2022, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is eligible for an additional 180 calendar day period, or until April 3, 2023, to regain compliance ~~by such date,~~with the Bid Price Requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this additional 180-day period, all as described in more detail in the Current ~~Report~~Reports on Form 8-K filed with the SEC on April 7, 2022 and October 4, 2022. The closing price of our common stock was ~~$1.08~~$0.42 on ~~August 4, 2022, which was the~~ ~~second~~ day since February 18, 2022 that such closing price was equal to or greater than $1.00. If our closing bid price remains at or above $1.00 for ten consecutive business days we will regain compliance with the Bid Price Requirement.October 5, 2022. There can be no assurance that we will be able to regain compliance with the Bid Price Requirement. Our inability to regain compliance with the Bid Price Requirement would, and the existence of the pending deficiency letter could, materially impair ~~its~~our ability to raise capital. Moreover, if we were unable to regain compliance with the Bid Price Requirement, our common stock would likely then trade only in the over-the-counter market and the market liquidity of our common stock could be adversely affected and ~~their~~its market price could decrease. If our common stock were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage; and a decreased ability to issue additional securities or obtain additional financing in the future. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock and would substantially impair our ability to raise additional funds ~~(under the ATM Agreement or otherwise)~~and could result in a loss of institutional investor interest and fewer development opportunities for us.

There can be no assurance that our review of strategic alternatives and our financing strategy will result in a transaction satisfactory to holders of our common stock or any change at all.

Table of Contents

The pursuit of strategic alternatives or financing transactions may consume a substantial portion of the time and attention of our ~~management and require additional capital resources and~~You may ~~be disruptive to our business, which could have a material adverse effect on our business, financial condition and results of operations.~~

We are not able to predict with certainty the amount of time and resources necessary to successfully identify, pursue and execute any strategic transaction or obtain additional financing. The diversion of management’s attention may materially adversely affect the conduct of our business, and,experience future dilution as a result of future equity offerings, exercises of outstanding options and vesting of options and restricted and performance stock units.

On July 19, 2021, we entered into the ATM Agreement, pursuant to which we may sell from time to time, at our ~~financial condition~~option, up to an aggregate of $60,000,000 of shares of common stock through Craig-Hallum, as sales agent. As of the filing date of this report, we have issued and ~~results~~sold pursuant to the ATM Agreement a total of ~~operations. The~~14,859,595 shares of common stock at a volume-weighted average price of $3.03 per share for gross proceeds of $45.0 million and net proceeds, after giving effect to placement fees and other transaction costs, of $42.7 million. For additional ~~expense~~information about the at-the-market offerings pursuant to the ATM Agreement, see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

In order to raise additional capital, we ~~accrue~~may seek to offer pursuant to the ATM Agreement additional shares of common stock for up to $15.0 million in gross proceeds and we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. There can be no assurance that we will be able to sell additional shares in at-the-market offerings made pursuant to the ATM Agreement, or in any other offering, at a price per share that is equal to or greater than the price per share paid by existing stockholders. Investors purchasing securities in other offerings in the future could have rights superior to existing stockholders.

As of the close of business on September 30, 2022, our market capitalization was approximately $12.6 million. Existing stockholders may experience significant dilution in connection with our ~~review~~issuance and sale of ~~strategic alternatives~~up to $15.0 million of additional shares of common stock pursuant to the ATM Agreement. In addition, as of September 30, 2022, 87,672 shares of common stock were reserved for future issuance under our 2019 Omnibus Incentive Plan, 3,674,971 shares were subject to outstanding options, and ~~pursuit~~1,723,384 shares were subject to outstanding restricted and performance stock units. Stockholders will incur dilution upon vesting of ~~strategic or financing transactions~~restricted and performance stock units, and they may ~~materially adversely impact our financial condition and partially offset the value~~incur dilution upon exercises of ~~any strategic transaction we execute or additional financing we obtain.~~stock options.

	Chembio Diagnostics, Inc.

Date: ~~August 5,~~November 3, 2022	By: /s/ Richard L. Eberly
	Richard L Eberly
	Chief Executive Officer and President

Date: ~~August 5,~~November 3, 2022	By: /s / Lawrence J. Steenvoorden
	Lawrence J. Steenvoorden
	Chief Financial Officer and Executive Vice President

	For the six months ended						Favorable/(unfavorable)					For the nine months ended						Favorable/(unfavorable)
	June 30, 2022			June 30, 2021			$ Change		% Change			September 30, 2022			September 30, 2021			$ Change			% Change
Net product sales	$	27,386		$	7,956		$	19,430		244	%	$	38,230		$	17,327		$	20,903			121	%
Less: Cost of product sales		23,311			7,588			15,723		207	%		(32,969	)		(15,491	)		(17,478	)		113	%
Gross product margin	$	4,075		$	368		$	3,707		1,007	%	$	5,261		$	1,836		$	3,425			187	%
Gross product margin percentage		15	%		5	%							14	%		11	%

	For the six months ended				Favorable/(unfavorable)						For the nine months ended				Favorable/(unfavorable)
	June 30, 2022		June 30, 2021		$ Change			% Change			September 30, 2022		September 30, 2021		$ Change			% Change
Clinical and regulatory affairs	$	839	$	1,636	$	(797	)		(49	)%	$	1,229	$	3,156	$	(1,927	)		(61	)%
Other research and development		2,857		4,024		(1,167	)		(29	)%		4,338		5,946		(1,608	)		(27	)%
Total Research and Development	$	3,696	$	5,660	$	(1,964	)		(35	)%	$	5,567	$	9,102	$	(3,535	)		(39	)%

	June 30, 2022			September 30, 2022
	(in thousands)			(in thousands)
Cash and cash equivalents	$	22,837		$	21,055
Accounts receivable, net of allowance for doubtful amounts		4,256			5,253
Inventories, net		11,309			8,465
Prepaid expenses and other current assets		2,498			12,510
Total current assets		40,900			47,283
Less: Total current liabilities		(14,031	)		(38,624	)
Working capital	$	26,869		$	8,659

Number		Description

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

32.1		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

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
104		Cover page interactive ~~date~~data file (embedded within the XBRL document)

	For the three months ended June 30,		For the six months ended June 30,
	2022		2022
Expected term (in years)		5.5		6.0
Expected volatility		95.80%		91.62%
Expected dividend yield		N/A		N/A
Risk-free interest rate		3.09%		1.97%

	For the three months ended June 30						Favorable/(unfavorable)					For the three months ended September 30						Favorable/(unfavorable)
	2022			2021			$ Change		% Change			2022			2021			$ Change			% Change
Net product sales	$	8,858		$	3,931		$	4,927		125	%	$	10,844		$	9,371		$	1,473			16	%
Less: Cost of product sales		8,087			4,040			4,047		100	%		(9,659	)		(7,903	)		(1,756	)		22	%
Gross product margin	$	771		$	(109	)	$	880		807	%	$	1,185		$	1,468		$	(283	)		(19	)%
Gross product margin percentage		9	%		(3	)%							11	%		16	%