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, 2018

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

For the transition period from: ______ to ________

000-30379

(Commission File Number)

Chembio Diagnostics, Inc.

(Exact name of registrant as specified in its charter)

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

3661 Horseblock Road

Medford, New York 11763

(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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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. ~~(Check one):~~

	Large accelerated filer ☐	Accelerated filer ☒
	Non-accelerated filer ☐ ~~(Do not check if a smaller reporting company)~~	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 ☒

As of ~~August 2,~~November 5, 2018, the Registrant had ~~14,173,620~~17,187,184 shares outstanding of its $.01 par value common stock.

Quarterly Report on ~~FORM~~Form 10-Q

For The Quarterly Period Ended

~~June~~September 30, 2018

Table of Contents

Chembio Diagnostics, Inc.

		Page

Part I. FINANCIAL INFORMATION:

	Item 1. Financial Statements:

	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2018 (unaudited) and December 31, 2017	3

	Condensed Consolidated Statements of Operations (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	4

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	5

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	24

	Item 4. Controls and Procedures	24

Part II. OTHER INFORMATION:

	Item 1. Legal Proceedings	25

	Item 1A. Risk Factors	25

	Item 6. Exhibits	26

SIGNATURES		28

EXHIBITS

The words ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ ‘and ‘‘Chembio’’ refer to Chembio Diagnostics, Inc., unless otherwise we indicate.

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

NOTE ABOUT FORWARD-LOOKING STATEMENTS

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

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

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

PART I

Item 1.

FINANCIAL STATEMENTS

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~AS OF~~

	September 30, 2018			December 31, 2017
	(Unaudited)
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents	$	6,848,583		$	3,790,302
Accounts receivable, net of allowance for doubtful accounts of $42,000 at September 30, 2018 and December 31, 2017, respectively		7,794,014			2,085,340
Inventories, net		5,978,426			4,423,618
Prepaid expenses and other current assets		1,579,750			554,383
TOTAL CURRENT ASSETS		22,200,773			10,853,643

FIXED ASSETS, net of accumulated depreciation		2,372,896			1,909,232

OTHER ASSETS:
Intangible assets, net		1,431,921			1,597,377
Goodwill		1,628,864			1,666,610
Deposits and other assets		331,423			589,159
		3,392,208			3,853,146

TOTAL ASSETS	$	27,965,877		$	16,616,021

- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	6,798,600		$	3,046,303
Deferred revenue		760,750			50,000
Current portion of note payable		202,096			-
TOTAL CURRENT LIABILITIES		7,761,446			3,096,303

OTHER LIABILITIES:
Notes payable		207,694			99,480
Deferred tax liability		333,318			341,042
TOTAL LIABILITIES		8,302,458			3,536,825

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:
Preferred stock - 10,000,000 shares authorized; none outstanding		-			-
Common stock - $.01 par value; 100,000,000 shares authorized; 14,173,620 and 12,318,570 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		141,736			123,185
Additional paid-in capital		74,108,046			62,821,288
Accumulated deficit		(54,739,124	)		(50,044,225	)
Accumulated other comprehensive income		152,761			178,948
TOTAL STOCKHOLDERS’ EQUITY		19,663,419			13,079,196

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	27,965,877		$	16,616,021

June 30, 2018 December 31, 2017
(Unaudited)
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents $ 9,505,782 $ 3,790,302
Accounts receivable, net of allowance for doubtful accounts of $42,000 at June 30, 2018 and December 31, 2017
6,886,319 2,085,340
Inventories, net 6,349,640 4,423,618
Prepaid expenses and other current assets 788,740 554,383
TOTAL CURRENT ASSETS 23,530,481 10,853,643

FIXED ASSETS, net of accumulated depreciation
2,371,509 1,909,232

OTHER ASSETS:
Intangible assets, net 1,515,112 1,597,377
Goodwill 1,673,144 1,666,610
Deposits and other assets 357,385 589,159
3,545,641 3,853,146

TOTAL ASSETS $ 29,447,631 $ 16,616,021

- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,010,454 $ 3,046,303
Deferred revenue 660,750 50,000
TOTAL CURRENT LIABILITIES 6,671,204 3,096,303

OTHER LIABILITIES:
Note payable 426,550 99,480
Deferred tax liability 342,379 341,042
TOTAL LIABILITIES 7,440,133 3,536,825

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:
Preferred stock - 10,000,000 shares authorized; none outstanding - -
Common stock - $.01 par value; 100,000,000 shares authorized; 14,173,620 and 12,318,570 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
141,736 123,185
Additional paid-in capital 74,033,287 62,821,288
Accumulated deficit (52,424,943 ) (50,044,225 )
Accumulated other comprehensive income 257,418 178,948
TOTAL STOCKHOLDERS’ EQUITY 22,007,498 13,079,196

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 29,447,631 $ 16,616,021

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

~~CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

For the three months ended For the six months ended
June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
REVENUES:
Net product sales $ 6,857,861 $ 2,892,942 $ 13,256,088 $ 8,320,314
License and royalty revenue 276,526 227,635 478,457 327,689
R&D, milestone and grant revenue 1,585,939 994,237 2,702,913 1,791,977
TOTAL REVENUES 8,720,326 4,114,814 16,437,458 10,439,980

COSTS AND EXPENSES:
Cost of product sales 5,935,428 2,203,843 10,053,207 5,423,057
Research and development expenses 1,991,412 1,982,426 3,838,514 4,228,998
Selling, general and administrative expenses 2,547,216 2,109,360 4,953,785 4,597,696
10,474,056 6,295,629 18,845,506 14,249,751
LOSS FROM OPERATIONS (1,753,730 ) (2,180,815 ) (2,408,048 ) (3,809,771 )

OTHER INCOME:
Interest income, net 25,355 7,722 27,330 21,104

LOSS BEFORE INCOME TAXES (1,728,375 ) (2,173,093 ) (2,380,718 ) (3,788,667 )

Income tax provision - - - -

NET LOSS $ (1,728,375 ) $ (2,173,093 ) $ (2,380,718 ) $ (3,788,667 )

Basic loss per share $ (0.12 ) $ (0.18 ) $ (0.17 ) $ (0.31 )

Diluted loss per share $ (0.12 ) $ (0.18 ) $ (0.17 ) $ (0.31 )

Weighted average number of shares outstanding, basic 14,165,343 12,299,122 13,718,776 12,284,979

Weighted average number of shares outstanding, diluted 14,165,343 12,299,122 13,718,776 12,284,979

See accompanying notes to condensed consolidated financial statements

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~OPERATIONS

(Unaudited)

For the three months ended For the six months ended
June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Net loss $ (1,728,375 ) $ (2,173,093 ) $ (2,380,718 ) $ (3,788,667 )
Other comprehensive income (loss):
Foreign currency translation adjustments (173,828 ) 124,241 78,470 124,241
Comprehensive Loss $ (1,902,203 ) $ (2,048,852 ) $ (2,302,248 ) $ (3,664,426 )

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
REVENUES:
Net product sales	$	7,856,038		$	6,132,725		$	21,112,126		$	14,453,097
License and royalty revenue		228,553			150,000			707,010			477,631
R&D, milestone and grant revenue		1,292,202			1,304,649			3,995,115			3,096,626
TOTAL REVENUES		9,376,793			7,587,374			25,814,251			18,027,354

COSTS AND EXPENSES:
Cost of product sales		6,774,749			4,064,791			16,827,956			9,487,848
Research and development expenses		1,897,751			1,805,738			5,736,265			6,034,735
Selling, general and administrative expenses		3,034,130			2,305,358			7,987,914			6,903,055
		11,706,630			8,175,887			30,552,135			22,425,638
LOSS FROM OPERATIONS		(2,329,837	)		(588,513	)		(4,737,884	)		(4,398,284	)

OTHER INCOME:
Interest income, net		15,656			3,852			42,985			24,956

LOSS BEFORE INCOME TAXES		(2,314,181	)		(584,661	)		(4,694,899	)		(4,373,328	)

Income tax provision		-			-			-			-

NET LOSS	$	(2,314,181	)	$	(584,661	)	$	(4,694,899	)	$	(4,373,328	)

Basic loss per share	$	(0.16	)	$	(0.05	)	$	(0.34	)	$	(0.36	)

Diluted loss per share	$	(0.16	)	$	(0.05	)	$	(0.34	)	$	(0.36	)

Weighted average number of shares outstanding, basic		14,173,620			12,311,098			13,872,055			12,293,781

Weighted average number of shares outstanding, diluted		14,173,620			12,311,098			13,872,055			12,293,781

See accompanying notes to condensed consolidated financial statements

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~FOR THE SIX MONTHS ENDED~~COMPREHENSIVE LOSS

(Unaudited)

	For the three months ended						For the nine months ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net loss	$	(2,314,181	)	$	(584,661	)	$	(4,694,899	)	$	(4,373,328	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(104,657	)		4,375			(26,187	)		128,616
Comprehensive loss	$	(2,418,838	)	$	(580,286	)	$	(4,721,086	)	$	(4,244,712	)

June 30, 2018 June 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants $ 12,247,228 $ 8,920,921
Cash paid to suppliers and employees
(17,352,226 ) (14,398,812 )
Interest received, net
27,330 21,104
Net cash used in operating activities (5,077,668 ) (5,456,787 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of RVR Diagnostics Sdn Bhd - (850,000 )
Acquisition of and deposits on fixed assets (250,147 ) (555,894 )
Net cash used in investing activities (250,147 ) (1,405,894 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option exercises 71,914 -
Proceeds from sale of common stock, net 10,934,352 -
Net cash provided by financing activities 11,006,266 -

Effect of exchange rate changes on cash 37,029 -
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,715,480 (6,862,681 )
Cash and cash equivalents - beginning of the period 3,790,302 10,554,464

Cash and cash equivalents - end of the period $ 9,505,782 $ 3,691,783

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

Net Loss $ (2,380,718 ) $ (3,788,667 )
Adjustments:
Depreciation and amortization 446,625 773,566
Share based compensation 224,283 209,609
Changes in assets and liabilities:
Accounts receivable (4,800,979 ) (1,287,898 )
Inventories (1,926,022 ) (1,658,763 )
Prepaid expenses and other current assets (215,758 ) (25,043 )
Deposits and other assets - 8,729
Accounts payable and accrued liabilities 2,964,151 542,841
Deferred revenue 610,750 (231,161 )
Net cash used in operating activities $ (5,077,668 ) $ (5,456,787 )

Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets $ 257,455 $ 174,399
Seller-financed equipment purchases 327,070 -
Accrual of contingent earn-out - 148,000
Issuance of common stock for net assets of business acquired - 1,682,725

See accompanying notes to condensed consolidated financial statements

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

(Unaudited)

	September 30, 2018			September 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and grants	$	20,816,327		$	15,249,646
Cash paid to suppliers and employees		(28,389,820	)		(22,451,537	)
Interest received, net		42,985			24,956
Net cash used in operating activities		(7,530,508	)		(7,176,935	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of RVR Diagnostics Sdn Bhd		-			(850,000	)
Acquisition of and deposits on fixed assets		(401,897	)		(789,827	)
Net cash used in investing activities		(401,897	)		(1,639,827	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from option and warrant exercises		71,914			34,800
(Payments on) proceeds from note payable		(15,800	)		99,480
Proceeds from sale of common stock, net		10,934,352			-
Net cash provided by financing activities		10,990,466			134,280

Effect of exchange rate changes on cash		220			-
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,058,281			(8,682,482	)
Cash and cash equivalents - beginning of the period		3,790,302			10,554,464

Cash and cash equivalents - end of the period	$	6,848,583		$	1,871,982

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

Net loss	$	(4,694,899	)	$	(4,373,328	)
Adjustments:
Depreciation and amortization		663,250			1,011,349
Share based compensation		299,044			296,674
Changes in assets and liabilities:
Accounts receivable		(5,708,674	)		(2,385,191	)
Inventories		(1,554,808	)		(1,899,976	)
Prepaid expenses and other current assets		(997,468	)		(114,887	)
Deposits and other assets		-			23,262
Accounts payable and accrued liabilities		3,752,297			657,679
Deferred revenue		710,750			(392,517	)
Net cash used in operating activities	$	(7,530,508	)	$	(7,176,935	)

Supplemental disclosures for non-cash investing and financing activities:
Deposits on manufacturing equipment transferred to fixed assets	$	268,655		$	210,472
Seller-financed equipment purchases		326,110			-
Accrual of contingent earn-out		-			148,000
Issuance of common stock for net assets of business acquired		-			1,682,725

See accompanying notes to condensed consolidated financial statements

CHEMBIO DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2018

(UNAUDITED)

NOTE 1 — DESCRIPTION OF BUSINESS:

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

~~Our~~The Company’s product commercialization and product development efforts are focused in ~~three~~two areas: infectious disease, which includes both sexually transmitted ~~disease,~~and tropical & fever disease; and strategic collaborations with leading global healthcare companies in order to leverage the DPP platform. In infectious disease, ~~and technology collaborations. In sexually transmitted disease, we are~~the Company is commercializing tests for HIV, Syphilis, Zika virus, dengue virus, and ~~Syphilis. In tropical and fever disease, we are commercializing a test for Zika~~chikungunya virus, and developing tests for hepatitis C, malaria, ~~dengue virus, chikungunya virus,~~ ebola, lassa,, Marburg, leptospirosis, Rickettsia typhi, Burkholderia pseudomallei, and Orientia tsutsugamushi~~, individually or~~. Certain of these are also being developed as part of fever panel tests. Through ~~technology~~strategic collaborations, ~~we are~~the Company is developing tests for a specific form of cancer, ~~concussion,~~concussions, bovine tuberculosis, and, ~~for an undisclosed biomarker, the latter~~ in collaboration with global biopharmaceutical company ~~AstraZeneca.~~AstraZeneca, an undisclosed biomarker.

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

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

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

NOTE 2 — ACQUISITION:

On January 9, 2017, pursuant to a stock purchase agreement (the ~~“Stock~~“RVR Purchase Agreement”), the Company acquired all of the outstanding common stock of RVR Diagnostics Sdn Bhd (“RVR”), a privately-held Malaysia-based manufacturing company focused on assembly and sales of rapid medical POC assays, for $3,083,000. The Company acquired RVR, which subsequently changed its name to Chembio Diagnostics Malaysia Sdn Bhd (“CDM”), to have a better presence in Asia, access to lower cost, shorter approval time of in-country regulatory approvals, and a lower cost assembly operation.

Total consideration was: (i) a cash payment of $1,400,000, of which $550,000 was paid as a deposit in December 2016; (ii) 269,236 shares of Chembio’s common stock, with a value at closing of $1,683,000, of which 7,277 shares were held back to satisfy certain potential claims under the ~~Stock~~RVR Purchase Agreement and became issuable to the sellers on the one-year anniversary of the closing; and, a contingent $148,000 milestone payment based on the achievement of performance goals related to sales by CDM during the 12 months ended December 31, 2017. The performance goals were not achieved and the related $148,000 accrual was reversed during the fourth quarter of 2017 and recognized in selling, general, and administrative expenses associated with the change in fair value.

As a result of the consideration paid exceeding the fair value of the net assets acquired, goodwill in the amount of $1,651,361 was recorded in connection with this acquisition, none of which will be deductible for tax purposes. In addition, the Company recorded $1,800,000 in intangible assets associated with the addition of CDM’s intellectual property, customer base and distribution channels, trade names, order backlog, industry reputation, and management talent and workforce.

The acquisition was accounted for using the purchase method of accounting. The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of January 9, 2017:

	Amount

Property, plant and equipment	$	235,141
Goodwill		1,651,361
Deferred tax liability		(307,636	)
Contingent consideration		(148,000	)
Other intangible assets (estimated useful life):
Intellectual property (approximate 10 year weighted average)		800,000
Customer contracts / relationships (approximate 10 year weighted average)		700,000
Order backlog (3 months)		200,134
Trade names (approximate 11 year weighted average)		100,000
Total consideration	$	3,231,000

The Company calculated the fair value of the fixed assets based on the net book value of CDM as that approximates fair value. The intellectual property, customer contracts and trade names were based on discounted cash flows using management estimates. The order backlog was based on an order that CDM had at the closing, ~~that~~which was shipped in the first quarter of 2017 and valued at an amount equal to estimated net income.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

The preceding (a) condensed consolidated balance sheet as of December 31, 2017, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of ~~June~~September 30, 2018 and for the ~~three~~three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017, respectively, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations, although ~~we believe~~the Company believes that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, previously filed with the SEC on March 8, 2018.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of ~~June~~September 30, 2018, its condensed consolidated results of operations for the ~~three~~three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017, ~~respectively,~~ and its condensed consolidated cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, ~~ASU~~Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with ~~Customers.~~Customers. The intent of the new standard is to improve financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and in certain circumstances, allowing estimates of variable consideration to be recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change ~~our~~the Company’s revenue recognition as ~~our~~its revenues continue to be recognized when the customer takes control of ~~our~~its product. As wethe Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to ~~our~~its product revenue, license and royalty revenue, and R&D, milestone and grant revenues, no adjustment to retained earnings was required upon adoption.

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

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

Product Revenues

Revenues from product sales are recognized when the customer obtains control of ~~our~~the Company’s product, which occurs at a point in time, typically upon tendering to the customer. ~~We expense~~The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that weit would have recognized is one year or less or the amount is immaterial.

Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in Cost of Product Sales.

Reserves for Discounts and Allowances

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

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

Royalty Revenues

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

R&D, milestone and grant revenue

All such contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned. Such contracts are further described under Disaggregation of Revenue, below. Grants are invoiced and revenue is recognized after expenses are incurred as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies.

The Company follows the recognition of revenue under the milestone method for certain collaborative research projects defining milestones at the inception of the agreement.

Disaggregation of Revenue

In August 2016, the Company was awarded a grant of $5.9 million from BARDA, which is part of the U.S. Department of Health and Human Resources, to develop a rapid Zika virus assay. The Company earned ~~$0.8~~$0.3 million and ~~$1.2~~$1.5 million during the three and ~~six-months~~nine months ended ~~June~~September 30, 2018, respectively as R&D, milestone and grant revenue in the Condensed Consolidated Statements of Operations.

In September 2016, the Company was awarded a $0.7 million contract from the ~~USDA~~U.S. Department of Agriculture to develop a Bovid TB assay. The Company earned $~~0.1~~ ~~million~~$20,000 and $~~0.1~~$0.2 million during the three and ~~six-months~~nine months ended ~~June~~September 30, 2018, respectively, as R&D, milestone and grant revenue in the Condensed Consolidated Statements of Operations.

910

The following table disaggregates Total Revenues for the three and ~~six-months~~nine months ended ~~June~~September 30, 2018:

	For the three months ended						For the six months ended						For the three months ended						For the nine months ended
	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	$	6,857,861	$	-	$	6,857,861	$	13,256,088	$	-	$	13,256,088	$	7,856,038	$	-	$	7,856,038	$	21,112,126	$	-	$	21,112,126
License and royalty revenue		276,526		-		276,526		478,457		-		478,457		228,553		-		228,553		707,010		-		707,010
R&D, milestone and grant revenue		755,570		830,369		1,585,939		1,367,375		1,335,538		2,702,913		960,332		331,870		1,292,202		2,328,058		1,667,057		3,995,115
	$	7,888,957	$	830,369	$	8,720,326	$	15,101,920	$	1,335,538	$	16,437,458	$	9,044,923	$	331,870	$	9,376,793	$	24,147,194	$	1,667,057	$	25,814,251

~~This Quarterly~~

You should read the following discussion of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report and our Annual Report on Form ~~10-Q, including exhibits that are being filed as part of this report, as well as other statements made by Chembio Diagnostics, Inc. (“Chembio”,~~10-K for the “Company”, “we”, “us”, and “our”), contain “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

~~These~~fiscal year ended December 31, 2017, or our Annual Report. The following discussion contains forward-looking statements ~~include such things as: investment objectives~~that reflect our plans, estimates, and the Company’s ability to make investments in a timely manner on acceptable terms; references to future success of the Company’s products; the Company’s business strategy; estimated future capital expenditures; sales of the Company’s products; competitive strengths and goals; and, other similar matters.

These forward-looking statements reflect the Company’s current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside the Company’s control that may causebeliefs. Our actual results tocould differ materially from those ~~projected. Such factors~~discussed in the forward-looking statements. Factors that could cause or contribute to these differences include ~~but are not limited to,~~ those ~~referenced in this Report under Item 1A entitled “Risk Factors”, matters described~~discussed below and elsewhere in this ~~Report, and~~report, particularly in the ~~following: ability to market and sell products, whether through our internal, direct sales force or third parties; ability to manufacture products~~section titled “Item 1A. Risk Factors” in accordance with applicable specifications, performance standards and quality requirements; ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements; ability to effectively resolve warning letters, audit observations and other findings or comments from the FDA or other regulatory entities; changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; reduction or deferral of public funding available to customers; competition from new or better technology or lower cost products; ability to develop, commercialize and market new products; market acceptancePart I of our products; changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention and other agencies; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical products and components; availability of related products produced by third parties or products required for use of our products; ability to maintain sustained profitability; volatility of the Company’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to attract and retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; changes in laws or regulations; global and regional economic conditions, including conditions affecting the credit markets, such as those resulting from the United Kingdom referendum held on June 23, 2016 in which United Kingdom voters approved an exit from the European Union; and general political, business and market conditions.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, these are only assumptions, and forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurate indications of when such performance or results will be achieved. Investors are cautioned that forward-looking statements may not be reliable and speak only as of the date they are made and that, except as required by law, the Company undertakes no obligation to update these forward-looking statements to reflect any future events or circumstances. All subsequent written or oral forward-looking statements attributable to the Company or to individuals acting on its behalf are expressly qualified in their entirety by this section.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information to securities analysts unless and until we have made it publicly available. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

~~Overview~~

~~This discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes.~~Annual Report. The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ‘‘Critical Accounting Policies,’’ and have not changed significantly from December 31, 2017, with the exception of revenue recognition.

~~This~~Our management’s discussion and analysis of financial condition and results of operations ~~(“MD&A”)~~ is intended to help you understand the business operations and financial condition of the Company as of ~~June~~September 30, 2018, and for the three and ~~six~~nine months ended ~~June~~September 30, 2018. This discussion should be read in conjunction with Item 8.1. Financial ~~Statements~~Statements. Our management’s discussion and ~~Supplementary Data. Our MD&A~~analysis of financial condition and results of operations is presented in six sections:

●

Executive Overview

●

Consolidated Results of Operations

●

Liquidity and Capital Resources

●

Recent Developments

●

Significant Accounting Policies and Critical Accounting Estimates

●

Recently Issued Accounting Pronouncements

Executive Overview

Our Business

Through our wholly-owned subsidiaries Chembio Diagnostic Systems Inc. and Chembio Diagnostics Malaysia Sdn Bhd, we develop, manufacture, and commercialize point-of-care diagnostic tests that are used to detect or monitor diseases. ~~The Company’s~~Our product development efforts are focused on our patented DPP^® technology, a novel point-of-care diagnostic platform that offers certain customer advantages as compared to traditional lateral flow technology. Chembio ~~was~~Diagnostics, Inc. is a Nevada corporation formed in 1985.

Business Strategy

We are a leading provider of point-of-care diagnostic products for the detection and diagnosis of infectious diseases. We have been expanding our product portfolio based upon our proprietary DPP technology platform, which uses a small drop of blood from the fingertip to provide high-quality, cost-effective diagnostic results in approximately 15 minutes. We seek to build additional revenue streams by entering into strategic collaborations with leading global healthcare companies in order to leverage the DPP platform.

Compared with traditional lateral flow technology, the DPP technology platform provides enhanced sensitivity and specificity, advanced multiplexing capabilities, and, when used with the DPP Micro Reader, quantitative results. Our DPP HIV test provides sensitivity of 99.8% and specificity of 100%, and has been approved by the U.S. Food and Drug Administration, or FDA, and approved as a waived test under the Clinical Laboratory Improvement Amendments of 1988.

We are pursuing four corporate priorities, aimed at executing on our key building blocks to drive growth and operating efficiency:

●

expand our core point-of-care infectious disease business;

●

leverage our patented DPP technology and scientific expertise through collaborations;

●

broaden our sales channels worldwide; and

●

automate our U.S. manufacturing operations to increase capacity and margin.

Recent accomplishments and highlights:

●

Closed the acquisition of opTricon GmbH, a privately-held developer and manufacturer of hand-held analyzers for rapid diagnostic tests.

●

~~Advanced~~Filed CE Mark for a point-of-care DPP^®test to ~~Phase 2 in~~detect an undisclosed biomarker through the ~~AstraZeneca-funded~~AstraZeneca funded collaboration ~~to develop a DPP~~^® ~~Assay that identifies an “undisclosed” biomarker.~~and development program.

●

~~Entered collaboration with~~Received a $10.5 million purchase commitment from Bio-Manginhos for the ~~Foundation for Innovative New Diagnostics (FIND)~~production of DPP HIV and DPP Leishmania assays in Brazil and their subsequent supply to ~~expedite the feasibility testing~~Brazil's Ministry of ~~a rapid diagnostic test for hepatitis C virus.~~Health.

●

~~Installed the first automated manufacturing line in the New York facility which will reduce cost and increase capacity.~~

●

~~Submitted a dossier~~Completed an underwritten public offering that provided an estimated $16.6 million of net proceeds to the ~~World Health Organization (WHO) for the prequalification of the Malaysia facility which upon approval will allow manufacturing transfer of certain products~~Company.

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

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

Our products are sold globally, directly and through distributors, to hospitals and clinics, physician offices, clinical laboratories, public health organizations, government agencies, and consumers.

Consolidated Results of Operations

Three Months Ended ~~June~~September 30, 2018 versus Three Months Ended ~~June~~September 30, 2017

The results of operations for the three months ended ~~June~~September 30, 2018 and 2017 were as ~~follows:~~follows (dollars in thousands):

	June 30, 2018					June 30, 2017					September 30, 2018					September 30, 2017
TOTAL REVENUE	$	8,720,326		100	%	$	4,114,814		100	%
TOTAL REVENUES											$	9,377		100	%	$	7,587		100	%

OPERATING COSTS AND EXPENSES:
Cost of product sales		5,935,428		68	%		2,203,843		54	%		6,775		72	%		4,065		54	%
Research and development expenses		1,991,412		23	%		1,982,426		48	%		1,898		20	%		1,806		24	%
Selling, general and administrative expenses		2,547,216		29	%		2,109,360		51	%		3,034		32	%		2,305		30	%
		10,474,056					6,295,629					11,707					8,176
LOSS FROM OPERATIONS		(1,753,730	)				(2,180,815	)				(2,330	)				(589	)

OTHER INCOME, NET		25,355					7,722
INTEREST INCOME, NET												16					4

LOSS BEFORE INCOME TAXES		(1,728,375	)	(20	)%		(2,173,093	)	(53	)%		(2,314	)	(24	)%		(585	)	(8	)%

Income tax provision		-					-					-					-
NET LOSS	$	(1,728,375	)			$	(2,173,093	)			$	(2,314	)			$	(585	)

Percentages in the table reflect the percent of total revenues.

Total ~~Net~~ Revenues

Total ~~net~~ revenues during the three months ended ~~June~~September 30, 2018 were ~~$8.7~~$9.4 million, an increase of ~~$4.6~~$1.8 million, or ~~112%~~23.6% compared to the three months ended ~~June~~September 30, 2017. The increase in total ~~net~~ revenues was comprised of the following:

●

$~~4.0~~1.7 million, or ~~137%~~a 28.1% increase in net product sales compared to the three months ended ~~June~~September 30, 2017, reflecting ~~strong~~ gains in ~~Latin America and~~ Africa ~~the latter~~($2.1 million, or 217.3%), including both ongoing growth and ~~the Company’s initial shipment~~continued shipments to Ethiopia, and Europe & Middle East ($0.3 million, or 78.2%), and

●

$~~0.6~~0.1 million, or ~~52%~~a 4.5% increase in R&D, milestone and grant, and license and royalty revenues compared to the three months ended ~~June~~September 30, 2017, reflecting ~~the benefit of increased~~ongoing technology and scientific ~~collaborations associated with our DPP~~^® ~~technology platform.~~

collaborations.

Gross Product Margin

Cost of product sales is primarily comprised of material, labor, manufacturing overhead, depreciation and amortization, and other operating expenses. Gross product margin is net product sales less cost of product sales, and gross margin percentage is gross product margin as a percentage of net product sales.

Gross product margin during the three months ended ~~June~~September 30, 2018 ~~increased~~decreased by ~~$0.2~~$1.0 million, or ~~34%~~47.7% compared to the three months ended ~~June~~September 30, 2017. The following schedule calculates gross product margin ~~from~~and gross product ~~sales:~~margin percentage (dollars in thousands):

	For the three months ended						Favorable/						For the three months ended						Favorable/(unfavorable)
	June 30, 2018			June 30, 2017			(unfavorable)			% Change			September 30, 2018			September 30, 2017			$ Change			% Change
Net product sales	$	6,857,861		$	2,892,942		$	3,964,919			137	%	$	7,856		$	6,133		$	1,723			28.1	%
Less: Cost of product sales		(5,935,428	)		(2,203,843	)		(3,731,585	)		(169	)%		6,775			4,065			(2,710	)		(66.7	)%
Gross Product Margin	$	922,433		$	689,099		$	233,334			34	%
Gross Product Margin %		13.5	%		23.8	%
Gross product margin													$	1,081		$	2,068		$	(987	)		(47.7	)%
Gross margin percentage														13.76	%		33.72	%

The ~~$0.2~~$1.0 million ~~increase~~decrease in gross product margin was comprised of the following:

●

$~~0.9~~0.6 million from favorable net product sales volume as described above, and

●

offset by ~~$0.7~~$1.6 million decrease from lower product margins, related to the sales growth in markets with lower average selling prices, coupled with ~~inefficiencies~~costs incurred through the scaling of labor and production reflecting the current manual assembly process to deliver the ~~137%~~28.1% increase in net product sales volume.

The decrease in ~~Gross Product Margin %~~gross product margin percentage is related to the same factors described above with respect to lower ~~Gross Product Margin.~~gross product margin.

Research and Development

This category includes costs incurred for clinical & regulatory affairs and other research & development, as ~~follows:~~follows (dollars in thousands):

	For the three months ended										For the three months ended				Favorable/(unfavorable)
	June 30, 2018		June 30, 2017		Favorable/ (unfavorable)			% Change			September 30, 2018		September 30, 2017		$ Change			% Change
Clinical & regulatory affairs	$	199,844	$	478,138	$	278,294			58	%	$	244	$	485	$	241			50.0	%
Other research & development		1,791,568		1,504,288		(287,280	)		(19	)%		1,654		1,321		(333	)		(25.2	)%
Total Research and Development	$	1,991,412	$	1,982,426	$	(8,986	)		(1	)%	$	1,898	$	1,806	$	(92	)		(5.1	)%

The decrease in clinical & regulatory affairs costs for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 is primarily associated with decreased spending on the Company’s U.S. clinical trial evaluating its DPP^® HIV-Syphilis System. The increase in other research & development costs is primarily associated with a higher R&D headcount and an increase in spending on materials & supplies, each corresponding with the growth in R&D milestone and grant revenue-related projects.

Selling, General and Administrative Expense

Selling, general and administrative expense, (“or SG~~&A”)~~&A, includes administrative expenses, sales and marketing costs ~~including commissions,~~(including commissions), and other corporate items.

The ~~$0.4~~$0.7 million, or ~~21%~~31.6% increase in SG&A for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017, iswas primarily associated with ~~higher sales commissions~~merger and ~~compensation expense~~acquisition expenses and increased head count and related ~~to the 137% increase in net product sales volume.~~costs.

~~Other Income (Expense)~~Interest Expense, net

~~Other income (expense)~~Interest expense, net is ~~principally~~ interest income earned on the Company's deposits, net of interest expense on the note payable. This increased on a net basis by approximately ~~$17,600~~$12,000 for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017.

~~Six~~Nine Months Ended ~~June~~September 30, 2018 versus ~~Six~~Nine Months Ended ~~June~~September 30, 2017

The results of operations for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 were as ~~follows:~~follows (dollars in thousands):

	June 30, 2018					June 30, 2017					September 30, 2018					September 30, 2017
TOTAL REVENUES	$	16,437,458		100	%	$	10,439,980		100	%	$	25,814		100	%	$	18,027		100	%

COSTS AND EXPENSES:
Cost of product sales		10,053,207		61	%		5,423,057		52	%		16,828		65	%		9,488		53	%
Research and development expenses		3,838,514		23	%		4,228,998		41	%		5,736		22	%		6,035		33	%
Selling, general and administrative expenses		4,953,785		30	%		4,597,696		44	%		7,988		31	%		6,903		38	%
		18,845,506					14,249,751					30,552					22,426
LOSS FROM OPERATIONS		(2,408,048	)				(3,809,771	)				(4,738	)				(4,399	)

OTHER INCOME, NET		27,330					21,104
INTEREST INCOME, NET												43					25

LOSS BEFORE INCOME TAXES		(2,380,718	)	(14	)%		(3,788,667	)	(36	)%		(4,695	)	(18	)%		(4,374	)	(24	)%

Income tax provision		-					-					-					-
NET LOSS	$	(2,380,718	)			$	(3,788,667	)			$	(4,695	)			$	(4,374	)

Percentages in the table reflect the percent of total revenues.

Total ~~Net~~ Revenues

Total ~~net~~ revenues during the ~~six~~nine months ended ~~June~~September 30, 2018 were ~~$16.4~~$25.8 million, an increase of ~~$6.0~~$7.8 million, or ~~57%~~43.2% compared to the ~~six~~nine months ended ~~June~~September 30, 2017. The increase in total ~~net~~ revenues was comprised of the following:

●

$~~4.9~~6.7 million, or ~~59%~~a 46.1% increase in net product sales compared to the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2017, reflecting ~~increased sales~~strong gains in Africa ($5.1 million, or 279.0%), including both ongoing growth and the Company’s continued shipments to Ethiopia, Latin America ($2.4 million, or 35.3%) and ~~Africa,~~Europe & Middle East ($0.3 million, or 20.7%), and

●

$1.1 million, or ~~50%~~a 31.6% increase in ~~Royalty and~~ R&D, milestone and grant revenues and license and royalty revenues compared to the ~~six~~nine months ended ~~June~~September 30, 2017, reflecting growing governmental, non-governmental, and commercial ~~partnerships associated with our DPP~~^® ~~technology platform.~~

collaborations.

Gross Product Margin

Gross product margin during the ~~six~~nine months ended ~~June~~September 30, 2018 ~~increased~~decreased by ~~$0.3~~$0.7 million, or ~~11.0%~~13.7% compared to the ~~six~~nine months ended ~~June~~September 30, 2017 . The following schedule calculates gross product ~~margin:~~margin and gross product margin percentage (dollars in thousands):

	For the six months ended												For the nine months ended						Favorable/(unfavorable)
	June 30, 2018			June 30, 2017			Favorable/ (unfavorable)			% Change			September 30, 2018			September 30, 2017			$ Change			% Change
Net product sales	$	13,256,088		$	8,320,314		$	4,935,774			59	%	$	21,112		$	14,453		$	6,659			46.1	%
Less: Cost of product sales		(10,053,207	)		(5,423,057	)		(4,630,150	)		(85	)%		16,828			9,488			(7,340	)		(77.4	)%
Gross Product Margin	$	3,202,881		$	2,897,257		$	305,624			11	%
Gross Product Margin %		24.2	%		34.8	%
Gross product margin													$	4,284		$	4,965		$	(681	)		(13.7	)%
Gross product margin percentage														20.29	%		34.35	%

The ~~$0.3~~$0.7 million ~~increase~~decrease in gross product margin was comprised of the following:

●

$~~1.7~~2.3 million from favorable product sales volume as described above, and

●

offset by ~~$1.4~~$3.0 million decrease from lower product margins, related to the sales growth in markets with lower average selling prices, coupled with ~~inefficiencies~~costs incurred through the scaling of labor and production reflecting the current manual assembly process to deliver the ~~59%~~46.1% increase in net product sales volume.

The decrease in ~~Gross Product Margin %~~gross product margin percentage is related to the same factors described above with respect to lower ~~Gross Product Margin.~~gross product margin.

Research and Development

This category includes costs incurred for clinical & regulatory affairs and other research & development, as ~~follows:~~follows (dollars in thousands):

	For the six months ended										For the nine months ended				Favorable/(unfavorable)
	June 30, 2018		June 30, 2017		Favorable/ (unfavorable)			% Change			September 30, 2018		September 30, 2017		$ Change			% Change
Clinical & regulatory affairs	$	684,079	$	1,103,505	$	419,426			38	%	$	927	$	1,589	$	662			41.6	%
Other research & development		3,154,435		3,125,493		(28,942	)		(1	)%		4,809		4,446		(363	)		(8.2	)%
Total Research and Development	$	3,838,514	$	4,228,998	$	390,484			9	%	$	5,736	$	6,035	$	299			5.0	%

Expenses for Clinical & ~~Regulatory Affairs~~regulatory affairs decreased by ~~$0.4~~$0.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018, as compared to the ~~six~~nine months ended ~~June~~September 30, 2017, primarily related to a decrease in clinical trial expenses for the DPP^® HIV-Syphilis System.

The ~~$29,000~~$0.4 million increase in other research & development costs iswas primarily associated with a higher R&D headcount and an increase in spending on materials & supplies, each corresponding with the $1.0 million growth in R&D milestone and grant revenue-related projects.

Selling, General and Administrative Expense

~~Selling, general and administrative expense (“~~SG~~&A”)~~&A includes administrative expenses, sales and marketing costs including commissions, and other corporate items.

The ~~$0.4~~$1.1 million increase in SG&A for the ~~six~~nine months ended ~~June~~September 30, 2018, as compared to the ~~six~~nine months ended ~~June~~September 30, 2017, was associated with ~~higher~~merger & acquisition expenses, and increased sales commissions, ~~compensation expenses~~head count and ~~travel expenses, offset by lower corporate expenses.~~related costs.

~~Other Income~~Interest Expense, net

~~Other income~~Interest expense, net is ~~principally~~ interest income earned on the Company's deposits, net of interest expense on the note payable, which increased by approximately ~~$6,000~~$18,000 for the ~~six~~nine months ended ~~June~~September 30, 2018, as compared to the ~~six~~nine months ended ~~June~~September 30, 2017, reflecting interest on funds raised in the February 2018 public offering.

Liquidity and Capital Resources

Overview

Our liquidity requirements are primarily to fund our business operations, including capital expenditures and working capital requirements, as well as to fund opportunistic investments that align with our focused business strategy. Our primary sources of liquidity are cash flows from operations, our existing cash balance, and as necessary, additional capital. We will ~~continually~~continue to explore ways to enhance our capital structure.

As of ~~June~~September 30, 2018, we had cash and cash equivalents of ~~$9.5~~$6.8 million.

Public ~~Offering~~Offerings

As described in Note 5 – Stockholders’ Equity to the unaudited condensed consolidated financial statements included herein, on February 13, 2018, ~~the Company~~we consummated an underwritten registered public offering of 1,783,760 shares of ~~its~~ common stock at a public offering price of $6.75 per share, for gross proceeds of approximately $12.0 million. The net proceeds, after underwriting discounts and commissions and estimated expenses, were approximately $10.9 million.

~~Acquisition~~As described in Note 8 – Subsequent Events to the unaudited condensed consolidated financial statements included herein, on November 5, 2018, we consummated an underwritten registered public offering of 2,726,000 shares of common stock at a public offering price of $6.75 per share for gross proceeds of approximately $18.4 million. The net proceeds, after underwriting discounts and commissions and estimated expenses, were approximately $16.6 million.

Acquisitions

On January 9, 2017, ~~Chembio~~we acquired 100% of the equity interests of RVR Diagnostics Sdn Bhd, a Malaysia manufacturer and distributor of rapid medical assays, for $1.4 million in cash and for shares of common ~~shares~~stock with a value at closing of approximately $1.7 million. As further described in Note 2 – Acquisition to the ~~audited~~unaudited condensed consolidated financial statements contained herein, the acquisition was accounted for as a business combination, with the operating results of RVR Diagnostics included within ~~the Company’s~~our operating results from the date of acquisition. ~~The Company~~We financed the cash portion of the acquisition with funds raised in ~~its~~our 2016 public equity offering. After the acquisition, ~~the Company~~we changed the name RVR Diagnostics Sdn Bhd to Chembio Diagnostics Malaysia Sdn Bhd.

As described in Note 8 – Subsequent Events to the unaudited condensed consolidated financial statements included herein, on November 6, 2018, we acquired 100% of the equity interests in opTricon GmbH, a Berlin, Germany-based privately-held developer and manufacturer of hand-held analyzers for rapid diagnostic tests, for approximately $5.5 million, subject to certain post-closing working capital and other adjustments.

Government, Non-Governmental Organization, and Non-Profit Programs

~~Chembio commonly seeks~~We seek research and development programs ~~that may be~~ awarded by government, non-governmental organization, ~~(“NGO”),~~ and non-profit entities, including private foundations. ~~Chembio currently has~~We have, or ~~has~~have recently undertaken, development programs that are competitively awarded from agencies of the U.S. Federal Government, including the U.S. Department of Health and Human Services and U.S. Department of Agriculture, as well as from FIND, the Bill & Melinda Gates Foundation, and The Paul G. Allen Family Foundation.

Cash Flows

As of ~~June~~September 30, 2018, ~~the Company~~we had cash and equivalents of ~~$9.5~~$6.8 million and noour only outstanding ~~debt except for~~indebtedness was a $0.4 million seller-financed note payable associated with automated manufacturing equipment. Following is a summary of the changes in cash and cash equivalents (dollars in thousands):

	For the six months ended						Favorable/					For the nine months ended						Favorable/(unfavorable)
	June 30, 2018			June 30, 2017			(unfavorable)		% Change			September 30, 2018			September 30, 2017			$ Change			% Change

Net cash used in operating activities	$	(5,077,668	)	$	(5,456,787	)	$	379,119		7	%	$	(7,530	)	$	(7,177	)	$	(353	)		(5.0	)%
Net cash used in investing activities		(250,147	)		(1,405,894	)		1,155,747		82	%		(402	)		(1,640	)		1,238			75.5	%
Net cash provided by financing activities		11,006,266			-			11,006,266		100	%		10,990			134			10,856			8201.5	%
Effect of exchange rate changes on cash		37,029			-			37,029		100	%		-			-			-			NA	%
Increase (Decrease) in Cash and Cash Equivalents	$	5,715,480		$	(6,862,681	)	$	12,578,161		183	%	$	3,058		$	(8,683	)	$	11,741			135.2	%

~~The Company's~~Our cash flows for the ~~six~~nine months ended ~~June~~September 30, 2018 increased by ~~$12.6~~$11.7 million as compared to the ~~six~~nine months ended ~~June~~September 30, 2017, primarily due to capital raised, offset in part by the use of cash to fund increases in accounts receivable and inventory, net of the benefit of supplier payment terms and cash collections for deferred revenue.

Cash used in operating activities during the ~~six~~nine months ended ~~June~~September 30, 2018 was ~~$5.1~~$7.5 million, primarily due to the ~~$4.8~~$5.7 million increase in accounts receivable associated with the increase in total revenues, and the ~~$2.4~~$4.7 million net loss (excluding non-cash items) during the ~~six~~nine months ended ~~June~~September 30, 2018. In addition, inventories increased by ~~$1.9~~$1.6 million to support higher sales volumes during the ~~six~~nine months ended ~~June~~September 30, 2018 and build product for the Ethiopia HIV tender that began shipping during the second quarter of 2018. The ~~$1.9~~$1.6 million increase in inventory was more than offset by a ~~$3.0~~$3.8 million increase in accounts payable and accrued liabilities.

Cash used in investing activities of ~~$0.3~~$0.4 million during the ~~six~~nine months ended ~~June~~September 30, 2018 related to the purchase of manufacturing equipment and other fixed assets.

Cash provided by financing activities during the ~~six~~nine months ended ~~June~~September 30, 2018, primarily ~~relate~~relates to proceeds from an underwritten registered public offering. Please see the “Public Offering” section, above, for further information.

Off-Balance Sheet Arrangements

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

Recent Developments

In ~~July,~~October 2018, ~~the Company~~we announced it had received a collaboration with the Foundation for Innovative New Diagnostics (FIND) to expedite the feasibility testing of a rapid diagnostic test for hepatitis C virus (HCV). Chembio is one of three companies selected by FIND for HCV feasibility studies, and Chembio will use its patented DPP^® ~~technology platform~~$10.5 million purchase commitment from Bio-Manginhos for the ~~testing~~production of ~~a rapid HCV core antigen assay.~~DPP HIV and DPP Leishmania assays in Brazil and their subsequent supply to Brazil's Ministry of Health.

In November 2018, we announced that we had received FDA EUA for DPP Ebola Antigen System for use with fingerstick and venous whole blood.

Significant Accounting Policies and Critical Accounting Estimates

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

●

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

●

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

The following listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially different result. There have been no significant changes in our critical accounting estimates during the ~~six~~nine months ended ~~June~~September 30, 2018, except for those changes pertaining to our adoption of ~~ASC~~Accounting Standards Codification Topic 606, Revenue ~~Recognition.~~From Contracts With Customers.

Revenue Recognition

We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five-step model prescribed under ~~ASU~~Accounting Standards Update No. 2014-09: (i) identify ~~contract(s)~~contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.

All contracts related to R&D, milestone and grants revenues are evaluated under the five-step model described above. For certain contracts, we recognize revenue from R&D, milestone and grant revenues when earned. Grants are invoiced after expenses are incurred, as that is the depiction of the timing of the transfer of services. Performance obligations generally follow the major phases of product development processes: design feasibility & planning, product development & design optimization, design verification, design validation & process validation, and pivotal studies. Further details regarding revenue recognition are ~~document at~~described in Note 3(b) – Summary of Significant Accounting Policies: Revenue Recognition to the Unaudited Condensed Consolidated Financial Statements.

Stock-Based Compensation

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

Research & Development Costs

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

Inventories

Inventories are stated at the lower of cost and net realizable value, using the first-in, first-out method ~~(FIFO)~~ to determine cost. Our policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a reserve for any inventory considered slow moving or obsolete. For example, each additional 1% of obsolete inventory would reduce such inventory by approximately ~~$63,000.~~$60,000.

Accounts Receivable

Our policy is to review our accounts receivable on a periodic basis, no less frequently than monthly. On a quarterly basis an analysis is made of the adequacy of our allowance for doubtful accounts and adjustments are made accordingly. The current allowance is approximately 1% of accounts receivable. For example, each additional 1% of accounts receivable that becomes uncollectible would reduce such balance of accounts receivable by approximately ~~$69,000.~~$78,000.

Acquisitions

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

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

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

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

Goodwill and Intangible Assets

We periodically review goodwill for impairment indicators. We review goodwill for impairment annually on the first day of the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company performs the goodwill impairment review at the reporting unit level. We make a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If we conclude that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then we 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.

We review indefinite-lived intangible assets for impairment annually or more frequently if events or changes in circumstances indicate the assets might be impaired. Similar to the goodwill assessment described above, the Company first performs a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If necessary, the Company then performs a quantitative impairment test by comparing the estimated fair of the asset, based upon its forecasted cash flows, to its carrying value. Other intangible assets with definite lives are amortized over their useful lives and are subject to impairment testing only if events or circumstances indicate that the asset might be impaired, as described above.

Income Taxes

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

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

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

Recently Issued Accounting Pronouncements

The information concerning recently issued accounting pronouncements contained in Note 3 – Summary of Significant Accounting Policies, to the unaudited condensed consolidated financial statements included in Part 1, Item 1 of this report is incorporated herein by reference.

	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Raw materials	$	3,019,464	$	1,767,684	$	2,750,356	$	1,767,684
Work in process		566,286		286,413		780,114		286,413
Finished goods		2,763,890		2,369,521		2,447,956		2,369,521
	$	6,349,640	$	4,423,618	$	5,978,426	$	4,423,618

	For the three months ended				For the six months ended				For the three months ended				For the nine months ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017		September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Cost of product sales	$	5,800	$	12,800	$	14,000	$	21,400	$	5,800	$	12,800	$	19,800	$	34,200
Research and development expenses		3,600		12,100		15,500		65,200		3,600		12,100		19,000		77,300
Selling, general and administrative expenses		117,700		48,800		194,800		123,000		65,400		62,200		260,200		185,200
	$	127,100	$	73,700	$	224,300	$	209,600	$	74,800	$	87,100	$	299,000	$	296,700

	For the three months ended					For the six months ended						For the three months ended						For the nine months ended
	June 30, 2018			June 30, 2017		June 30, 2018			June 30, 2017			September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Expected term (in years)		5.4			n/a		5.4			5.0			4.5			4.5			4.9			4.8
Expected volatility		40.12	%		n/a		40.12	%		44.18	%		39.69	%		41.22	%		39.91	%		43.01	%
Expected dividend yield		0	%		n/a		0	%		0	%		0	%		0	%		0	%		0	%
Risk-free interest rate		2.70	%		n/a		2.70	%		1.58	%		2.70	%		1.48	%		2.70	%		1.54	%

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual 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, 2017		810,670	$	5.18	3.69 years	$	2,477,853		810,670	$	5.18	3.69 years	$	2,477,853

Granted		46,875		8.15			-		93,750		9.80			-
Exercised		144,947		4.83		$	523,327		144,947		4.83			523,527
Forfeited/expired/cancelled		47,505		8.82			-		47,505		8.82			-
Outstanding at June 30, 2018		665,093	$	5.21	3.74 years	$	3,919,140
Outstanding at September 30, 2018									711,968	$	5.62	3.58 years	$	3,520,084

Exercisable at June 30, 2018		324,363	$	4.07	2.66 years	$	2,279,731
Exercisable at September 30, 2018									343,113	$	4.33	2.51 years	$	2,126,832

	Stock Options Outstanding								Stock Options Exercisable						Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Prices	Shares		Average Remaining Contract Life (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Average Remaining Contract Term (Year)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
1 to 2.79999		-		-	$	-	$	-		-	$	-	$	-		-		-	$	-	$	-		-	$	-	$	-
2.8 to 4.59999		304,343		2.41		3.45		2,328,522		254,343		3.46		1,944,337		304,343		2.15		3.45		2,145,916		254,343		3.46		1,791,731
4.6 to 6.39999		152,875		3.94		5.85		802,387		48,645		5.75		260,338		152,875		3.69		5.85		710,662		58,020		5.80		272,870
6.4 to 8.19999		207,875		5.56		7.31		788,231		21,375		7.59		75,056		207,875		5.31		7.31		663,506		21,375		7.59		62,231
8.2 to 10		-		-		-		-		-		-		-
8.2 to 12																46,875		4.85		11.45		-		9,375		11.45		-
Total		665,093		3.74	$	5.21	$	3,919,140		324,363	$	4.07	$	2,279,731		711,968		3.58	$	5.62	$	3,520,084		343,113	$	4.33	$	2,162,832

Beginning balance December 31, 2017	$	1,666,610	$	1,666,610
Change in foreign currency exchange rate		6,534		(37,746	)
Balance at June 30, 2018	$	1,673,144
Balance at September 30, 2018			$	1,628,864

	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, 2018					June 30, 2017					June 30, 2018					June 30, 2017					June 30, 2018		Dec. 31, 2017		September 30, 2018					September 30, 2017					September 30, 2018					September 30, 2017					September 30, 2018		Dec. 31, 2017
	Sales		% of Sales			Sales		% of Sales			Sales		% of Sales			Sales		% of Sales							Sales		% of Sales			Sales		% of Sales			Sales		% of Sales			Sales		% of Sales
Customer 1	$	3,217,387		47	%	$	956,207		33	%	$	5,627,145		42	%	$	2,895,794		35	%	$	3,051,052	$	*	$	3,039,722		39	%	$	3,530,364		58	%	$	8,666,867		41	%	$	6,426,158		45	%	$	3,267,075	$	-
Customer 2		1,460,630		21	%		*		*			1,460,630		11	%		*		*			1,460,630		*		1,852,186		24	%		*		*			3,312,816		16	%		*		*			1,852,186		*
Customer 3		*		*			*		*			*		*			1,326,171		16	%		*		*		*		*			602,087		10	%		*		*			*		*			*		*
Customer 4		*		*			399,482		14	%		*		*			754,408		9	%		*		*

Number		Description

3.1		~~Articles of Incorporation, as amended. (1)~~

~~3.2~~		~~Bylaws and Bylaw Amendments. (2)~~

~~3.3~~		~~Certificate of Designation of Series D Preferred Stock (13)~~

~~4.1~~		~~2008 Stock Incentive Plan, as amended. (3)~~

~~4.2~~		~~Form of Option, for 2008 Stock Incentive Plan (4)~~

~~4.3~~		~~2014 Stock Incentive Plan (5)~~

~~4.4~~		~~Form of Option, for 2014 Stock Incentive Plan (6)~~

~~4.5~~		~~Rights Agreement, dated as of March 8, 2016 (7)~~

~~4.6~~		~~Form of Warrant under Rights Agreement (to be filed by amendment)~~

10.1*		~~Employment Agreement dated effective as of March 13, 2017 with John J. Sperzel III (15)~~

10.2*		~~Employment Agreement dated effective March 5, 2016 with Javan Esfandiari (8)~~

10.3*		~~Employment Agreement dated effective December 18, 2017 with Neil Goldman (17)~~

~~10.4~~		~~HIV Barrel License, Marketing and Distribution Agreement, dated as of September 29, 2006, by and among the Registrant, Alere and StatSure. (10)~~

~~10.5~~		~~HIV Cassette License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (10)~~

~~10.6~~		~~Non-Exclusive License, Marketing and Distribution Agreement, dated as of September 29, 2006, between the Registrant and Alere. (10)~~

~~10.7~~		~~Joint HIV Barrel Product Commercialization Agreement, dated as of September 29, 2006, between the Registrant and StatSure. (10)~~

~~10.8~~		~~2015 Omnibus Agreement (11)~~

~~10.9~~*		Amended ~~And~~and Restated ~~Stock Purchase Agreement, dated as~~Bylaws of ~~December 7, 2016, by and among~~ Chembio Diagnostics Inc.~~, RVR Diagnostics Sdn Bhd, Avijit Roy and Magentiren Vajuram (14)~~

~~10.10~~		~~Underwriting Agreement, dated February 9, 2018, by and between the Registrant and Craig-Hallum Capital Group LLC (17)~~

~~14.1~~		~~Ethics Policy (12)~~

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		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
* Previously filed

1	~~Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2010.~~

2	~~Incorporated by reference to the Registrant’s registration statement on~~ ~~Form SB-2 (File No. 333-85787) filed with the Commission on August 23, 1999~~ ~~and the Registrant’s Forms 8-K filed on~~ ~~May 14, 2004~~, ~~December 20, 2007and~~ ~~April 18, 2008~~.

3	~~Incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed with the Commission on~~ ~~August 3, 2012.~~

4	~~Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2014.~~

5	~~Incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed with the Commission on April 29, 2014.~~

6	~~Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 7, 2014.~~

7	~~Incorporated by reference to the Registrant’s registration statement on Form 8-A filed with the Commission on April 7, 2016.~~

8	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on March 14, 2016.~~

9	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2017.~~

10	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on October 5, 2006.~~

11	~~Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 5, 2015.~~

12	~~Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB filed with the Commission on March 30, 2006.~~

13	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on April 7, 2016.~~

14	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on January 10, 2017.~~

15	~~Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 9, 2017.~~

16	~~Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2018.~~

17	~~Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 8, 2018.~~

~~(*)~~	~~An asterisk (*) beside an exhibit number indicates the exhibit contains a management contract, compensatory plan or arrangement which is required to be identified in this report.~~

		Chembio Diagnostics, Inc.

Date:	~~August~~November 8, 2018	By:/s/ John J. Sperzel III
		John J. Sperzel III
		Chief Executive Officer and President (Principal Executive Officer)

Date:	~~August~~November 8, 2018	By: /s / Neil A. Goldman
		Neil A. Goldman
		Chief Financial Officer and Executive Vice President ~~and Chief Financial Officer~~ (Principal Financial and Accounting Officer)

	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Accounts payable – suppliers	$	3,558,450	$	1,494,759	$	4,199,275	$	1,494,759
Accrued commissions		291,127		126,827		451,741		126,827
Accrued royalties / license fees		511,292		429,297		667,207		429,297
Accrued payroll		352,257		187,305		285,233		187,305
Accrued vacation		356,686		309,767		404,933		309,767
Accrued bonuses		428,665		282,500		494,340		282,500
Accrued expenses – other		511,977		215,848		295,871		215,848
TOTAL	$	6,010,454	$	3,046,303	$	6,798,600	$	3,046,303

	June 30, 2018						December 31, 2017						September 30, 2018						December 31, 2017
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	$	890,349	$	133,553	$	756,796	$	886,872	$	88,687	$	798,185	$	866,786	$	151,687	$	715,099	$	886,872	$	88,687	$	798,185
Customer contracts/relationships		779,056		116,858		662,198		776,013		77,601		698,412		758,438		132,727		625,711		776,013		77,601		698,412
Order backlog		222,736		222,736		-		221,867		221,867		-		216,842		216,842		-		221,867		221,867		-
Trade names		111,294		15,176		96,118		110,859		10,079		100,780		108,348		17,237		91,111		110,859		10,079		100,780
	$	2,003,435	$	488,323	$	1,515,112	$	1,995,611	$	398,234	$	1,597,377	$	1,950,414	$	518,493	$	1,431,921	$	1,995,611	$	398,234	$	1,597,377